‘Dumsor Economy – potential threat to economic recovery agenda

Power is key and critical in driving industries as well as commercial activities in any economy, and therefore massive investments must be made in the energy sector to ensure real growth and economic development necessary to transform the Ghanaian economy. This article is to explore and analyze the current state of the economy and the impact of any potential “Dumsor” amid the pandemic.

Economic performance before COVID-19 pandemic

Ghana’s economy was one of the fasters growing economies within Sub-Saharan Africa before the pandemic cropped up. At the time, Ghana was considered the fastest growing economy, recording 6.5 percent annual real GDP growth in 2019. The global economy recorded a growth rate of 2.9 percent and Sub-Saharan Africa recorded 3.1 percent growth rate for the fiscal year 2019.  In fact, the World Bank in its 4^th Edition of the Ghana Economic update in 2019, indicated that Ghana’s annual economic growth in 2017 was 8.1 percent and in 2018, it was 6.3 percent.

The report further indicated that, although 2018 growth (6.3%) was at a lower rate compared to 2017, yet it was described as a growth on a strong path. With respect to the real sectors of the economy, the report stipulated that industry shows growth with 10.5 percent expansion, followed by agriculture with 4.8 percent, while services sector grew by only 2.8 percent in 2018. Inflation actually decreased from 19.2 percent in March 2016 to 9.4 percent in December 2018 and 9.5 percent in April, 2019.

Regarding inflation (key macro-economic indicator), data from the Bank of Ghana shows that headline inflation for the fiscal year 2019 was 7.9 percent and 10.4 percent in 2020. With respect to the performance of the real sectors of the economy, available data from the Ghana Statistical Service (GSS) as well as the Ministry of Finance shows that:

• Agriculture Sector: according to the GSS, the agriculture sector grew by 4.6 percent in 2019 compared to a growth rate of 4.8 percent in 2018.
• Industry Sector: data from the GSS indicates that the industry sector contributed 2.4 percentage points to the 2019 annual GDP growth rate, and its share of GDP at basic prices increased by 0.2 percent to 34.2 percent in 2019, from 34.0 percent in 2018.
• Services Sector: the services sector’s growth rate increased from 2.7 percent in 2018 to 7.6 percent.

Table 1    Annual Real GDP Growth by Sector

Source: GSS, 2020

From table 1, with particular reference to the fiscal year, 2019, the services sector recorded the highest growth rate of 7.6 percent, followed by the Industry sector with 6.4 percent growth and agriculture sector with 4.6 percent.

With respect to the above presentation, it is evidently clear that, before the pandemic, the macroeconomic indicators remained fairly strong, and indeed, the economy was actually on the path of creating the needed business environment capable of providing investments opportunities, jobs, and expansion in infrastructure, as well as execution of Government flagship programs.

Economy amid the Pandemic

The economy was quite doing well and promising sustained growth. Most of the macroeconomic fundamentals was indeed showing signs of growth and possible propensity of creating opportunity for all citizens, until in March, 2020 when the COVID-19 pandemic cropped-up with its deadly axes distorted the macroeconomic fundamentals. In fact, Government objective of stabilizing and growing the economy was crashed down. This was evidenced by 0.4 percent growth rate recorded for the fiscal year, 2020.

But before the pandemic, the economy between 2017-2017 averagely growth at the rate of 7.0 percent The development in the real sector growth was affected by the impact of the pandemic. The agriculture sector recorded 7.4 percent and the services sector growth was at 1.5 percent, while industry contracted by 3.6 percent in 2020, from a growth rate of 6.4 percent. This is certainly a cause of concern for the managers of the economy since the industry sector is the second-largest contributor to the economy and a very critical vehicle to stimulating economic growth. Although services recorded a positive growth, the fall in growth rate from 7.6 percent in 2019 to 1.5 was quite significant. The sectorial analysis of the real sectors of the economy is presented in Table 2 below.

Table 2: Real Sector Growth

Source: GSS, MoF

According to the 2021 budget statement, the drastic effect of the pandemic actually slowdown economic activity which eventually led to a huge drop in domestic revenue, coupled with a sharp and unplanned hike in COVID-related expenditure. Indeed, the toxic effect of the pandemic led to;

• Unexpected shortfall in government revenues, amounting to GHC 13.6 billion
• Unexpected and unavoidable increase in governments, amounting to GHC 11.7 billion

Dumsor Economy:

For the purposes of this article, “Dumsor Economy” is defined as an economy with frequent intermittent supply of power thereby curtailing the full scale production and provision of goods and services in an economy. The rational for this piece is not to dive into the debate as to whether the country is on the verge of “Dumsor” but rather to remind managers of the economy about the implications of “Dumsor” on the economic recovery agenda of Government. Power is key in driving the production capacity of the country hence there is the need to invest hugely into the energy sector in order to explore the full potentials of the Ghanaian economy.

It is fervent hope that the recent power outages are indeed, as a result of an investment into the energy. We were told that the technical team responsible for providing power are making technical changes and adjustments to the plant so that we could have reliable power at a competitive rate. If what we were told happened to be the fact, then, my advice is that, they must work assiduously to ensure the task is fully completely as per schedule so as to say good bye to the load shedding exercise currently on going.

Dumsor Economy: – Potential threat to the economy

In an effort to revive the economy amid the pandemic, and return it to growth path, the government rolled out a number of policies and programs to achieve the recovery agenda. In fact, the 2021 Budget Statement and Economic Policy outlined key programs to be implemented so as to achieve the recovery agenda. Notable among them are:

• Implementation of COVID-19 containment measures including vaccination
• Economic revitalization and transformation through implementation of the CARES program whilst ensuring debt sustainability.
• Consolidation and completion of existing projects to ensure value for money.
• Creation of fiscal space for implementation of priority projects and programs.
• Creating and sustaining jobs.
• Entrepreneurship and wealth creation.

It is my considered submission that without reliable power, the above key programs will amount to nothing. That is, it will not attain its intended purpose and as a result, the recovery agenda will not be realized thereby creating further hardship for the citizens. According to the Institute of Energy Security (IES) “Gains made towards returning the economy to growth path are at risk of being eroded by recent power transmission challenges.  IES further indicated that, until the current power incidents recorded cease, the Ghanaian economy may struggle to come out of the recession caused by the pandemic and that the government must be guided by the events of 2014-2016” (B&FT Wednesday, March 31,2021 Edition).

It is refreshing to state that entrepreneurship and wealth creation demands that the citizens must establish businesses and equally important, start-up businesses must equally grow and expand production so that jobs could be created. When jobs are created, the living standards of the citizens improves, and government revenue in the form of income tax and corporate tax also increases, the resultant effect is that, the over and ever reliance on external borrowing will reduce and the pressure of meeting repayment obligations as and when they fall due will diminish and hence government will have the fiscal space to execute meaningful development projects. Power is seriously needed to support entrepreneurship and wealth creation and that is which managers of the economy must ensure that we do not experience “Dumsor”.

The potential threat of “Dumsor Economy include:

1. Possible reduction of the Overall Real GDP growth by 3%. That is, the projected 5% GDP growth will not be achieved. It means, only 2% GDP growth will be attained at the end of the fiscal year 2021.
2. Contraction of the real sectors of the economy, more importantly, the industry and services sectors.
3. Low production capacity and high levels of unemployment. Survey conducted by Ghana Statistical Service indicates that about 36% of operating firms had closed down during the partial lockdown, a Dumsor economy could further worsen the situation.
4. Possible increase in inflation. By 12%. That is, projected headline end-period inflation of 8.0% will be not be achieved.

 Conclusion

The government in the 2021 Budget Statement and Economic Policy sets out to achieve the following macroeconomic targets:

• Overall Real GDP growth of 5.0%
• Non-Oil Real GDP growth of 6.7%
• Fiscal deficit of 9.5% of GDP
• End-Period Inflation of 8.0%

Am optimistic that, with hard work on the part of the managers of the economy, the above macroeconomic targets could be achieved, however, should there be what I described as Dumsor economy, then, achieving them will only be a mirage. It is my considered submission that the government should swiftly put in place mechanisms to avert Dumsor since its impact could be fatal to the socio-economy development of the country.

>>>The writer is an Economist, in charge of Research & Analysis at the B&FT. He can be reached on [email protected] or [email protected]