Ghana: Year in Review 2011

Moving into 2012 with the national economy in robust health and riding on the back of double-digit growth in 2011, Ghana’s prospects for 2012 are bright, though much needs to be done to reduce unemployment and spread the benefits of economic expansion to ensure its sustainability.

In late December, the government announced that GDP had expanded by a record 13.6% in 2011, almost double the 7.1% posted in 2010, with much of this growth coming from improved earnings generated by the energy sector.

Income from the oil industry grew strongly in 2011, helping to drive the contribution of the mining and quarrying sector to GDP from about 5% in 2010 to an estimated 5.2% in November 2011, according to the chief director of the Ministry of Finance. However, this was offset by a decline in the contribution of other sectors, notably manufacturing and agriculture, the latter of which expanded by 2.8% — well under the overall total.

While the rate of GDP expansion is expected to slow in 2012, the projected growth of 9.8% will still be one of the strongest worldwide, though the spectre of recession that hangs over much of Europe and forecasts of a slowdown in some Asian economies could impact Ghana’s own progress.

The economy has also been helped by inflation remaining relatively steady. As of November, the rate was running at 8.55%, below the year-end target of 9% that was set by the government at the beginning of 2011. While still high, changes in the consumer price index have remained at single-digit levels since mid-2010, with the November figure being the lowest for the year to date.

However, the Ghana Statistical Service did warn that the final inflation rate for 2011 could edge upwards, as December traditionally brought price increases associated with higher demand during the holiday season.

There is the possibility that Ghana could move back into double-digit inflation in 2012 if, as the government has suggested, there is a reduction in the rate of fuel subsidies. In 2011, price support for fuel cost the state almost $230m, a figure the government would like to cut as it seeks to direct funding to other priority projects to bolster the economy.

Some analysts have also suggested that inflation could be fuelled ahead of parliamentary and presidential elections scheduled for late 2012, though officials have said state spending will target the needs of the national economy and not be driven by considerations of the ballot box.

However, the increases in infrastructure investments outlined in the 2012 budget, tabled by Finance Minister Kwabena Duffuor in mid-November, have been seen by some opponents of President John Mills as aiming to win votes as much as bridge gaps in transport and utilities requirements.

Though there has been solid growth across much of the economy, high interest rates have hindered many smaller and medium-sized businesses from accessing credit for use in expansion or start-ups. In December, the Bank of Ghana’s prime lending rate stood at 12.5%, where it had remained since July after a series of cuts starting in 2009.

Election-driven or not, the schemes announced in the budget for this year will do much to strengthen the nation’s economy, improving logistics through investments in roads, rail upgrades and port facilities, while plans to boost electricity output and reinforce the distribution grid will assist industry.

Though the economy is growing, there are a number of problems. Unemployment remains a concern, especially among the young, with estimates putting the number of those under 25 that are out of work at around 25%, a figure that could rise if more jobs are not created, as up to 250,000 young Ghanians enter the job market annually.

The government has stepped up programmes to combat the high jobless rate by targeting the young, those living in rural areas and graduates, many of whom struggle to find work. Any such scheme, though, will take time to have a broad impact and reduce unemployment.

Another concern for the government is the rising level of public debt, which hit $14.8bn as of September, up from the $11.2bn recorded 12 months before. Of this, 48% – or $7.1bn — was external debt. While the government has said much of this new debt stock was raised to fund investments in the hydrocarbons sector, as well as to clear salaries arrears, the state will want to reduce its debt burden to manageable levels while the economy is in growth mode.

With forecasts that the energy sector’s contribution to the economy will continue to rise as more infrastructure is put in place to facilitate better exploitation of reserves, the government should be in a position to pull down some of its debt burden in the coming years.

As long as Ghana is able to sustain its expansion though this period of investment, the country should be well placed to reap the benefits of its energy boom, which in turn should support further broadening of the economy in the years to come.