Ghana 2018 | ECONOMY | REVIEW

Though Ghana's economy is stable, certain threats loom. But with a robust workforce and much to offer, a few adjustments and new policies may turn the country into West Africa's economic powerhouse.

In January 2017, following a peaceful election one month prior, Ghana swore in President Nana Dankwa Akufo-Addio of the opposition party. While the country will see a new set of political goals mark the agenda, Ghana's economic woes, many significant, remain the same. Though he has been in office only a year, the president has promised to cut waste across the public sector and reduce the country's budget deficit.

The beginning of 2017 started out much better for the country than 2016, which saw a considerable fiscal drop. Ghana's fiscal debt for the first half of 2017 was 2.7%, well within range to achieve its goal of 3.5% of GDP, according to the World Bank. Despite the government making cuts to both capital and recurring expenditures, overall revenue failed to meet targets and was nearly 15% below target. The World Bank reports that the country's total debt increased from just over USD29 billion, or 73.1% of GDP, at the end of 2016, to USD31.7 billion, or 68.1% of GDP, in 2017.
March 2017 marked Ghana's third quarter of economic expansion in a row, with growth at 6.6% compared to 4.4% from the previous year. The industrial sector played a prominent role in this economic expansion; growing at 11.5%, the industrial sector was the highest-grossing sector. This is coming from just 1.8% growth in 2016. Other significant sectors include agriculture, which grew by 7.6%, compared to 5% the previous year; the World Bank cites successful harvests with crops and cocoa as well as fisheries. The services sector saw a decline in growth, from 6.6% in 2016 to 3.7% for 2017, with stagnation in the finance, information, and communication sectors to blame. Throughout the same period in 2017, all non-oil growth fell to 3.9% from 6.3% YoY.
Neither massive growth nor stagnation for the country has resulted in a relatively moderate inflation rate, which has allowed the central bank, the Bank of Ghana, to drop its policy rate. As of August 2017, the YoY inflation rate was 12.3%, a minute increase from July's record of 11.9%, but in line with an overall decrease beginning in September 2016. Seizing the opportunity, the Bank of Ghana in July reduced the policy rate by 450 basis points to 21.5%.
The 91-day treasury bill rate saw a drop to 12.1% in June, from 16.81% in December 2016, while the 182-day treasury bill rate fell to 13.28% from 18.5% during the same period. Overall, broad money increased by nearly 24% through the first five months of 2017, compared to 16.8% the previous year. Outstanding credit to the private sector saw an increase to 16.2% in May 2017, up from 10.1% from the same period in 2016.
With the continued stabilization of the Ghanaian cedi, exports saw increased improvements and the reserve buffer grew. As of June 2017, the trade balance produced a surplus of approximately USD430 million, equal to just over 3% of GDP, growing from a 3.3% deficit just one year prior. Cocoa, gold, and oil were responsible for much of the growth in earnings. January witnessed a significant decline in the value of the cedi, but since then increased reserves and better liquidity have increased value for the currency. Ghana's gross international reserves reached USD5.9 billion, worth 3.4 months of imports, as of June 2017, with growth from December 2016 equaling USD1 billion, according to the World Bank.
While the country's economy is relatively comfortable and secure, Ghana still has long-term economic issues it must address. For 2017, GDP is expected to grow to 6.1%, supported mostly by a boost in oil production. Additionally, gold production is expected to remain at its current high output, and cocoa production is anticipated to surpass 900,000 tons. Despite the strong performance of cocoa and gold, overall non-oil growth is not expected to surpass 4.3%, according to the World Bank. By 2018, inflation is forecasted to drop to within the ideal range of 6-10%, which in turn will allow for even greater easing of monetary policy and lower interest rates, which will hopefully drive private investment.
The government hopes to bring the fiscal deficit to 6.3% of GDP by the end of the year, a target many analysis expect will be met. If successful, this could help bring down debt stock from 73.4% to 70.5% by the end of the year. The country is currently considered at high risk for debt distress, and any additional, unforeseen economic roadblocks could result in a significantly negative impact on debts. The cost of financing both domestic and foreign markets still remains quite high for Ghana.
For the medium term, the government's ability to maintain stability in the economy will determine the country's economic performance, with fiscal consolidation a central aspect. The country's leadership has shown a drive to take on fiscal consolidation. Additionally, the country is set to see increased financing cost both at home and abroad, as the nation's debt grows and international interest rates continue to grow. Hampering the country's efforts to greater economic stabilization are other factors, such as rapidly increasing demands for energy that is unreliable and costly, high youth unemployment rates, and little progress made on debts taken out by state-owned organizations.

In order to better understand how the country has built its large export market, TBY sat down with Gifty Kekeli Klenam, the CEO of the Ghana Export Promotion Agency (GEPA). According to Klenam, GEPA works closely with international institutions that look at the quality standards of Ghanaian production. “All these standards are stringent and require the right certifications to ensure we produce high-quality seedlings, which is key in developing these products," Klenam said. “If we get it wrong from the beginning, we get it wrong all the way through. We are thus taking all the measures with the right institutions and bodies to ensure the quality of these products right from the seed stage."
The country's recent economic stabilization has brought benefit to citizens throughout the country and has worked to improve living conditions considerably in rural areas. However, the country's informal economy is still a giant, especially in areas where infrastructure is not as advanced as the capital and major cities and where development is still needed. According to the Ghanaian paper Daily Guide, of the country's more than 25 million citizens, only about 1.5 million are taxpayers, and approximately 70% of the economy is deemed informal. One way of ensuring the country's long-term economic stability would be to reverse this dynamic and bring more citizens not only into the formal economy, but also to the realm of tax paying.
According to a report by the African Development Bank, some 90% of companies in the country are MSMEs that have fewer than 20 employees, showing the significance of the informal economy. This is where the majority of Ghanaians are employed, considering only 8.5% of the country's workforce is formally employed. The country's MSMEs are where most of its exports are made.