Economy and Trade
Ghana, a relative economic star in Africa, is considered likely to attain its goal of middle-income status by 2015, especially given future oil revenues. It is the second-largest producer of cocoa, and Africa’s no. 2 gold miner. It is relatively open to foreign investment. The domestic economy centers on agriculture, but could be transformed by oil. In 2010, the first of Ghana’s 3.2 billion barrels will begin to flow from its waters, and within five years Ghana is likely to be the third-largest producer of oil in West Africa. Ghana is on track to meet the Millennium Development Goal of halving extreme poverty by 2015. Real GDP growth averaged 4% in the mid-1980s and has increased to about 5% over the past decade. The underlying strength of the economy was highlighted by its continued expansion in 2009. However, the country does face problems in the form of corruption and poor fiscal management.
Economic Policy over 12 Months
The International Monetary Fund (IMF) believes that fiscal management remains Ghana’s main challenge, even though the country made progress in reducing its budget shortfall in 2009. The budget deficit was reduced to 9.7% of GDP in 2009, more or less in line with the initial target, and down from 13.5% in 2008. However, the IMF pointed out that the deficit in 2009 would have been substantially larger, “but for new domestic expenditure arrears of about 4 percentage points of GDP (similar in magnitude to the domestic expenditure arrears accumulated in 2008).”
The government’s budget for 2010 is targeting a budget deficit of 8% of GDP, and is aiming to reduce the deficit to 3 to 5% of GDP in 2011–12 buoyed by oil-related revenues, which could amount to around 5% of GDP or more by then. Under these projections, public debt would rise to 62% of GDP by the end of 2010, before declining in 2011–12 as the fiscal deficit is reduced.
In 2009, the government made progress in the first year of Ghana’s program to strengthen fiscal institutions. It established a consolidated Ghana Revenue Authority (GRA), and launched a project to improve budget processes and computerize Ghana’s public financial management. However, the IMF said that “progress in addressing Ghana’s high public administration costs, which exceed levels in peer countries, has been less rapid, and care will be needed in implementing the new public pay structure to ensure that it does not exceed budget provisions for staffing costs.”
One of the main challenges facing the government will be to manage its new-found oil wealth prudently. A new oil and gas revenue management bill is expected to ensure that petroleum revenues and related spending are transparently reflected in the budget. In the 2010 budget the government said that its vision “with respect to oil and gas is to channel the resources to support the development of petrochemical industries.”
The government added that the “oil and gas reserves [would] serve as catalyst for the commercial exploitation of our other natural resources that have either not been exploited, or exploited but not processed into high value products for domestic use and exports. The gas resources will be used to support energy-based industries, such as glass bottles, steel mills, aluminum smelting and rolling mill operations which have faced serious challenges from the high cost and irregular power supply.” The budget statement further indicates that the “Government also plans to include the exploitation of sea salt, iron ore, bauxite, limestone and silica sand potential in the country for processing once the energy supply and value-added constraints are dealt with using gas as the main source of energy.”
Economic Performance over 12 Months
In a report published in March 2010, the IMF said that the economy expanded by between 3% and 4% in 2009, despite the global financial crisis, as cocoa and gold exports remained strong. The growth level was down from 7.3% in 2008, a year of highly expansionary fiscal policies that destabilized the economy, the organization added. In 2010 it expects growth of between 4% and 5%, boosted by investments linked to the offshore oil sector.
Inflation peaked at 20.7% year on year in June 2009, well above the central bank’s upper limit of 15%. However, inflation has since been on a downward track. It slowed for the ninth consecutive month in March 2010, declining to 13.3% from 14.2% in February, according to the Ghana Statistical Service. The IMF expects a further decline to single digits in the course of 2010. High fuel prices and loose fiscal policy contributed to inflationary pressures in 2008 and the first half of 2009. Tight fiscal and monetary policies, alongside an appreciation of the cedi against the dollar that has cut import prices, have caused the decline in inflation seen in the second half of 2009 and in 2010.
The additional oil revenues are expected to make a big difference to the economic outlook. Ghana’s revenues from oil and gas are expected to rise from 3% of non-oil GDP in 2011 to about 5% of non-oil GDP starting in 2013.
In January 2010, the Organisation for Economic Co-operation and Development (OECD) warned Ghana over its plans to develop as an offshore financial center. Jeffrey Owens, head of the OECD’s Tax Centre, was quoted as saying: “The last thing Africa needs is a tax haven in the center of the African continent.” Ghana wants to become a West African financial hub, taking advantage of its emergence as an oil producer. The OECD has said that it wants to ensure that Ghana’s emergence as a tax haven does not fuel corruption and crime in West Africa.
Support for Inward Investment and Imports
Ghana Investment Promotion Centre is the official agency that advises and monitors foreign investors, other than in mining and petroleum, and those in free zones. Projects in the extractive industries must be approved or licensed by the Minerals Commission, and the Ministry of Mines and Energy, respectively. Free-zone investment is overseen by Ghana Free Zones Board.
Ghana has had nonreciprocal market access to the European Union since 1975, meaning that most of its exports enter the European Union duty and quota-free. The planned integration of Ghana into the Economic Community of West African States (ECOWAS), a full customs union, will enhance its attractiveness by providing access to a larger market. Ghana also has an investment incentive agreement with the United States and eight bilateral investment treaties (BITs) with countries including the United Kingdom, China, and Germany.
Ghana’s top corporate tax rate is 25%. Tax incentives are available for investing outside the main cities. For example, investors operating under the Free Zone Act are entitled to a 10-year corporate tax holiday. Agricultural and industrial plant, machinery, and equipment imported for investment purposes are exempt from customs duty. The Ghana Investment Promotion Centre can provide more information, as can the Ghana Free Zones Board.
GDP growth: 3–4% (IMF, 2009 est.)
GDP per capita: US$1,500 (2009 est.)
CPI: 13.3% (official, March 2010)
Key interest rate: 17% (December 31, 2008)
Exchange rate versus US dollar: ¢1.4 (2009)*
Unemployment: 11% (2000 est.)
Current account deficit/surplus: −US$2.666 billion (2009 est.)
Population: 24,339,838 (July 2010 est.)
* Ghanaian cedi
Source: CIA World Factbook except where stated