Budget Review: A dominant and vibrant Services Sector

For a considerable period of time now, the country’s economy has been dominated by the Services Sector. The sector comprises trade, repair of vehicles and household goods; hotels and restaurants; transport and storage; information and communication; financial and insurance activities; real estate, professional, administrative, public administration; education; health; commodity, social and personal services activities.

The sector has, in many cases, contributed more than half to the country’s GDP. With the exception of the third quarter of 2009, when the agriculture sector marginally outperformed services, the sector has always contributed more to the country’s GDP than the other two sectors.

Last year, for example, the sector’s contribution to the economy was 60.3, 62.8, 53.1, and 53.2 respectively for all four quarters, whereas agriculture contributed 15, 12.3, 23.5, and 22.6 per cent respectively in the same year, with industry recording 24.7, 24.9, 23.4, and 24.2 per cent respectively.

Government has projected the Services Sector to grow by 5.1 percent in 2017 on account of a projected 10.7 percent growth in the Information and Communication subsector, and a 6.3 percent growth in the Trade, Repair of Vehicles, Household Goods subsector.

Public sector expenditure is expected to slightly decline from its 2016 levels due to fiscal consolidation, reflecting a decline in the projected growth rates for the Public Administration, Defence, and Social Security.

Happenings in the information and communication subsector post a bullish picture of the services sector in 2017, as two telcos — Airtel and Tigo — have been given approval by the National Communications Authority to merge.

This merger will result in an entity which will be the second largest mobile network operator in the country, after MTN.

The merger approval also has an option for government participation.

Also, in the financial sector, the Bank of Ghana (BoG) announced, in September, a new minimum capital requirement of GH₵400 million for banks in the country, representing of 233.3 percent increase from the previous GH₵120 million.

The Governor of the Bank of Ghana, Dr. Ernest Addison, has said the move is to strengthen the financial sector and enable commercial banks to become more solvent to undertake big ticket transactions that will support government’s growth agenda.

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The National Insurance Commission (NIC) is also initiating moves to increase the minimum capital of the insurance industry by 100 percent. Currently, the capital requirement of the industry stands at GH₵15 million.

It is expected that these major developments in the services sector will help achieve government’s projected growth of 5.1 percent.

Some analysts have opined that the growth of and contribution of the services sector to the economy is an indication that the economy is maturing.

One such analyst is Dr. Eric Osei-Assibey, Senior Lecturer at the University of Ghana, who argues that, even though the industrial sector should have been the most vibrant in the economy, the taking over by the services sector is an indication that the country’s economy is maturing.

“It is a normal progression for a developing country. Of course, we should have gone through the industrialisation stage first. But as a country, we did not do well with regard to our industrialisation. The advent of information and communication technology seems to have upstaged the industrial efforts.

So, we didn’t have much choice than to allow the services sector to take over. For the services sector to take over the economy shows that the economy is maturing and conforming to the global paradigm,” he told the B&FT in an interview.

Dr Osei-Assibey, however, warned that if the trend continues and there is no commensurate growth in the industrial sector, the unemployment gap will continue to widen.

“We have jumped one step but it is not too bad. The only problem is that the services sector is very sophisticated and requires high technological input and so if you have excess supply of labour, then that becomes a problem because there will be greater number of people becoming unemployed,” he said.

The Vice-Chancellor of the University of Ghana, Professor Ebenezer Oduro Owusu, also told the B&FT that the growth of the services sector can be attributed to many students taking interest in studying humanities more than in the sciences, adding that it is a worrying trend for the country.

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If the industrial and agriculture sectors have to pick up, more attention needs be given to science education, he said.

“Most people are moving from studying science to humanities. The ratio of science students to humanities is 30 :70. And this is because the services sector is driving the economy. Even those who have read science eventually end up going into the service sector. And this is very bad for the future of this country because this country will develop very well based on its science and technology backbone,” Prof. Oduro said

Historical growth of the sector

In 2010, the services sector grew by an annual rate of 9.8 percent compared to 5.3 for agriculture and 7 percent for industry. That same year, the services sector’s contribution to GDP increased to 51.1 from the 49.2 percent recorded in 2009.

The following year, 2011, the production of oil resulted in industry out-pacing the other two sectors in terms of growth rate. However, the services sector maintained its position as the largest contributor to GDP with 49.1percent.

The sector further showed its resilience in 2012 when it grew by 12.1percent whereas agriculture and industry grew by 2.3 and 11percent respectively, taking its overall contribution to GDP to 49.1 percent, compared to the 22.9 and 28 percent for agriculture and industry correspondingly.

In 2013, even though growth was lower than the previous year, it still, at 10.3percent, outpaced agriculture and industry, which recorded 6.6 and 5.2percent respectively.

This took the services sector’s contribution to GDP to 50.6 percent, while agriculture and industry recorded 21.6 and 27.7 percent respectively.

In 2014, however, the services sector was overtaken by the agriculture sector in terms of growth, but still contributed to more than half of the country’s GDP.

In 2015, it contributed 58.8 percent, 60.3 percent, 50.5 percent, and 50.8 percent in all four quarters respectively.

By Obed Attah Yeboah l thebftonline.com l Ghana

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