Are There Implications for Growing Economy with Declining Agric Sector?

Ken Ofori-Atta, Minister of Finance, Ghana

Accra, April 23, 2018//-The value of goods and services produced in Ghana has increased from 3.6% in 2016, to 8.5% in 2017, and it is expected to grow further this year. The country’s oil and gas sector contributed hugely to the 2017 growth.

This  growth is not inclusive. It is skewed and noninclusive in favour of the natural resource sector which does not provide the benefit of economic growth to citizens, according to a renowned Ghanaian economist at the University of Cape Coast, Professor  John Gatsi.

Sectoral performance

The extract from the this table provides quick visual impression about the economy

Nominal Growth

Nominal GDP                                           Origin of GDP(%)                       Population(M)    
Year GHcM Agriculture  Industry Services Population in Million GDP per head(US$)
2013 93,416 5.7 6.6 10.0 26.4 3940
2014 113,343 4.6 0.8 5.6 27.0 4067
2015 136,957 2.8 -0.3 6.3 27.6 4131
2016 167,353 3.0 -0.5 5.7 28.2 4256
2017 204,292 6.1 16.0 4.9 28.8 4571
208 238,021 3.7 12.8 5.8 29.5 4904
2019 271,621 3.2 7.5 6.2 30.1 5160

 

The reality

The recent Economic Intelligence Unit (EIU) country report  on Ghana issued in March 2018 is revealing. The data on nominal GDP shows that GDP has been increasing from 2013  to 2017 and promises to increase going forward.

The economy recorded nominal GDP of  GH₵167.4 billion in 2016  up from GH₵93.4 billion. The interesting thing is that even in period where industry which is largely driven by natural resource was negative, the expansion in the economy was remarkable.

Industry recorded negative three percent in 2015 and negative five percent in 2016 but the economy expanded from GH₵136.95 billion in 2015 to GH₵167.4 billion in 2016.

With negative industry growth in 2015 and 2016 and with high growth of 16% in industry in 2017 the economy expanded by GH₵36.9 billion from 2016 just about GH₵6 billion more than the expansion from 2015 to 2016.

In analyzing economic data one cannot be driven by emotion especially when discussing debt per person and per capita income or GDP per person normally recorded in US$.

To this end, Prof Gatsi lamented: “One may provide a fine economic analysis indicating that wealth distribution recorded GH₵7000 for the average Ghanaian when in reality our income distribution is hugely affected by extreme value effect such that the reported GH₵7000 does not mean anything to the average person”.

Prof John Gatsi, University of Cape Coast

Declining agric sector

In spite of the impressive growth , the agriculture sector which  contributes more than one-fifth of Ghana’s GDP; agricultural exports—principally cocoa—are a key source of foreign exchange, has been declining.

The country’s agricultural sector’s contribution to real GDP growth has been declining for the past five years. The sector’s contribution to real GDP has declined from 31 percent in 2008 to 18.9 percent in 2016, according to the 3rd edition of the Ghana Economic Update, which focuses on agriculture as the engine of growth and jobs creation.

“This could be attributed to the slow rate of growth over the period 2008–2016, averaging around 4.3 percent. In 2016, even though agricultural growth slightly improved to 3 percent from the 2015 level of 2.8 percent, this was significantly below the target growth rate of 6 percent”, the World Bank’s report said.

Moreover, and until oil production came on board in 2011, an estimated two-thirds of Ghanaian manufacturing depended on agricultural inputs; hence agriculture’s performance has also been important for the competitiveness of non-oil manufacturing.

While agricultural output is increasing, the sector’s growth performance has been highly erratic, and the average annual agricultural growth rate is well below both the overall GDP growth rate and the target, which is set at 6 percent per annum”.

Furthermore,  an economist at the World Bank Ghana office, Kwabena Gyan Kwakye lamented: “The agricultural sector is key for foreign exchange earnings, but the sector’s contribution to GDP growth has been declining”.

He added that the sector had experienced a sharp deterioration in its Terms of Trade since 2011.

The Terms of trade (TOT) represent the ratio between the export prices of a country and the import prices.

The ratio is calculated by dividing the price of the exports by the price of the imports and multiplying the result by 100. When a country’s TOT is less than 100%, more capital is leaving the country than is entering the country. When the TOT is greater than 100%, the country is accumulating more capital from exports than it is spending on imports, according to economists.

Dr Owusu Afriyie-Akoto, Minister of Food and Agric

Significance of the sector

The potential for agriculture and agribusiness to bring about structural change and poverty reduction is significant in Ghana as it is in other developing economies.

The pathways through which agriculture and agribusiness spur economic growth and poverty reduction have been described extensively in the development literature, World Bank 2016 report noted.

High productivity in agriculture raises farm incomes and increases demand for products and services mostly from the non-farm sector. It also leads to more and cheaper food, and generates patterns of development that are employment-intensive, benefiting both the farm and non-farm sectors, agric economists indicated.

Also, the agriculture sector employs more people, particularly in the rural areas where the sector is the main employer of last resort. According to the 2015 Ghana Labour Force Report, there were 9.3 million people who were formally employed in 2015. Of the total number, 3.3 million (about 36 percent) were employed in agriculture.

However, in the rural areas, total employment recorded was 4.6 million (49.1 percent of total employed). Of the total rural employment, 70.6 percent were employed in the agriculture sector. This is most likely an understatement, as the Labour Force study only covered formal wage employment.

However, in the rural areas agriculture is the employer of last resort and hence total agriculture employment—formal and informal—is even higher than the labour force study suggests.

Why the sector is declining?

“For generations, we have bemoaned Ghana’s reliance solely on rain-fed agriculture. This means the slightest change in the rainfall pattern exposed our farmers to the loss of a season’s harvest. It is a disgrace that we have had to rely on our Sahelian neighbours to make up the deficit in foods, such as vegetables”, President Nana Addo Dankwa Akufo-Addo said this in his 2018 State of Nation Address (SONA).

Mr Gyan Kwakye also added: “Public spending on agriculture is low both by regional and international standards, and have declined in recent years”.

Agricultural expenditure was 5.2 percent of total spending between 2001 and 2014. Agricultural spending began to decline in 2007, and this trend accelerated in 2011. Nominal spending fell from GH¢576 million in 2011 to an estimated GH¢400 million in 2014, while the sector’s share in total spending dropped from 4.2 to just 1.2 percent, he noted.

Agricultural spending has also declined sharply relative to sectoral output, and by 2014 it equaled just 1.3 percent, far below the rates of regional comparators, such as Burkina Faso (8 percent), Ethiopia (6 percent), Uganda (5 percent), and Kenya (4 percent).

Another cause of the decline is that , a large share of agricultural spending is devoted to the cocoa subsector. A considerable share of agricultural spending goes to the cocoa sub-sector. Excluding the cocoa subsector has a major impact on the estimated size of agricultural spending in Ghana, as COCOBOD’s expenditures are very high relative to the value of cocoa production.

Cocoa tree and its fruits

For example, between 2006 and 2011, the share of public agricultural spending devoted to the cocoa subsector averaged three times the subsector’s share in total agricultural output, World Bank’s data revealed.

Removing COCOBOD from the equation cuts agricultural spending as a share of total spending by up to 50 percent, from an average of 5.2 percent to an average of just 2.6 percent over the period.

Most of the public spending in agriculture is on operating expenses. A large share of agricultural spending finances the Ministry of Food and Agriculture’s (MoFA’s) routine operating expenses. Salaries and other forms of recurrent spending account for two-thirds of the MoFA’s total budget, leaving a very modest envelope for investment,  research by Akroyd and Smith 2007 noted.

Since 2011, the MoFA’s expenditures have risen sharply in nominal terms, even as overall spending for the sector has declined.

Development partner’s donors’ account for much of the increase in MoFA spending. Donor contributions to the MoFA rose from GH¢98.5 million in 2013 to GH¢160.1 million in 2014, while domestic public spending for the MoFA fell from GH¢108.2 million to GH¢73.0 million.

Thus, donor financing expanded from 17 percent of the MoFA’s budget in 2006 to over 50 percent in 2014. Public spending on agriculture is not well targeted and efficiency is low.

Agricultural spending is not well targeted. Major Government (MoFA) initiatives such as the Agricultural Mechanization Program, the Block Farming Program, the National Food Buffer Stock Company, and the Fertilizer Subsidy Program have produced mixed results.

Implications

The declining agric sector, economists warned may lead to food crisis in the West African country which food import bill keeps on rising.

Ghana which has rich arable land imports food to the tune of  about $2.2 billion annually to feed its growing population of about 30 million.

Additionally, although Ghana is the world’s second-largest cocoa producer, it imports more than two-thirds of its staples such as wheat and rice, according to the United Nations’s Food and Agriculture Organization.

World Bank Country Director for Ghana, Henry Kerali stressed: “We have seen a very high rate of imports, which is not good for the economy. Ghana, in 2016 alone, imported close to 2 billion dollars’ worth of food – in a country that has plenty of land, very highly qualified people, and plenty of skills.

Though some personnel are not trained, at least you have people who are able to operate machinery. So, why is this happening in Ghana? It’s a clear example of the Dutch disease. This is something that needs to be addressed.”

Food inflation however continues to be a concern, primarily because of the level of food imports into the country, he said.

Explaining further, Prof Gatsi said: “Higher food price inflation leads to consumption deterioration for ordinary Ghanaians who cannot engage in diversified consumption. It also leads to slower job creation and weak implementation of any industrialization policy”.

Low productivity is the major cause of low earnings and underemployment in the agricultural sector. The agriculture sector is characterized by low yields for staple as well as for cash crops.

This is not unusual for an African country; in fact, total factory production (TFP) growth in agriculture in Africa relative to other world regions is generally low often because of lower technical change due to inconsistent public investment in Research and Development (R&D), and unsustainable cultivation practices.

Average cereal yield9 in Ghana is estimated at 1.7 tonne per hectare (t/ha), which compares quite well with many countries in Sub-Saharan Africa, but is lower than Cote d’ivoire (2.7t/ha), Madagascar (2.6t/ha), Malawi, Rwanda and Uganda (2t/ha).

By Masahudu Ankiilu Kunateh, African Eye Report

Email: mk68008@gmail.com

 

 

Leave a Reply

*