Ghana’s Economy: Short-Term Worries And Sustainable Growth

Earlier this month the Italian-based company ENI, Vitol Group—a Dutch trading house, and Ghana National Petroleum Corporation (GNPC) signed a deal with President John Dramani Mahama that would see the development of an offshore oil reserve located about 60 km from the Western Region's coast.

Once fully operational, the Offshore Cap Three Points (OCTP) project will access 1.5 trillion cubic feet of natural gas and 500 million barrels of oil beneath the South Tano basin. Ghana currently produces 120 million cubic feet of natural gas and 85,000 - 100,000 barrels of oil a day from the offshore Jubilee field, while GNPC plans to have the Tweneboah Enyeara and Ntomme field operational by 2016. Expected to produce supplies for both domestic use and export, OCTP would allow Ghana to satisfy its growing energy demands from 2018 until 2036.

Often lauded as “a model for Africa,” the discovery and commercial exploitation of sizable deep-water oil reserves in 2007 saw Ghana's economy grow by about 6 percent over the past years—with an impressive 15 percent recorded in 2011. That being said, growth declined considerably to less than 5 percent in 2013. This can, however, be attributed to a fall in gold prices, while oil production was below official targets.

Ghana, like other West African countries, has traditionally relied upon its vast natural resources for export-led growth. Previously known as the Gold Coast, pan-African hero and later president, Kwame Nkrumah, declared Ghana's independence from the United Kingdom on March 6, 1957. Despite spurning its colonial name, gold remains the country's top export (roughly 44 percent) and—aside from South Africa—Ghana is the largest producer of gold ore in Africa.

Ghana's agricultural-sector, likewise, provides employment for nearly 40 percent of the total work-force. Cocoa dominates, accounting for 10 percent of agricultural production and 20 percent of export receipts. Ghana is the second-largest producer of cocoa, behind only the Ivory Coast. Lately, the government has increased efforts to diversify agricultural production of crops like fruits and vegetables. In 2014, Ghana exported more than 42,000 metric tons of vegetables—compared to 11,000 metric tons in 2009. The industry now produces about $3 million annually.

These advances, however, mask deeper institutional problems. Ghana was forced to seek assistance from the International Monetary Fund after it's currency, the Cedi, dropped 26 percent compared to the dollar last year. A weaker currency has spurred inflation, about 11.7 percent in 2015. Furthermore, better management of the public sector is needed with state wages consuming almost 70 percent of tax income. Public debt has, expectedly, risen considerably from 43 percent of gross domestic product in 2011 to 53.5 percent in 2013. While excessive government borrowing from commercial banks has led to a high interest rate on loans. Coupled with a burdensome process for obtaining land titles, unreliable power supply, and other economic barriers, Ghanian regional development has been somewhat constrained.

While developmental challenges remain, they should not overshadow Ghana's many achievements, including a successful democracy. Since 1993, power has peacefully changed hands twice. Ghana also boasts West Africa's second-largest economy and is now described as “moderately free” in The Heritage Foundation's 2015 Index of Economic Freedom. Although its overall score dropped 1.2 points, Ghana was ranked 5th out of 46 countries in Sub-Saharan Africa.

Membership and trade within the Economic Community of West African States further indicate expansion of non-traditional exports. Ghana has, likewise, made substantial progress in meeting the United Nations' Millennium Development Goals of halving extreme poverty and hunger by 2015. Government reforms have significantly reduced corruption in Ghana as well—especially when compared to countries like Nigeria, where it was just reported that $1.48 billion was missing from oil revenues.

Further diversification of Ghana's exports, however, will be central to long-term economic development. Revenue from traditional export commodities has declined recently and growth projections for 2015 were revised to 3.9 percent. Additionally, multiple planned outages, some lasting 12 hours, in the capital and industrial zones underscore the country's present energy crisis. Ghana has, nevertheless, benefited from oil and gas production, infrastructure development, private-sector investment, and political stability. Although short-term challenges remain, there's no reason why Ghana—committing itself to much need structural reform—shouldn't continue to be a model for African growth.