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The Ghanaian Economy Vrs Political Jig-saw

From ( l-r ), Ken Ofori-Atta, Minister of Finance and Dr Mahamudu Bawumia, Vice President, Ghana

Accra, Ghana, March 5, 2019//-Ghana has a market-based economy with relatively few policy barriers to trade and investment in comparison with other countries in the region, and Ghana is well-endowed with natural resources.

Trade is significant for Ghana’s economy; the combined value of exports and imports equals 89 percent of GDP. The average applied tariff rate is 10.0 percent. Non-tariff barriers impede trade. Government openness to foreign investment is above average

Agriculture accounts for about 20% of GDP and employs more than half of the workforce, mainly small landholders. Agriculture has the potential to be one of the leading sectors for a more diverse economy and can be transformed to be an engine of growth and job creation.

Agriculture has a very large multiplier effect on employment, creating over 750 jobs for every additional $1million of output. However, as the importance of the extractive sector has risen, it appears agriculture sector growth has slowed.

To remedy the situation and put the economy on sound footing the World Bank recommends three policy options to strengthen the agriculture sector: improving the quality and effectiveness of public expenditure in agriculture would be important in the context of limited fiscal space; improving the environment for agriculture businesses is key to adding value to the existing production and for jobs creation; and fixing challenges in the cocoa sector given the large size of the cocoa economy.

According to the Bank, “There is need to channel public resources into research to increase the use of technology, invest in irrigation infrastructure to increase productivity and mitigate the potential adverse effects of climate change, and leverage increased private sector investment in agriculture”

Gold and cocoa exports, and individual remittances, are major sources of foreign exchange. Expansion of Ghana’s nascent oil industry has boosted economic growth, but the fall in oil prices since 2015 reduced by half Ghana’s oil revenue.

Production at Jubilee, Ghana’s offshore oilfield, began in mid-December 2010. The country’s first gas processing plant at Atubao is also producing natural gas from the Jubilee field, providing power to several of Ghana’s thermal power plants.

The country signed a $920 million extended credit facility with the International Monetary Fund (IMF) in April 2015 to help it address its growing economic crisis. The IMF fiscal targets require Ghana to reduce the deficit by cutting subsidies, decreasing the bloated public sector wage bill, strengthening revenue administration, and boosting tax revenues.

Priorities for the new administration include rescheduling some of Ghana’s $31 billion debt, stimulating economic growth, reducing inflation, and stabilizing the currency. Prospects for new oil and gas production and follow through on tighter fiscal management are likely to help Ghana’s economy in 2018.

An interesting feature of Ghana’s economic underperformance is past governments’ inability to deal effectively with the foreign companies engage in mining the country’s numerous resources.

Speaking at the IMF’s April 2018 Regional Economic Outlook Report titled: Sub-Saharan Africa: Domestic Revenue Mobilisation and Private Investment, launch in Accra, Dr Mahamudu Bawumia, Vice President of the Republic of Ghana, noted with concern how Ghana’s 10 per cent ‘carried interest’ in mining operations in the country had, over the years, accrued a zero per cent dividend and deprived the people of Ghana of considerable amounts of domestic revenue.

The Vice President made it clear that the old paradigm of natural resource exploitation and exports of unprocessed agricultural products and raw minerals were no longer acceptable as that could not grow our economies, create jobs and meet social expectations in the provision of basic public amenities.

Dr Bawumia emphasised the need for a re-examination of Ghana’s natural resource control and governance strategy from exemptions to carried interest, and how to use her natural resources to build a better and prosperous economies.

The economy experienced  inflation jumping to 9.9% in August, from 9.6% in July. The uptick was driven by stronger food-price inflation, in particular by higher prices for cocoa, fruits and meat products. Non-food inflation also edged up in August, albeit the uptick was only marginal.

Despite this inflation remained within the Central Bank’s medium-term inflation tolerance band of 8.0% plus or minus 2.0 percentage points. Meanwhile, annual average inflation ticked down from 10.8% in July to 10.6% in August, marking an over four-year low.

On a month-on-month basis, consumer prices remained unchanged from the previous month in August, in contrast to the 0.4% increase recorded in July.

In spite of the multiplicity of factors militating against the economy, it is gratifying to note that the government has given the assurance of fixing it to benefit the people. “The difficulties that we are going through now are difficulties that the system will be able to accommodate. The difficult economic conditions require some degree of fortitude and firm action,” he told the Ghanaian community in New York recently.

Investor confidence in the country seems to be soaring – this is evidence by major multi-national companies seeking to invest in the country. Among these are: Volkswagen of Germany, Sinotruk of China, Google, and Exxon Mobil.

The country needs more investments but government should ensure that agreements signed benefit the people but not as a matter of political expediency. The economy must not grow at the expense of the people.

By Oppong Baah, African Eye Report


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