Ghana once again successfully and peacefully transferred political power from the National Democratic Congress – which was in power from 2008 to 2016 – to the New Patriotic Party (NPP) on 7 December 2016. This saw former Minister of Foreign Affairs Nana Akufo-Addo become President; further confirming Ghana’s reputation as a beacon of democracy on the continent, and one of the most politically stable countries in the West African region. The Minister of Finance, Ken Ofori-Atta, is faced with the task of addressing the triple macro-economic challenge of restoring fiscal discipline, achieving debt sustainability and increasing economic growth as part of the Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF)1.
Ghana’s economic performance during the 2015/16 financial year was mixed. On the one hand the Ministry of Finance made substantial efforts to reduce the fiscal deficit from 10.2% of GDP in 2014 to 6.3% of GDP in 20152. However, in 2016, this progress was regressed when the fiscal deficit increased to 8.7% of GDP, which missed the 5.3% target set out in the ECF3. The increased fiscal deficit for 2016 is partly due to increased borrowing by the Ghanaian government, mainly from foreign investors in order to fund its larger financial needs such as its servicing the debt of state-owned enterprises4. The new government has made an effort to reduce its borrowing. Although Ghana’s external debt at the end of May 2017 compared to end of December 2016 increased by Ghanaian cedi (GHS) 4.5 billion from GHS 69.2 billion to GHS 73.3 billion5, there was a substantial reduction in its proportion of GDP, from 41.4% to 36.0%6. However, the total revenue and grants declined from 20.0% of GDP (GHS 33.678 million) at the end of December 2016 to 5.4% at the end of April 20177. Total public debt at the end of December 2016 peaked at 73.3% but has declined to 67.5% at the end of May 20178. The key driver of public debt during 2016 was a decline in revenue, as well as increased government spending on the national elections, however, this is not completely uncharacteristic of Ghanaian politics during an election year9.
It is likely that Ghana will miss the ambitious target of reducing its 8.7% fiscal deficit to 3.0% of GDP by 2018, as envisaged in the budget speech10. This is primarily because of the mounting debt of state-owned enterprises (SOEs) in the energy sector and the subsequent energy crisis. During the tenure of former President, John Mahama, the debt of SOEs in the energy sector amounted to USD 2.4 billion, USD 800million of which is owed to private banks based in Ghana11. In an attempt to service this debt, boost investor confidence in the sector, and avoid a crisis in the local banking sector the Ministry of Finance intends to sell USD 2.3 billion worth of local bonds12. If the debt is left un-serviced, this will increase cost of living for the average Ghanaian.
Over the past four years, Ghana has experienced an energy crisis that has cost its economy an accumulated USD 3 billion13. The nature of the energy crisis, or ‘dumsor’ as it is locally known, is such that energy supply is unable to meet demand14. Between 2013 and 2015 electricity supply has gradually been unable to meet demand. In 2015 supply amounted to 11.692GWh which is 12.0% and 11.0% less compared to 2014 and 2013 respectively15. In order to avoid power outages in 2016, Ghana had to produce between 18.158GWh and 18.737GWh of electricity in order to meet the expected 16.798GWh to 16.900GWh demand16. However, supply was approximately 16.420GWh17. Ghana’s energy crisis contributed significantly towards its reduced 3.5% GDP growth rate for 2016, in comparison to the targeted 4.1%18. This means that under the previous administration, millions of Ghanaians have lost their jobs, investor confidence has declined and the Ghanaian cedi depreciated in value. Efforts made by President Akufo-Addo’s administration to avoid power outages thus far, by improving the supply and distribution of electricity, and calling for an audit of SOEs to ensure their financial viability are positive steps in resolving the energy crisis19.
Operational challenges in crude oil production for most of 2016 were additional key drivers of dumsor. Crude oil production decreased between 2015 and 2016 by 5.16 million barrels from 37.458 million barrels in 2015 to 32.297mil barrels in 201620. The decline is attributed to two major changes in oil production. Firstly, the closure of the Saltpond Field due to declining year-on-year production and subsequent economic viability21. Secondly, the decline in production of the Jubillee Field from 37.411 million barrels to 26.981 million barrels in 2015 and 2016 respectively. However, oil production is expected to increase in 2017, off the back of repairs to the Jubilee Field, as well as increased oil production from the new Tweneboa, Enyera, Ntomme (TEN) Field22. TEN commenced production in 2016 and produced an impressive 5.316 million barrels23 of oil in its first year of production, which is the largest quantity of oil produced by a state-owned oil field in its first year of production. The increase in oil production volumes by TEN is expected to boost Ghana’s GDP growth rate to 7.1% and 8.0% in 2017 and 2018 respectively24.
Despite weak commodity prices, Ghana experienced a trade surplus of approximately 2.2% of GDP during the first quarter of 2017, compared to the 3.3% deficit at the end of 201625. The 2017 trade surplus is attributed to growth in exports, improving commodity prices and lower imports, which led to improvements in Ghana’s external balance. The government plans on increasing foreign reserves during the 2017/18 financial year by an additional USD 700 million26. Exports have increased by USD 47 million in the first half of 2017 to USD 11.108 million from USD 11.060 million at the end of 2016. The increase in exports is underpinned by growth in production volumes. Ghana’s gold and cocoa sectors were the main drivers of production growth27. In addition, prices of gold and crude oil have stabilised between USD 1195-1265 and USD 50-55 per barrel respectively over the same period28. A further contributing factor to the trade surplus was lower trade exports. As a result, Ghana’s gross international reserves increased by approximately 130.0% to USD 6.4 billion in the first half of 2017 from USD 4.9 billion at the end of 201629.
To date, President Akufo-Addo’s administration has demonstrated the political will to restore investor confidence by reducing fiscal deficit and resolving the USD 2.4 billion debt of SOEs in the energy sector. Nevertheless, the medium-term growth outlook for Ghana’s economy remains positive with increased gold and cocoa exports as well as oil production.
Current Affairs Update
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Ghana Economic Forum
The Ghana Economic Forum (GEF) took place in Accra from 07-08 August 2017 under the theme ‘A Ghanaian-owned Economy: 60 years after Independence’. The sixth edition of the two-day forum focused on energy, agriculture, entrepreneurship and innovation, financial management as well as other areas that are crucial to development of Ghana’s economy30. Ghana is one of the most attractive emerging markets in terms of investment. Although Ghana has a culture of entrepreneurship amongst its working population, its youth unemployment rate remains alarmingly high. Following the GEF, the Minister of Finance announced the public sector is no longer able to absorb labour force. With an alarmingly high unemployment rate and institutions of higher learning continuing to produce graduates, the government is faced with the challenge of innovatively utilising its young labour force such that it is able to contribute towards inclusively achieving the envisioned Ghanaian-owned economy. One of the challenges of youth unemployment is that graduates lack technical training and experience when they enter the labour market.
Increased Economic and Trade Activities between Ghana and Togo
Togo officials have commenced keeping its border with Ghana open for 24 hours following lobbying by Ghana’s President Nana Addo Dankwa Akufo-Addo31. This is a welcomed move amongst members of government and civil society who have been campaigning for a borderless Economic Community of West African States (ECOWAS) Furthermore, this means there will be an easy flow of goods, services and labour between the two West African states. In the medium- to long-term there will be an increased flow of goods as well. In addition, the 24-hour operation of the Togo-Ghana border is a closer step towards achieving ECOWAS’ vision of the ‘free movement of persons, goods, services and capital towards the achievement of regional, economic and political integration’ in the region32.
Ghana Enters the Space Race
Ghana successfully launched its first satellite ‘GhanaSat-1’ into orbit. The purpose of GhanaSat-1 is to not only monitor Ghana’s coastlines but also integrate satellite technology into the high school curriculum33. Ghana has joined its African counterparts such as South Africa, Kenya and Nigeria in developing and utilising satellite technology. An increasing number of African countries are showing an interest as well as making progress in developing space technology in general34. Two prominent examples are South Africa and Nigeria. There is an opportunity for Ghana to broaden the scope of its satellite technology to monitor illegal mining, deforestation, water usage, illegal fishing, military use to name a few examples. Although some might argue there are more immediate socio-economic issues that funds directed towards space research and development could be used for; the value of the data the satellites will provide as well as the potential investment prospects of space technology cannot be overlooked.
6 Bank of Ghana, ibid.
7 Ministry of Finance, ibid.
8 Bank of Ghana, ibid.
9 International Monetary Fund, ibid.
10 Ministry of Finance, ibid.
12-14 Presidency Republic of the Republic of Ghana, ibid.
19 Presidency Republic of the Republic of Ghana, ibid.
23 Energy Commission of Ghana, ibid.
24 Ministry of Finance, ibid.
25 Bank of Ghana, ibid.
26 International Monetary Fund, ibid.
27-29 Bank of Ghana, ibid.