LOUD & CLEAR

Ghana 2016 | ECONOMY | FOCUS: DIVERSIFYING THE ECONOMY

The government is looking to the private sector to drive growth and diversification as a means of fighting the negative effects of falling commodities revenues.

Diversification has been the main watchword of President Mahama's tenure thus far. Reeling from the damage inflicted on the economy by the drop in commodity prices, the economy nosedived as it struggled to cope with the cedi's depreciation and a rising fiscal deficit. Following consolidation by the IMF and stringent fiscal spending reviews, Mahama's administration has introduced numerous measures and policies to incentivize investment in industries that boost the in-country value chain. But with the government strapped for capital, the onus is on the private sector to drive this diversification.

The message has been received loud and clear. According to the revised 2015 budget, it has been recognized that if the slump in oil prices continues, the country will not be able to base its hopes of building fiscal and foreign exchange buffers on oil exports. At a forum on insurance for the oil and gas industry organized by Star Assurance, the chair, Nana Kobina Nketsia, highlighted, “If a company comes in and takes out our raw materials in their raw state, we become poorer, we get little return, and we lose that resource. If we add value in-country, then we will be richer, we will provide jobs, and add value to the material.”

Stimulating the productive sectors of the economy is key to generating momentum, and given the drop in real GDP growth to 4% in 2014, with the services sector recording a real growth of 5.7%, industry 0.9%, and agriculture 4.6%, these catalytic areas have been appropriately prioritized. However, with the tightening of the government's budget, any economic transformation will rely on contributions from the private sector.
Economic policies are expected to emphasize the importance of producing basic necessities such as food, water, and clothing. The Institute for Fiscal Studies noted in its report on the 2015-2017 IMF program that, “The country cannot make any headway in reducing poverty and improving living conditions by living on imports.”
The current priority has been the role that agribusiness can play in reducing the fiscal deficit, especially in light of debt servicing being blamed for absorbing so much domestic revenue and leaving the country vulnerable to economic shocks. In 2013, the cost of importing basic foodstuffs totaled $1.06 billion.

One such initiative has been the Competitive African Rice Initiative (CARI) launched by TechnoGhana, which intends to increase the competitiveness of the domestic rice supply to meet the 770,000 tons of domestic demand. Through grants, the initiative is aimed at improving the technical skills and business acumen of the farmers to increase the size and quality of their yields.

Cocoa is key for Ghana; the COCOBOD program of exporting the finest beans while retaining the poorer yields for in-country processing has thus far been a strong policy, with companies like Cargill being incentivized to bring in value-adding facilities. Cargill has partnered with local communities since entering the market, and has worked to certify 15,000 farmers in standard best practices. It has also partnered with Village Savings and Loans Associations and CARE in an initiative to overcome the difficulties of access to credit in rural communities by building on a model to establish collective micro financing funds.

The Minister of Communication stated in an exclusive TBY interview that, “We want to reduce the $300 million we spend on importing sugar; therefore, we have two projects in Asutsuare and Savelugu, creating about 7,000 jobs. These are two good centers that are ready to take off when the investments are in place.” The same appetite for partnerships is ripe, with the Ghana Investment Promotion Center pushing economic diversification geographically as well, advertising incentivized opportunities in the north of the country away from the traditional centers of capital like Accra, Tema, and Takoradi.

There is a pressing need for Ghana's industries to be supported, especially those with vast export potential, such as agro-processing, clothing, and pharmaceuticals. The government has been working hard, with investments such as those in 2003 in the production of rice resulting in a production increase of 60% by 2014 and a 14% decline in rice imports, or the equivalent of a $240 million reduction in imports. The government is actively advertising opportunities for FDI in the processing of poultry as well as several other opportunities related to agri-business and the pharmaceutical industry.

One trend that is becoming evident in Ghana is the historical move from token corporate social responsibility policies toward an increasing focus by multinational companies on the longevity of their investments. The economic argument for supporting small-scale producers as a strategy for securing stable long-term growth is a strong one that is steadily gaining momentum beyond Ghana's corridors of power.

Successful initiatives will bolster the performance over time of the external sector and reduce the market's exposure to volatility in commodity prices. The appetite and policy-led incentives for PPPs is ripe, and Ghana remains keen on attracting partners willing to enhance its industrial capacity.