A thriving economy boosts businesses, and this has a great impact on a nation’s development and diplomatic relations. Ghana, although strategically positioned and blessed with resources, has had an erratic economy. For decades, this nation has enjoyed moments of economic growth as well as battled with economic crises. This article delves into all the successes and recent challenges Ghana’s economy is grappling with.
A THRIVING ECONOMY
Any thriving economy is characterised by stability and sustainable growth in the various sectors of the economy, which is evident in the lives of its citizens because policies and reforms are made to prioritise prosperity and quality of life for its citizens.
A thriving economy can boast holistic growth in diverse fields, resulting in low unemployment and low inflation, growth of industries and infrastructure, political stability and good governance, access to international trade and open markets, entrepreneurship, and environmental sustainability, among many others.
Some successes and future prospects
Ghana’s economy is one of the most diversified on the continent, with a strong agricultural sector, a thriving manufacturing industry, and a growing services sector. Despite economic crises, there have been some successes in various sectors.
The agricultural sector has growth potential. Ghana is already a significant producer of products like cocoa, cashew nuts, and other things due to its favourable climate for agriculture. Through its production, the government adds value, which aids in job creation and boosts exports. It has been projected that, from 2023 to 2026, agriculture is expected to contribute an average of 20.6% to Ghana’s gross domestic product (GDP), according to data from the country’s 2023 budget statement. Additionally, throughout the same period, this industry is expected to experience average GDP growth of 4.1%.
Additionally, there is much potential for the Ghanaian agricultural industry to grow as a result of the rise in food insecurity around the world. These possibilities can be used to fulfil the increasing food needs of Ghana’s expanding population, making the agricultural sector a key area for economic growth.
The goal is to reduce imports and increase self-sufficiency in vital industries; hence, recent economic difficulties have motivated a cooperative effort from all parties, including the government, to stress value addition to raw resources and prioritise domestic manufacturing of necessary goods. The government has been providing tax breaks and credit to industrial enterprises as incentives to invest in the nation. Hence, both domestic and foreign investors have the chance to set up factories that produce goods for both domestic and international markets.
Natural resources are essential inputs for a healthy industrial sector in Ghana because they are plentiful and diversified. According to the 2023 Budget Statement, this industry is anticipated to contribute an average of 10.9% to Ghana’s GDP and expand at an average rate of 4% from 2022 to 2026. In addition, Ghana’s high urbanisation rate of 54.1% and its relatively young population are important growth drivers for the manufacturing sector.
Mining is a major economic activity in Ghana and a key contributor to the Ghanaian economy. In addition to being a large producer of cocoa, the nation is also rich in resources like gold, bauxite, manganese, and diamonds. The government has made efforts to develop these resources for foreign exchange as they highly contribute to foreign direct investment. Despite. Ghana’s growth in the oil and gas sector has been a key success story, and there are chances for more exploration and investment.
GDP TRENDS AND THEIR IMPACT ON VARIOUS SECTORS
In 2019, Ghana could boast of a well-thriving economy as its economic growth doubled. The GDP growth rate in Ghana significantly declined to 3.2% in 2022 from 5.4% in 2021, which slowed down its economic growth. This decline has been attributed to macroeconomic instability, global financial challenges, and the effects of Russia’s invasion of Ukraine.
As a result of this decline, various sectors and their operations have been severely affected, and the non-extractive sectors were severely impacted by this downturn. Due to high-interest rates and inflation that restrained private spending and investment in the extractive industries’, the growth of the agricultural and service sectors has been slower.
Factors Contributing To Challenges
The average consumer price index increased from 10% in 2021 to 31.5% in 2022, which raised serious concerns about inflation. The annual inflation rate reached 54.1% in December 2022. Due to higher inflation, the prices of goods have increased, causing frustration among many citizens.
In 2022, the fiscal deficit slightly increased from 9.2 in 2021 to 9.3 due to higher spending. Also, instead of the targeted 6.7% of GDP, the fiscal deficit in 2022 was 9.9%, exceeding its targeted rate. Due to primary budget deficits and exchange rate depreciation, public debt increased to 93.5% of GDP in 2022 from 82.0% in 2021. Fortunately, due to an improving trade balance, the current account deficit decreased from 3.2% of GDP to 2.8% of GDP. All these have resulted in deficits noted in the capital and financial statements.
Monetary Policy Response
The Bank of Ghana increased its monetary policy rate from 14.5% to 28% over a year to address economic issues, which reflected efforts to control price increases. Although the government’s heavy reliance on its overdraft capacity with the Bank of Ghana hindered these efforts,
Balance of Payments and International Reserves
A 1.9% GDP surplus in 2021 was followed by a 5% GDP deficit in 2022 for the balance of payments. Unfortunately, international reserves were reduced as a result, going from $9.1 billion in December 2021 to $5.6 billion in December 2022, reflecting 2.5 months’ worth of imports.
Cedi depreciation and its impact on the banking sector
In addition, the Ghanaian cedi fell by more than 40% in value as compared to the US dollar. Due to the depreciation of the Cedi and a domestic debt exchange (DDE) in February 2023, the banking industry experienced greater risks. The domestic debt exchange had an impact on Ghana’s financial sector because banks, insurance firms, and pension funds held a sizable amount of the country’s debt, or 42.1%, at the time.
Slowed Poverty Reduction and its Contributing Factors
During this time, poverty reduction slowed, and in 2022, the global poverty rate was projected to be 20.5%. From 11% in 2021 to 10% in 2022, the poverty rate decreased. The rising cost of living and unemployment, however, have had a detrimental effect on living standards. Unemployment from 11.9% in 2015 to 13.4% in 2021, and the unemployment rate for young people, ages 15 to 24, is predicted to rise in the future. In addition, higher living costs, notably for food, were a result of depreciating currencies, rising electricity bills, and increased VAT. Also, budgets for households were strained as a result, especially those who spent a lot of money on food, while farmers in rural areas also suffered from rising input and fertiliser costs.
Government Initiatives and Policies
The e-levy is one way the government aims to gain revenue to support the economy; hence, in May 2022, Ghana introduced an unpopular tax called the e-levy, imposing a 1.5% charge on electronic and mobile money transactions over 100 cedis per day. In January 2023, the government reduced the tax rate to 1% but kept an exemption threshold for transactions below 100 cedis, although inflation has eroded its value.
International Monetary Fund (IMF)
Ghana has recently signed an agreement and entered into a new financial assistance programme with the International Monetary Fund (IMF), valued at $3 billion over three years. The country is anticipated to receive the initial installment of $600 million every six months. This step was necessary for the government to ease the economic burden on the country.
Ghana’s economic journey has seen both successes and challenges. Sectors like agriculture, manufacturing, and mining have witnessed these successes and challenges and are still promising sectors for the nation’s development. The nation has experienced economic challenges like inflation, fiscal deficits, and currency depreciation, which have had significant impacts. Finally, government initiatives like the e-levy and IMF support aim to address these issues and steer Ghana towards economic stability and prosperity.