…booming tech and hospitality mask struggles in education and healthcare
By Ewuraba AIKINS
The service sector has emerged as a critical driver of Ghana’s economic growth in recent years. It has been the backbone of the economy for years, consistently contributing the largest share to the country’s Gross Domestic Product (GDP). By delving into data from the Ghana Statistical Service (GSS) for 2022 and 2023, we can analyse the performance of this crucial sector and identify leading sub-sectors.
In 2022, the service sector held the dominant position within GDP, accounting for roughly 42.03%, compared to 31.99% and 19.57% for industry and agriculture, respectively. The KPMG Ghana 2022 Mid-Year Budget Review acknowledged the sector’s growth, albeit at a slower pace due to global challenges. The report highlighted a 3.7% expansion in the first half of 2022, primarily fuelled by the ICT sub-sector. Indeed ICT did emerge as the most thriving sub-sector in the service sector based on the quarter 1 2024 data release.
Ghana’s economy displayed positive signs in the first quarter of 2024. According to the Ghana Statistical Service (GSS), the GDP grew by 4.7% year-on-year, marking an improvement compared to the previous quarter. This growth was driven by strong performance in the service and industry sectors, with Information & Communication and Mining & Quarrying being standouts.
However, all does not appear well with two main sub-sectors, Education, Health and Social Work, according to the first quarter of 2024 performance report released by the Ghana Statistical Service (GSS). The two critical sectors, recorded negative growth rates, raising concerns that these essential services may have been severely impacted by the country’s economic challenges.
The entire economy grew by 4.7% in the first quarter of 2024. Industry sector grew by 6.8% mainly driven by mining, while agriculture grew by 4.3%. The services sector, which remains the largest of the three (3) sectors, accounting for 45.6% of GDP grew by 3.3%.
While the headline growth seems decent, a closer examination reveals a tale of two realities.
The services sector comprises eleven sub-sectors: Trade, Repair of Vehicles, Household Goods, Hotels and Restaurants, Transport and Storage, Real Estate, Professional, Admin and Support Services, Other Personal Services Activities, Public Administration, Defense and Social Security, Education, Health and Social Work, and Information and Communication Technology.
The Health & Social Work, Public Administration Defense & Social Security as well as Education recorded negative growth rate of 8.8%, 5.3%, and 4.9% respectively in the first quarter of this year compared to 2023. The decline in these three (3) sub-sectors has serious consequences on human development in the country.
On the other hand Information and Communication recorded the highest growth rate of 17.9%. This comes as no surprise, given that technology has become the fulcrum around which everything revolves.
For this analysis, we will explore the three (3) laggards and three (3) leaders in the services sector.
Laggards
Health & Social Work (-8.9%) : The subsector recorded a negative growth rate of 8.8% in the first quarter compared to the same period last year while it declined by 2.1% when you compare with the fourth quarter of 2023. The subsector could be suffering from high cost of living which is keeping people away from hospital and pharmacies, as the regular over-the-counter medicines have become expensive. Additionally, the sector has seen its worst form of staff exodus. According to information from the Ghana Registered Nurses and Midwives Association (GRNMA) an estimated 6,000 nurses left Ghana between August 2023 and March 2024, to seek better opportunities abroad. Another possible reason is that 2023 might have witnessed a higher investment in health due to the Agenda111 hospital projects if similar investments were not made, as many of the projects appear stalled, growth would most likely be negative.
Public Administration Defense and Social Security: Another area of concern is the significant decline in the public administration, defense, and social security sub-sector. The decline of 5.3% year-on-year growth rate and decline of 1.2% quarter-on-quarter growth rate suggest a worrying trend. This likely stems from spending cuts to align with fiscal deficit targets that are set under the International Monetary Fund bailout programme target. While fiscal responsibility is important, such cuts can have unintended consequences, especially for social services.
Education: (-4.9%): Despite the overall service sector’s moderate growth of 3.3%, education is contracting at a worrying rate of a decrease of 4.9% for year-on-year 1.1% compared with the last quarter of 2023. This suggests a potential underinvestment in human capital. Factors like budgetary constraints (5.3% decline in public administration), rising living costs forcing families to prioritize basic needs, or teacher shortages could all be contributing to this decline. The consequences of reduced investment in education are severe, potentially hindering long-term economic growth and impacting the quality of the Free Senior High School programme. The government urgently needs to investigate reasons for the negative growth and address them.
Leaders
Information and Communication Technology: This sector thrived with a year-on-year growth rate of 17.9%, and 4.3% increase compared to the last quarter of 2023. This surge is no coincidence; it reflects the increasing digitization across all aspects of life, from mobile money transactions to e-commerce. With Africa’s push to be part of the 4th industrial revolution, this sub-sector is poised to thrive for some time.
Accommodation and Food Services: The hospitality industry, battered by the covid-19 pandemic, has been rebounding with a 9.4% year-on-year growth, indicating a revival in tourism and domestic travel. Tourists are trickling back, and Ghanaians themselves seem to be rediscovering the joy of local travel. Ever since the announcement of the initiative “Beyond the Return” this sector has been thriving.
Financial and Insurance Activities: Banks rebounded significantly in 2023 with a substantial profit increase, indicating a recovering financial sector. With a 6.9% year-on-year quarterly growth rate, it is safe to assume our financial services have gradually picked up.
Essentially, the service sector is experiencing a tale of two cities. While technology, hospitality, and finance are booming, education, health, and social services are lagging. This uneven growth presents a significant challenge and serious implicatio-ns for the country as a whole. A robust service sector, the engine of most modern economies, thrives on a healthy and educated populace. A flourishing ICT sector requires a skilled workforce. A thriving tourism industry depends on quality education and healthcare. The current contraction in these crucial areas could stifle long-term economic growth and well-being.
The GSS has provided the data and government needs to investigate and know the facts behind these figures and take actions to revive the underperforming sub-sectors while sustaining the growth of thriving ones. Ensuring inclusive growth that generates employment and income, especially for citizens, is essential for Ghana’s sustainable development.
The author is a Risk Consultant: KPMG
