Driven largely by the start of oil production and commodity price increases, the Ghanaian economy has been expanding extremely rapidly in recent years. This growth has been attracting investment and is set to benefit a variety of industries. However, there is widespread consensus that in order to ensure growth remains sustainable and is accompanied by job creation, as well as poverty reduction, diversification away from the country’s traditional commodities is required.
BY THE NUMBERS: The Ghanaian economy grew by 14.4% in 2011, the highest rate of GDP growth recorded worldwide in 2011. Though it is small compared to the primary and tertiary sectors, the industrial sector grew by 41.1%. Agriculture was more or less stagnant in comparison, with growth of 0.8%, held back by a decline in forestry and fisheries activity.
Economic growth remained strong in early 2012, at 8.7% year-on-year (y-o-y) in the first three months, thanks to a 21.7% rise in industrial GDP (driven primarily by 49.2% growth in mining and quarrying) and 5.7% growth in services. However, agricultural GDP fell by 2.9%, pulled down by an 18% decline in fishing activity.
OIL & COMMODITIES: The economy in 2011 was also buoyed by price hikes of key commodities, which have long served as the biggest indicator of the economy’s performance due the heady roles played by cocoa and gold production. For example, the unit value of Ghanaian gold exports rose from $959 per ounce in 2009 to $1565 per ounce in 2011. The unit value of cocoa bean exports also increased, albeit less dramatically, from $2798 per tonne in 2009 to $3218 in 2011.
Oil has been perhaps the most salient driver of growth over the past 12 to 18 months, and if the government’s strategies and accompanying infrastructure are effectively implemented, it – together with gas – will likely serve as a defining trait of GDP expansion over the medium and long term as well. However, the aim is to maximise the benefits of hydrocarbons not through the simple production and export of crude and gas, but rather through using the newfound commodity wealth as a multiplier for diversification. According to Kwame Pianim, the chairman of New World Securities, “The impact of oil and gas should be considered beyond the actual revenues. It will also be interesting as an important push for the infrastructural development of the country”
A SLOW START: It will not be a straightforward path. It was initially thought that growth in 2011 would be even higher, but production at the country’s signature Jubilee field has been lower than first envisaged. The operating consortium originally expected to reach production of 120,000 barrels per day (bpd) by August 2011 and 250,000 bpd by 2013, but technical problems arose such as sand seeping into wells. Production at the field averaged 63,100 bpd in the first three months of 2012 and was expected to rise to around 90,000 bpd by the end of the year, giving rise to average production of around 70,000-80,000 bpd for the year, before reaching a peak of 120,000 bpd in 2013, where it should remain until 2015 before starting to decline again.
In July 2012 field operator Tullow Oil, which owns a 35.5% stake, said phase 1A of the field’s development was proceeding according to schedule and that wells drilled as part of the development were set to begin producing in the fourth quarter of the year. The partners in the Jubilee field, which include the Ghana National Petroleum Corporation and US-based firms Anadarko and Kosmos, will invest some $20bn over the next 10 years to develop new fields, while oil frims are hoping to soon begin work on developing the so-called TEN fields, located near Jubilee, which are expected to eventually produce around 100,000 bpd, Ghana’s rapid growth is attracting foreign investor interest at a time when developed economies are facing difficulties. “People are looking for high-growth markets and there is consequently growing interest in Ghana across all sectors,” Alasdair Hamilton, the head of UK Trade and Investment in Ghana, told OBG.
PUSHING DIVERSIFICATION: However, Ghana remains heavily reliant on commodities, not all of which are good at generating employment. “Most growth is being driven by export commodity price increases, in particular in sectors that do not generate large employment like oil and gold, which are capital- rather than labour-intensive,” said John Gorlorwulu, an economist at the US Agency for International Development. “Services are also growing rapidly, but jobs in the sector tend to go to the well-educated.” As a result, growth is not always felt on the ground, which has led to rising inequality.
There are also questions as to whether the country’s recent performance can be maintained. “Recent growth has been driven to a large extent by price increases in commodities and is not really sustainable,” said Sebastian Dessus, the lead economist for the World Bank’s mission in Ghana. Furthermore, the country’s reliance on commodities renders it vulnerable to swings in global market prices and poses problems for the development of other sectors of the economy. “Ghana’s main problem is that it has remained a primarily commodity-reliant country,” J K Kwakye, a senior economist at the Ghana Institute of Economic Affairs, told OBG.
Although there is widespread agreement on the need for diversification away from commodities, some say it is happening slowly at best. “There is a need to diversify the economy, but this is not really happening at the moment,” said Dessus. “Diversification of the economy means a shift towards more manufacturing and other value-added activities. But this is difficult to achieve without a well-developed and well-implemented strategy. Incentives and targeted public investments to support a select number of sectors and subsectors with significant potential for profit generation are needed,” Gorlorwulu told OBG.
BENEFITS: A number of sectors are set to benefit from oil-based growth. “There are not many firms engaged directly in the oil find apart from Tullow, so few will benefit directly from it,” said Nii Ampa-Sowa, the vice-president of Databank Financial Services. “However, there will be major indirect benefits to numerous industries such as logistics, transportation, paints and fertilisers.”
However, one of the main focuses of the diversification plans is industrialisation through gas production. “The plans for industrialisation based on gas make sense,” said Dessus. “Gas will bring much more added value than oil as it will be brought onshore, and used for activities such as energy and fertiliser production.”
OTHER PROMISING SECTORS: Another area that is being expanded is commercial agriculture. Plans include the planting of non-traditional cash crops such as pineapples. “Horticulture products are also doing well, though currently on a small scale,” Gorlorwulu said. Processing of existing commodities such as cocao also offers scope for diversification; however, Ghana still grapples with comparatively high distribution, input and labour costs, which means it can often be cheaper for firms to transport the raw goods and process them closer to the end-market. Branding is also a problem, and according to Mathias Akotia, the CEO of Brand Ghana, “Ghana’s cocoa is generally considered to be of a higher quality than neighbouring countries due to cultivation techniques, but people aren't aware of that. We need to better brand our products, and particularly our exports, to sustain global demand.”
Other promising sectors include services and information and communication technology (ICT), which benefit from Ghana’s status as an English-speaking country. At present, the government is looking to improve infrastructure for these segments. “The ICT sector is generating a lot of added value and employment,” said Dante Mossi, the senior operations officer at the World Bank’s Ghana office. “A new economy is emerging and Ghana is attracting a lot of creative talent.”
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