• GDP growth for 2012 is estimated at 7.1%, driven by oil revenues, the services sector and the strong export performance of cocoa and gold. Ghana’s medium-term growth outlook remains positive, thanks to large investments in the extractive industries, public infrastructure and commercial agriculture.

  • The successful inauguration of President John Mahama in January 2013, following the death of incumbent John Evans Atta Mills in July 2012, indicates further consolidation of democracy. The depth and maturity of the country’s democracy are being further tested by the New Patriotic Party case in the Supreme Court contesting the election results.

  • Despite significant progress towards most of the Millennium Development Goals (MDGs), the country continues to be challenged by MDG 4, reduce child mortality; MDG 5, improve maternal health; and the sanitation component of MDG 7.

Overview

Gross domestic product (GDP) growth decelerated from 14.4% in 2011 to 7.1% in 2012. The economic growth peak in 2011 was due to the start-up of oil production in the last quarter of 2010. The growth performance in 2012 was achieved despite lower cocoa and oil production. Ghana’s medium-term outlook remains healthy, with projected GDP growth of 8.0% (6.5% non-oil) in 2013 and 8.7% (8.9% non-oil) in 2014, well above the average annual growth rate of 6.5% for the period since 2000. Investments in the oil and gas sectors, public infrastructure and commercial agriculture are expected to drive this growth.

Improved macroeconomic management and enduring political stability have not significantly transformed the structure of Ghana’s economy over time. Mining and construction have sustained the industrial sector, while manufacturing has been declining as a share of GDP over the past 20 years. The country needs to develop new, labour-intensive economic sectors such as manufacturing and agro-processing in order to tackle the employment challenge and provide economic opportunities to rural areas. This will require coherent public policies to raise agricultural yields, improve the competitiveness of the economy and overcome land tenure issues.

Decisions on how to spend the country’s increasing oil revenue, projected at several billion US dollars (USD) over the next two decades, will be crucial to future economic transformation. The increased oil revenue and foreign direct investment (FDI) inflows may result in strong upward pressure on the exchange rate and threaten prospects for industrialisation. In 2010, Ghana enacted a legal framework for sound management of its oil wealth, and thus far its programme of hedging oil imports and exports has succeeded in maintaining macroeconomic stability.

The successful inauguration of President John Mahama on 7 January 2013, following the death of incumbent John Evans Atta Mills in July 2012 and the elections in December 2012, is considered an indication of further strengthening of democracy in Ghana. International observers noted that the elections had been relatively free and fair. However, the New Patriotic Party (NPP) has contested the election results and petitioned the Supreme Court for redress. This issue has divided the country on political lines rather than ethnic lines. The slight risk of political destabilisation of the country would be greatly reduced by an early resolution to the court case.

Although Ghana has been classified as a low middle-income country by the World Bank since 2010, its development indicators compare poorly with those of most countries in this category. Ghana has made significant progress towards attaining the MDGs. It is likely to attain the MDGs on the eradication of extreme poverty, universal primary education, promotion of gender equality, empowerment of women, and combating HIV/AIDS, malaria and other diseases. Ghana continues to be challenged by slow progress on reduction of under-5 mortality, improvement of maternal health and environmental sustainability.

Figure 1: Real GDP growth 2013 (West)

Table 1: Macroeconomic indicators

 2011201220132014
Real GDP growth14.47.188.7
Real GDP per capita growth12.14.85.78.7
CPI inflation8.79.28.98.5
Budget balance % GDP-3.9-4.9-3.5-3
Current account % GDP-9.6-11.2-14.4-14.9

Recent Developments & Prospects

Table 2: GDP by Sector (percentage of GDP)

 20072011
Agriculture, forestry & fishing--
Agriculture, hunting, forestry, fishing2925.6
Construction7.29.2
Electricity, gas and water1.61.4
Electricity, water and sanitation--
Extractions--
Finance, insurance and social solidarity--
Finance, real estate and business services8.19.1
General government services--
Gross domestic product at basic prices / factor cost100100
Manufacturing9.16.7
Mining2.88.5
Other services9.19.4
Public Administration & Personal Services--
Public Administration, Education, Health & Social Work, Community, Social & Personal Services5.96.4
Public administration, education, health & social work, community, social & personal services--
Social services--
Transport, storage and communication15.411.9
Transportation, communication & information--
Wholesale and retail trade, hotels and restaurants11.711.7
Wholesale, retail trade and real estate ownership--

GDP growth declined from 14.4% in 2011 to an estimated 7.1% in 2012. The economy was jump-started in 2011 by the start-up of oil production and by strong mining and cocoa output. Economic growth is projected to remain robust in 2013 as oil production increases to peak levels and gas production begins. The economy should grow by 8% in 2013 and 8.7% in 2014, with non-oil sector growth projected at 6.5% in 2013 and 8.9% in 2014.

The largest contributor to growth in 2012 was the services sector, which grew by 8.8%, contributing about half (49.3%) of GDP. The strongest performance came from hotels and restaurants, transport and storage, financial intermediation, information and communications, and business services, with growth rates exceeding 10%. There were sharp increases in the contributions from the hotels and restaurants sector and from transport and storage, whose growth more than doubled as compared to 2011. Financial intermediation rebounded from 1.0% growth in 2011 to 11.4% in 2012. Credit to the private sector in 2012 expanded by 31.4%, as compared to 15.8% in 2011. The growth in this sector can also be attributed to several successful bond issuances, all of which were oversubscribed, with substantial participation by foreign investors in the five-year issue.

The industrial sector contributed 27.6% of GDP and grew by 7%, a sharp decline from the 41.1% growth recorded in 2011. The drastic reduction of growth in the sector can be attributed to lower crude oil production than projected and slow growth in manufacturing and in the water and sewerage sub-sector. Gold production remained robust, with an estimated half-year increase of 6%. Oil production from the Jubilee field fell below the budget projection of 90 000 barrels per day (bpd) due to technical difficulties. Production ranged from 53 000 to 64 000 bpd in 2012, well below the estimated peak of 120 000 bpd, but it was expected to increase in the fourth quarter after desalination of the Jubilee field. For the first three quarters of the year, petroleum receipts accruing to the government amounted to USD 340 million. Prospects for the oil sector remain strong with the discovery of 16 new wells following the Jubilee field discovery. A gas processing plant is under construction; when completed in 2013, it will enable gas production from the Jubilee field, further increasing the growth potential of the sector and spurring the development of the industrial sector. The provision of cheap energy based on gas could benefit manufacturing and agriculture.

The manufacturing sector faces many challenges, which reduced its growth from 13.0% in 2011 to 4.3% in 2012. The shutdown of the West African Gas Pipeline led to power rationing through most of the second half of 2012. The competitiveness of local manufacturing companies has suffered from intense import competition, high utility prices, low research and development efforts, the high cost of inputs and raw materials, and an increase in tax rates. The government’s industrialisation strategy aims to accelerate the sector by building on the oil and gas industry to transform Ghana’s economy through infrastructure development and power generation.

The agriculture sector recorded the lowest sectoral growth rate in 2012 (2.6%), but this was still an improvement over the 0.8% growth achieved in 2011. The crops sub-sector was the largest contributor to GDP with 17.7%; the other sub-sectors contributed less than 4%. The cocoa sector performed poorly in 2012, with production falling from the record 1 million tonnes achieved in 2011 to an estimated 820 000 tonnes. The drop in production was due to unseasonably cold weather during the harvest season. The government needs to address the sharp decline in the growth of the forestry sector, which is attributed to the slowdown in the reforestation programme. The slowdown in the agricultural sector, which is estimated to be the country’s largest employer, poses a challenge in terms of setting priorities for poverty reduction.

On the demand side, consumption is the key driver of growth, with private sector consumption being the largest contributor. Investment is projected to increase in 2013, however, owing to increasing private sector confidence in the economy, investments for oil-related activities and drawdowns on loans from China for selected infrastructure projects. Export growth is estimated to have increased slightly between 2011 and 2012, but is projected to fall in 2013 as oil production stabilises.

Gold performance continues to be robust, with a half-year reported increase of 6% due to two new mining operations. As at end-September 2012, gold and cocoa exports accounted for 40.6% and 18.8% of export receipts respectively and crude oil exports for 20.7%. Crude oil is currently the second-largest export earner after gold, but has the potential to surpass gold exports if production can be increased to the peak level of 120 000 bpd. Mineral royalties contribute up to 80% of mining revenues and up to 15% of corporate taxes. In order to increase tax collection from the mining sector, the government has announced several revisions to the tax code since 2010, including windfall taxes and review of stability agreements.

In compliance with the Petroleum Revenue Management Act, the Bank of Ghana, the Ministry of Finance and the Public Interest Accountability Committee (PIAC) published reports on the utilisation of oil revenues, the Stabilization Fund and the Heritage Fund in 2011. The failure to provide budgetary resources to the PIAC, which has relied on donor funds for its operations, undermines the committee’s independence.

 

Macroeconomic Policy

Fiscal Policy

The fiscal deficit on a commitment basis is estimated to have risen from 3.9% of GDP in 2011 to 4.9% in 2012, and should fall to 3.5% in 2013 and 3% in 2014 as the government implements policies to correct the fiscal imbalance of 2012. Key challenges to the implementation of fiscal policy within the year include a larger than budgeted wage increase and energy subsidies. Although the government maintained that it would observe fiscal prudence by resisting pre-election spending pressures, there are concerns about the maintenance of fiscal discipline in an election year. In order to forestall election-related excesses, the government is being urged to pass the fiscal responsibility law.

Despite the implementation of commitment controls and an arrears clearance strategy, arrears management continues to be a challenge to fiscal policy. The government tightened fiscal policy in 2011 to achieve the IMF fiscal deficit target, but this entailed accumulation of new arrears of GHS 1.9 billion (Ghana cedi). From 2009 to November 2012, total payments made to liquidate arrears amounted to about GHS 3.8 billion. Despite the arrears clearance and the subsequent positive impact on banks’ non-performing loans, uncertainty regarding the timing and amount of arrears clearance has a negative impact on the economy and constrains private sector activity.

The 2012 budget announced several new revenue-enhancing measures, following on from the 2009 Ghana Revenue Authority reforms. The measures include an increase in the corporate tax rate from 25% to 35% and review of several mining taxes, although the government needs to conclude its negotiations with mining companies on the new taxes before the earning from these policies begins to accrue. Tax receipts performed above projection, at an estimated 6.5% of GDP over the first five months of 2012. The tax-to-GDP ratio is estimated to have increased from 12.3% of non-oil GDP in 2011 to 16.3% in 2012 and is projected to reach 18% by end-2013.

Oil receipts have performed below budget, mainly because the Jubilee field is producing below capacity. The 2012 budget estimated 90 000 bpd, but actual production ranged from 53 000 to 64 000 bpd. This affected the funding of the annual budget, so that total oil receipts accrued to the budget with nothing set aside into the Heritage Fund or Stabilization Fund. It also has implications for the sustainability of the Ghana Petroleum Fund’s holdings. The government projects that the sector will reach full capacity of 120 000 bpd in 2013, which should boost fiscal revenue.

Table 3: Public Finances (percentage of GDP)

 200920102011201220132014
Total revenue and grants18.519.121.922.221.420.1
Tax revenue11.112.114.614.514.113.1
Oil revenue222.22.92.92.7
Grants------
Total expenditure and net lending (a)24.326.525.927.224.923.1
Current expenditure17.21919.619.51816.5
Excluding interest14.415.816.91614.813.5
Wages and salaries6.86.97.76.96.35.7
Interest2.83.12.73.53.23
Primary balance-3-4.3-1.2-1.4-0.30
Overall balance-5.8-7.4-3.9-4.9-3.5-3

Monetary Policy

Monetary policy implementation in 2012 was challenging due to the sharp (17.5%) depreciation of the cedi between January and August 2012. In response, monetary policy was tightened to mop up excess liquidity. The Bank of Ghana raised the policy rate three times by a total of 250 basis points to 15%, announced new exchange rate measures and injected foreign reserves of USD 1 billion to help stabilise the currency. The cedi subsequently strengthened, appreciating by 0.1% in September and 0.5% in October against the US dollar.

Inflation averaged 9.14% over first three quarters of 2012 and remained in single digits throughout that period, although the downward trajectory observed in 2011 has undergone a gradual reversal since February 2012. The low inflation rate was attributable to ample rainfall and a good harvest. Inflation was expected to end the year around 11.5%, slightly above the target range of 6.5-10.5%, before easing in the first quarter of 2013. Key inflationary risks include the underlying pressures on government expenditure, mainly as a result of arrears management and payments, including those from the implementation of the Single Spine Salary Structure (SSS); energy subsidies (GHS 60 million monthly); higher than budgeted spending on wages; and foreign exchange depreciation.

From December 2011, there was a reversal of the downward trajectory of interest rates across all maturities. As of May 2012, the average savings deposit rate had increased by 45 basis points to 5.5%, while banks’ average base rate had declined from 22.4% to 20.6%. Credit to the private sector nonetheless grew by 31.4%, compared to 15.8% in 2011. The government undertook two issuances of three-year bonds and one of five-year bonds. All were oversubscribed, with significant participation by foreign investors in the five-year issuance.

Economic Cooperation, Regional Integration & Trade

The deterioration of Ghana’s external position observed in 2011 continued in 2012. Despite higher receipts from exports of gold, cocoa and crude oil, the current-account deficit including official transfers widened from USD 1.7 billion in 2011 to USD 4 billion as of September 2012. The deterioration in the current account is attributable to the trade deficit of USD 3.2 billion, the services trade deficit and income outflows (mainly repatriation of profits). By end-September 2012, the balance of payments showed a deficit of USD 2.3 billion, and gross international reserves had declined from 3.1 months of import cover at year-end 2011 to 2.9 months. The balance of payments came under further pressure towards the end of 2012, mainly on account of lower projected cocoa production, lower oil production and portfolio investment outflows due to election-related fears.

Ghana’s trade, which continues to be dominated by primary commodities, suffered in 2012 from a drop in cocoa production, due to unseasonably cold weather during the harvest season, and from lower oil production. As at end-September 2012, exports of gold (USD 4.1 billion), crude oil (USD 2.1 billion) and cocoa (USD 1.9 billion) accounted respectively for 40.6%, 20.7% and 18.8% of export receipts. Crude oil is currently the second-largest export earner after gold, but it has the potential to surpass gold if production from the Jubilee field can be increased to the estimated peak level of 120 000 bpd (owing to technical difficulties, actual production in 2012 ranged from 53 000 to 64 000 bpd).

The trade deficit thus increased to 9.7% of GDP in 2012 from 8.3% in 2011. Imports rose from 41.7% of GDP in 2011 to 45.3%, driven by strong consumption growth, oil imports and rising investment activity, especially in the oil sector. In 2013, imports are expected to remain stable at 45.2% of GDP before slowing to 44.7% in 2014. The current account deficit is projected to widen from 11.2% in 2012 to 14.4% in 2013.

Foreign direct investment (FDI) has been robust, with significant inflows in earlier years. The Ghana Investment Promotion Centre estimates FDI inflows in the first three quarters of 2012 at USD 4.97 billion, with a substantial share flowing to the services and manufacturing sectors. The investments originated from both traditional and non-traditional countries, including China, India, Lebanon and Nigeria. Ghana ranks among the top ten recipients of official development assistance (ODA), but with the GDP rebased in 2009 and the expected oil inflows, ODA decreased as a percentage of GDP and of the national budget.1 In July 2012, the government of Ghana and development partners signed a ten-year pact to propel the economy to the higher levels of economic growth and sustainable development attained by other middle-income countries.

 

 

Table 4: Current Account (percentage of GDP)

 2004200920102011201220132014
Trade balance-11-8.6-9.2-8.3-9.7-12.6-13.7
Exports of goods (f.o.b.)18.722.924.833.435.632.731
Imports of goods (f.o.b.)29.831.53441.745.345.244.7
Services-2.5-4.6-5-4.9-9.1-8.2-7.1
Factor income-1.4-1.5-1.7-3.2-0.5-0.60
Current transfers10.98.17.26.8876
Current account balance-3.9-6.6-8.6-9.6-11.2-14.4-14.9

Debt Policy

Ghana continues to make progress in enhancing its debt management skills and policies, following the organisational reforms under way in the Aid and Debt Management Unit since 2010. In December 2011, the unit released its 2012-14 Medium Term Debt Management Strategy, aimed at ensuring prudent levels of risk, maintaining the public debt at sustainable levels over the medium to long term and developing the domestic debt market. The strategy paper reviews the 2010 strategy and highlights its achievements and the challenges faced, including the inability to reduce the maturity profile of the public debt portfolio. The new strategy includes measures to address this challenge.

The total external debt stock declined marginally from USD 7.8 billion in December 2011 to USD 7.7 billion at the end of July 2012. The total public debt at end-July 2012 was USD 14.77 billion, equivalent to 44.4% of GDP, up from 42.6% GDP at end-December 2011. This amount is within the debt sustainability threshold of 60% of GDP laid down in the Medium Term Debt Management Strategy.

Although the government developed an arrears management strategy in 2011 to regularise payment arrears and established a comprehensive database to facilitate monitoring of contract arrears, arrears management continues to be a constraint on fiscal policy. In 2011, the government projected arrears accumulation of 2.4% of GDP, but by the end of the year it had accumulated new arrears of GHS 1.9 billion above the projection. It paid off GHS 1.8 billion in 2011 and GHS 2.0 billion in the first five months of 2012 for clearance of arrears (including arrears incurred for implementation of the SSS) and liquidation of commitments carried over from previous years.

Ghana’s Debt Sustainability Assessment (DSA), updated in November 2011, concurred with the May 2011 DSA in assessing the country’s level of debt stress as moderate, with the possibility of improving to low debt stress if fiscal consolidation can be achieved. The main vulnerabilities noted were a high debt service-to-revenue ratio and continuing risks to the fiscal outlook.

Figure 2: Stock of total external debt and debt service 2013

Economic & Political Governance

Private Sector

The government continues to implement policies and programmes to promote private sector development. However, these policies lack coherence and continue to have mixed results. Ghana is currently implementing a number of policies, including the Industrial Policy, the Private Sector Development Strategy (PSDS II), the Financial Sector Strategic Plan II, Ghana Revenue Authority reforms and energy sector reform. The mixed results of these reforms, their lack of coherence and implementation delays are evident in the World Bank report Doing Business 2013, where Ghana dropped slightly from 63rd to 64th place, after improving steadily from 106th in 2006 to 60th in 2011. Within the overall ranking, improvements were registered for getting electricity, getting credit and resolving insolvency, but there were sharp falls in several other indicators, notably in paying taxes, starting a business and registering property.

Key challenges to private sector activity in 2012 include the sharp depreciation of the cedi between January to August, power rationing through most of the second half of the year and election-related fears, which led to some short-term capital outflows and slowed business activity. Power generation is expected to improve in 2013, when the West African Gas Pipeline comes back on stream and construction is scheduled to be completed on the Bui Dam, a gas-processing facility to fuel thermal power generation and two private power generation plants.

The government urgently needs to complete its Public Investment Program (PIP), which is to serve as the basis for the Public-Private Partnership Policy (PPP) approved in 2011. Furthermore, the development of a national infrastructure master plan would underpin the implementation of the PPP. Several initiatives have been announced to develop key infrastructure, such as the rehabilitation of the Takoradi port as well as three major airports. Completion of the PIP would help to guide future private and public sector investment activities.

Financial Sector

Progress was made regarding the recapitalisation of banks under the Bank of Ghana regulation that all deposit banks have a minimum stated capital of GHS 60 million. At the end of the first quarter of 2013, all banks except one had met this criterion. In July 2011, the Bank of Ghana began the registration of micro-finance institutions and issued guidelines and regulations to clarify their responsibilities.

Ghana was blacklisted in August 2012 by the Financial Action Task Force for its monitoring of money laundering, an action that underscores the difficulty of ensuring the stability and integrity of the country’s financial system. It was subsequently removed from the blacklist in November 2012 after initiatives were taken to address the money laundering and terrorism finance offences, including strengthening of institutions and reviewing several items of legislation that cover money laundering.

In 2012, the government continued to make payments on outstanding arrears that had been hurting the financial sector. The non-performing loans ratio declined from 16.4% in July 2011 to 13.4% in July 2012, while the capital adequacy ratio declined from 17% in July 2011 to 15.5% in July 2012, remaining above the statutory minimum of 10%.

In the first half of 2012, the Bank of Ghana undertook two issuances of three-year bonds and one of five-year bonds. All were oversubscribed, with significant participation by foreign investors in the five-year bond. These issuances have helped to extend the yield curve and boost the stability of the cedi.

Progress was also made in implementing some of the recommendations outlined in the Financial Sector Strategic Plan II approved in 2011. Despite these reforms, however, Ghana’s financial system remains relatively underdeveloped and still lacks most of the sophisticated financial products that are available in the world’s financial markets. Although Ghana’s stock market performed well, the equities market remains small and illiquid, while the bond market is undersized and dominated by government securities, making it difficult for companies to diversify their capital-raising methods.

Public Sector Management, Institutions & Reform

Ghana continues to implement its public sector reforms to make delivery of public services more efficient. In 2012, the government completed the biometric registration of government workers and pensioners, to eliminate ghost names from the payroll. By November, 98.79% of government workers had been migrated to the SSS. As in prior years, the process was not entirely smooth, as various workers’ groups embarked on strikes to demand higher pay and backdating of effective dates. The wage bill was about 12% of GDP in 2011 and is estimated to have risen significantly in 2012, owing to the full implementation of the SSS. The wage bill continues to constitute a constraint on government expenditure, as the share of wages and salaries (estimated at 60% of revenue) surpassed capital expenditure.

Implementation of the decentralisation policy continued with the amendment of the Local Government Act, 1993 (Act 462), and the creation of 42 new districts increased the number of metropolitan, municipal and district assemblies (MMDAs) to 212. The local government service has been fully decoupled from the national civil service and 30 000 workers transferred from the latter to the former. According to this new arrangement, ministries, departments and agencies will be limited to their core mandate of policy formulation, monitoring and evaluation, while MMDAs concentrate on policy implementation.

The government continued to implement its public financial management reforms. The Ghana Integrated Financial Management Information System, an electronic platform, has been rolled out to all ministries, and some modules are already being used for government transactions. Revenue reforms under the Ghana Revenue Authority are in progress. The 2012 budget announced several new tax measures affecting the mining sector, including an increase in the corporate tax rate from 25% to 35% and adoption of OECD guidelines for transfer pricing.

Natural Resource Management & Environment

Ghana suffers from environmental degradation, which is affecting livelihoods in rural and urban areas and increasing vulnerability to human and natural disasters. The loss of environmental resources and deforestation threatens environmental sustainability (MDG 7). Ghana has signed a voluntary partnership agreement with the Forest Law Enforcement, Governance and Trade (FLEGT) action plan of the European Union (EU), which will enter into effect in March 2013. Through a licensing scheme, the FLEGT ensures that only legally harvested timber from Ghana is imported into the EU.

Ghana achieved compliant status under the Extractive Industries Transparency Initiative (EITI) in 2010 and currently aims to include the forestry sector in this initiative. In compliance with the Petroleum Revenue Management Act, the Bank of Ghana, the Ministry of Finance and the Public Interest Accountability Committee (PIAC) have published reports on the utilisation of oil revenues, the Stabilization Fund and the Heritage Fund. Failure to provide budgetary resources to the PIAC, which has relied on donor funds for its operations, undermines the committee’s independence.

The pressing challenge now is to improve regulation of artisanal and small-scale mining, which accounted for one-third of the 3.6 million ounces of gold mined in 2011. Illegal small-scale miners, or galamsey, are responsible for an estimated 70% of such mining activity and contribute nothing to state revenues. Their use of mercury for gold mining represents an ecological threat. The high price of gold attracts foreigners who collude with local chiefs to engage in illegal semi-industrial mining operations. This undermines local authority, encroaches on legal mining concessions and can threaten national security, as shown by some recent deadly clashes.

Political Context

The 2012 presidential elections (7 December 2012) and the successful inauguration of President John Mahama (7 January 2013), following the death of incumbent John Evans Atta Mills on 24 July 2012 in Accra, consolidated Ghana’s reputation as an increasingly mature democracy. The 2012 general election was the sixth since 1992, and voter turnout was high at 80.15%, an indication that most Ghanaians have embraced the electoral system.

On 9 December 2012, the Electoral Commission declared John Mahama of the National Democratic Congress (NDC) as the winner of the presidential election with 5 574 761 votes (50.70%). Nana Akufo-Addo of the NPP received 5 248 898 votes (47.74%). Despite some technical glitches in the new biometric registration system, international observers considered the elections to have been relatively free and fair. The NPP, however, has alleged that over 1 million votes were wrongly counted and has petitioned the Supreme Court for redress.

Ghana’s macroeconomic governance and structural reforms have been observed to suffer from political budget cycles: the 1996, 2000 and 2008 elections were noted for high unplanned expenditures by governing parties to renew their mandate, which put fiscal consolidation at risk. This has led to the expectation of an election cycle impact on the economy, requiring an adjustment in the years preceding an election in order to maintain macroeconomic stability. Both the president and the finance minister gave assurances that they would keep the fiscal deficit under control in 2012, despite its being an election year. The issue of control over and use of future oil revenues raised the election stakes and dominated the political debate preceding the elections.

Social Context & Human Development

Building Human Resources

The human development situation can be described as mixed. Ghana’s latest Human Development Index ranking is 135th out of 183 countries, compared to 136th in 2010. This places the country at the lower end of the medium human development category. Ghana is doing well in terms of attaining MDG 1 on eradication of extreme poverty, MDG 2 on attainment of universal primary education, MDG 3 on promotion of gender equality and empowerment of women, and MDG 6 on combating HIV/AIDS, malaria and other diseases. It has made less progress, however, towards MDG 4 on reduction of under-five mortality, MDG 5 on improvement of maternal health and MDG 7 on ensuring environmental sustainability.

The net school enrolment rate increased from 59% in 2001/02 to 81.7% in 2011/12, despite a slight decline to 77.8% in 2010/11 (Education Management Information System, 2012). This performance is attributable to many factors, including the introduction of social protection programmes that encourage school enrolment. On the supply side, teachers have benefited from a 15% increment in basic salaries through the SSS introduced in 2011. Human development indicators show disparities between rural and urban settings, between northern and southern Ghana, and between men and women. Inadequate school infrastructure, mainly in rural areas, compounds the gaps in educational quality between rural and urban primary schools.

Although under-five mortality fell from 111 to 78 per thousand live births between 2003 and 2011, the current trend indicates that Ghana is unlikely to achieve the MDG on child mortality without focused interventions. The institutional maternal mortality ratio declined from 206 to 164 per one hundred thousand live births between 1990 and 2010 (Ghana MDG Report, 2012). Although maternal health has generally improved, the ratio is unlikely to reach the target of 50 per one hundred thousand live births by 2015 without significant intervention. In 2011, the United Nations system supported the development of the Ghana MDG Acceleration Framework for MDG 5. It mobilised EUR 52 million from the European Union in support of the attainment of MDG 5 and other lagging MDGs.

According to the annual HIV sentinel surveys conducted among antenatal attendants, the HIV prevalence rate in Ghana is generally showing a downward trend. It fell from 3.2% in 2006 to 2.2% in 2008, and after a slight increase to 2.9% in 2009, declined further to 2.0% in 2010 and 2.1% in 2011 (Ghana Sentinel Survey Report, 2006-11). Malaria continues to be a major cause of death in Ghana, despite malaria control strategies and initiatives such as distribution of insecticide-treated nets, intermittent preventive treatment in infants and distribution of artemisinin-based combination treatments. It is estimated that 3.5 million Ghanaians contract malaria annually and that approximately 20 000 children die of the disease each year (UNICEF Ghana Fact Sheet, Malaria, 2007). In 2009, malaria accounted for about 32.5% of all outpatient attendance, with most of the consultations being for children under 5 years of age. Although new data are not yet available, the trend is likely to remain the same in 2013.

Poverty Reduction, Social Protection & Labour

Ghana’s strong economic performance has to some extent translated into poverty reduction. Average GDP growth exceeding 5% over the 1991-2006 period halved the incidence of extreme poverty from 52% in 1991 to 28.3% in 2006 and reduced the proportion of people below the national upper poverty line (Ghana MDG Report, 2012). Although this places Ghana on course to halving the poverty rate, there remain regional disparities in poverty rates between southern Ghana and the three northern regions, as well as rural/urban and occupational disparities. Poverty is endemic among rural dwellers, women and food-crop farmers.

The priorities of the Ghana Shared Growth and Development Agenda (GSGDA) for 2010-13 cover macroeconomic stability; private sector competitiveness; agricultural modernisation and natural resource management; oil and gas development; infrastructure and human settlements development; human development, productivity and employment; and transparent and accountable governance. These policies have direct and indirect effects on poverty reduction. In terms of resource allocation, over four years of implementing GSGDA, 3.8% of the total cost has gone to agriculture, 39.4% to infrastructure and human settlements, 25.2% to human development and 15.07% to the oil and gas sectors. Poverty diagnosis normally precedes the formulation of any medium-term development framework, but there are problems in aligning expenditure with strategy, since the National Development Planning Commission is responsible for planning, while the budget is controlled by the Ministry of Finance and Economic Planning. Better co-ordination of these two institutions may be helpful in achieving better alignment.

The level of pro-poor spending increased from 5.5% of GSGDA expenditure in 2011 to an estimated 23.7% in 2012. In 2011, the number of households provided with cash grants under the Livelihood Empowerment against Poverty Programme increased by 20%, from 50 000 to 60 000. The country continues to implement several other social safety nets, including the National Health Insurance Scheme and the National Youth Employment Scheme. Actions taken to curb unemployment, especially among youth, include the launch of Jobs and Enterprises Centres and the Local Enterprise and Skill Development Programme. The efficiency and effectiveness of poverty reduction and social services are undermined by poor benefit incidence analysis and targeting. It is estimated that at least 30% of the beneficiaries of these programmes are not the intended targets. Although Ghana monitors progress on GSGDA priorities through the Annual Programme Report, inadequate data at the regional and district levels affects the quality of information in the report.

Gender Equality

Despite the enactment of gender policies, gender inequality remains a problem. Gender disparities exist with respect to access to credit, health, education and land, as well as participation in decision-making. In the 2012 parliamentary elections, 29 seats out of a total of 275 (10.5%) went to women. Although this represents a slight increase over 2008 (8.7%), the proportion remains low, considering that women made up 51.3% of the population in the 2012 census. According to the Human Development Report 2011, the Gender Inequality Index in Ghana is low, with an index rating of 0.598. This ranks the country in 122nd place out of 187 countries. Ghana lags behind other middle-income countries in sub-Saharan Africa, such as Swaziland and Senegal.

The Gender Parity Index (GPI) for primary school, which measures the ratio of females to males in primary schools, increased from 0.96 in 2009/10 to 0.97 in 2011/12. The GPI for junior secondary school also showed a marginal increase, from 0.92 in 2009/10 to 0.94 in 2011/12 (Education Management Information System, 2012). Equal protection and access to justice, particularly for women in the three northern regions, have not improved much despite the establishment of various means of addressing gender-related disputes, including the newly established gender-based courts (Institute of Local Government Studies, 2012).

 

Thematic analysis: Structural transformation and natural resources

Ghana is richly endowed with mineral resources. It one of the world’s top ten gold producers and the second-largest in Africa, and its mineral potential includes diamonds, bauxite and manganese. In 2004, Ghana discovered offshore oil and gas,2 and commercial oil production started in 2010. Ghana is the world’s second-largest cocoa producer and has extensive arable land, forests, fishing and hydroelectric potential. The government aims to diversify its minerals base into limestone, aggregates, clay and base metals.

Ghana has experienced less structural transformation than would be expected given its sustained average annual economic growth of 5% since 1990. Agriculture, although its contribution to growth has declined, still accounts for over 20% of GDP and 50% of total employment. The industrial sector has remained stable at around 25% of GDP for the past 15 years. However, the share of manufacturing in industrial GDP has declined from 36% to below 30%. Construction, driven by an urban housing boom and infrastructure development, is now the largest sub-sector. Services compensated for the slight decrease in agriculture’s share and became the largest contributor to GDP. Growth in services is driven by Ghana’s emerging middle class. Oil and gas discoveries and their potential for power generation, coupled with the government’s industrial development strategy, could drive structural change in the near future.

Economic transformation is hampered by the weak transformation of the agricultural sector. Land tenure issues deter investments in more productive commercial agriculture that could provide competitive inputs for developing local agro-processing. As a result, domestic demand is met through cheaper imports of processed food, rice and meat. Gradual diversification into non-traditional exports, such as palm oil, cotton, rubber and fruit, has slowly driven agricultural transformation. The government’s disease and pest control programmes and fertiliser use tripled cocoa production from 340 000 tonnes in 2002 to 1 024 000 tonnes in 2011.

A second set of constraints on the development of manufacturing activities consists of high labour and electricity costs, expensive raw materials, low access to finance and obsolete machinery. These structural problems are compounded by strong upward pressure on the exchange rate due to commodity exports (cocoa, gold and oil), large development assistance inflows and remittances. The high cost of finance, small tracts of land and stringent labour regulation further deter competitiveness. Agriculture-related activities such as food, wood processing and textiles account for about two-thirds of total manufacturing in Ghana.

The government’s new industrialisation strategy builds on the oil and gas industry to transform Ghana’s economy. The gas sector is likely to provide cheap energy to the future benefit of manufacturing and agriculture and to serve as an input for fertiliser production. Oil revenues should finance public investment in infrastructure, although these revenues were disappointing in 2012 due to technical difficulties that lowered production.

The Ghana National Petroleum Corporation (GNPC), responsible for the commercial exploitation and exploration of Ghana’s oil resources, aims at becoming an operator and owning a full oil block in the long term. According to the GNPC, the government intends to keep minority equity stakes ranging from 5% to 10% in all exploration activities. However, the country’s shallow financial markets limit GNPC’s ability to raise its stakes in the national oil industry quickly without resorting to foreign capital. GNPC estimates that 40% of Ghana’s oil is onshore, but exploration of these resources is currently not planned.

Ghana’s Petroleum Revenue Management Act (2010) is considered strong and transparent by international observers. It provides for the creation of a Stabilization Fund and a Heritage Fund. The former cushions the impact of potential oil revenue shortfalls, while the latter provides an endowment to support the welfare of future generations. In addition, since 2011 Ghana’s Ministry of Finance has been successfully hedging oil imports and exports against volatile oil prices in order to preserve macroeconomic stability.

The PIAC was inaugurated on 15 September 2012 with a mandate to monitor and evaluate the management of oil revenues. The committee faces funding constraints, and its reports are not properly embedded in parliamentary processes to ensure the follow-up of its audits and recommendations. Oil contracts are still not published, except for that of Tullow Oil. The government plans to use a competitive bidding process for future licensing rounds.

Mining in Ghana has the reputation of an “enclave industry”, attracting substantial FDI but not generating many employment opportunities for Ghanaians. However, recent research (Bloch and Owusu, “Linkages in Ghana’s gold mining industry: Challenging the enclave thesis”, Resources Policy, 2012) indicates the emergence of Ghanaian component manufacturers and input providers servicing the mining industry, most of which are located close to the headquarters of the large mining companies in Accra and Tema. They provide local manufactures and intermediate inputs in the following areas: metals, chemicals and plastics, civil engineering, business services and logistics. Local companies increasingly engage in services such as construction, maintenance, catering, landscaping, haulage, transportation and security. These emerging clusters may increasingly service West Africa’s growing regional gold industry.

The government’s Local Content Bill, submitted to parliament in October 2012, aims at mainstreaming local supply and service provision in mining companies’ procurement policies. Employment and training requirements, among others, will increase in line with the country’s capacity to meet the mining industries’ procurement and staff requirements. By 2020, the country aims to provide 90% of mining inputs locally. The bill includes a “mining community development scheme” financed through the proceeds from mining companies’ royalty payments and development funds. In addition, the Ghana Chamber of Mines identified 27 product categories with “import substitution potential”, ranging from clothing and wood products to chemicals and explosives, plastics and metal products. Weak human capital and low productivity of local small- and medium-sized enterprises (SMEs) continue to constrain local economic development around mining areas. 

The 2010 revision of the mining code is likely to increase the government’s tax take. Key revisions include the renegotiation of stability agreements, a 5% flat-rate royalty (compared to the current 3-6% range), an increase in corporate tax from 25% to 35% and a 10% windfall tax on mining profits (this proposal was announced in the 2012 budget but had not yet received parliamentary approval at the end of the first quarter of 2013). Mineral royalties currently contribute up to 80% of mining revenues, compared to 15% for corporate taxes. Mining companies can opt for accelerated depreciation and the carry forward of losses, which limits the potential for corporate tax revenue3. Implementation of a more balanced fiscal framework is hindered by capacity constraints in the Ghana Revenue Authority and asymmetrical information. The industry has warned, however, that the increasing tax burden may deter future exploration investments.

Notes

  1. ODA as a percentage of GDP declined from 8.8% in 2000 to 5.2% in 2010. As a percentage of revenue and grants, it fell from 44.6% in 2010 to 11.4% in 2012 (author’s calculations).
  2. As at December 2012, the Ghana National Petroleum Company had announced 16 additional offshore oil and gas discoveries.
  3. The oil companies operating in the Jubilee field have not paid corporate taxes since 2010 due to this provision. The Ministry of Finance and Economic Planning has set up a committee to work with the industry to resolve this issue.

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