ECONOMY : Still hopeful

The country’s hopes at independence have yet to be realised, but 55 years on Ghana still remains the country to watch in Africa.

It’s been a remarkable run of turnarounds for Ghana’s economy in the last five years. It has moved from low-income to (lower) middle-income; from groping for oil to actually producing and exporting the resource; and from wandering in the shadows of Nigeria and Côte D’Ivoire to become the richest country per capita in the Economic Community of West African States (ECOWAS).

But Kwame Nkrumah and his contemporaries would be underwhelmed by all this if they lived today. Nkrumah would have preferred to see Ghana richer than all of Africa and most parts of the world. And he would have it that cities in Ghana had become by now “the metropolis of science, learning, scientific agriculture, industry and philosophy,” that he envisioned.

Last year, thanks to the bonanza of oil, the economy grew at 13.6%, the fastest in Africa. This boosted GDP per capita to US$1,500, raising the figure by half in just four years. Growth is expected to normalise in 2012, but at the 9.4% projected it will still be 3 percentage points better than the average per annum between 2000 and 2010.

Oil may not have created many direct jobs, but the revenues have offered a window to pursue the big-ticket projects that Nkrumah had in mind. Sometime this year, the US$850million gas-development project, the biggest single public-infrastructure investment in the country’s history, will take off in the Western Region where because of the closeness of the oil fields, expectations about the possibilities of oil are greatest.
The government’s plan is to develop an industrial enclave in the west, using hydrocarbons as fuel, literally, to power other industries. The gas that comes out with the oil is the real boon, many have said.

Gas can be used as a substitute for expensive crude-oil to fire the thermal plants that generate about a third of Ghana’s electricity. And because the gas is closer to home than what is currently imported from Nigeria, it will be a more reliable energy-source.

Part of the grand vision around hydrocarbons is to kick-start a revolution in energy-intensive manufacturing, much like Kwame Nkrumah started with the Akosombo dam project and the Volta Aluminium Company (VALCO). Already, there has been talk of factories for fertiliser, petrochemicals and cement-manufacturing.

Because of the underinvestment in power since Nkrumah’s monumental effort, VALCO today is not able to operate at maximum capacity; but that would change when Ghana boosts electricity production to 3,300 megawatts by the end of 2013 from 1,800 megawatts in 2009.

About 400 megawatts of the additional generation is expected from the Bui hydropower facility, which like the gas project is being paid for with Chinese credit.

Agriculture is still important to the country, not least because more than half of the labour force still depend on crops and livestock for a living. But there haven’t been substantial productivity gains for many years because farming relies mainly on old methods and tools. Again, oil is a godsend: legislation passed last year requires part of the revenues to be spent on agricultural mechanisation.

In the first nine months of 2011 agricultural output grew at 9.5% year-on-year, according to official figures, driven by cocoa and food crops. Cocoa production exceeded 1 million tonnes in the last harvest season, a record for the country.

At the beginning of the current season, government raised the regulated price paid to about 800,000 farmers for a bag of beans by 2.5%, on top of a 33% increase during the previous harvest. That should keep output within 0.85-0.9 million metric tonnes, Cocobod has said.

Construction activities continue to boost growth, with upscale developments proliferating. The deep pockets of middle- and upper-class spenders have stimulated the property market, pushing up house prices and making land scarcer. Public spending is also propping up the industry.

Between 2000 and 2008, the network size of roads expanded at an average annual rate of 8%; and in 2011 about US$460million was spent by public-sector agencies on new roads, and the rehabilitation and routine maintenance of the existing network. The government’s plans to increase capital expenditure by 54.8% this year should also be a strong fillip to the industry.

Meanwhile, manufacturing has been trailing the rest of the economy. In the first three quarters of 2011, while the economy’s total production jumped by 15.9% year-on-year, manufacturing output slumped by 5.7%. During the first republic, manufacturing was the pivot of Nkrumah’s industrialisation policy; but the many state-owned factories he set up were inefficient and mismanaged.

Today, few people believe the state should run factories; but there is a feeling that too much has been left to the market to decide. Tracing the roots of the problem, some have cited the unbridled liberalisation that happened in the 1980s as a reason for the decline in manufacturing.
In a sense, the services sector has picked up some of the pieces from this fall.

Gradually, it has overtaken agriculture as the biggest part of the economy, providing more than half of GDP. Ghana is not the only developing economy that has leapfrogged manufacturing into services, but the difference is that unlike the prominent example of a country like India, it is traditional services like commerce, hotels, restaurants and public administration that dominate.

These activities cannot be exported and often do not add much to productivity. If Ghana can get its education right, it could in the future benefit more from exportable modern services such as software development, business-process outsourcing and professional consulting activities. These perhaps would make it possible to enjoy some of the advantages a strong manufacturing base would have offered.

It is impressive that the brisk growth of the economy in the past half-decade has been underpinned, for the most part, by a stable macro-economy. Price-growth has been contained since annual consumer inflation peaked at 20.7% in June 2009.

In fact, inflation has been stable and below 10% since June 2010. In the government sector, growth has been reflected quite well in wages. Last year, nominal wages increased at more than twice the rate of inflation, and between March 2008 and January 2012 the national minimum wage increased by 41% in real terms.

The challenge presently is to stay on the path of fiscal prudence as the country prepares for elections in December. In three of the five democratic elections held since 1992, the government’s budget deficit widened significantly in the election year, and was often associated with a large external deficit that set off high inflation and a steep fall in the currency.

There’s now a realisation that stability, both political and economic, is a sine qua non for growth and development. Across the political divide, people are hopeful that the polls will be free, fair and peaceful, and that the collateral damage to the economy will be kept to a minimum.

Source: B&FT