More to come: Resource revenues spur growth and infrastructure investment

Outperformance remains the key feature of Ghana’s economy, seven years after the discovery of oil prompted new optimism in the country, which was then celebrating the golden jubilee of its independence. But the GDP growth experienced in 2012 and in the early part of 2013 has been accompanied by an expansion in government borrowing and a worrying rise in fiscal deficits as the country attempts to meet its citizens’ expectations and fund the infrastructure improvements that will enable it to benefit from its newfound resources.

The country’s crude oil production began in record time, with oil flowing just 42 months after it was found, although it took slightly longer than initially expected to reach full production. In recent months, attention has shifted towards exploiting the associated gas deposits, with a push to complete the infrastructure, including a new power plant and off-take pipeline. These efforts are urgent, given the country’s continued dependence on energy imports from abroad, which have been hit by pipeline issues, resulting in problematic blackouts, alongside a notable reduction in subsidies that has left consumers vulnerable to future price rises.

Ultimately, the prospects for infrastructure improvements, a more diversified economy and a more prosperous nation appear favourable in the medium and long terms, and the country is benefitting from strong tail-winds that will help keep its growth rate buoyant; in the short term, however, the government will need to resolve some key issues.

MACRO GROWTH: Ghana’s GDP grew by 7.9% in real terms in 2012. This follows revised GDP growth of 15% in 2011, making it one of the fastest-growing economies in the world that year. That year’s growth was largely driven by the start of commercial production at the country’s Jubilee oil field, but non-oil GDP growth remained strong in 2012 at 7.8%. The IMF is currently forecasting further growth in Ghana’s GDP of 7.9% in 2013, with non-oil growth predicted to stabilise at 5-6%. Figures released by the Bank of Ghana (BoG) in April 2013 show that services remain the single largest sector of the economy, accounting for 50% of GDP, but that agriculture slipped into third place with 22.7%, while industry, including extractive activities, was responsible for 27.3% of GDP. The best-performing service sub-sectors were the information and communications technology and finance and insurance areas with 23.4% and 23% growth, respectively. In industry, the construction and electricity and mining and quarrying subsectors grew by 11.2% and 11.1%, respectively.

The resurgence of the industrial sector, which had contributed just 19% of GDP in 2009, is largely a result of the impact of oil production. However, the BoG explained modest growth of 5% in the mining and quarrying sub-sector by saying that it reflected a significant decline in investment in the development of new oil wells in 2012 compared to 2011.

Manufacturing’s increase was also limited to 5% in a year when businesses in Ghana suffered repeated power outages and tighter credit conditions.

In its May 2013 report the BoG’s Monetary Policy Committee (MPC) noted evidence of a reduction in activity and optimism in the economy; the BoG’s Composite Index of Economic Activity contracted 0.6% in March 2013, compared to 14.8% growth in March 2012. The Business Confidence Index declined to 99.0 in March 2013 from 104.1 in December 2012.

The MPC report blamed this on the energy crisis, difficult macroeconomic conditions abroad and higher inflation expectations.

REBASED ECONOMY: The World Bank regards Ghana as a lower-middle-income country following the rebasing of its economy in 2010, a move which ditched the old base year of 1993 and allowed it to more accurately capture new activities, particularly in the services sector. The IMF put GDP per capita at $1500 in 2011 and estimates it grew by 5.2% in 2012, with similar growth predicted for 2013. According to BoG figures, GDP per capita in 2012 was $1570. The latest census was carried out in 2010 and the results were published in 2013. It showed the population had more than tripled since 1960 and rose by nearly 6m from 2000 to 2010. The UN recommends that countries rebase their economies every 10 years. Ghana’s new middle-income status has implications for issues such as aid. However, rebasing the economy can also create perception problems because the abrupt rise in GDP is not accompanied by an immediate concomitant rise in living standards.

Though endemic to the majority of African markets, the rebasing highlights the challenge that sourcing accurate data in Ghana can pose. The Ghana Statistical Service (GSS) estimates that of a population of about 24.5m, the unemployment rate in 2010 was 5.3%. The 2010 census also noted that 42.7% of the population that was not working was aged 15 to 24 years old and 46.2% was aged 25 to 44 years old. Of the unemployed, 9.1% had completed tertiary education and 19.7% had completed secondary school. The impact of the informal sector in the economy presents challenges for data collection, which means that measurements of true job creation and the broader labour force can be problematic.

INFORMAL INFLUENCE: The private sector is dominated by the informal sector, which naturally lacks reliable records for exact incomes, or fixed records of addresses for citizens. The 2010 GSS employment survey found that nationally 6.6% of the working-age population, aged 15 to 64, was employed by the public sector, the formal private sector accounted for 7.2% and 86% were in the informal sector. In the Northern Region these figures were much more pronounced, with 3.9% employed in the public sector, 1.4% in formal private sector employment and 94.2% in informal sector work.

There is no welfare state in Ghana, and so those not working in formal positions are likely to be supQuarterly commodity prices 2009-13 ported by informal subsistence work or by relatives working in the informal sector of the economy. This is further underlined by an analysis of active contributors to the state pension scheme, which is mandatory for all workers in the formal sector.

Figures released by the Social Security and National Insurance Trust in 2012 showed 41.5% of all active pension contributors were public servants, 25.7% of all contributors were private sector workers from the area around Accra and private sector workers in Tamale, the biggest town in the Northern Region, accounted for just 1.7% of total active contributors.

TRADE: According to the finance minister’s April 2013 budget statement, total exports increased to $13.54bn, compared to $12.79bn in 2011. However, total imports also grew significantly, from $15.83bn in 2011 to $17.76bn in 2012, which resulted in a higher trade deficit of $4.22bn in 2012, when compared to $3.05bn in 2011.

Ghana’s imports of oil have grown and this has was noticeable in the first quarter of 2013. While imports as a whole show a marginal growth of 0.8% year-onyear, at $4.2bn in the first quarter, non-oil imports dipped by 7.1% to $3.2bn, and oil imports increased by 44.2% to $913m, according to the BoG’s MPC report published in May 2013.

Gold, cocoa and crude oil account for 85% of Ghana’s exports, leaving the country exposed to external pressures if spot prices of these commodities are subject to significant fluctuations. The main export commodities were gold, with earnings of $5.64bn; crude oil, with export receipts of $2.98bn; and cocoa beans and product exports, which netted $2.83bn. Gold remains the country’s most significant export commodity. It accounted for just over 40% of total export revenues in 2012. Gold exports in the first quarter of 2013 were $1.5bn, according to the BoG’s MPC, which noted a sharp decline in gold prices to $1400 per ounce. It had been trading at $1544 per ounce a year before.

Ghana remains the world’s second-largest exporter of cocoa beans and products, after Côte d’Ivoire. Cocoa was Ghana’s third-largest export commodity by revenue, accounting for 20.9% of export revenues in 2012. In first-quarter 2013 it exported $726m of cocoa products. Oil overtook cocoa to become the second-largest export commodity by value, accounting for 22% of exports in 2012. A statement from Tullow Oil in May 2013 revealed production had averaged 104,000 barrels per day (bpd) in 2012, with the potential to increase to 125,000 bpd (see Energy chapter). In the first quarter of 2013, crude oil exports amounted to $1.1bn. In its projections for 2013, Ghana’s government predicts oil will account for 33% of export revenue and cocoa for just 15%.

PARTNERS: EU member states are Ghana’s leading trading partners, with just under 30% of the nation’s total trade. BoG figures from May 2013 do not give figures for the EU as a whole, but they do show trade figures for certain member states as a proportion of Ghana’s total exports in 2012. France accounted for 8.8% of 2012 exports, followed by the Netherlands with 5.7% and the UK with 2.2%. On the import side, the Netherlands was the source of 8.2% of imports, while the UK accounted for 4.1%.

In 2010 agricultural products accounted for 92.4% of Ghana’s €1.35bn in exports to the EU, with fuel and mining products making up just 4.2%, worth €61m. In 2012 exports of agricultural products to the EU grew to €1.54bn but only constituted 46.8% of the total. Fuel and oil sent to the EU became the single biggest export, worth 51% of the country’s exports to the EU with a value of €1.67bn. Ghana’s total exports to the EU stood at €3.26bn in 2012, which represented a decline from €3.46bn in 2011.

The EU exported €3.61bn in goods to Ghana in 2012, up from €2.91bn in 2011, an increase of 24%. Fuel, lubricants and related materials accounted for 30.8% of imports in 2012, while machinery and transport equipment was 30.4% of the total. Chemicals and related products constituted a further 10.3% of total imports from the EU.

In April 2013 the EU set a new deadline for Ghana and six other African states to ratify economic partnership agreements (EPAs). Currently, the EU provides 100% duty-free access to exports (with the notable exception of arms) from countries in the Africa Caribbean Pacific (ACP) bloc. However, this has caused problems with the World Trade Organisation (WTO), as the EU does not extend the same privilege to other countries, a possible violation of WTO rules on fair trade. A WTO waiver gave the EU and the ACP countries more time to negotiate a free trade agreement that had expired in 2007.

In 2011 the EU hardened its stance and proposed suspending the agreement if countries did not sign the EPA by January 2014. In April 2013 this deadline was extended to October 2014, despite calls from some for an extension to 2016. Those in favour of a longer extension to the deadline claim that the priority should be for African states to concentrate on improving trade and tariffs among themselves first, rather than prioritising dealings with the EU.

Looking further afield, China is Ghana’s secondbiggest trading partner, with 14.8% of business; it is also its second-largest source of imports, accounting for 20.3% of the total. Ghana’s third-biggest partner is its neighbour Nigeria, with 8.5% of total trade, accounting for 12.4% of imports and a more modest 1% of exports. The US has an 8% share in trade with Ghana and is its second-biggest export destination, consuming 8.6% of goods worth €527m. Ghana also imports 7.8% of its products from the US, making the US its fourth-largest import partner.

Figures released by the Office of the US Trade Representative show the US enjoyed a goods trade surplus of $1bn in 2012, an increase of $600m on 2011. Ghana imported US goods worth $1.3bn, up 9.4% on the previous year and exported goods worth $291m, down 62.6% on 2011.

FOREIGN INVESTMENT: Ghana was the fifth-highest recipient of foreign investment in Africa in 2012, according to the “UN Conference on Trade and Investment Report”, ranking behind Nigeria, Mozambique, South Africa and Democratic Republic of Congo. Ghana has slipped from third place in 2011, in large part due to sizeable investments in copper-cobalt and other minerals in Democratic Republic of Congo and huge offshore gas deposits in Mozambique. Total foreign direct investment (FDI) inflows to Africa rose by 5% to $5bn, but inflows to West Africa declined at the same time. FDI inflows into Ghana increased by 1.4%, to FDI of $3.3bn, representing 20% of total FDI to West Africa.

Total FDI stock stood at $16.6bn in 2012, up from $1.6bn in 2000. The stock of US FDI in Ghana was $2.3bn in 2011, rising from $2.1bn in 2010, according to the Office of the US Trade Representative. In the first quarter of 2013 the total FDI component of projects registered with the Ghana Investment Promotion Centre (GIPC) was $285m, down 70.89% on the same period in 2012. The GIPC noted that the UK retained its spot as the top investor in terms of project value with an FDI value of $122.61m, while India had registered the highest number of individual projects, with 13 of the 94 new projects that were registered with the centre.

In July 2013 a new GIPC Act was adopted by Parliament. The new act increases the minimum capital requirements for overseas companies investing in Ghana. At present, a company partnering with a local firm must invest a minimum of $10,000; under the new act, this will rise to $50,000 and the local partner must have a stake of no less than 30%. Similarly, the capital required for a 100% foreign-owned firm will go from the current $50,000 to $200,000.

EXCHANGE RATE: Ghana maintains a floating exchange for its currency, the cedi. In 2012 the currency slumped by 17.5% against the US dollar, according to figures in the 2013 budget. This compared with a depreciation of 4.97% in 2011. The presidential election called for December 2012 might have contributed to this decline, as government expenditure has traditionally spiked in election years.

However, additional pressure was put on the currency by a surge in import demand that accompanied the strong GDP growth in 2011; by June 2013 the cedi had depreciated by more than 5% that year, reaching a new low of 2.015 to the dollar on June 25. By comparison, the currency was trading at $1.50 in June 2011. As of early September 2013, the exchange rate was at around GHS2.18:$1. “Stabilisation happened between September and January, and then the floor dropped off at year-end,” said economist Yvonne Mhango, director for Sub-Saharan Africa at Renaissance Capital.

Speaking in June 2013, the governor of the BoG, Kofi Wampah, reportedly stated that he expected the slide against the dollar to ease significantly after July 2013, following the government’s plans to issue a Eurobond of up to $1bn.

Additionally, Cocobod, which acts as the regulator for the country’s cocoa industry, is hoping to raise a $1.2bn loan in September 2013 to pay farmers for next season’s cocoa crop. A $1.5bn loan was raised by Cocobod in 2012 for the same purpose.

MEASURES: The government has taken steps to respond to pressures in the foreign exchange markets by raising interest rates in 2012 by a cumulative 250 basis points from 12.5% in December 2011 to 15% at end-December. In May 2013 the policy rate was further raised to 16%, as members of the MPC felt that risk to the inflation outlook outweighed the potential risks to growth. In the money markets, interest rates on 91-day and 182-day Treasury bills rose from 10.7% and 11.3%, respectively, in December 2011 to 22.9% and 22.88% in December 2012. Banks were also required to hold reserves for domestic and foreign deposits in cedis only, and were obliged to provide full cedi cover for vostro balances. In May 2013 the MPC reaffirmed its commitment to these measures. The depreciation of the cedi has also had an impact on reserves. In June 2012 reserves had declined to $4.3bn, or 2.5 months of import cover. This improved by December 2012 when reserves had risen to $5.4bn, but by the end of April 2013 reserves had slipped to $5.2bn, or 2.8 months of import cover.

In its country report for 2013, the IMF cautioned that Ghana should set a target for 4.2 months of import cover to cushion itself from external shocks, including the weakening of commodity prices on international markets.

In the 2013 budget speech in March 2013, the minister of finance, Seth Terkper, indicated that a key medium-term target would be to achieve gross international reserves capable of covering at least four months of imports, and that the aim would be to achieve three months’ import cover in 2013.

INFLATION & MONETARY POLICY: Consumer price inflation moved back into double digits in mid-June 2013, partly due to a cut in petrol subsidies in February. The BoG also blames some seasonal factors. In May 2013 it reported headline inflation had reached a three-year high of 10.6% at the end of April, up from 10.4% in March and 8.8% in January. It said food inflation rose to 6.4% in April from 3.5% in January, while non-food inflation went up to 13% from 11.5% in the same period.

Historically, inflation in Ghana has fluctuated from 40% in 2000 to less than 9% in 2010 and 2011, according to the IMF. The inflation rate in 2012 was 8.8%. In February 2013 GSS reported year-on-year producer price inflation had fallen to 9.1% from a high of 19% in July 2012. In its May 2013 report the BoG’s MPC re-affirmed its commitment to price stability as well as justified its increase in the base rate.

GOVERNMENT FINANCE: Even compared to the impressive performance of other frontier markets in the region, Ghana has benefitted from a number of fortuitous developments, including significant ongoing growth in GDP and the onset of oil production from the Jubilee field in 2011, both of which have helped bolster Treasury coffers. Despite this, the government has found itself facing significant fiscal challenges in 2012 and early 2013.

Election years have traditionally seen debt as a proportion of GDP increase in Ghana, and the December 2012 presidential election campaign may have prompted a more expansive approach to spending.

This was compounded by the unexpected closure of the West African Gas Pipeline in August 2012, which left some of the country’s power stations with no option but to burn expensive crude oil, leading to unexpected fuel bills running up to $30m a month.

Government revenue stood at an estimated 20.03% of GDP in 2012 as compared to 19.46% in 2011, according to IMF figures, while government expenditure was expected to account for 31.57% of GDP in 2012, compared to 23.61% in 2011. Government net borrowing was expected to rise to 11.6% of GDP in 2012 after falling to 4.15% in 2011.

According to BoG figures, total government revenue and grants was GHS16.67bn ($8.25bn) in 2012, up 23% from GHS12.85bn ($7.62bn) in 2011. However, these revenue figures were 1.5% lower than the government’s targets for the year. Of these revenues, GHS12.52bn ($6.2bn), or 75% of total income, came from tax, with income and property tax accounting for 44% of revenues.

Ghana’s tax collection has improved dramatically over the past five years, thanks to a comprehensive overhaul of the various responsible agencies; these have now been consolidated under a single roof with the Ghana Revenue Authority. The reforms, which also added new tax categories and closed existing loopholes, allowed the country to improve its tax revenue to GDP rate to above 15% over the past two fiscal years, up from closer to 11% towards the end of last decade. Grants accounted for a total of GHS1.16bn ($574.33m) of revenue in 2012, while non-tax revenue stood at GHS2.85bn ($1.41bn), up from GHS770m ($431m) in 2009, GHS1.23bn ($600m) in 2010 and GHS1.82bn ($900m) in 2011.

COLLECTING REVENUE: In the first quarter of 2013 collection of revenue and grants fell below government targets. For the period January to April, revenue and grants totalled GHS6.3bn ($3.12bn), against a target of GHS7.1bn ($3.51bn). Of this domestic revenue amounted to GHS5.9bn ($2.92bn), below the target of GHS6.4bn ($3.17bn), and this shortfall was blamed on lower tax revenues. Total tax revenue collected was GHS4.2bn ($2.08bn), below the target of GHS4.9bn ($2.43bn).

The BoG’s MPC blamed these lower tax revenues on reduced company profits and a decline in imports due to the general slowdown in the growth rate of the economy, year-on-year. In 2012 government expenditure overshot budget estimates by a total of 17.2%. It came to GHS25.32bn ($12.53bn), equivalent to 35.2% of GDP and 64% higher than total government expenditure in 2011.

This excess expenditure resulted in an overall fiscal deficit of GHS8.65bn ($4.28bn), equivalent to 12% of GDP, against a target fiscal deficit of 6.7% of GDP. The budget deficit for the corresponding period in 2011 was equal to 4% of GDP.

UNDERLYING REASONS: In the 2013 budget the government blamed this fiscal slippage on shortfalls in revenue and grants, combined with excess expenditures, and it cited six specific issues, with their costs in terms of percentage of GDP: higher interest, 0.3%; utility and fuels subsidies, 0.5%; shortfall in grants from development partners, 0.5%; higher spending on goods and services, 0.5%; shortfall in corporate income taxes, 1%; and the costs of implementing the Single Spine Salary Structure for civil servants (which is intended to reduce current expenses in the long term but was expected to drive up costs in the short term), at 2.7%.

COMPARED TO TARGETS: In the first quarter of 2013 the BoG recorded a budget deficit of GHS3.4bn ($1.68bn), equivalent to 3.8% of projected GDP for the whole of 2013. Total expenditures for the quarter were GHS9.7bn ($4.8bn) and the civil service wage bill accounted for GHS3bn ($1.48bn), which was slightly higher than the government’s target of GHS2.8bn ($1.39bn) and equivalent to 31% of the quarter’s total expenditure.

An IMF report on Ghana published in June 2013 was largely optimistic about the country’s prospects for sustained and inclusive growth, but this was tempered by a warning that the government needs to act quickly and decisively to tackle the country’s deficit of 12% of GDP and a spiralling public sector wage bill, along with costly energy subsidies. The IMF team suggested Ghana should aim to cut the deficit to 10% in 2013 and stated that a further reduction to 6% of GDP should be possible by 2015.

The IMF was also concerned that excessive government borrowing had pushed up domestic interest rates and therefore could potentially curtail growth: “A ballooning wage bill, if untamed, will bring debt to levels that could endanger the government’s transformation agenda,“ said Christina Daseking, the leader of the IMF Mission to Accra. “The wage bill in 2012 rose by 47%, with much of the factors explaining the increase not yet quantified. In addition, deferred wage payments from the Single Spine Salary Reform were twice the level included in the supplementary budget,” Daseking added.

STRONG FOUNDATION: Ghana has already made notable progress in addressing its most worrying fiscal vulnerabilities, even if there is room for further improvement.

The salary overhaul was part of a project to reduce the government’s current expenditures by clarifying and simplifying public sector pay scales. In the long term, it is expected to bring about significant savings, although implementing it was expected to result in increased costs over the short term.

Equally importantly, the 2010 tax reform has helped provide a more solid foundation for expanding the tax base and boosting revenue collection, while the state has taken steps to increase consumer tariffs on certain services, such as electricity prices, while reducing subsidies on select goods, such as petroleum products. The impact of these changes, particularly given that the government has made clear they are to be phased in gradually to minimise economic disruption, is expected to be seen over time.

SUBSIDIES: In 2012 the IMF called on Ghana to cut its “costly and poorly targeted” fuel and energy subsidies; when it returned to assess the situation a year later, the IMF delegation saw some tangible improvement, as fuel subsidies had been cut in February 2013.“They welcomed the decision to remove fuel subsidies and called for similar action to adjust electricity prices as a crucial step to tackle Ghana’s energy supply problems,” declared an IMF statement that was issued in June 2013.

Electricity tariffs have been increased in recent years but with generating costs growing (see Utilities chapter) due to the increased use of heavy fuels following the closure of the West African Gas Pipeline, the need to maintain cost-recovery pricing has become more immediate, lending additional urgency to the push to improve energy subsidisation.

The budget statement, which came a few weeks after fuel subsidies were cut, acknowledges that its expenditure on subsidies came in at GHS809m ($415.91m) in 2012 against a budget forecast of just GHS470m ($241.63m), but subsidies remain in the budget for 2013. A total of GHS1.02bn ($524.38m) has been allocated, with GHS586.2m ($301.37m) of this used for the payment of promissory notes issued for the payment of crude oil by the Volta River Authority in 2012, which will fall due in 2013. That represents a 118% increase when compared to the original budget target for 2012.

DEBT: According to the government’s 2013 budget, public debt (including government guaranteed debt) increased by 23% from $15.35bn in 2011 to $18.83bn by the end of 2012. This represents 40.8% of GDP in 2011 and 49.4% of GDP by the end of December 2012, which is still significantly lower than in most Organisation for Economic Cooperation and Development countries.

When segregated by type of debt, domestic debt grew by 30% between 2011 and 2012 to constitute 53% of the total public debt, compared to 47% for external debt. The government largely attributed the increase in public debt to the issuance of threeyear and five-year bonds.

At the end of the first quarter of 2013, the BoG revealed public debt had increased to $19.07bn, equivalent to 43.2% of GDP. Domestic debt had climbed to $10.11bn from $9.21bn in December 2012. External debt stood at $9.5bn at the end of April 2013 compared to $8.8bn at the end of December 2012. In 2012 Ghana raised loans to the tune of about $2.29bn (of which $1.09bn was concessional and $1.2bn non-concessional) to implement infrastructure projects. Of the total borrowings in 2012, 26% was committed to the water resources, works and housing sector; 25% went to energy; 13% to health; 12% to agriculture; and the remaining 24% was committed to other sectors of the economy.

NATURAL GAS: The development of the Jubilee oil field has transformed the balance of Ghana’s economy, but it has also presented new challenges in terms of financing large-scale infrastructure projects, as the country’s banks lack the hefty balance sheets needed to foot the bill. As a result – and as with a number of commodity projects under way across the continent, from Gabonese iron mines to Nigerian refineries – funding for some particular schemes is coming from China through bundled packages containing a mix of concessionary loans, grants, aid and direct investment.

Gas produced from the Jubilee oil field could potentially have a much greater direct impact on the domestic economy than its crude oil, which is not being refined inside Ghana. However, the country has to build all of the necessary infrastructure from scratch. Given that the gas cannot be flared, and reinjection can only continue for a limited period of time before it degrades the oil deposits, construction teams have been racing to complete the $850m Western Gas Corridor Infrastructure Project. A 59-km offshore pipeline has already been laid, in addition to 110 km of onshore pipes that are meant to carry the natural gas from Atuabo to Aboadze. In June 2013 components for a modular gas processing plant had arrived on-site, with Sinopec, the Chinese construction company at the helm of the project, saying all components should have arrived by July.

In 2010 Ghana’s then-president, John Atta Mills, signed a framework agreement for $13bn worth of loan deals, including a $3bn master facility agreement from the Chinese Development Bank (CDB) to fund infrastructure development. The agreement stipulated that 60% of the work should be handled by Chinese firms. These CDB loans are currently being disbursed as the money is required.

In practice, both the construction and payment processes have been beset by delays and frustrations. Sinopec reportedly threatened to halt work in April 2013, accusing the state-owned Ghana National Gas Company of failing to pay its bills. Work resumed a week later with state-owned media reporting $225m in contractors’ fees had been paid. In June 2013 there were further reports that sub-contractors, including a survey vessel commissioned to test the offshore pipeline, had abandoned the site, claiming Sinopec was still owed $400m by the government of Ghana. However, the project is scheduled to be completed by late 2013 should the remainder go according to plan. Gas from the Jubilee field will then be used to power thermal electricity plants, removing the need to rely on expensive crude oil.

FOREIGN ASSISTANCE: Foreign assistance is also playing a role in the development of Ghana’s energy industry. The sector will be the focus of a second tranche of funding from the US’s independent aid agency, the Millennium Challenge Corporation (MCC), due to be released in late 2013 and following on from its initial $547m programme to boost agri-business.

In November 2012 the government of Ghana submitted detailed project proposals with a total value of approximately $745m, which would be funded by combined contributions from the MCC and the government of Ghana, as well as private enterprise. The projects included power sector reform, stronger financial performance by electrical companies and efforts to increase power generation.

One of the largest projects to benefit from aid from the MCC is a 1000-MW thermal plant in Ghana called Power Park, jointly developed by the government and US conglomerate General Electric (GE).

“A couple of years ago we were asked to opine on the potential of a second compact by the MCC and the compact will go to Ghana and towards power,” Leslie Aruna Nelson, the managing director of GE West Africa, told OBG. In June 2013 US President Barack Obama cited the initiative by GE in Ghana when he pledged $7bn in the next five years to the initiative dubbed “Power Africa” in a speech delivered at the University of Cape Town, South Africa.

In June 2012 the US Agency for International Development (USAID) joined other donors in signing the Government of Ghana/Development Partners Compact 2012-22. The strategy is to direct official development assistance to eight target areas, including the acceleration of agricultural modernisation, provision of strategic infrastructure and natural resource management. Ghana’s new middle-income status may mean it can expect to receive less aid from these countries in the future, but outside agencies recognise the need to continue their work.

“Economic growth is not equivalent to development,” stated USAID’s report on its plans for Ghana for 2013-17. The report also declared, “Despite significant growth and improvements in the quality of life, Ghana faces persistent development challenges that must be addressed to realise and sustain the benefits of a middle-income country.”

The EU had originally planned to donate €373.6m to Ghana between 2008 and 2013, but according the EU’s European External Action Service, this amount has been increased to €500m, due to Ghana’s good performance as judged by goals established in 2008. The money is being spent on transport, governance, and support aimed at reducing poverty and promoting economic growth.

EU member states also provide bilateral aid, with the UK planning to spend a total of £94m annually until 2015. Projects being undertaken by the UK’s Department for International Development are assisting with health, education, poverty and government information technology.

REGIONAL INEQUALITY: The geography of Ghana has traditionally had an impact on the comparative wealth of its citizens, with growth and activity concentrated on its southern shores. Fertile land and high rainfall in the south of the country gradually give way to drier savannah and eventually, the Sahel.

Much of the foreign aid received by the country has been targeted at boosting development in northern communities, where the poverty rate is much higher. In 2010 the government attempted to tackle the north-south divide by creating the Savannah Accelerated Development Authority. This entity is attempting to improve access to farm machinery and expertise in the north of the country, alongside select initiatives to boost the production of indigenous cash crops, such as cotton.

One of the country’s Millennium Challenge Goals is to halve poverty from 1990 to 2015 and at the national level this goal appears to be within its reach. However, reports by the World Bank say the poverty rate in the south is 20% compared to 60% in the north. The country is also focusing its health programmes on reducing deaths from malaria, and on improving infant and maternal mortality rates.

A clearer picture of household incomes across the country is expected to emerge when details of a labour force survey conducted in October 2012 are released in October 2013.

OUTLOOK: With growth in 2013 forecast to remain at a little under 8%, its oil fields set to expand and its gas infrastructure rapidly developing, Ghana’s future looks bright. The country faces significant challenges in improving its infrastructure and tackling poverty. There are also budgetary pressures that the government must face to enable it to achieve its medium-term goals of building stability and prosperity. However, its good luck in discovering oil and the speed with which it has exploited that opportunity provide firm foundations for future growth.

The government is anticipating that oil revenue will play an increasingly important role in that story as the second-largest contributor to GDP. However, the opportunities being presented by oil also leave the country with a number of challenges to face as it races to complete projects. These include the Western Corridor Gas Infrastructure Project, that will enable its citizens to reap its rewards and broadening the economic base, leaving the nation less vulnerable to external pressures such as fluctuations in international prices for gold, cocoa and oil. Breakdown of 2013 budget