The economy after 2012

Ghana’s economy will continue to pace briskly in the next presidential term, according to forecasts, with state revenues expected to soar rapidly as newly-discovered oil wells begin production.

London-based Economist Intelligence Unit (EIU) has forecast Ghana’s annual GDP growth to average around 7.4% between 2013-17, buoyed by the oil sector, agricultural expansion and increased infrastructural investments.

The International Monetary Fund (IMF) has also said that Ghana will remain among the fastest-growing economies in sub-Saharan Africa and the world, with medium-term economic growth expected to be above 7% per annum. The Fund has projected the economy to expand at 8.2% in 2012 and 7.8% in 2013.

The prognoses for consumer inflation are mixed: while the IMF and emerging-markets investment bank Renaissance Capital have projected consumer prices to rise at an annual average of more than 10% in 2013, the EIU has said inflation will fall to below 8% in 2014 amid strong agricultural performance and lower international commodity prices.

The oil sector, which accounted for more than a third of the 14.4% boost to GDP in 2011, will continue to provide a stimulus for economic growth and government spending, the forecasts indicate. In 2011, the state received US$444 million from the sector, made up of interest and royalties in the Jubilee field.

“In the next four to five years, we are going to see as many as 15 new oil wells come on stream. That will bring massive revenues to the state,” said Dr. Albert Kofi Asamoa-Baah, a senior advisor at the Finance Ministry, in an interview in Accra on November 27.

Ghana’s oil started upping the stakes in elections since 2008 but has so far failed to flow in the expected quantities. Output had initially been forecast to hit 120,000 barrels per day in 2011 but was 63,000 barrels in the first half of 2012, before rising to 86,000 barrels in October, according to the Ghana National Petroleum Corporation (GNPC).

Apart from Jubilee, other fields are being developed and will increase output substantially in the coming years. Deputy Finance Minister Fifi Kwetey told international investors in February in Accra during a Euromoney investment conference that production will climb from under 100,000 barrels a day to half-a-million barrels in five to six years.

From 2013, the economy will begin to realise the benefits of the major infrastructural investments either ongoing or being planned to take off next year.

The electricity-sector outlook is particularly seen as very encouraging due to the expected completion of the Bui hydro-electric dam, which has a 400-megawatt generating capacity, and the development of natural gas from the Jubilee field for power generation.

Other prospects lie in the development of renewables to augment the traditional energy sources, with international energy companies turning their attention to Ghana following the enactment of a renewable energy law in 2011.

Mere Power Nzema Ltd., a UK-based firm, announced plans this week to build a 155-megawatt solar power plant valued at US$400 million in the Nzema area.

The renewable energy law expects renewables to constitute 10% of energy generation by 2020 and includes provisions to guarantee market and prices for investors.

A host of other infrastructure projects in the transport sector, many of which are backed by the US$3 billion China Development Bank (CDB) loan, is expected to be rolled out to facilitate economic activities and sustain the high growth trajectory.

The widening of the budget deficit in 2012, which analysts have recently cautioned about, could however put a brake on some of the spending plans of the future administration as it may focus its efforts partly on rebalancing the fiscal books.

The Bank of Ghana has said the budget deficit surged to 7.3% of GDP in the first nine months of 2012, against a target for the period of 6.2% of GDP. The gap is even wider than the 6.7% estimated for the whole of 2012 by the Finance Ministry in July.

Analysts at EIU wrote on November 13 that “economic policy in the first half [of 2013-15] will centre on bringing down the large fiscal deficit and repaying domestic arrears, before shifting to developing the business environment, reducing poverty and supporting the private sector – especially the non-oil sector.”

This suggests there could be a playback of how fiscal policy has evolved in the term of the current government – which started with relative austerity in 2009-10 when the IMF-sponsored stabilisation programme kicked off, to a much looser and expansionary stance in 2011-12.

The large budget deficit will however not be the only legacy of 2012 when the New Year begins. The paucity of jobs will continue to be an important issue in the economic debate – perhaps until the next government is able to translate the high growth of the past and future into considerable employment opportunities for the people.