Booming Ghana Africa's new economic star

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Ghana is being held up as a star of economic growth this year. And not only will it likely outperform the whole of Africa but also most of the world based on the projections of international financial institutions that the economy of the West African nation will expand by at least 8.3 percent in 2018.

That is due largely to rising oil prices.

Seldom is Ghana, the first black African nation to gain independence from colonial rule, mentioned among Africa's top performing economies.

Its economy showed signs of springing back to life last year after a difficult 2016 – the year President Nana Akufo-Addo was elected to office on a campaign that touted economic diversification, curbing corruption and enticing foreign investment.

Although Ghana has left its mark on African democracy with four peaceful transitions of power since 1992 after a series of military coups, the dividend in terms of economic development has been slow.

Oil is driving growth in the economy of Ghana. /VCG photo

Expectations were raised in 2010 when the West African nation, one of the world's top cocoa exporters, became an oil producer. In the last 18 months, two major fields offshore have started production.

Export revenues from oil grew 124 percent last year, central bank figures show, and that trend seems poised to continue.

But Ghanaians have heard this scenario before, at the time of the previous oil boom, and many hope that the country will avoid the mistakes of other West African nation, Nigeria, where it is estimated that successive governments have frittered away more than 500 billion US dollars earned from crude oil sales since the 1970s.

“If you suddenly see a resource bonanza coming, there’s a tendency to spend money you don’t have, and that has been the case in the Ghana situation,” John Page, a senior fellow in the global economy and development program at the Brookings Institution, told the New York Times recently.

President Nana Akufo-Addo, seen here at his inauguration on Jan. 7, 2017, says his goal is economic diversification. /VCG photo

In a blog post this month, World Bank economist James Cust noted that when oil was discovered, the government in Accra put in place a strong petroleum revenue management program that specified how to use the resulting revenues, and included a savings fund for future generations.

"It saved about 500 million dollars from oil revenues," he wrote. "Unfortunately, the country borrowed about 4.5 billion dollars. Although it didn't break the rules of their petroleum revenue management act, it defied the spirit of (the law). And when the oil price crashed in 2014, oil revenues dried up, growth slumped."

The country is about to begin the final year of an extended International Monetary Fund (IMF) bailout programme initially worth 918 million dollars. Its aim is to restore fiscal balance to an economy dogged by budget deficits, rising public debt and inflation.

The IMF package also calls for additional efforts for full enforcement of expenditure control measures to contain spending and prevent the recurrence of domestic arrears, and to tackle energy sector inefficiencies.

In an update issued on March 5, the World Bank said Ghana made good progress in macro-stabilization in 2017 but needs to sustain fiscal consolidation efforts.

The bank is projecting growth of 8.3 percent this year and 5.5 percent in each of 2019 and 2020, but with a caveat.

Ghana and neighboring Ivory Coast supply 60 percent of the world's cocoa. /VCG photo

“The country’s heavy reliance on primary commodities, including cocoa, gold, and oil – all prone to volatility in international commodity prices – create uncertainty about its actual future paths for growth, inflation, export receipts, and domestic revenue,” said Michael Geiger, a World Bank senior economist.

That reliance – cocoa also continues to do well – will continue in the foreseeable future despite the desire for greater economic diversification, but investors will be looking at emerging trends.

“In 2018, we expect Ghana’s growth story to become more nuanced,” Razia Khan, chief economist for Africa at Standard Chartered Bank, told Bloomberg. “There will be much more focus on whether a robust recovery in the non-oil economy manifests itself.”

A key factor in how progress is judged among Ghanaians is the creation of good-paying jobs in a country where the national average monthly income is 115 dollars.

The government “speaks very big but in terms of our daily activities, I don’t see anything,” university graduate Kekeli Aryeetey told the Times. “You can go to school, get a qualification, but it’s not enough. We’re still struggling for jobs.”