Author: World Bank Group
Type of publication: Report
Date of publication: 2018
Recent economic developments and outlook
Global Economic Performance
Global economic growth continues to experience a broad-based recovery and is expected to strengthen in the medium term. The outlooks is supported by expected growing investment and trade trends; but the world economy is still subject to downside risks including heightened policy uncertainty, possible financial market turbulence, and weaker potential growth in the long run. Global growth accelerated to 3 percent in 2017, above the June 2017 forecast of 2.7 percent, and up from 2.4 percent in 2016. The broad-based new global growth momentum, which saw more than half of the world’s economies experience a significant expansion, was mainly attributed to a rebound in investment. The growth of investment accounted for three quarters of global growth from 2016 to 2017. In emerging markets and developing economies (EMDEs), growth recovered to 4.3 percent, marginally higher than the June 2017 projection of 4.1 percent. Similarly, growth in the advanced economies has recovered to 2.3 percent in 2017 driven by capital spending, strengthening external demand and a turnaround in inventories. The improvements occurred in all advanced economies with the highest growth occurring in the Euro Area. Growth within the Sub-Saharan Africa (SSA) region was 2.4 percent in 2017, 0.4 percent less than the June 2017 projections, but up from the low 1.3 percent in 2016. This dampening in the recovery trend was influenced by a lower-than-expected growth scenario in Nigeria. However, the region benefited from an uptick in metals prices and recoveries in the agricultural sector, while growth was stable in non-resource-intensive countries with infrastructure as their backbone. While global growth will further increase in 2018 to 3.1 percent and moderate at average of 3 percent in 2019–2020, growth in the EMDEs will inch up to 4.5 percent in 2018, but further rise to an average of 4.7 percent in 2019–2020. Growth in the SSA region is projected to rise to 3.2 percent in 2018 and to 3.5 in 2019, on the back of firming commodity prices and gradually strengthening domestic demand.
However, growth will remain below pre-crisis averages, partly reflecting a struggle in larger economies to boost private investment. A modest increase in commodity prices in 2017 has supported the growth in commodity exporting economies in Africa. Rising commodity prices, especially of oil price, have supported growth in the Africa region in 2017. Stability of these prices will remain key to the recovery process in 2018 and beyond. Oil prices are anticipated to average $53/ bbl in 2017 and rise to $56/bbl in 2018 on strong oil demand and restraint in OPEC and non-OPEC production (despite projected increases in U.S. shale production). Ghana, in line with many commodity-exporting countries in Africa, has experienced continued benefits from high commodity prices in the 2000s but a substantial decline in prices since 2013 had significant negative impact on growth (on top of a fiscal crisis unfolding since 2011). Despite the projected firming of activity among EMDEs over the forecast horizon, their underlying potential growth—which has fallen considerably over the past decade—appears likely to further decline over the next 10 years, reflecting a more subdued pace of capital accumulation, slowing productivity growth, and less favorable demographic trends. Global outlook risks are still on the downside but more balanced than the previous forecasts reflecting a stronger-than-expected growth in the larger advanced economies and EMDEs; specifically represented by more pronounced investment-led recovery in United States and Euro Area, or a faster rebound in large commodity markets. Never the less, downsides risks such as global financial markets volatility could trigger turbulence which could disrupt the gains made so far. Higher borrowing costs and its adverse effects still remain a concern to the EMDEs with high external financing needs.
Real Sector
Ghana’s economy expanded for the fifth successive quarter in September 2017 by 9.3 percent compared to just 4.3 percent in September 2016. The expansion was largely on the back of the good performance of the industry sector (with significant contribution from mining and petroleum), which recorded the highest growth of 16.6 percent, compared to 11.5 percent in March 2017 and a contraction of 11.2 percent in September 2016. The improvement in oil sector was due to increased oil production at the Sankofa field and the Tweneboa, Enyenra, Ntomme (TEN) offshore field, as well as the resolution of the technical difficulties that arose in March 2016 in the Jubilee Fields and new production in the Offshore Cape Three Points (OCTP) Fields. The actual 2017 third-quarter growth of 9.3 percent provides an upside effect to growth for the entire 2017 as well as the medium term. Growth in the agriculture sector bounced back in the third quarter as the sector’s growth accelerated to 10 percent compared to the growth of 2.8 percent for the same period in 2016. Indeed, the third-quarter growth performance of the agriculture sector shows a significant regaining of momentum from the sector’s second-quarter growth of 3.4 percent. There is need to place much more attention on improving productivity and reducing post-harvest losses within the crops, fisheries and cocoa sub-sectors. This will help achieve the projected growth of 6 percent, up from the 2016 level of 3 percent. Growth in the services sector improved marginally to 5.7 percent from the second-quarter level of 5.6 percent above the September 2016 level of 4.5 percent. The pick-up of the services sector is due to improvements in the information and communication (10.7 percent); health and social work (24 percent); education (14.4 percent), public administration (13 percent) and real estate (9.4 percent) sub-sectors. The growth in the non-oil sector picked up to 5.9 percent in September 2017 from 4.6 percent for the same period in 2016. The rise of the extractive industries appears to be constraining agriculture sector growth as an emergent sign of Dutch Disease. The year 2011, which marked the start of oil production in Ghana, resulting in GDP growth of 14 percent, also saw the lowest growth in the agriculture sector of 0.8 percent. In contrast, the industrial sector grew by over 41 percent in the same year. Ghana’s agricultural Terms of Trade, measured as a ratio of food and non-food price indices was steady in the early 2000s, but has been on a declining path over recent years. While the impact of the extractive industries on Ghana’s non-resource economy has not yet been fully analyzed, it is striking to see that the sharp deterioration in its Terms of Trade started in 2011 when Ghana started oil production. This could be an early sign of Dutch Disease in the economy. However, this could have also been exacerbated by the sharp decline in public spending on the agriculture sector since 2011.
Agriculture as engine of growth and jobs creation: transforming the sector and creating agribusiness opportunities
Ghana’s Agriculture Sector
The agriculture sector contributes more than onefifth of Ghana’s GDP; agricultural exports—principally cocoa—are a key source of foreign exchange. Still, overall sector growth has remained low. This was confirmed by the recent Joint Sector Review (JSR) of the implementation of the Food and Agriculture Sector Development Plan (FASDEP) and the Agriculture Sector Investment Plan (METASIP II). Moreover, and until oil production came on board in 2011, an estimated two-thirds of Ghanaian manufacturing depended on agricultural inputs; hence agriculture’s performance has also been important for the competitiveness of non-oil manufacturing. While agricultural output is increasing, the sector’s growth performance has been highly erratic, and the average annual agricultural growth rate is well below both the overall GDP growth rate and the target, which is set at 6 percent per annum. Ghana’s agricultural sector’s contribution to real GDP growth has been declining for the past five years. The sector’s contribution to real GDP has declined from 31 percent in 2008 to 18.9 percent in 2016. This could be attributed to the slow rate of growth over the period 2008–2016, averaging around 4.3 percent. In 2016, even though agricultural growth slightly improved to 3 percent from the 2015 level of 2.8 percent, this was significantly below the target growth rate of 6 percent.
46.6 percent of the underemployed persons were in the agriculture
The potential for agriculture and agribusiness to bring about structural change and poverty reduction is significant in Ghana as it is in other developing economies. The pathways through which agriculture and agribusiness spur economic growth and poverty reduction have been described extensively in the development literature. High productivity in agriculture raises farm incomes and increases demand for products and services mostly from the non-farm sector. It also leads to more and cheaper food, and generates patterns of development that are employment-intensive, benefiting both the farm and non-farm sectors. The agriculture sector employs more people, particularly in the rural areas where the sector is the main employer of last resort. According to the 2015 Ghana Labor Force Report, there were 9.3 million people who were formally employed in 2015. Of the total number, 3.3 million (about 36 percent) were employed in agriculture. However, in the rural areas, total employment recorded was 4.6 million (49.1 percent of total employed). Of the total rural employment, 70.6 percent were employed in the agriculture sector. This is most likely an understatement, as the Labor Force study only covered formal wage employment. However, in the rural areas agriculture is the employer of last resort and hence total agriculture employment—formal and informal—is even higher than the labor force study suggests.
Most of the people employed in agriculture are likely to be underemployed, and are likely to be in the rural areas. The 2015 Labor Force Report shows that 46.6 percent of the underemployed persons were in the agriculture, forestry, and fishing sector, with about 13.9 percent in wholesale and retail trading and 13.4 percent in manufacturing. Seven in every ten (70.2 percent) of the underemployed in the rural areas are engaged in the agriculture, forestry, and fishing sector compared to 13.3 percent of those in the urban areas. Those underemployed in urban areas are about three times more likely (22.8 percent) than those in rural areas (7.6 percent) to be engaged in the wholesale and retail trade sector. More than 80 percent of the workforce in Ghana is employed in the informal sector. Most of those employed in the informal sector operate in three main occupational categories: agriculture and fisheries (55 percent). craft and related trading (13 percent). and agro-related services and sales (13 percent). This implies that most of those employed in agricultural and agro-related informal sector jobs are affected by all the challenges associated with informality such as lack of proper regulation and very low wages. This partly explains why most of the poor are likely to be employed in the informal agriculture sector jobs. The dominant source of employment is crop and livestock production and hunting. Most of these activities are predominant among rural households, most involve production and selling of primary commodities, which fetch low prices on the market.
On average, households engaged in agricultural activities as their major form of employment earn about GH¢4,200 (about US$1,000) per annum
On average, households engaged in agricultural activities as their major form of employment earn about GH¢4,200 (about US$1,000) per annum. As such, a combination of low prices and low productivity for both crops and livestock suppresses average earnings from agricultural activities. Low productivity is the major cause of low earnings and underemployment in the agricultural sector. The agriculture sector is characterized by low yields for staple as well as for cash crops. This is not unusual for an African country; in fact, TFP growth in agriculture in Africa relative to other world regions is generally low often because of lower technical change due to inconsistent public investment in Research and Development (R&D), and unsustainable cultivation practices. Average cereal yield in Ghana is estimated at 1.7t/ha, which compares quite well with many countries in Sub-Saharan Africa, but is lower than Cote d’ivoire (2.7t/ha), Madagascar (2.6t/ha), Malawi, Rwanda and Uganda (2t/ha).10 As in almost all countries in Sub-Saharan Africa, Ghana’s average cereal yield is only about a quarter of the potential yield estimated at over 5t/ha11.
For cash crops, cocoa yields in Ghana average between 400–450 kg/ha, which is among the lowest in the world. Yet, there is a thriving medium farm segment in Ghana’s agriculture economy which points to the existence of dynamic elements to build upon for the future. Table 2.1 shows the growth in farms (by size) between 1992 and 2013. All farm sizes have grown, but it is actually the medium-size segment that showed the largest growth, not the smallholder farms which often are associated primarily with agriculture development in Ghana. These account for the majority (>50 percent) of the total cultivated area in Ghana. So, the most dynamic segments in Ghana’s farming sector are the farms with sizes between 5 and 100 ha. This may indicate a good starting point to venture into agribusiness in Ghana, where scale production in a dynamic sector would be a definitive advantage. Increasing total output of staples has been an important objective of Ghana’s agriculture policy. Yet, the data over the last decade indicate that while total output has increased, productivity growth has lagged, suggesting that expansion in area cultivated has been the main driver of output growth. While output has been growing at about 4 percent per year (for cereals) and over 10 percent per year for roots and tubers, annual productivity growth over the same period averaged 1.7 percent for cereals and less than 5 percent for roots and tubers. Crop production accounts for more than 75 percent of total output of the sector, while livestock, fishing, and forestry comprise the remaining 25 percent.
Ghana is the world’s second-largest cocoa producer after Côte d’Ivoire, and cocoa represents about 10 percent of agricultural production. Other key crops include staple foods such as maize, cassava, and yam. While domestic rice production is on the rise, imports still account for about half of the country’s rapidly growing demand. Growth in agriculture has also largely lagged behind all the other key sectors. The agriculture sector is a primary source of employment for most of the 300,000–350,000 new workers who enter the labor force each year. The extractive industry, which grows faster relative to many sectors, including agriculture, is highly capital intensive and employs only a small proportion of unskilled workers. Agriculture employs a huge number of unskilled workers and provides livelihoods for more than 70 percent of the rural population, including a large share of the country’s poorest households. The agricultural sector will likely continue to contribute to net job growth over the medium term, and improving agricultural output will remain vital to poverty reduction. In this context, the agricultural sector’s slowing growth rate and declining Terms of Trade raises development policy concerns that extend well beyond its immediate macroeconomic impact. Ghana’s impressive record of poverty reduction since the 1990s is closely linked to agriculture. Ghana realized significant poverty reduction and shared prosperity over the last almost three decades.
The country achieved the goal of reducing the poverty rate by half, in line with the first Millennium Development Goal target, without increasing income inequality
Three major factors contributed to the reduction in poverty: better-educated labor force, increased production of cocoa and other crops, and internal migration. But even though inequality (measured by the Gini index) did not increase, spatial inequality intensified, as poverty is closely linked to a difference in employment opportunities across regions. Private and public-sector wage jobs are concentrated in well-off urban areas, especially in Greater Accra. In contrast, agriculture is by far the most dominant sector of employment among households in Volta and the northern regions. Unlike other regions where the climate is suitable for cocoa and other cash crop production, farmers in Volta and the northern regions are mainly engaged in subsistence agriculture. Agriculture in these regions is typically rain-fed, and is characterized by traditional farming systems. Farmers use few modern inputs, receive inadequate extension services, and have limited access to irrigation. In recent years, rainfall patterns have become even more volatile, and crop failure is becoming more frequent. In addition, unsustainable agricultural practices have led to lower soil quality, higher erosion, and lower agricultural output in these regions.
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