Oil drives GDP growth to 6.5% in 2019

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The country’s total output for last year has shown a marginal improved growth over that of 2018, as figures from the Ghana Statistical Service (GSS) indicate the economy grew by 6.5 percent – largely driven, once again, by oil.

This is a 0.2 percentage point higher than the 2018 growth, albeit missing government’s revised target of 7.1 percent for the year. In terms of money, the economy is worth some GH¢349billion.

Aside from the services sector which saw an increased growth, both industry and agriculture sectors saw growth decline. The services sector grew by 7.6 percent from the 2.7 percent it did in 2018 whereas the industry sector grew by 6.4 percent, indicating a 4.2 percentage points decline from 2018; and the agriculture sector also saw a 0.2 percentage point decline from last year to record 4.6 percent growth.

The figures further reveal that the economy relied on oil to drive growth for the year, as without it growth would have been 5.8 percent. Oil overtook mining and quarrying as the main driver of economic growth, growing by 15.1 percent – the highest among all sectors – whereas mining grew at 12.6 percent. However, in 2018 mining and quarrying grew at 23.3 percent whereas oil grew at 3.6 percent.

Overall, the services sector continues to be the dominant force in the economy, contributing about half of the output with 49.5 percent. Industry and agriculture shared the remaining half with 31.1 percent and 19.4 percent respectively.

Outlook for 2020

For the year 2020, it is obvious that the country cannot see any growth close to the 6.5 percent recorded last year as a result of negative impacts of the coronavirus pandemic. Ghana’s economy is expected to experience its slowest growth in about four decades, making it the worst year since the historic 1983 when the economy was thrown into a recession.

Finance Minister Ken Ofori-Atta had said that the deadly global pandemic would cause Ghana’s economy to see GDP growth decline significantly to 1.5 percent should the country go on a partial lock down – which it did. The IMF has also projected the same growth of 1.5 percent for the year; a big blow for an economy initially tipped to grow at 6.8 percent.

What will lead to this abysmal performance is the pandemic’s impact on commodity prices and trade. Even judging from the 2019 figures, it is clear that oil has been playing a major role in the country’s growth ever since it began commercial production in 2010.

However, oil prices have taken a sharp nose-dive in the past few months, with Brent crude selling at US$20.5 as of Wednesday April 22, 2020. Meanwhile, in the 2020 budget revenue from crude oil was projected with a price of US$62.6 per barrel. The Finance Minister says government estimates losing more than GH¢5.6million, even if the price climbs to US$30 per barrel.

Again, the pandemic has led to closure of borders in many countries. With Ghana having its major trading partners being the European Union and China, trade volumes and values have declined due to the shutdown of borders and factories. And as an import-dependent economy, declining import volumes and values – as well as the slowdown in economic activities – will lead to shortfalls in both import duties and other tax revenues, which Mr. Ofori-Atta estimates at more than GH¢2.2billion.

Programmed Foreign Direct Investment (FDI) flows in 2020 have also slowed down due to uncertainties surrounding effects of the COVID-19. Foreign investors are not able to arrive in the country to transact, or even undertake feasibility studies, as a result of most countries’ borders being closed – including Ghana’s; and, in many cases, restrictions imposed in their own countries of origin.

The initial cost of the deadly pandemic to the economy, which includes what the country will lose in terms of revenue and measures to contain the disease, according to the Finance Minister, is estimated to be at least GH¢9.5billion.

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