3RD GHANA ECONOMIC UPDATE Agriculture as an Engine of Growth and Jobs Creation Africa Region February 2018 3RD GHANA ECONOMIC UPDATE AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION Africa Region February 2018 iii TABLE OF CONTENTS ACKNOWLEDGEMENTS.................................................................................................................................. v ABBREVIATIONS AND ACRONYMS............................................................................................................ vii EXECUTIVE SUMMARY................................................................................................................................... ix Recent Economic Developments...............................................................................................................................ix Economic Outlook and Challenges............................................................................................................................x Agriculture as Engine of Growth and Jobs Creation...................................................................................................xi RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK....................................................................... 1 Global Economic Performance...................................................................................................................................1 Real Sector.................................................................................................................................................................2 Fiscal Sector................................................................................................................................................................4 External Sector.........................................................................................................................................................12 Monetary and Financial Sector.................................................................................................................................12 Macroeconomic Ooutlook and Policy Options.........................................................................................................17 AGRICULTURE AS ENGINE OF GROWTH AND JOBS CREATION: TRANSFORMING THE SECTOR AND CREATING AGRIBUSINESS OPPORTUNITIES.................... 23 Ghana’s Agriculture Sector........................................................................................................................................23 Constraints to Agricultural Transformation, Sector Growth, and Job Creation.........................................................29 Key Opportunities and Policy Options to Transform Agriculture for Economic Growth, Job Creation and Food Security.....................................................................................................................................................37 Policy Options to Improve the Agriculture Sector.....................................................................................................39 REFERENCES.................................................................................................................................................... 43 ANNEX: TABLES............................................................................................................................................... 45 iv 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION LIST OF FIGURES Figure 1.1: Real Sector...............................................................................................................................................3 Figure 1.2: Fiscal Sector...........................................................................................................................................10 Figure 1.3: External Sector......................................................................................................................................14 Figure 1.4: Monetary Sector....................................................................................................................................14 Figure 1.5: Economic Outlook................................................................................................................................19 Figure 2.1: Agriculture Sector in Ghana..................................................................................................................28 Figure 2.2: Research and Business of Agriculture in Ghana......................................................................................33 Figure 2.3: Organization of the Cocoa Value-Chain in Ghana.................................................................................35 LIST OF TABLES Table 1.1: Fiscal Indicators (% of GDP): 2013 to 2017...........................................................................................7 Table 1.2: Balance of Payments, 2014 to September 2017 (% GDP).....................................................................13 Table 1.3: Banking Sector Financial Soundness Indicators: 2010 to 2017 (June)....................................................15 Table 1.4: Non-Performing Loans: June 2016 to June 2017...................................................................................16 Table 2.1: Growth in Number of Farms, 1992–2013.............................................................................................26 Table 2.2: Ghana’s Position in Global Cocoa Supply..............................................................................................32 Table 2.3: Summary of Ghana’s Merchandise Imports............................................................................................39 Table A.1.1: Ghana: Selected Macroeconomic Indicators...........................................................................................45 Table A.1.2: Ghana: Medium Term Macroeconomic Indicators.................................................................................46 Table A.2.1: Households Engaged in Agricultural Activities by Locality, Region and Type of Activity........................46 Table A.2.2:  Estimated Total Annual Income from Aales of Agricultural Commodities by Locality, Region and Type of Activity (GH Cedis Million)..................................................................................47 Table A.2.3.1: Actual and Potential Crop Yields in Ghana (mt/ha)...............................................................................47 Table A.2.3.2: Ghana Formal Employment by Sector (2015).......................................................................................48 Table A.2.3.3: Crop Production (000’ metric tons).......................................................................................................48 Table A.2.3.4: Area Cultivated (000’ hectares)..............................................................................................................48 LIST OF BOXES Box 1: Overview of the Energy Sector in Ghana.....................................................................................................21 Box 2: The Role of Agriculture in Structural Change and Poverty Reduction in Africa...........................................24 Box 3: Informal Jobs in the Agricultural Sector in Ghana.......................................................................................25 Box 4: Ghana’s Fertilizer Subsidy Program..............................................................................................................30 Box 5: Lessons from Commodity Boards and Producer Price Interventions in Africa.............................................36 Box 6: The Ghana Cocoa Sector Development Strategy II......................................................................................37 v ACKNOWLEDGEMENTS T his edition of the Ghana Economic Update Osman Gyasi (Sr. Agriculture Economist). Beatrix is the third of a bi-annual series on Ghana’s Allah-Mensah (Sr. Operations Officer) and Kennedy economic prospects. Every edition includes Fosu (Communication Specialist) reviewed the both a broad overview of the country’s macroeco- report and advised on the public outreach. The nomic, political, and structural dynamics, and report was prepared under the overall guidance of a special topic dedicated to one theme. In this Abebe Adugna (Practice Manager), Henry Kerali update, the focus is on agriculture and jobs creation (Country Director), and Errol Graham (Program as reflected in the title. The report was prepared Leader and Lead Economist). The peer reviewers by Michael Geiger (Sr. Economist and Co-TTL), were: Holger Kray (Lead Agriculture Economist), Kwabena Gyan Kwakye (Economist and Co-TTL), Andrea Coppola (Sr. Economist), and Dilek Aykut Hardwick Tchale (Sr. Agriculture Economist), and (Sr. Economist). vii ABBREVIATIONS AND ACRONYMS ADMARC Agricultural Development and GSS Ghana Statistical Services Marketing Corporation ICT Information and Communication AQR Asset Quality Review Technology BoG Bank of Ghana IFPRI International Food Products BPS Basis Points Research Institute COCOBOD Ghana Cocoa Board JSR Joint Sector Review CRI Crops Research Institute LBC Licensed Buying Companies CSDS Cocoa Sector Development Strategy METASIP Medium Term Agriculture Sector DSA Debt Sustainability Analysis Investment Plan DTF Distance to Frontier MoFA Ministry of Food and Agriculture EBA Enabling the Business of MPC Monetary Policy Committee Agriculture NPECLC National Program for the ECOWAS Economic Community of West Elimination of Worst Forms of African States Child Labor in Cocoa EMDEs Emerging Markets and Developing NPL(s) Non-Performing Loan(s) Economies NSEZ Northern Savannah Ecological EOCO Economic and Organized Crime Zone Office OCTP Offshore Cape Three Points ESLA Energy Sector Levy Act PPP Public-Private Partnership FASDEP Food and Agriculture Sector R&D Research and Development Development Plan REER Real Effective Exchange Rate FIC Financial Intelligence Centre SARI Savannah Agricultural Research GCAP Ghana Commercial Agriculture Institute Project SDI Specialized Deposit-Taking GCLMS Ghana Child Labor Monitoring Institution System SOE State Owned Enterprises GCMS Ghana Customs management SRID Statistics, Research and Information Systems Directorate GEMS Ghana Economic Management SSA Sub-Saharan Africa Strengthening Technical Assistance TEN Tweneboa, Enyenra, Ntomme GIDA Ghana Irrigation Development TFP Total Factor Productivity Authority TOR Tema Oil Refinery GIFMIS Financial Management Information TRIPS Total Revenue Integrated Processing System System GLSS Ghana Living Standards Survey VRA Volta River Authority GRA Ghana Revenue Authority WFCL Worst Forms of Child Labor ix EXECUTIVE SUMMARY Recent Economic Developments In September 2017, Ghana’s economy expanded for the fifth successive quarter by 9.3 percent com- pared to just 4.3 percent in September 2016. This reflects continued high levels of growth in the industry sector, driven by mining and petroleum. Oil production rose by 16.6 percent compared with a contraction of 11.2 percent for the similar period of 2016, as production increased in all existing oil fields and some new production came online. For instance, the Jubilee Fields increased production with the resolution of technical difficulties that arose in March 2016; and new production came online in the Offshore Cape Three Points (OCTP) Fields. The service sector bounced back from the weak performance in the first quarter but the momentum in the agriculture sector seems to be waning. Growth in the services sector improved to 5.6 percent from 3.7 percent in Q1 but is still below the June 2016 level of 6.6 percent. The pick-up of the services sector is due to improved growth in information and communication technology (15. 6 percent); health and social work (18.3 percent); education (9.6 percent); and real estate (7.6 percent) sub-sectors. 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 low- est growth in the agriculture sector of 0.8 percent. In contrast, the industrial sector grew by over 41 percent in the same year. The agriculture sectors contribution to real GDP declined from 31 percent in 2008 to 18.9 percent in 2016, with growth averaging 4.3 percent, which was below the sector growth target of 6 percent. Ghana’s fiscal deficit of 4.6 percent of GDP for the first three quarters of 2017 suggests that fiscal policy is on track to meet the full-year target of 6.3 percent of GDP.1 This lower deficit was achieved even though total revenue (including grants) underperformed by 9.3 percent, equivalent to 1.4 percent of GDP. All revenue categories underperformed compared to targets. In response to these shortfalls, expenditures were reduced. Flexibility in spending can be a good signal for fiscal management, but expenditure cuts may not be sustainable as pressures rise to implement election promises. The primary balance improved from a deficit of 1.4 percent of GDP at the end of 2016 to a surplus of 0.2 percent of GDP at the end of September 2017. The fiscal performance to date suggests that the Government is on course to achieving the current IMF Extended Credit Facility program fiscal targets for 2017. As a result of the fiscal consolidation, the debt to GDP ratio is expected to decline from 73.4 percent in December 2016 to 70.5 percent in December 2017. Ghana’s external position improved. The external position at the end of June 2017 brightened con- siderably, primarily due to continued increases in gold and oil exports. The trade balance improved to a surplus equivalent to 3.2 percent of GDP at end-June 2017, from a deficit of 3.3 percent of GDP in June 1 The budget target for 2017 was set to reach a deficit of 6.5 percent. Under the IMF program the target was set at 6.3 percent. The latter is used as the target value in this Economic Update. x 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION 2016. Merchandise imports have decreased sharply with 13 percent from the June 2016 levels to US$5.7 billion due to decreases in both oil and non-oil imports. Hence, at the end of June, the current account deficit narrowed significantly to 0.2 percent of GDP. The Ghanaian cedi remains stable after a short period of turbulence in the first quarter of the year. Economic Outlook and Challenges The annual GDP growth is expected to rebound to 6.1 percent in 2017, from the 2016 level of 3.7 percent. Considering the higher performances in the second and third quarters of 2017, there is an upside to this projection, which is reflected in the government’s estimated growth of 7.9 percent for 2017. The rebound will be driven by further investments in the oil and gas and mining sectors. Increased oil production at the Sankofa and Tweneboa, Enyenra, Ntomme (TEN) fields, and new production in the Offshore Cape Three Points (OCTP) Field will continue to boost overall growth. In addition, gold output and cocoa production will likely remain high. Non-oil GDP growth could, however, decline in 2017, in part reflecting the fiscal consolidation and slowdown in agriculture. An average of 6.6 percent non-oil growth is projected in the medium term. Total Factor Productivity (TFP) is expected to marginally decline in the medium term as growth is largely driven by capital accumulation and not structural changes. This buttresses the need for more private sector diversification through non-traditional exports and improved agroindustry. Inflation will likely fall within the Bank of Ghana Monetary Policy target range of 8 percent (± 2 percent) by 2018. Headline inflation fell from more than 19 percent in March 2016 to around 12 percent since May 2017 (11.6 percent in October 2017). Movements in headline inflation are largely determined by movements in non-food inflation while food inflation either reinforces or mitigate the impact of non-food inflation. Thus, since September 2016, inflation has been on an overall decreasing trend driven by consistent decreases in both food and non-food prices. With the strong focus on price stability and better coordination between monetary and fiscal policy stances, the inflation targeting framework is expected to be more effec- tive in curbing inflation in line with the medium-term target. The fiscal deficit for 2017 is expected to be reduced to the target of 6.3 percent of GDP, down from 9.3 percent for 2016, despite limits to the flexibility in expenditure adjustments. The fiscal deficit target is consistent with a 2.5 percent primary adjustment needed to reduce the debt stock from 73.4 percent to 70.5 percent by the end of 2017. Expenditure cuts have kept the fiscal performance on track but this may result in the accumulation of new statutory payments arrears, as revenue performance remains weak. However, if the authorities can sustain the good performance of 4.6 percent of GDP achieved in the first three quarters of the year, it is expected that the full-year target will be met with policy-induced improvements for revenues expected to materialize by the end of the year. Ghana’s economic prospects over the medium term lie with its ability to regain and sustain its economic stabilization program. The Ghanaian authorities have expressed a commitment to embark on a steep fiscal consolidation path, as evidenced in the half-year fiscal performance. The Bank of Ghana (BoG) is also expected to stick to the strategies towards achieving the medium-term inflation target. To maintain the momentum of fiscal consolidation, two areas are particularly relevant over the medium-term. First, improve- ment in revenue mobilization through tax compliance and efforts to broaden the tax base is an imperative, with an additional urgent need to streamline tax incentives. Second, better and more forward-looking expen- diture planning, including containment of the wage bill, will need to remain the focus of fiscal management. Executive Summary xi But fiscal consolidation will only be sustainable when social and economic activities can thrive in an expanding and diverse economy. Fiscal consolidation can have negative growth effects through the Keynesian multiplier effect. On the other hand, the medium-term GDP growth outlook is over-reliant on natural resource extraction, which in turn has the potential for intensified Dutch Disease and long-term decline of non-natural resource exports. To ease the effects of the anticipated decline in oil production in the medium term, there is need to invest Ghana’s current natural resource wealth in non-natural resource sectors for sustainable growth in the medium-to-long-term. The Government needs to improve on the economy’s competitiveness for private sector-led investments in the non-oil sector for growth. Agriculture as Engine of Growth and Jobs Creation As the importance of the extractive sector has risen, it appears agriculture sector growth has slowed down. The agriculture sector experienced its lowest growth (0.8 percent) in more than two decades in 2011, the same year in which Ghana started oil production in commercial quantities. In contrast, the industrial sector grew by over 41 percent in the same year. Since then, even though the agriculture sector has shown some recovery, it has never fully recovered its former vibrancy. Thus, its share of GDP has declined, relative to both the services and the industrial sector. The share of the agriculture sector in total GDP has fallen from 29.8 percent in 2010 to 18.9 percent in 2016. Ghana’s agricultural Terms of Trade, measured as a ratio of food and non-food price indices has been 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 non-resource Terms of Trade began in 2011, which coincides with the start of Ghana’s oil production. However, this could have also been exacer- bated by the sharp decline in public spending on the agriculture sector from 2011 onwards. Nevertheless, the agriculture sector remains an important contributor to Ghana’s export earnings and a major source of inputs to the manufacturing sector. Two-thirds of non-oil manufacturing depends on agriculture for raw materials as agriculture and agribusiness account for a major share of all economic activities and livelihoods among smallholder farmers. Cocoa accounts for 25 percent of total foreign exchange earnings and Ghana accounts for about 20 percent of global cocoa exports. Agriculture is also the most important sector for jobs and livelihoods in the rural areas. The agri- business sector has a very large multiplier effect on employment, creating over 750 jobs for every additional US$1million of output. However, the structure of the agriculture sector continues to be dominated by primary production, with limited agro-processing and value-addition. The dynamics of employment in the agriculture sector has changed only slightly as over 70 percent of employment still reside in rural areas, only engaging in rudimentary agriculture. Only limited progress has been made in pulling labor out of agriculture into other productive and industrial jobs due to low productivity of labor in agriculture as well as limited dynamism in the non-agriculture private sector. But climate change will add to the complexity of managing the agriculture sector in the future. Two areas stand out: Extreme precipitation and drought. The catastrophic floods in 2007 immediately followed by drought were indicative of the high variability in climate and hydrological flows in Northern Ghana. But the Northern Savannahs have been affected by frequent droughts and flooding, both accompanied by high temperatures and intense heat, resulting in economy-wide impacts, including crop failure or losses, outbreaks of diseases, and dislocation of human populations. xii 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION Despite agriculture’s importance, the fiscal appropriation to the sector is relatively small, and the ongoing fiscal consolidation puts further pressure on sectoral spending. The agriculture sector has ben- efited from just 5.2 percent of total Government spending between 2001 and 2014. This is well below the level committed under the 2003 Maputo Declaration, in which signatories committed to allocate at least 10 percent of their national budget to agriculture by 2008. By 2014, Government of Ghana’s agriculture spending was as low as 1.3 percent of the total budget, far below the rates of regional comparators. This analysis of the agriculture sector points to three overarching areas for policy reforms to improve the sector. Given the importance of the agriculture sector in the Ghanaian economy and for jobs creation, a comprehensive consideration of the three areas is needed. The following offers some reflections of issues within each of the three areas.  Improving the quality and effectiveness of public expenditure in agriculture would be important in the context of limited fiscal space. There is need to channel scarce resources into investments in agricultural research and development and the expansion of irrigation networks to generate significant productivity growth. To boost rural income through agriculture, there is a need to re-direct sector expen- ditures to better target the commercialization of smallholder farmers and integrate these farmers into the agriculture value chain.  Improving the environment for agriculture businesses is key to adding value to the existing pro- duction and for job creation. There is the need to deepen and quicken the reforms in legal, regulatory, and administrative systems that affect the quality and efficiency of public sector services to agribusinesses and other stakeholders that need to invest in the agricultural value-chain (e.g., financiers, transports, information technology service providers, input dealers, etc.).  Fixing the cocoa sector is essential given the large size of the cocoa economy. There is a case for more cooperation between Ghana and Cote d’Ivoire, the two main cocoa producers of the world. This could unleash efficiency gains in production and minimize incentives for smuggling and illegal activi- ties due to domestic price differentials. It would also allow for better capitalization of the joint market power of more than 60 percent of the international market. In Ghana alone, there is need for reforms to strengthen the governance arrangements of COCOBO to ensure the inclusion of all key stakehold- ers in decision-making within the sector. There is also a need to finalize, approve, and implement the Cocoa Sector Development Strategy (CSDS II). To sustain the productivity of the sector, there is need to improve productive and social infrastructures in the cocoa producing areas, and strengthen the role of women and youth in the sector, while adhering to international commitments restricting the use of child labor in cocoa production. 1 RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK 1 saw more than half of the world’s economies experi- In September 2017, Ghana’s economy expanded for the fifth successive quarter by 9.3 percent compared to just ence a significant expansion, was mainly attributed to 4.3 percent in September 2016. This growth is despite a rebound in investment. The growth of investment the rise of the extractive industries appearing to constrain accounted for three quarters of global growth from agriculture sector growth as an emergent sign of Dutch Disease. Preliminary 2017 data (up to September) suggests 2016 to 2017. In emerging markets and developing that fiscal policy is on track to meet the full-year deficit economies (EMDEs), growth recovered to 4.3 percent, target of 6.3 percent of GDP. Ghana’s external position marginally higher than the June 2017 projection of continued to improve (at end of June 2017), which reflects steady increases in gold and oil exports. The Ghanaian cedi 4.1 percent (World Bank 2018a). Similarly, growth in remains stable after a short period of turbulence in the first the advanced economies has recovered to 2.3 percent quarter of the year. Inflation continues its moderating trend in 2017 driven by capital spending, strengthening and was 11.6 percent in October 2017. The downward external demand and a turnaround in inventories. The trend in inflation created room for easing of monetary policy. Looking forward, GDP is projected to rebound to 6.1 percent improvements occurred in all advanced economies with in 2017 (as the Government projects 7.9 percent) despite a the highest growth occurring in the Euro Area. Growth non-oil growth slowdown to 4.3 percent (while Government within the Sub-Saharan Africa (SSA) region was 2.4 projects non-oil growth of 5.9 percent). Ghana’s economic performance over the medium term will, to a large extent, percent in 2017, 0.4 percent less than the June 2017 depend on the success of the economic stabilization projections, but up from the low 1.3 percent in 2016. program through a return to fiscal sustainability. But to This dampening in the recovery trend was influenced sustain the momentum of fiscal consolidation, two areas are particularly relevant over the medium-term: domestic by a lower-than-expected growth scenario in Nigeria. resource mobilization and expenditure controls. This needs However, the region benefited from an uptick in metals to be flanked by growth-enhancing efforts to bring about prices and recoveries in the agricultural sector, while more sustainability to the consolidation program. 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 Global Economic Performance and moderate at average of 3 percent in 2019–2020, growth in the EMDEs will inch up to 4.5 percent in Global economic growth continues to experience a 2018, but further rise to an average of 4.7 percent in broad-based recovery and is expected to strengthen 2019–2020. Growth in the SSA region is projected in the medium term. The outlooks is supported by to rise to 3.2 percent in 2018 and to 3.5 in 2019, on expected growing investment and trade trends; but the the back of firming commodity prices and gradually world economy is still subject to downside risks includ- strengthening domestic demand. However, growth ing heightened policy uncertainty, possible financial will remain below pre-crisis averages, partly reflecting market turbulence, and weaker potential growth in the a struggle in larger economies to boost private invest- long run (World Bank 2018a). Global growth acceler- ment (World Bank 2018a). ated to 3 percent in 2017, above the June 2017 forecast A modest increase in commodity prices in of 2.7 percent, and up from 2.4 percent in 2016. The 2017 has supported the growth in commodity- broad-based new global growth momentum, which exporting economies in Africa. Rising commodity 2 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION prices, especially of oil price, have supported growth contribution from mining and petroleum), which in the Africa region in 2017. Stability of these prices recorded the highest growth of 16.6 percent, com- will remain key to the recovery process in 2018 and pared to 11.5 percent in March 2017 and a contrac- beyond. Oil prices are anticipated to average $53/ tion of 11.2 percent in September 2016 (Figures 1.1.1 bbl in 2017 and rise to $56/bbl in 2018 on strong to 1.1.3). The improvement in oil sector was due to oil demand and restraint in OPEC and non-OPEC increased oil production at the Sankofa field and the production (despite projected increases in U.S. shale Tweneboa, Enyenra, Ntomme (TEN) offshore field, production) (World Bank 2017a). Ghana, in line with as well as the resolution of the technical difficulties many commodity-exporting countries in Africa, has that arose in March 2016 in the Jubilee Fields and experienced continued benefits from high commod- new production in the Offshore Cape Three Points ity prices in the 2000s but a substantial decline in (OCTP) Fields. The actual 2017 third-quarter growth prices since 2013 had significant negative impact on of 9.3 percent provides an upside effect to growth for growth (on top of a fiscal crisis unfolding since 2011). the entire 2017 as well as the medium term. As indicated in the 2nd Ghana Economic Update, Growth in the agriculture sector bounced back continued volatilities in prices of cocoa, gold and oil in the third quarter as the sector’s growth accelerated remain a major source of risk to the economy (World to 10 percent compared to the growth of 2.8 percent Bank 2016b). Despite the projected firming of activity for the same period in 2016. Indeed, the third-quarter among EMDEs over the forecast horizon, their under- growth performance of the agriculture sector shows a lying potential growth—which has fallen considerably significant regaining of momentum from the sector’s over the past decade—appears likely to further decline second-quarter growth of 3.4 percent (Figures 1.1.2 over the next 10 years, reflecting a more subdued pace and 1.1.3). There is need to place much more attention of capital accumulation, slowing productivity growth, on improving productivity and reducing post-harvest and less favorable demographic trends (World Bank losses within the crops, fisheries and cocoa sub-sectors. 2018a). Global outlook risks are still on the downside This will help achieve the projected growth of 6 per- but more balanced than the previous forecasts reflect- cent, up from the 2016 level of 3 percent. Growth in ing a stronger-than-expected growth in the larger the services sector improved marginally to 5.7 percent advanced economies and EMDEs; specifically repre- from the second-quarter level of 5.6 percent above the sented by more pronounced investment-led recovery September 2016 level of 4.5 percent. The pick-up of in United States and Euro Area, or a faster rebound in the services sector is due to improvements in the infor- large commodity markets. Never the less, downsides mation and communication (10.7 percent); health and risks such as global financial markets volatility could social work (24 percent); education (14.4 percent), trigger turbulence which could disrupt the gains made public administration (13 percent) and real estate (9.4 so far. Higher borrowing costs and its adverse effects percent) sub-sectors. The growth in the non-oil sector still remain a concern to the EMDEs with high exter- picked up to 5.9 percent in September 2017 from 4.6 nal financing needs (World Bank 2018a). percent for the same period in 2016. The rise of the extractive industries appears Real Sector to be constraining agriculture sector growth as an emergent sign of Dutch Disease. The year 2011, Ghana’s economy expanded for the fifth succes- which marked the start of oil production in Ghana, sive quarter in September 2017 by 9.3 percent resulting in GDP growth of 14 percent, also saw the compared to just 4.3 percent in September 2016. lowest growth in the agriculture sector of 0.8 percent. The expansion was largely on the back of the good In contrast, the industrial sector grew by over 41 per- performance of the industry sector (with significant cent in the same year. Ghana’s agricultural Terms of Recent Economic Developments and Outlook 3 FIGURE 1.1: Real Sector 1) First Quarter GDP Growth (% change, y-o-y): 2010–2017 2) Economic Growth by Sector (% change, y-oy): 2010–2016 25 16 20 39 14 34 42 15 12 29 32 10 10 Percent Percent 24 Percent Percent 22 0 8 19 12 –5 6 14 2 –10 9 4 –8 –15 4 2 2010_Q1 2011_Q1 2012_Q1 2013_Q1 2014_Q1 2015_Q1 2016_Q1* 2017_Q1** –2 –1 2010 2011 2012 2013 2014 2015 2016 Agriculture Industry Service Agriculture Industry Service GDP growth (RHS) Non-oil GDP growth (RHS) GDP growth (RHS) Non-oil GDP growth (RHS) 3) Third Quarter GDP Growth (% change, y-o-y): 2010–2017 4) Ghana’s Agricultural Terms of Trade: 2003–2014 25 1.00 47 20 0.95 37 15 0.90 27 10 Percent Percent 0.85 17 0 –5 0.80 7 –3 –10 0.75 –13 –15 0.70 2010_Q3 2011_Q3 2012_Q3 2013_Q3 2014_Q3 2015_Q3 2016_Q3 2017_Q3 0.65 Agriculture Industry Service 0.60 GDP growth (RHS) Non-oil GDP growth (RHS) 2003 2005 2007 2009 2011 2013 5) Industry Sector and Components (% of GDP): 2010–2016 6) Sectoral Contribution to GDP (%): 2010–2016 29 99 24 79 19 Percent 14 59 9 39 4 19 –2 2010 2011 2012 2013 2014 2015 2016 –2 2010 2011 2012 2013 2014 2015 2016 Mining and quarrying (Excl oil) Oil and gas Manufacturing Electricity Water and sewerage Construction Agriculture Industry Service Source: 2.1–3: Ghana Statistical Service; 2.4–6: Ghana Public Expenditure Review, World Bank, 2017d. (calculations based on SRID and World Bank data). Notes: 2.4: Expressed as the ratio of the food to nonfood price indices. 4 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION Trade, measured as a ratio of food and non-food price fourfold over the next 20 years, unless local produc- indices was steady in the early 2000s, but has been on tion is increased (World Bank 2017e). Growth of the a declining path over recent years. While the impact agriculture sector showed some signs of recovery in of the extractive industries on Ghana’s non-resource 2012 and 2013 but fell off in 2014 and 2015 with a economy has not yet been fully analyzed, it is striking marginal improvement in in 2016. In terms of shares to see that the sharp deterioration in its Terms of Trade of GDP, the services sector continues to expand while started in 2011 when Ghana started oil production agriculture continues to decline. After a marginal (Figure 1.1.4). This could be an early sign of Dutch decrease from 51.1 percent in 2010 to 49.1 percent Disease in the economy. However, this could have in 2011, the services sector has consistently increased also been exacerbated by the sharp decline in public its contribution to GDP to a high of 56.9 percent in spending on the agriculture sector since 2011. 2016. The share of the industrial sector, on average, Another source of evidence for a possible occur- has remained at 26 percent since 2010, and the share rence of Dutch Disease is the consistent reduction of the agriculture sector has fallen from 29.8 percent in the agriculture sector’s contribution to GDP in 2010 to 18.9 percent in 2016 (Figures 1.1.5 and since the inception of oil production in Ghana in 1.1.6). 2011. Agriculture has now been surpassed by both the services and the industry sector; both benefit from Fiscal Sector the oil and gas boom. The share of the agriculture sector has deteriorated from 29.8 percent in 2010 to Ghana has been in macroeconomic and fiscal dif- 18.9 percent in 2016. The services sector continues ficulties since 2011 and its effects were still at the to expand its share of GDP while agriculture contin- forefront of the fiscal challenges in 2017. For most ues to lose its importance. After a marginal decrease of the past six years, large and persistent fiscal and from 51.1 percent in 2010 to 49.1 percent in 2011, current-account deficits, rising debt burden, mount- the services sector has consistently increased its con- ing inflationary pressures, and currency depreciation tribution to GDP to a high of 56.9 percent in 2016, have posed an increasingly serious policy challenge. while the share of the industrial sector has remained Protracted fiscal imbalances, a relatively loose mon- at 26 percent since 2010. etary policy stance, and successive external shocks Rising food imports also suggest a distortion in contributed to the deterioration of the macroeco- the economy in line with Dutch Disease symptoms. nomic environment. Meanwhile, the establishment The deterioration of Terms of Trade also coincided of a single-spine salary structure (SSSS) for the public with an increase in food imports. Ghana is currently sector in 2010, coupled with a sharp rise in energy- a net importer of basic foods (raw and processed) such subsidy costs and fiscal transfers, radically increased as rice, poultry, sugar, and vegetable oils—and the public spending. Over the next several years a series import bill is growing. The annual food import bill of exogenous factors contributed to the development now exceeds the estimated $2 billion earned from of a full-fledged fiscal crisis. The rupturing of the cocoa exports. While food imports constituted around West African Gas Pipeline in 2012 severed the gas 13 percent of all imports in 2000, the share increased supply from Nigeria and drove up energy costs, while to around 17 percent in 2016. Population growth, falling prices for key commodity exports, especially high rates of urbanization, and increasing incomes are gold, cocoa, and oil weakened the Terms of Trade. driving the demand for imported foodstuffs because The fiscal deficit rose from 3.2 percent of GDP in of increased demand for more quality and safe food- 2011 to 11.6 percent in 2012, the current-account stuffs such as meat, dairy, and fresh and processed deficit widened from 9 to 11 percent of GDP, and vegetables. The food import bill is projected to increase Government arrears rapidly accumulated. The twin Recent Economic Developments and Outlook 5 fiscal and current-account deficits remained in double taxes is attributed mainly to under performances in digits through 2013 and 2014, despite a multiyear corporate income tax (-13.6 percent) and the self- deficit-reduction plan. Between 2012 and 2014, the employed category (-11.9 percent). Nevertheless, central bank covered 20 percent of the fiscal deficit, collection of corporate income tax at the end of and the overall inflation rate increased from 8.8 to September was an improvement on the end-June pro- 17 percent, with nonfood inflation rising from 11.6 ceeds as some top taxpayers (especially in the mining to 23.9 percent. Despite the Government’s multiyear sector) who filed nil returns in the 1st quarter favorably deficit-reduction plan, the fiscal deficit remained far revised their estimates in the 3rd quarter. Likewise, elevated (and above its target levels), reaching 10.7 trade taxes, which amounted to 1.8 percent of GDP percent of GDP in 2013 and 10.1 percent in 2014 was lower than the budget target of 2.3 percent of (World Bank 2017d). GDP, owing to lower than expected imports, since the The 2016 fiscal targets were missed by a large nominal CIF value of imports at the end of September margin (again) with the fiscal deficit on a cash 2017 shrank by 1.3 percent compared to a growth of basis estimated at 9.3 percent of GDP compared 2.3 percent in the same period in 2016. Also, indirect with the target of 5.2 percent. The slippage was taxes, which accounted for 4.8 percent of GDP at largely due to the failure to adjust overall expendi- the end of September 2017, underperformed slightly ture in the face of revenue shortfall. This was com- compared with 4.9 percent target, due to the overall pounded by weak fiduciary institutions and control reduction in the consumption of goods and services. environment, including issues around the Ghana The disbursement of grants from Ghana’s develop- Integrated Financial Management Information System ment partners amounted to 0.5 percent of GDP, just (GIFMIS) recording of purchasing orders. In effect, below the projected level of 0.6 percent of GDP for not all expenditures were recorded in the system and the period (Figure 1.2.1). hence could not be curtailed as needed. While pub- Ghana’s tax revenue performance continues to lic expenditures remained close to the IMF program be below its potential levels with tax-to-GDP ratio target, the spending pressures ahead of the general averaging 17.6 percent since 2008. Performance on elections led to overspending in capital expenditure revenue mobilization, in 2014 for instance, fell short as well as goods and services. of some of its regional comparators such as South Ghana’s fiscal deficit of 4.6 percent of GDP Africa (25.5 percent), Mozambique (20.3 percent), from January to September of 2017 suggests that and Senegal (19.1 percent) (Figure 1.2.2). The under- fiscal policy is on track (again) to meet the full-year performance of revenue mobilization is attributed to deficit target of 6.3 percent of GDP2 (Table 1.1). several factors. First, the Ghanaian tax authorities Total revenue (including grants) underperformed by do not have a robust method of estimating the tax 9.3 percent equivalent to 1.4 percent of GDP, as all the gap, which is the pre-requisite for working towards revenue categories underperformed, but expenditures achieving the potential tax levels. Second, the coun- were reduced in response to the underperforming rev- try’s tax-expenditure regime is high, which this cost enues. The primary balance improved from a deficit the Government an estimated 5.2 percent of GDP in of 1.4 percent of GDP at the end of 2016 to a surplus foregone revenue in 2013 alone. There is an urgent of 0.2 percent of GDP at the end of September 2017. need to rationalize tax expenditure, which includes The revenue underperformance occurred across a wide range of tax exemptions and various forms of all categories, shown in Figure 1.2.1. Direct tax col- preferential tax treatment. While many countries use lection, excluding the oil sector, amounted to 4.1 tax expenditures to support the growth of specific percent of GDP at the end of September 2017, below the budget target of 4.4 percent. The shortfall in direct 2 Ibidem. 6 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION sectors or advance fiscal-equity objectives, these poli- in the world market prices. Due to the fall in cies complicate revenue collection. prices, and subject to the practice of collateralization, In response to the poor revenue performance COCOBOD could only secure a US$1.3 billion in its for the first three quarters of 2017, the Government syndicated loan signed on 20th September 2017. With made cuts to both recurrent and capital expendi- the producer price unchanged, the implication is that tures, as well as some statutory transfers. This is the projected receipts of sale of cocoa for the season shown in Figure 1.2.3. At the end of September, total will barely cover COCOBOD’s expenditures for the expenditure including arrears clearance amounted to season on a one-on-one basis. The possible options GH¢37 billion (18.3 percent of GDP) compared to to manage the situation are to utilize the existing, the budgeted amount of GH¢41 billion (20.3 percent inadequate stabilization fund held by COCOBOD, of GDP). Specifically, cuts were in goods and services while the Government forfeits its share of cocoa (4.8 percent of GDP), and most significantly, domestic FOB receipts for the year with a possible worsening financed capital expenditure (0.6 percent of GDP) and of the underperforming domestic revenue. In addi- clearance of Arrears (0.7 percent of GDP). Cuts in all tion, COCOBOD will be expected to cut down on other expenditure categories such as compensations of the usual capital expenditures, including works on employees, transfers to statutory bodies, tax refunds, roads directly linked to the cocoa producing areas in Energy Sector Levy Account (ESLA) transfers, and the country to which the central Government will foreign financed capital expenditure amounted to 1.6 be required to commit funds. In addition to these percent of GDP (Figure 1.2.3). measures, when the above measures are not enough Although flexibility in expenditures may be a to cover the costs, COCOBOD will be expected to good signal for fiscal management, expenditure cuts raise funds from the local market through bridge may not be sustainable as pressures rise to imple- financing and this, in some cases, may have repercus- ment election promises. Expenditure cuts, especially sions on private sector access to credit from the banks. those related to statutory payments are essentially Going forward, not only is it crucial to sustain and expenditure postponement and this may have reper- raise the productivity in the cocoa sector, but there is cussions for the accumulation of arrears. At the end also the need to add more value to the cocoa sector of 2016, new arrears and outstanding commitments to reduce the risk of being price-takers on the inter- amounted to GH¢5.1 billion (US$1.2 billion, or 3 national market. percent of GDP), of which about 2 percent of GDP Over the years, overall budget management occurred outside the GIFMIS (IMF 2017). While the has been complicated by the increasing off-budget audit of the new arrears accumulated in 2016 is yet to activities through revenue earmarking, exacerbated be completed, the Government had only liquidated a by activities of quasi-fiscal entities. To address this, net arrears amount of GH¢0.8 billion by the end of the Government passed legislation in 2017—the September 2017 compared to the target of GH¢2.2 Earmarked Funds Capping and Realignment Act— billion. Based on the September performance, the which caps transfers to statutory funds to 25 percent initial 2017 arrears clearance projections of GH¢3.7 of tax revenues. Before the new legislation pre-deter- billion has been revised to GH¢2.7 billion. Going mined expenditure through earmarking accounted forward, the Government has set a target to clear all for about 30 percent of revenues and 20 percent of arrears by the end of 2021, to mitigate the risks they expenditure. Budget flexibility was further limited pose on the financial sector.3 through quasi-fiscal operations on the part of State There are fiscal implications of the decision to Owned Enterprises (SOEs). Furthermore, budget keep the producer price of cocoa unchanged for the 2017/2018 season despite a 40 percent reduction 3 Government of Ghana’s 2018 Budget Statement, November 2017. Recent Economic Developments and Outlook 7 TABLE 1.1: Fiscal Indicators (% of GDP): 2013 to 2017 2013 2014 2015 2016 2017 Jan-Dec Outturn Outturn Outturn Est. Q1-Q3 Proj. Q1-Q3 Est. Proj. Total revenue* and grants 16.7 18.4 19.6 17.3 14.3 13.0 18.8 Taxes 14.4 15.9 15.9 15.7 11.9 11.1 15.7 Direct taxes 6.7 7.5 6.4 5.4 4.6 4.4 6.4 Indirect taxes 5.0 5.5 6.8 7.4 4.9 4.8 6.7 Trade taxes 2.5 2.7 2.5 2.6 2.3 1.8 2.5 Grants 0.5 0.7 2.0 0.7 0.6 0.5 0.7 Total expenditure 27.0 28.5 26.6 26.6 19.1 17.6 25.1 Compensation of employees 11.0 9.7 9.4 8.7 5.9 6.1 8.3 o/w Wages and salaries 8.9 8.3 7.7 7.2 5.2 5.3 7.2 Goods and services 1.0 1.6 1.0 1.9 1.0 0.9 1.1 Interest Payments 4.7 6.2 6.6 6.9 5.1 4.8 6.5 Domestic 4.1 5.4 5.3 5.5 4.0 3.7 5.2 Foreign 0.7 0.9 1.3 1.4 1.1 1.1 1.3 Subsidies 1.2 0.4 0.0 0.0 0.0 0.0 0.0 Social transfers 0.0 0.0 0.0 0.0 0.1 0.0 0.1 Grants to Other Government 2.3 2.1 3.1 3.3 2.1 2.1 3.7 Units Other expense** 2.1 3.1 1.2 1.2 2.5 1.8 3.0 Net acquisition of nonfinancial 4.6 5.4 5.2 4.6 2.3 1.8 2.3 assets Domestic financing 1.8 1.1 0.9 1.2 0.8 0.2 0.5 Foreign financing 2.8 4.3 4.3 3.4 1.5 1.6 1.7 Overall balance –10.3 –10.1 –7.0 –9.3 –4.8 –4.6 –6.3 (Net lending/borrowing) Discrepancy 0.0 0.0 0.6 1.0 0.0 –0.2 0.0 Overall balance –10.3 –10.1 –6.4 –8.3 –4.8 –4.8 –6.3 (Including Discrepancy) Financing 10.3 10.1 6.4 8.3 4.8 4.6 6.3 Foreign (net) 3.4 5.2 4.3 1.8 –0.2 0.0 –1.8 Borrowing (Foreign) 4.3 6.4 6.3 4.5 1.5 1.3 1.1 Amortization (due) –0.9 –1.2 –2.0 –2.8 –1.7 –1.3 –2.9 Domestic (net) 8.9 7.8 1.8 8.6 5.1 4.4 7.9 Banking 5.3 5.0 –0.8 5.3 0.9 –3.6 0.6 Non-banks 3.6 2.8 2.6 3.3 4.2 7.9 7.2 Others –2.1 –2.9 0.3 –2.1 –0.1 0.2 0.2 (continued on next page) 8 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION TABLE 1.1: Fiscal Indicators (% of GDP): 2013 to 2017 (continued) 2013 2014 2015 2016 2017 Jan-Dec Outturn Outturn Outturn Est. Q1-Q3 Proj. Q1-Q3 Est. Proj. Primary Balance –5.6 –3.8 0.2 –1.4 0.3 0.2 0.2 Gross Domestic debt 29.2 31.0 28.5 32.1 — 31.6 — Gross External debt 28.0 39.1 43.7 41.3 — 36.9 — Gross (public) debt 57.2 70.2 72.2 73.4 — 68.6 — Wages and salaries 10.1 8.8 8.3 7.2 5.2 5.2 7.2 (including Wage Arrears) GDP (nominal) 93,416 113,343 136,957 167,316 202,010 202,010 204,078 Source: IMF; World Bank; Ministry of Finance, Ghana. *Revenues are net of Ghana Revenue Authority (GRA) retentions and tax refunds, and include net Internally Generated Funds channeled through the Consolidated Fund. **Includes repayment of arrears and unpaid commitments. execution remains unpredictable due to weaknesses improvement as the overall deficit remained high at in treasury management such as cash-flow forecasting 10.1 percent of GDP. With 2016 as an election year, methods and cash-investment procedures. This often the slippage was unsurprisingly high as fiscal deficit results in delays in payments to service providers and reached 9.3 percent of GDP against the target of 5.3 accumulation of arrears. While the establishment of percent. The debt stock, therefore, remained high at the treasury single account has improved cash manage- 73.7 percent of GDP compared to the 2015 levels of ment, the account’s coverage is not yet comprehensive. 72.2 percent. As at June 2017, the gross public debt The large wage bill is yet another element of fiscal stood at GH¢138.5 billion (US$31.7 billion) equiva- rigidity that limits the room for maneuvering when lent to 68.1 percent of GDP. This figure is expected to the unexpected happens or priorities need to change. be 70.5 percent of GDP by close of 2017. The June Public sector wages are the single largest component of 2017 stock comprises external and domestic debt of Government expenditure, surpassing capital spending GH¢74.6 billion (US$17.1 billion) and GH¢ 63.9 in 2010, and accounting for 7.2 percent of GDP in billion (US$14.6 billion) respectively and this trans- 2016 and about 47 percent of tax revenues (Figures lates into 36.7 percent of GDP for external debt and 1.2.4 and 1.2.5). Regaining control of the wage bill 31.4 percent of GDP for domestic debt (Figure 1.2.6). is a high priority for the Government and a crucial Going forward, the Government has committed part of its fiscal consolidation strategy. to three key legislative actions to further cement Since 2012, fiscal consolidation efforts have the fiscal consolidation path and ensure long-term not fully led to the expected outcome and this has fiscal sustainability. First, it is taking steps to amend contributed to the rise in public debt. Following the the Public Financial Management Act, 2016 (PFMA), macroeconomic instability which emerged in 2012, Act 921 to entrench all the elements of a fiscal respon- the fiscal effects of which were exacerbated by the esca- sibility law, to cap the fiscal deficit at a maximum lating cost of the public-sector wage bill and energy 5 percent of GDP from 2018 onward. Second, the subsidies, the Government’s budget in 2013 targeted Government has proposed the establishment of a a fiscal deficit of 5 percent of GDP, but the actual Fiscal Council through an amendment of the 2016 overall fiscal deficit remained double that level at 10.7 PFMA Act, which would ensure credibility of fiscal percent of GDP. In 2014, there was only a marginal projections, setting up medium-term policy anchors Recent Economic Developments and Outlook 9 to guide fiscal policy, and monitoring compliance with was a general decline in treasury-bill yields with the the fiscal policy rules. Third, the Government intends 91-day T-bill rate falling to as low as 12.5 percent at to include in the PFMA Act a provision requiring all the end of July 2017 from 22.8 percent in 2016; and Government payments to have a corresponding pur- the 181-day T-bill declining from 24.6 percent in July chase order in GIFMIS, which is an effective way of 2016 to 12.97 percent in July 2017. controlling expenditure. Nevertheless, Ghana’s large financing needs The Government’s current focus on reduc- represent a significant vulnerability. Nonresidents ing debt is expected to steer fiscal policy over the currently hold more than 60 percent of total debt. medium term. The Government proposed (in the In addition, significant contingent liabilities could 2017 budget statement) to give legal backing to a arise from the SOE sector, especially energy-related Fiscal Council through an amendment of the 2016 SOEs; the financial sector; and the unpaid claims PFMA Act. The mandate of the Fiscal Council would currently being audited. According to the latest Debt include: ensuring credibility of fiscal projections, set- Sustainability Analysis (DSA) of August 2017, jointly ting up medium-term policy anchors to guide fiscal conducted by the World Bank and the IMF, Ghana’s policy, and monitoring compliance of fiscal policy risk of debt distress is expected to remain “high” over rules. The Government has embarked on a domestic the medium term. debt re-profiling program, which aims to extend the Agriculture is one of the areas with large financ- tenor of Government debt by issuing longer-term ing needs, which are largely unmet. Over the years, bonds to replace short-term debt. Following the public spending on agricultural development in approval of the 2017 budget and economic statement Ghana has been low both by regional and international in March 2017, the Government made a record bond standards, and spending levels have declined in recent issuance of GH¢2.25 billion in April, mostly sub- years (World Bank, 2017e). Spending in the sector scribed by non-resident investors. This has resulted in has been just 5.2 percent of total spending between a sharp rise in the foreign sector’s share of domestic 2001 and 2014). Moreover, agricultural spending debt from 17 percent in 2013 to over 23 percent at began to decline in 2007, and this trend worsened in the end of June 2017 (Figure 1.2.7). Interest sav- 2011. Nominal spending fell from GH¢576 million ings arising from the re-profiling of domestic debt is in 2011 to an estimated GH¢400 million in 2014, projected at GH¢600 million for 2017. The share of while the sector’s share in total spending dropped foreign participation in the domestic bond market has from 4.2 to just 1.2 percent. Agricultural spending been increasing since 2014, indicating improved con- has also declined sharply relative to sectoral output, fidence; but this renders the economy susceptible to and by 2014, it equaled just 1.3 percent, far below the capital flight in the event of investor fright. At the end rates of regional comparators, such as Burkina Faso of June 2017, share of foreign holdings of domestic (8 percent), Ethiopia (6 percent), Uganda (5 percent), debt had increased to 34.6 percent of total domestic and Kenya (4 percent) (Figures 1.2.9 and 1.2.10). debt, up from the end 2014 levels of 17.1 percent. Considering the fiscal consolidation agenda of gov- Following a US$750 million Eurobond issu- ernment as well as the revenue underperformance in ance in September 2016, Ghana’s credit spreads recent times, changing this trend in the agricultural began narrowing (Figure 1.2.8). The proceeds of this sector may be difficult. So, the key will be to increase Eurobond were partly used to buyback the Eurobond the efficiency of spending in the sector to maximize maturing in 2017, with some $200 million set aside to impact. finance full repayment at maturity in October 2017, Under the 2003 Maputo Declaration, all with the aim of reducing the vulnerabilities associated African countries, including Ghana, committed to with resettlement of Eurobond on a bullet basis. There allocate at least 10 percent of their national budget 10 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION FIGURE 1.2: Fiscal Sector 1) Public Revenue Targets (% of GDP): 2017 2) Actual and Potential Tax Revenue (% of GDP), 6 Ghana and Selected Countries: 2014 40 5 35 4 30 25 Percent 3 20 2 15 10 1 5 0 0 –5 Direct taxes (non-oil) Trade taxes Oil revenue Grants Nontax and other revenue measures (nono-oil) Indirect taxes –10 South Africa Namibia Congo. rep Angola Kenya Ghana Senegal Guinea-Bisau Cameroon Togo Mozambique Gambia, The Malawi Tanzania Zambia Mali Madagascar Burkina Faso Guinea Uganda Ethiopia Nigeria Niger SSA median Non-SSA median 2017 Jan-Sept budget 2017 Jan-Sept actual Actual tax ratio Tax potential 3) Public Expenditure Targets (% of GDP): 2017 4) The Wage Bill as a Share of GDP (%), Recurrent 6 0.2 Expenditure and Total Expenditure: 2004–2016 0.1 45 10 5 0.0 40 9 4 –0.1 –0.2 35 8 3 –0.3 Percent 7 –0.4 30 2 –0.5 6 25 Percent 1 –0.6 5 –0.7 20 0 –0.8 4 Wages and salaries Goods and services Subsidies to utilities and social transfers Grants to other governement units Other expense 2 Net acquistion of nonfinancial assets Domestic financed Capex Foreign financed Capex 15 3 10 2 5 1 0 0 2004 2006 2008 2010 2012 2014 2016 2017 Jan-Sept budget (LHS) 2017 Jan-Sept actual (LHS) Deviation (RHS) Wage/Recurr Exp (LHS) Wage/Total Exp (LHS) Wage/GDP (RHS) 5) The Wage Bill as a Share of Tax Revenue (%): 2004–2016 6) Public External and Domestic Debt: 2004–2017 (June) 65 100 8 62.7 90 7 60 80 WAMZ target 6 55 70 49.2 60 5 Percent Percent 50 52.9 50 4 Percent 45 46.7 40 3 30 40 2 20 10 1 35 0 0 30 2004 2006 2008 2010 2012 2014 2016 25 Gross domestic debt/GDP Gross external debt/GDP 2004 2006 2008 2010 2012 2014 2016 Interest payments/GDP (RHS) (continued on next page) Recent Economic Developments and Outlook 11 FIGURE 1.2: Fiscal Sector (continued) 7) Domestic Debt by Creditor: 2014–2017 (June) 8) International Sovereign Bond Spread 7 (basis points): 2013–2017 (November) 1,300 6 1,100 5 900 Basis points 4 $ billions 700 3 500 2 300 1 100 6/2013 12/2013 6/2014 12/2014 6/2015 12/2015 6/2016 12/2016 6/2017 0 2013 2014 2015 2016 2017 june Banking system Non-bank sector Global composite Cote d’ivoire Gabon Ghana Foreign sector Other standard loans Nigeria Senegal South Africa 9) Agriculture Spending in SSA (% of total): 2014 10) Public Agriculture Spending in Ghana: 2001–2014 25 6 700 Agriculture spending share of total spending 600 20 5 500 4 15 Ghc (million) 400 Percent 3 5 300 2 10 200 1 0 100 Guinea-Biseau Angola South Sudan Seychelles Congo, Republic South Africa Lesotho Botswana Sudan Mauritius Cape Verde Kenya Nigeria The Gambia Swaziland Ghana Burundi Tanzania Uganda Mauritania Eritrea Namibia Central African Republic Côte d’Ivoire Mali Togo Madagascar Guinea Chad Cameroon Sierra Leone Congo, Dem. Rep. Senegal Benin Ethiopia São Tomé and Príncipe Rwanda Niger Zambia Zimbabwe Burkina Faso Mozambique Malawi 0 0 2001 2003 2005 2007 2009 2011 2013 % of total expenditure % of total GDP Ag. expenditure (RHS) Source: 1.1: Ghanaian Ministry of Finance; 1.2: IMF Regional Economic Outlook (October 2015); 1.3: Ghanaian Ministry of Finance; 1.4–5: Ghanaian Ministry of Finance and World Bank; 1.6–7: Ghanaian Ministry of Finance; 1.8: J.P. Morgan; 1.9: 3: World Bank (2016) based on data from IFPRI (2015); 1.10: World Bank PER (2017). to agriculture by 2008. Ghana is also a signatory issues might be the underlying factor complicating to the common agricultural policy of the Economic this assessment (Benin 2014; and Kolavalli et al. community of West African States (ECOWAS), which 2015). And indeed, Ghana’s agricultural spending includes similar objectives. Recent studies have indi- was well below that of most regional comparators in cated that Ghana may never have achieved the 10 2014, more recent comparable data is not available percent expenditure target, and that classification (Figure 1.2.9). 12 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION External Sector depreciations against the U.S. dollar (34 percent in 2014 and 16 percent in 2015). Pressure on Ghana’s Ghana’s external position further improved at the end flexible exchange rate regime has persisted over the of September 2017, reflecting stronger performance years with continued macroeconomic underperfor- in earnings from oil, gold, and cocoa, as well as mance attributed to large fiscal slippages. At the begin- higher capital inflows. Provisional data for the period ning of 2017, the cedi witnessed a sharp decline in January-September show a substantial narrowing of value due to increased seasonal demand pressures from the current account deficit on the back of substantial import demand and dividend payments, which was surplus in the trade balance and higher private trans- exacerbated by speculative activities. Cumulatively, the fers. The trade balance improved to a surplus equiva- cedi depreciated by 2.7 percent against the U.S. dollar lent to 1.5 percent of GDP at end-September 2017, on year to date basis in March 2017, compared with from a deficit of 4.3 percent of GDP in September a depreciation of 0.9 percent during the same period 2016 (Figure 1.3.1). The value of merchandise exports of 2016. This was also reflected in the Real Effective increased to US$10 billion (21.5 percent of GDP) from Exchange Rate (REER), which showed a depre- the September 2016 level of US$8 billion (18.7 percent ciation over the same period; this indicates a slight of GDP), driven by increased export earnings especially improvement in the competitiveness of the economy from gold, cocoa and oil. For instance, earnings from measured by the REER. The cedi’s performance has crude oil exports amounted to US$2 billion at end- turned around since mid-March (Figure 1.3.4) due to September representing an almost three-fold nominal improved liquidity as a result of substantial inflows of increase over the September 2016 value of US$773 foreign exchange related to non-residents participation million. In total, gold, oil and cocoa accounted for 83.6 in the domestic bond market. percent of total export earnings in the first three quarters of 2017 (Figures 1.3.2 and 1.3.3 and Table 1.2). Monetary and Financial Sector Merchandise imports remained subdued. The reduction of merchandise imports was 5.6 The inflation rate continued to moderate since the percent, from US$9.8 billion (20 percent of last quarter of 2016, allowing the central bank to GDP) in September 2016 to US$9.3billion (23 cut back on its policy rate. Headline inflation fell percent of GDP), due to decreases in both oil and from more than 19 percent in March 2016 to around non-oil imports. At the end of September, the cur- 12 percent since May 2017 with the October 2017 rent account deficit narrowed significantly to US$1.1 rate at 11.6 percent (Figure 1.4.1). Movements in billion (equivalent to 2.4 percent of GDP), from as headline inflation are largely determined by move- high as US$2.1 billion (4.9 percent of GDP) a year ments in non-food inflation while food inflation either ago (Table 1.2). The smaller deficit was financed by reinforces or mitigates the impact of non-food infla- both FDI inflows (5.9 percent of GDP) and port- tion. Thus, since September 2016, inflation has been folio investment (5.5 percent GDP). Gross official on an overall decreasing trend driven by consistent reserves were estimated at US$4.9 billion at the end decreases in both food and non-food prices except of September 2017, equivalent to 2.8 months of for the month of April 2017 when the inflation rate imports, up from US$3.1 billion at the September increased marginally to 13 percent from 12.8 percent 2016, equivalent to 1.7 months of imports. in March. This was because of an increase in non-food The Ghanaian cedi remains stable after a short inflation resulting from the pass-through effects of the period of turbulence in the first quarter of the increases in transport fares implemented in April. The year. The value of the cedi has been quite volatile recent trends in inflation is supported by the relative over the past few years, as is evidenced by two large stability in the cedi. Recent Economic Developments and Outlook 13 TABLE 1.2: Balance of Payments, 2014 to September 2017 (% GDP) 2016 2016 2017 2017 2014 2015 Q1-Q3 Annual Q1-Q3 Proj. Annual Merchandise Exports (f.o.b.) 34.1 27.4 18.8 26.1 21.5 28.1 o/w Oil exports 9.6 5.1 1.8 3.2 4.2 5.9 Non-oil 24.5 22.3 17.0 23.0 17.3 22.2 Merchandise Imports (f.o.b.) –37.7 –35.7 –23.0 –30.3 –20.0 –27.4 Non-Oil –28.1 –30.3 –19.7 –26.0 –16.7 –23.1 Oil –9.5 –5.4 –3.4 –4.3 –3.3 –4.3 Net exports of goods under 0.0 0.0 0.0 0.0 0.0 0.0 merchanting Merchandise Trade Balance –3.6 –8.3 –4.3 –4.2 1.5 0.7 Services and income net –11.1 –6.1 –3.5 –5.9 –8.1 –11.0 Services (Net) –6.7 –3.1 –1.4 –3.0 –4.0 –5.5 Services Exports 5.3 16.3 11.0 14.8 9.7 12.7 Services Imports –12.0 –19.4 –12.3 –17.9 –13.7 –18.2 Income (Net) –4.4 –3.0 –2.1 –2.9 –4.1 –5.6 Transfers 5.2 6.9 2.9 3.4 4.2 5.5 Official transfers (Net) 0.0 0.6 0.0 0.1 0.1 0.1 Private transfers (Net) 5.2 6.3 2.8 3.4 4.1 5.4 Current Account (incl. official –9.5 –7.5 –4.9 –6.6 –2.4 –4.8 transfers) Capital and Financial Account 9.7 8.3 1.0 6.0 3.7 6.8 Capital Account 0.0 1.3 0.5 0.6 0.4 0.5 Financial Account 9.7 7.0 0.6 5.4 3.2 6.3 Net official capital (Med/Long 2.1 1.9 0.1 –0.1 –0.3 –0.6 term) Private Capital –2.8 –3.9 2.5 –3.5 –3.4 –3.8 Foreign Direct Investment (Net) 8.7 7.9 5.9 8.1 5.1 7.0 other investment 0.0 0.0 0.0 0.0 0.0 0.0 Portfolio Investment (Net) 2.2 2.4 1.6 1.3 5.5 5.5 Short-term Capital –0.4 –1.2 –4.6 –0.5 –3.7 –1.7 Errors and Omission –0.4 –0.8 0.6 1.2 –0.5 0.0 Government Oil Investment –0.4 0.1 –0.1 –0.1 –0.3 –0.4 Note Current Account Balance (US$ –3.7 –2.8 –2.1 –2.8 –0.1 –2.2 billion) Gross International Reserves (months 2.1 2.6 1.7 2.8 2.8 3.0 of import of coverage) Source: Bank of Ghana. 14 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION FIGURE 1.3: External Sector 1) Ghana’s Current Account and FDI Inflows: 2013–2017 (September) 2) Selected Export Commodities: 2013 to 2017 (September) 16 20 14 18 12 16 14 Percent of GDP 10 $ billions 12 8 10 6 8 4 6 2 4 0 2 2013 2014 Jun 2014 2015 Jun 2015 2016 Jun 2016 Dec 2017 Jun 2017 Sept 0 2013 2014 2015 2016 2017 2017 (Jan-Jun) (Jan-Sept) Foreign direct investment Current account deficit Gold exports Cocoa & products exports Crude oil exports 3) Ghana’s Trade Balance: 2013–2017 (September) 4) Nominal Exchange Rates, Ghana and Selected Countries: 2015 to 2017 (June) 20,000 170 160 Index (Jan 2015 = 100) 15,000 150 10,000 140 $ millions 130 5,000 120 0 110 –5,000 100 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 2013 2014 2015 2016 2017 2017 (Jan-Jun) (Jan-Sept) Merchandise exports Merchandise imports Trade balance Brazil Colombia Ghana Mexico Turkey Source: 4.1–2 and 4.4: Bank of Ghana; 4.3: World Bank. FIGURE 1.4: Monetary Sector 1) Inflation Rate (% change, y-o-y): 2013–2017 (October) 2) Bank Credit Growth (% change, y-o-y): 2013–2017 (October) 30 60 50 25 40 20 30 Percent 15 20 Percent 10 10 0 5 –10 0 –20 Jan-13 Jun-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-15 Jul-16 Jan-17 Jul-17 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 Food Non-food Headline Credit growth (y-o-y, %) Real credit growth (y-o-y, %) Sources: 5.1: Ghana Statistical Service; 5.2: Bank of Ghana. Recent Economic Developments and Outlook 15 The downward trend in inflation created room non-oil sector and the lingering problems of the energy- for monetary policy easing . Consequently, the related state-owned enterprises (Table 1.3 and 1.4). Monetary Policy Committee (MPC) of the Bank of The overall banking sector remains profitable, Ghana (BoG) cut the policy rate by 450 basis points even though some weaknesses persist. Returns on (bps) over the last seven months to 21.5 percent in July assets and returns on equity for the first half of 2017 2017. Also, the T-bill rates have consistently declined were at 2.4 percent and 17.7 percent, respectively since December 2016 in line with the declining trend (Table 1.3). However, a recent Asset Quality Review of inflation. The average rate on the 91-day bill fell (AQR) indicated provisioning and capital shortfalls from 16.8 percent in December 2016 to 12.1 percent as the BoG required some banks to reclassify loans, in June 2017; while the rates on the 182-day T-bill increase provisions, and implement recapitalization rate declined from 18.5 percent in December 2016 to plans. Some banks exceeded single obligor limits, 13.3 percent in June 2017. As the cost of borrowing with capital erosion following the AQR, generating decreased, broad money expanded in the first seven further pressures. There were also instances where months of 2017 by 28.7 percent, compared with 25.9 a few banks were granted single obligor exemp- percent for the same period in 2016. However, growth tions under the previous Banking Act, mainly to the in credit to the private sector slowed to 14.5percent in energy sector. However, waivers granted under the July 2017 down from 16.0 percent for the same period previous legislation are being phased out considering in 2016 (Figure 1.4.2). Nevertheless, banks’ nonper- that the new Banks and Specialized Deposit-Taking forming loans remain high at 21.2 percent of total gross Institution (SDI) Act does not provide for waivers of loans at the end of June 2017 reducing slightly to 20.9 single obligor exposures. Some banks have accessed percent in July 2017, mainly attributed to the weak the BoG’s emergency liquidity facility for more than TABLE 1.3: Banking Sector Financial Soundness Indicators: 2010 to 2017 (June) June 2010 2011 2012 2013 2014 2015 2016 2017 Capital Regulatory capital to risk weighted assets 19.1 17.4 18.6 18.5 17.7 17.8 17.8 14.8 Regulatory Tier I capital to risk-weighted 18.6 15.5 16.4 14.7 15.2 14.6 14.4 12.9 assets Asset Quality Nonperforming loans net of loan-loss 29.2 10.4 9.4 8.3 11.2 14.7 15.8 17.9 provision to capital Nonperforming loans to total gross loans 17.6 14.1 13.2 12.0 12.0 14.7 17.3 21.2 Earnings Return on assets 2.7 2.8 3.6 4.5 4.6 3.3 2.5 2.4 Return on equity 28.6 27.2 34.6 42.5 44.5 31.6 27.1 17.7 Liquidity Liquid asset to total assets 25.3 27.8 24.1 21.7 26.2 26.4 27.2 25.4 Liquid asset to short-term liabilities 32.9 35.3 30.7 28.2 34.4 34.2 35.1 32.5 Liquid assets/total deposits 37.3 38.4 33.6 33.7 43.6 40.6 42.8 40.4 Source: Bank of Ghana. 16 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION TABLE 1.4: Non-Performing Loans: June 2016 to June 2017 Jun-16 Apr-17 Jun-17 Share in Share in Share in Total Share in Share in Total Share in Total Credit NPLs Credit NPLs Credit NPLs a. Public Sector 12.6 12.7 13.7 2.5 13.1 5.1 i. Government 1.9 1.4 1.4 1.0 1.6 1.0 ii. Public Institutions 2.6 2.0 5.0 0.1 4.3 0.1 iii. Public Enterprises 8.0 9.2 7.4 1.4 7.2 4.0 b. Private Sector 87.4 87.3 86.3 97. 86.9 94.9 i. Private Enterprises 70.0 80.9 70.8 91.4 71.2 89.3 o/w Foreign 9.2 7.9 8.5 12.5 8.9 12.1 Indigeneous 60.8 73.0 62.3 78.9 62.3 77.2 ii. Households 14.9 6.0 14.2 5.6 14.3 5.1 iii. Others 2.5 0.4 1.3 0.5 1.4 0.5 Source: Bank of Ghana. the three-month maximum stipulated in the regula- namely, the commerce and finance, the services, and tions. This has been attributed to the weak economy the electricity, gas and water sectors, from 65.7 percent and problems in the energy sector with significant in June 2016 to 63.6 percent of total NPLs in June adverse impact on the banking system, as indicated 2017. The share of NPLs attributable to the com- by the high level of nonperforming loans. merce and finance sector (the sector accounting for Even though the capital adequacy ratio of 14.8 the largest share of NPLs) declined from 42.4 percent percent is well above the regulatory requirement of in June 2016 to 36.8 percent in June 2017. The agri- 10 percent, there are some vulnerabilities as this culture, forestry and fishing sector was, however, the buffer could be eroded by the increasing number sector with the highest proportion of its loans (39.3 of non-performing loans (NPLs). The ratio of NPLs percent) classified as non-performing as at end-June increased from 12 percent in December 2014 to 21.2 2017. It was followed closely by the commerce and percent in June 2017 with some individual banks hav- finance sector with a sectoral NPL ratio of 30.3 per- ing even higher NPL ratios. The private sector, being cent (Table 1.4). the largest recipient of outstanding credit balances The share of public sector NPLs declined from also accounted for the greater proportion of banks’ 12.7 percent in June 2016 to 5.1 percent June 2017. NPLs. The share of private sector NPLs in total NPLs It is expected to decline further at the end of 2017 increased from 87.3 percent in June 2016 to 94.9 as Government takes steps to address SOE debt. percent in June 2017 while the proportion of banks’ This is because SOE NPLs, which usually form the NPLs attributable to the public sector declined from larger part of public sector NPLs, have significantly 12.7 percent to 5.1 percent over the same period. Most declined due to the recent restructuring of SOE debt, private sector non-performing loans were debts of particularly those related to the Tema Oil Refinery local enterprises accounting for 77.2 percent of total (TOR) and the Volta River Authority (VRA). See NPLs in June 2017, from 73.0 percent in June 2016. Box 1 with an overview of the most pressing issues There were marginal reductions of NPLs of the three in the state-owned energy sector in Ghana. Through largest sectors in terms of outstanding credit balances, the Energy Sector Levies Act 2015 (Act 899), the Recent Economic Developments and Outlook 17 Government introduced the energy sector levy to third quarters and this may support the government’s repay Government/SOEs non-performing debts to higher projection of 7.9 percent growth for the year. banks and energy companies. Pursuant to Act 899, However, non-oil growth is expected to slow to the Government opened an auction for GH¢6 billion 4.3 percent. The improved power situation will not be cedi-denominated energy sector bonds on Tuesday, able to offset the negative real sector growth effects of 24 October 2017 to refinance a part the energy sec- the ongoing fiscal consolidation and consequently the tor debt, including to the banking sector. The GH¢6 lower consumption and investment from the public billion (US$1.4 billion) is part of the total amount of sector. An average of 6.6 percent growth is projected GH¢10.8 billion (US$2.5 billion) owed by five major for the non-oil sector over the medium term. TFP is energy utilities—Electricity Company of Ghana, Volta projected to decline marginally over the medium term River Authority, Ghana Grid Company, Ghana Gas, and growth will largely be from capital accumula- and Tema Oil Refinery—at the end of June 2016. An tion, while the services sector remains saturated with amount of GH¢2.4 billion was accepted in seven-year labor. This reinforces the need for more private sector bonds at a rate of 19 percent, while only GH¢2.8 bil- diversification through non-traditional exports and lion was received in offers for the 10-year bond at a improved agroindustry (Figure 1.5.4). rate of 19.5 percent against a target of GH¢3.6 billion. Over the medium term, monetary policy will The bonds were sold through a special-purpose vehicle remain focused on price stability. The Government’s (SPV) backed by flows from the Energy Sector Levy medium-term inflation target is 8±2 percent. As Act (ESLA) of December 2015. While this transaction monetary and fiscal policy stance are better coordi- could reduce banks’ NPLs and ease liquidity pressures nated, the inflation targeting framework is expected in the short-term, it is also important to address the to be more effective in curbing inflation in line underlying factors that led the SOEs to accumulate with the medium-term target. This would allow for arrears and overdue debts in the first place. the gradual lowering of the policy rate to facilitate increases in domestic credit to the private sector in Macroeconomic Outlook and Policy line with the medium-term growth objective. Ghana Options operates a flexible exchange rate regime with the BoG intervening to prevent excessive volatility in exchange GDP is projected to rebound to 6.1 percent in rate movements. 2017.4 The rebound is expected to be driven by fur- The outlook faces a number of domestic and ther investments in the oil, gas, and mining sectors. external risks. On the domestic front, the substan- Growth could remain high at around 8 percent in tial fiscal challenges, which are manifesting through 2018 and moderate to 6 percent in 2019 (Figures 1.5.2 weak domestic revenue mobilization and difficulties and 1.5.3). Oil production at the Sankofa offshore, the in containing the wage bill could undermine overall TEN fields, and new production in the Offshore Cape macroeconomic stability while the recent exchange Three Points (OCTP) Fields, which had significant rate depreciation could militate against efforts to con- impact on the 2017 first quarter performance, will tain inflation. Thus, Ghana’s economic performance continue to boost growth throughout the remainder of over the medium term will, to a large extent, depend 2017. Also, gold output will likely remain high (based on the success of the economic stabilization program on data from the Minerals Commission) while cocoa through a return to fiscal sustainability. The Ghanaian production is expected to grow above 900 thousand tons. Considering the acceleration of growth in the 4 This is based on World Bank staff projections that take into account natural resource sector, there is an upside to the 2017 the first quarter growth rate of 6.6 percent as published in the 2017 growth projection given the very strong second and Macro-Poverty Outlook (October). 18 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION authorities have expressed their commitment to costs in both the domestic and external markets and embark on a steep fiscal consolidation, as evidenced interest rates remain susceptible to the actions of the in the first three quarters fiscal performance, while U.S. Federal Reserves with gradual increases in its the BoG maintains the strategies towards achieving benchmark interest rate. the medium-term inflation target. Importantly too, To improve revenue mobilization, improved Ghana is likely to face high financing costs in both tax compliance and the broadening the tax base the domestic and external markets in the context of are imperatives. To improve compliance, the tax a strong U.S. dollar and rising global bond yields. authorities need to rapidly advance the use of taxpayer The country’s heavy reliance on primary commodi- information through integration of data and analytical ties, including cocoa, gold, and oil—all prone to reporting. Currently, the Ghana Revenue Authority volatility in international commodity prices—create (GRA) is in the process of bringing together the Total uncertainty about its actual future paths for growth, Revenue Integrated Processing System (TRIPS) and the inflation, export receipts, and domestic revenue. Ghana Customs management Systems (GCMS) into To sustain the momentum of fiscal consolida- an Integrated Data Warehouse, with support under tion, two areas are particularly relevant over the the World Bank’s Ghana Economic Management medium-term: domestic resource mobilization and Strengthening Technical Assistance (GEMS-TA). expenditure controls, which need to be flanked by Government has also committed to the use of third growth-enhancing efforts to bring about more sus- party information from various sources such as Ghana tainability to the consolidation program. The fiscal Integrated Financial Management Information System deficit target for the full year 2017 was set to be 6.3 (GIFMIS) and other regulatory bodies such as the percent of GDP; based on the trend for the period Financial Intelligence Centre (FIC) and Economic and between January and September 2017 it is expected to Organized Crime Office (EOCO) to help improve the be met even though there are limits to the flexibility business intelligence system of GRA. There is need to in expenditure adjustments. The fiscal deficit target expedite action on these initiatives, which will enable is consistent with a 2.5 percent primary adjustment tax officials to identify taxpayers (especially in the needed to reduce the debt stock from 73.4 percent to informal sector) not yet captured and obtain accurate 70.5 percent by close of the year. With the deficit at information on the existing ones. The data warehouse 2.7 percent for the first half of the year, it is expected and the business intelligence system will help the tax that the full-year target will be met (Figure 1.5.1) or authority in the areas of audits, enforcements, and tax even surpassed, as policy-induced improvements for policy formulation. revenues will continue to materialize through the In addition, there is an urgent need to stream- end of the year. Flexibility in expenditure adjust- line tax incentives. As recommended in the 2017 ments will remain a Government priority but will World Bank’s Public Expenditure Review, tax expen- face limits. Expenditure cuts have improved the fiscal ditures have a considerable fiscal cost. These should be performance in the first half of the year, but this may reviewed against their social and economic objectives result in the accumulation of new statutory payments to allow prioritization of the tax regime. For instance, arrears, as revenue underperformance remains a risk zero-rating tends to reduce prices more than outright to the budget. With the end-year 2016 stock of debt VAT exemptions and hence, zero-rating may serve as a of more than 73 percent of GDP and with Ghana policy option in a case where Government intends to already at a high risk of debt distress, any further fiscal reduce tax burden on consumers. On the other hand, slippage could have significant adverse impact on the tax expenditures targeting consumer goods that pro- debt dynamics with implications for investors’ con- duce no positive social or economic spillovers could fidence. In addition, Ghana still faces high financing be rationalized. Recent Economic Developments and Outlook 19 FIGURE 1.5: Economic Outlook 1) Fiscal Balances 2) GDP Growth (supply side) 30 14 25 12 20 10 8 15 6 Percent Percent 10 4 5 2 0 0 –5 –2 –10 –4 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019 Total revenue and grants Total expenditure Agriculture Industry Services Total Overall balance (Net lending/borrowing) 3) GDP Growth (demand side) 4) Determinants of Potential Output 50 10 40 9 8 30 7 20 6 Percent Percent 10 5 0 4 3 –10 2 –20 1 –30 0 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019 Private consumption Government consumption Real GDP Potential GDP TFP Gross fixed investment Total Working age population (15–64) (mil) Capital stock Source: 5.1: World Bank and Ministry of Finance; 5.2: Ghana Statistical Service and World Bank; 5.3: World Bank and Ministry of Finance; 5.4: Ghana Statistical Service and World Bank (2017f). Better and more forward-looking expenditure management. The Government has committed to planning is needed. This would not only keep pub- curbing the wage bill increases through various policy lic debt at sustainable levels, but also prevent further measures such as (i) the removal from the payroll of arrear accumulation. The enforcement of the Public public employees without listed bank accounts; (ii) the Financial Management Law and the expanded roll- suspension and verification of salary payments to out of the Ghana Integrated Financial Management employees without social security numbers; (iii) the Information System (GIFMIS) will be instrumental in implementation of a biometric validation exercise for those efforts. Likewise, there is the need for a swift and all employees on the automated payroll system; (iv) the further improvement of the Treasury Single Account establishment of the electronic wage payment system to strengthen debt and cash management. to enable monthly staff verification by all department In addition, containment of the wage bill heads before payments are made; (v) a payroll security needs to remain a focus of overall expenditure assessment conducted through an audit of the payroll 20 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION databases; (vi) the migration of subvented5 organiza- The agriculture sector will be in the spotlight tions onto the automated payroll databases;6 and (vii) a in the efforts for a more diversified economy and large-scale public payroll management audit designed as a sector able to provide employment and liveli- to identify the officials responsible for irregularities hoods to the people. This is the prime reason that the and inform any legal action the Government may sector will be analyzed in Chapter 2 of this economic pursue. There is the need for Government to halt the update. Agriculture contributes more than one-fifth practice of enrolling employees at work several months of Ghana’s GDP, and agricultural exports—princi- before onboarding processes are completed. This will pally cocoa—are a key source of foreign exchange. help curb some wage arrears usually experienced in Yet, Ghana’s agricultural sector’s contribution to real the health and education sectors. GDP growth has been declining for the past five years. Fiscal consolidation will only be sustainable Still, the potential for agriculture and agribusiness when social and economic activities can thrive in to bring about structural change and poverty reduc- an expanding and diverse economy. Fiscal con- tion is significant in Ghana as it is in other develop- solidation can have negative growth effects through ing economies. The agriculture sector employs more the Keynesian multiplier effect. And the medium- people, particularly in the rural areas where the sector term GDP growth outlook is over-reliant on natural is the main employer of last resort. resource extraction, which in turn has the potential for intensified Dutch Disease and long-term decline of non-natural resource exports. To ease the effects of the anticipated decline in oil production in the 5 “Subvented” refers to organizations that are publicly financed but not medium term, there is need to invest Ghana’s current part of the central Government (e.g., universities). natural resource wealth in non-natural resource sectors 6 As of September 2015, these agencies had a total staff of 176,575, 40 percent of which were National Service Personnel, while 22 percent were for sustainable growth in the medium-to-long-term. employed by the country’s eight public universities, all of whom will be The Government needs to improve the economy’s migrated to the automated payroll system. The remaining one-third are employees of subvented agencies that will have their internal payroll competitiveness for private sector-led investments in mechanisms strengthened, and will not be migrated to the automated the non-oil sector for growth. payroll system. Recent Economic Developments and Outlook 21 BOX 1: Overview of the Energy Sector in Ghana State Owned Enterprises (SOEs) play a key role in Ghana’s economy, including service delivery, and are critical to the management of public finances and public policy. A World Bank assessment in 2015 found 39 wholly-owned SOEs, concentrated largely in critical sectors of the economy such as energy, finance, and infrastructure (World Bank 2015a). However, many of these SOEs underperform, resulting in inefficient service delivery, wasted resources, financial losses, and an accumulation of debt. In the energy sector, which is the focus sector of this Box, the ECG recorded electricity distribution losses equivalent to about 25 percent of electricity consumption. SOEs account for more than half of all public-sector arrears even though SOE budgets are not included in fiscal accounts. The accumulation of arrears, particularly by SOEs in the energy sector have contributed to the deterioration in Ghana’s fiscal position and have adversely affected growth. This was compounded by large expenditures on fuel subsidies, which were subject to removal through the Government’s fiscal consolidation program in 2015. Subsidies reached the equivalent of 1.2 percent of GDP in 2013, but fell since then and have been negligible since 2016. In the energy sector, underinvestment, particularly in generation capacity, has resulted in higher structural cost of production throughout the economy, including from businesses having to self-provide for electricity, with adverse effects on the manufacturing sector. The costs of leasing and operating private diesel generators have been estimated at 1.9 percent of GDP , while the costs of lost sales have been estimated at 3.9 percent of GDP. The ratio of non-performing loans (NPLs) particularly among banks with significant exposures to the energy sector have been rising. The ratio of NPLs for the entire banking system increased from 11.2 percent in December 2014 to 17.3 percent in December 2016 and further to 21 percent in May 2017 but dropped slightly to 20.9 percent in July 2017. To reduce these NPLs, the Government introduced the Energy Sector Levy Act (ESLA) for a target source of revenues to service the energy-related State- Owned Enterprise (SOE) debt. The Government opened an auction for GH¢6 billion cedi-denominated energy sector bonds on October 24, 2017 to refinance a part the energy sector debt, including to the banking sector. The GH¢6 billion (US$1.4 billion) is part of the total amount of GH¢10.8 billion (US$2.5 billion) owed at the end of June 2016 by five major energy utilities: Electricity Company of Ghana (ECG), Volta River Authority (VRA), Ghana Grid Company (GRIDCo), Ghana Gas, and Tema Oil Refinery (TOR). Given the economy’s vulnerability to energy supply risk, the issues including sector revenue gap as well as risks from gas supply bottlenecks of the electricity sector will require immediate and urgent solutions. To this end, three important and pressing issues in the sector are (World Bank 2017b): Revenue shortfall and debt stock amount to US$1.4 billion of net external debt by end-December 2016 caused by inefficiencies such as system losses and poor collections. The Government increased the electricity tariff by 57 percent in December 2015, which ended up reducing customer demand—indicating that the tariffs are at the limit of affordability and that important adjustments need to be made on the revenue management side to address operational losses. Expected excess power generation capacity. To address the power shortfall, emergency power projects were contracted mostly without a competitive process. The contracted emergency capacity together with other Independent Power Producers (IPPs) resulted in more Power Purchase Agreements (PPAs) being entered into than necessary, vastly exceeding the power generation gap in Ghana. While a number of the projects have now been halted, or delayed, up to 1,900 MW of excess capacity project are currently still proceeding as planned and, if not stopped or delayed, could cost the sector up to US$700 million per year in unnecessary capacity payments by 2018 Risk of Sankofa gas being stranded. The Sankofa Gas Project being supported by the World Bank is expected to help resolve the gas supply shortfall, but Ghana currently does not have an interconnected gas transportation system, which would link most of the thermal power generation capacity situated in the east (around Tema—near Accra) to the domestic offshore oil and gas fields situated in Western Ghana. If Sankofa gas cannot be transported from West to East, there will be significant financial consequences, including: (i) capacity payments on thermal generation plants (790 MW) continuing to be idle in the east around Tema; and (ii) non-utilization of Sankofa gas while incurring capacity charges annually. The World Bank is currently supporting a number of reforms to comprehensively address the challenges in the energy sector. In the meantime, Government has moved to establish cost-reflective tariffs, reform the power utilities, and implement Revenue Allocation Mechanism at the ECG in which the Public Utilities Regulatory Commission (PURC) will ensure that ECG revenue goes directly into an escrow account and is then allocated based on an agreed tier of creditors. 23 AGRICULTURE AS ENGINE OF GROWTH AND JOBS CREATION: TRANSFORMING 2 THE SECTOR AND CREATING AGRIBUSINESS OPPORTUNITIES7 Development Plan (FASDEP) and the Agriculture The agricultural sector accounts for one-fifth of Ghana’s Gross Domestic Product (GDP), employs nearly half of the Sector Investment Plan (METASIP II). Moreover, workforce and is the main source of livelihood for most of and until oil production came on board in 2011, an the country’s poorest households. Two-thirds of non-oil estimated two-thirds of Ghanaian manufacturing manufacturing depend on agriculture for raw materials. Agriculture and agribusiness account for a major share of depended on agricultural inputs; hence agriculture’s all economic activities and livelihoods among smallholder performance has also been important for the com- farmers. Yet, medium-sized farms are the dominant segment petitiveness of non-oil manufacturing (World Bank, in Ghana’s agriculture sector both in terms of growth and land under cultivation. The major export crop, cocoa, 2009; and Breisinger 2008). While agricultural out- accounts for 20–25 percent of total foreign exchange put is increasing, the sector’s growth performance has earnings. Agribusiness has a very high multiplier effect on been highly erratic, and the average annual agricul- employment, creating over 750 jobs for every additional US$1million of output. Yet, agricultural growth is affected by tural growth rate is well below both the overall GDP declining yields and competitiveness in the face of a growing growth rate and the target, which is set at 6 percent extractive sector (especially oil) which poses the threat of per annum. “Dutch Disease effect.” At the same time, agriculture has tremendous opportunities to develop and significantly Ghana’s agricultural sector’s contribution to support economic and social development in Ghana. This real GDP growth has been declining for the past analysis points to three overarching opportunities for policy five years. The sector’s contribution to real GDP has reforms to improve the sector for better future outcomes: declined from 31 percent in 2008 to 18.9 percent (1) improving the quality and effectiveness of public expenditure in agriculture would be important in the context in 2016 (Figure 2.1.1). This could be attributed to of limited fiscal space; (2) improving the environment for the slow rate of growth over the period 2008–2016, agriculture businesses is key to adding value to the existing averaging around 4.3 percent. In 2016, even though production and for job creation; and (3) fixing the cocoa sector is essential given the large size of the cocoa economy. agricultural growth slightly improved to 3 percent from the 2015 level of 2.8 percent, this was sig- nificantly below the target growth rate of 6 percent Ghana’s Agriculture Sector (Figure 2.1.2). The agriculture sector contributes more than one- 7 Agriculture refers to on-farm production. It includes crops and live- fifth of Ghana’s GDP; agricultural exports—princi- stock but not floriculture, fisheries, or forestry. Agribusiness denotes pally cocoa—are a key source of foreign exchange. organized firms—from SMEs to multinational corporations—involved in input supply or in downstream transformation. It includes commercial Still, overall sector growth has remained low (Ministry agriculture that involves some transformation activities (even if they are of Food and Agriculture [MoFA] 2015). This was con- basic). It includes smallholders and micro-enterprises in food process- ing and retail to the extent that they are market oriented—indeed these firmed by the recent Joint Sector Review (JSR) of the producers and enterprises make up the bulk of agribusiness activity in implementation of the Food and Agriculture Sector Africa today (World Bank, Growing Africa 2016). 24 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION BOX 2: The Role of Agriculture in Structural Change and Poverty Reduction in Africa There is a renewed interest in the role of agriculture/agribusiness in structural change and poverty reduction, particularly in agro-based developing economies. There is ample evidence that increasing agricultural productivity has lifted millions of people out of poverty through higher incomes, cheaper food, rejuvenation of rural economic activities, which strengthens the backward and forward linkages with other sectors of the economy (i.e., the case of green revolution in Asia). It is also known that higher productivity in agriculture determines the pace of structural change as productive resources, including labor, move out of agriculture to other more productive sectors, thereby improving overall economic growth. Globally, agricultural growth has been shown to be more effective for poverty reduction among the very poorest because most of the poor work in agriculture. However, while no poor country can achieve significant poverty reduction without first increasing agricultural productivity, agricultural growth is not a sufficient condition for sustained long-term poverty reduction. For Ghana, this implies that agricultural growth needs to be promoted as a basis for economic transformation beyond the lower-middle income status. Policies, institutional reforms, and investments made since the 1990s have led to some level of growth, which may be attributed to the country’s graduation towards the lower-middle income status. However, further growth beyond this would have to derive from structural transformation towards agribusiness and non-farm services sector, as this is likely to create better jobs than the primary agricultural sector. Source: Adapted from M. Honorati and Sara Johansson da Silva 2016. The potential for agriculture and agribusi- rural areas agriculture is the employer of last resort ness to bring about structural change and poverty and hence total agriculture employment—formal and reduction is significant in Ghana as it is in other informal—is even higher than the labor force study developing economies. The pathways through which suggests. Box 3 summarizes informal employment in agriculture and agribusiness spur economic growth the agriculture sector in Ghana. and poverty reduction have been described extensively Most of the people employed in agriculture are in the development literature (see World Bank 2016). likely to be underemployed, and are likely to be in High productivity in agriculture raises farm incomes the rural areas. The 2015 Labor Force Report shows and increases demand for products and services mostly that 46.6 percent of the underemployed persons were from the non-farm sector. It also leads to more and in the agriculture, forestry, and fishing sector, with cheaper food, and generates patterns of development about 13.9 percent in wholesale and retail trading that are employment-intensive, benefiting both the and 13.4 percent in manufacturing. Seven in every farm and non-farm sectors (Box 2). ten (70.2 percent) of the underemployed in the rural The agriculture sector employs more people, areas are engaged in the agriculture, forestry, and particularly in the rural areas where the sector is fishing sector compared to 13.3 percent of those in the main employer of last resort. According to the the urban areas. Those underemployed in urban areas 2015 Ghana Labor Force Report, there were 9.3 mil- are about three times more likely (22.8 percent) than lion people who were formally employed in 2015. Of those in rural areas (7.6 percent) to be engaged in the the total number, 3.3 million (about 36 percent) were wholesale and retail trade sector (Ghana Statistical employed in agriculture. However, in the rural areas, Services 2016). total employment recorded was 4.6 million (49.1 More than 80 percent of the workforce in percent of total employed). Of the total rural employ- Ghana is employed in the informal sector. Most of ment, 70.6 percent were employed in the agriculture those employed in the informal sector operate in three sector (Table A.2.3.2 in Annex A). This is most likely main occupational categories: agriculture and fisheries an understatement, as the Labor Force study only (55 percent). craft and related trading (13 percent). covered formal wage employment. However, in the and agro-related services and sales (13 percent). This Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 25 BOX 3: Informal Jobs in the Agricultural Sector in Ghana Over 80 percent of those employed in agriculture are involved in informal activities such as: (i) agricultural activities—predominantly farming units, dependent on family labor made up of many small farmers in the rural and semi-urban areas. The farmers are mostly illiterate or semi-illiterate and have no formal training. Farming skills are acquired through learning from parents. Family labor and low-technology pooled labor is what is usually available and land is acquired typically on usufruct basis—i.e., to have the right to use the property and enjoy the fruits of it without legally owning it—from family and community assets; (ii) fishing and fish processing activities. mostly along Ghana’s coastline and are mainly composed of married males aged between 18 and 40 years. These predominantly illiterate workers acquire practical skills through experience. The value added and processing activities that include smoking and marketing of the fish are mostly undertaken by women who are either wives or close relatives of the fishermen; and (iii) rural agro-based processing activities, which include processing cassava into gari, cassava dough, palm kernel, groundnut and copra oils, palm wine tapping, pito (local brew), local gin distillery, and traditional soap-making. These activities are dominated by married female workers who are predominantly illiterate. Their skills are acquired from within the family. In all these occupations, seasonal underemployment is pronounced because the jobs are available mostly for a few months of the year. Most of the people in these informal jobs face considerable risk as they lack social security protection. Source: Osei-Boateng and Empratwum 2011. implies that most of those employed in agricultural Research and Development (R&D), and unsustain- and agro-related informal sector jobs are affected by able cultivation practices. Average cereal yield9 in all the challenges associated with informality such as Ghana is estimated at 1.7t/ha, which compares quite lack of proper regulation and very low wages. This well with many countries in Sub-Saharan Africa, but partly explains why most of the poor are likely to be is lower than Cote d’ivoire (2.7t/ha), Madagascar employed in the informal agriculture sector jobs. (2.6t/ha), Malawi, Rwanda and Uganda (2t/ha).10 As The dominant source of employment is crop in almost all countries in Sub-Saharan Africa, Ghana’s and livestock production and hunting. Most of these average cereal yield is only about a quarter of the activities are predominant among rural households, potential yield estimated at over 5t/ha11 (Table A.2.3.1 most involve production and selling of primary com- in Annex A). For cash crops, cocoa yields in Ghana modities, which fetch low prices on the market. As average between 400–450 kg/ha, which is among the seen in Table A.2.2 in Annex A, on average, house- lowest in the world (Ghana COCOBOD, 2015). holds engaged in agricultural activities as their major Yet, there is a thriving medium farm segment form of employment earn about GH¢4,200 (about in Ghana’s agriculture economy which points to US$1,000) per annum.8 As such, a combination of the existence of dynamic elements to build upon low prices and low productivity for both crops and livestock suppresses average earnings from agricultural 8 Total earnings divided by total number of households employed in activities. agriculture. Low productivity is the major cause of low 9 Cereal yield, measured as kilograms per hectare of harvested land, in- cludes wheat, rice, maize, barley, oats, rye, millet, sorghum, buckwheat, earnings and underemployment in the agricul- and mixed grains. Production data on cereals relate to crops harvested tural sector. The agriculture sector is characterized for dry grain only. Cereal crops harvested for hay or harvested green for food, feed, or silage and those used for grazing are excluded. FAO by low yields for staple as well as for cash crops. This allocates production data to the calendar year in which the bulk of the is not unusual for an African country; in fact, TFP harvest took place. Most of a crop harvested near the end of a year will be used in the following year. growth in agriculture in Africa relative to other world 10 Actual farmers’ yields estimated through the national crop estimates regions is generally low (see USAID ERS Agriculture by the Ministry of Food and Agriculture; potential yields estimated from research trials. Productivity Tables) often because of lower techni- 11 World Bank staff own calculations, based on World Development cal change due to inconsistent public investment in Indicators (WDI). 26 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION TABLE 2.1: Growth in Number of Farms, 1992–2013 Number of farms % growth in number of farms % of total cultivated area Ghana 1992 2013 1992 2013 0–2 ha 1,458,540 1,82,034 8.5 25.1 14.2 2–5 ha 578,890 998,651 72. 35.6 31.3 5–10 ha 116,800 320,441 174.3 17.2 22.8 10–20 ha 38,690 117,722 204.3 11.0 16.1 20–100 ha 18,980 37,421 97.2 11.1 12.2 >100 ha — 1,740 — — 3.5 Total 2,211,900 3,057,978 38.3 100 100 Source: GLSS (various years). for the future. Table 2.1 shows the growth in farms second-largest cocoa producer after Côte d’Ivoire, and (by size) between 1992 and 2013. All farm sizes have cocoa represents about 10 percent of agricultural pro- grown, but it is actually the medium-size segment duction. Other key crops include staple foods such as that showed the largest growth, not the smallholder maize, cassava, and yam. While domestic rice produc- farms which often are associated primarily with agri- tion is on the rise, imports still account for about half culture development in Ghana. These account for the of the country’s rapidly growing demand. Growth in majority (>50 percent) of the total cultivated area in agriculture has also largely lagged behind all the other Ghana. So, the most dynamic segments in Ghana’s key sectors (Table A.1.2 in Annex A). farming sector are the farms with sizes between 5 The agriculture sector is a primary source of and 100 ha. This may indicate a good starting point employment for most of the 300,000–350,000 to venture into agribusiness in Ghana, where scale new workers who enter the labor force each year. production in a dynamic sector would be a defini- The extractive industry, which grows faster relative to tive advantage. many sectors, including agriculture, is highly capital Increasing total output of staples has been an intensive and employs only a small proportion of important objective of Ghana’s agriculture policy. unskilled workers. Agriculture employs a huge number Yet, the data over the last decade indicate that while of unskilled workers and provides livelihoods for more total output has increased (Tables A2.3.3 and A2.3.4 than 70 percent of the rural population, including a in Annex A), productivity growth has lagged, sug- large share of the country’s poorest households. The gesting that expansion in area cultivated has been the agricultural sector will likely continue to contribute main driver of output growth. While output has been to net job growth over the medium term (World Bank growing at about 4 percent per year (for cereals) and 2016a), and improving agricultural output will remain over 10 percent per year for roots and tubers, annual vital to poverty reduction. In this context, the agricul- productivity growth over the same period averaged tural sector’s slowing growth rate and declining Terms 1.7 percent for cereals and less than 5 percent for of Trade (Figures 2.1.2 and 1.1.4) raises development roots and tubers. policy concerns that extend well beyond its immediate Crop production accounts for more than 75 macroeconomic impact. percent of total output of the sector, while live- Ghana’s impressive record of poverty reduction stock, fishing, and forestry comprise the remaining since the 1990s is closely linked to agriculture. 25 percent (see Figure 2.1.5). Ghana is the world’s Ghana realized significant poverty reduction and Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 27 shared prosperity over the last almost three decades. reduction and inclusive growth, investments and The country achieved the goal of reducing the pov- policies designed to support agricultural productivity erty rate by half, in line with the first Millennium will be critical to facilitate the structural transforma- Development Goal target, without increasing income tion of the Ghanaian economy and to manage the inequality. Three major factors contributed to the ongoing process of urbanization. reduction in poverty: better-educated labor force, Growth in agriculture is, on average, at least increased production of cocoa and other crops, twice as effective in benefiting the poorest than and internal migration. But even though inequality growth generated in nonagricultural sectors. There (measured by the Gini index) did not increase, spa- is evidence that many countries that had relatively tial inequality intensified, as poverty is closely linked high agricultural growth rates saw substantial reduc- to a difference in employment opportunities across tions in poverty. For example, China’s rapid growth regions. Private and public-sector wage jobs are con- in agriculture and reforms favoring agriculture were centrated in well-off urban areas, especially in Greater initially responsible for the rapid decline in rural pov- Accra. In contrast, agriculture is by far the most erty from 53 percent in 1981 to 8 percent in 2001. dominant sector of employment among households in Agriculture was also the key to India’s slower but still Volta and the northern regions. Unlike other regions substantial long-term decline of poverty. Ghana has where the climate is suitable for cocoa and other cash reduced rural poverty by 24 percentage points over 15 crop production, farmers in Volta and the northern years, mainly due to strong agricultural performance. regions are mainly engaged in subsistence agriculture. But success in agriculture does not always reduce pov- Agriculture in these regions is typically rain-fed, and is erty. In Bolivia and Brazil, where agricultural growth characterized by traditional farming systems. Farmers has been concentrated in a dynamic export-oriented use few modern inputs, receive inadequate extension sector of large capital-intensive farms, agricultural services, and have limited access to irrigation. In employment declined and shifted to higher-skilled, recent years, rainfall patterns have become even more higher-wage workers, with little poverty reduction volatile, and crop failure is becoming more frequent. effects (World Bank 2008). In addition, unsustainable agricultural practices have The agricultural sector has experienced a sharp led to lower soil quality, higher erosion, and lower deterioration in its Terms of Trade since 2011. As agricultural output in these regions. previously illustrated in Figure 1.1.4, Ghana’s agri- Hence, the importance of the agricultural sec- cultural Terms of Trade, measured as a ratio of food tor in job creation and poverty reduction cannot and non-food price indices, has been on the decline, be underestimated. The analysis in the private sec- with a sharp fall after 2011. While the impact of the tor diagnostic indicates that agribusiness has among extractive industries on the non-resource economy the highest multipliers (1.8) and creates 750 jobs has not yet been fully analyzed, the agricultural sec- for every additional U.S. million dollars of output tor experienced a sharp deterioration in its Terms of (World Bank 2017). Following significant progress Trade from 2011 when Ghana started its oil produc- in poverty reduction over the past decade, moder- tion. However, this could have also been exacerbated ate and extreme poverty rates as well as inequality by the sharp decline in public spending on the sec- have hardly changed in recent years (World Bank tor (Figure 1.2.10). The other issue of concern is the 2016b). Meanwhile, the international experience high concentration of agricultural exports on very has shown that agricultural growth reduces poverty few commodities, with cocoa taking the largest share. by about three times as much as non-agricultural This limits trade potential, increases the exposure to growth (Christiansen et al. 2013; and Christiansen global economic shocks and undermines the capacity and Kaminski 2015). In addition to fostering poverty to create jobs (AfDB et al. 2015). 28 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION FIGURE 2.1: Agriculture Sector in Ghana 1) Agriculture Contribution to GDP (%): 2012–2016 2) Annual Agricultural Growth Rates (%): 2008–2016 30 30 25 24.8 25 20 22.4 21.5 15 20.3 20 18.9 10 y = –0.475x + 960 5 15 0 –5 10 –10 –15 5 –20 2006 2008 2010 2012 2014 2016 2018 0 Agriculture Crops Cocoa 2012 2013 2014 2015 2016 Livestock Forestry Fishing 3) Rural Formal Employment by Sector 4) Cereal Yield, Ghana and Selected Other (% of total and by gender): 2015 Countries/Country Groupings: 2010–14 (kg/ha) 5,405 Brazil 4,426 29.4 45.6 38.5 4,222 World 3,735 2,659 Madagascar 2,606 2,069 Rwanda 2,060 2,020 Ghana 1,714 1,710 Gabon 1,690 1,604 70.6 54.4 61.5 Guinea 1,511 1,471 SSA 1,422 1,412 Burundi 1,243 Total Male Female 1,155 Senegal 1,125 Agriculture, forestry and fisheries Other sectors 0 1,000 2,000 3,000 4,000 5,000 6,000 5) Agricultural Production by Subsector: 2014 6) Agricultural Growth vs. Growth in All Other Sectors: 2008–14 Fishing 25 Livestock 20 Forestry and Logging 15 10 Cocoa Other Crops (excluding cocoa) 5 0 2008 2009 2010 2011 2012 2013 2014 2015 Agriculture All other sectors Source: 1.1: Authors’ calculations based on World Bank (2016); 1.2: MOFA (2016); 1.3: MOFA (2017); 1.4: FAOSTAT; 1.5: MOFA (2015); 1.6: SRID and World Bank data. Notes: 1.2–3: Sector performance reviewed as part of the 2017 Joint Sector Review undertaken by the Ministry of Food and Agriculture (MOFA) and development partners. Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 29 Climate change will add to the complexity A large share of agricultural spending is devoted of managing the agriculture sector in the future. to the cocoa subsector. A considerable share of Two areas stand out: Extreme precipitation—the agricultural spending goes to the cocoa sub-sector. catastrophic floods in 2007 immediately followed Excluding the cocoa subsector has a major impact on by drought was indicative of the high variability in the estimated size of agricultural spending in Ghana, climate and hydrological flows in Northern Ghana. as COCOBOD’s expenditures are very high relative to In the decade 1986 to 1995 parts of the country the value of cocoa production.12 For example, between have had the most devastating rainfall events and a 2006 and 2011, the share of public agricultural spend- relatively high number of 24-hour maximum rainfall ing devoted to the cocoa subsector averaged three events. Increases in temperature have been observed times the subsector’s share in total agricultural output over all basins. Drought—the Northern Savannas (World Bank 2013). Removing COCOBOD from have been affected by frequent droughts and flood- the equation cuts agricultural spending as a share of ing, both accompanied by high temperatures and total spending by up to 50 percent, from an average intense heat. Notable effects of climate change, of 5.2 percent to an average of just 2.6 percent over such as insufficient rainfall during the major crop- the period. ping season (the last major severe drought was in Most of the public spending in agriculture 1982–83), affect more than 12 million people. The is on operating expenses. A large share of agricul- impacts are economy wide, including crop failure tural spending finances the MoFA’s routine operat- or losses, outbreaks of diseases, and dislocation of ing expenses. Salaries and other forms of recurrent human populations. spending account for two-thirds of the MoFA’s total budget, leaving a very modest envelope for investment Constraints to Agricultural (Akroyd and Smith 2007). Since 2011, the MoFA’s Transformation, Sector Growth, and Job expenditures have risen sharply in nominal terms, Creation even as overall spending for the sector has declined. Development partner’s donors’ account for much of Quality and volume of Ghana’s Public the increase in MoFA spending. Donor contributions Expenditure in Agriculture to the MoFA rose from GH¢98.5 million in 2013 to GH¢160.1 million in 2014, while domestic public Public spending on agriculture is low both by spending for the MoFA fell from GH¢108.2 million regional and international standards, and have to GH¢73.0 million. Thus, donor financing expanded declined in recent years. Agricultural expenditure from 17 percent of the MoFA’s budget in 2006 to over was 5.2 percent of total spending between 2001 and 50 percent in 2014.13 2014. Agricultural spending began to decline in 2007, Public spending on agriculture is not well tar- and this trend accelerated in 2011. Nominal spending geted and efficiency is low. Agricultural spending is fell from GH¢576 million in 2011 to an estimated not well targeted. Major Government (MoFA) initia- GH¢400 million in 2014, while the sector’s share in tives such as the Agricultural Mechanization Program, total spending dropped from 4.2 to just 1.2 percent. the Block Farming Program, the National Food Agricultural spending has also declined sharply rela- Buffer Stock Company, and the Fertilizer Subsidy tive to sectoral output, and by 2014 it equaled just 1.3 Program have produced mixed results (see Box 4). percent, far below the rates of regional comparators, such as Burkina Faso (8 percent), Ethiopia (6 percent), 12 According to African Union directives, spending by COCOBOD Uganda (5 percent), and Kenya (4 percent) (see also should be excluded when calculating public agricultural spending. Figures 1.2.9 and 1.2.10). 13 In 2006, the MoFA was known as the Ministry of Agriculture. 30 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION BOX 4: Ghana’s Fertilizer Subsidy Program Average fertilizer use in Ghana is about 8 kg/ha, low even by African standards. The National Fertilizer Subsidy Program is one of Government’s major agricultural interventions instituted in 2008 as a direct response to increased global fertilizer and food prices with the goal of increasing fertilizer use among smallholder farmers and to prevent a decline in crop production below the 2007 output levels. Even though the food crisis has long subsided, the fertilizer subsidy program continues until today. During 2008–2009, a coupon system was used that basically involved a 50 percent subsidy. In 2010 the coupon system gave way to a waybill system to reduce the cost of administering the program and stem diversion of fertilizers from intended target beneficiaries. Under the waybill system fertilizer companies are reimbursed for the difference between the purchase price as stipulated in the contract with the Government, and the price at which the companies’ agents (or district offices of MoFA where there are no agents present) sell the fertilizer to farmers. The difference is supposed to reflect average transportation and handling costs between the port and the destination, as well as agents’ commission and margins. In 2013, some changes were made to the fertilizer (and seed) subsidy program, including improved targeting (focus on smallholders in the north), limiting the quantity per farmer and, most importantly, reducing the subsidy element for fertilizer to less than 30 percent. The goal of the subsidy program was to increase fertilizer use rate to at least 50 kg/ha as recommended in the Medium Term Agricultural Sector Investment Plan (METASIP). One of the stated objectives of the Fertilizer Subsidy Program is to raise the profitability of farm production. However, subsidies alone are not sufficient to reach optimal levels of fertilizer use, let alone to increase the profitability of farming. While evaluations carried out under controlled conditions at research stations suggest a substantial yield response from higher levels of fertilizer use, research by the International Food Products Research Institute (IFPRI) (in collaboration with the Crops Research Institute (CRI) and the Savannah Agricultural Research Institute (SARI) found that yield response (and therefore profitability) to fertilizer use under actual farmer’ conditions—where other factors that determine yield may not be available at optimal levels—is much lower. It is also important to note a number of other important pitfalls of the fertilizer subsidy program in Ghana. The first concerns the timeliness of the program—both farmers and retailers complain about subsidized fertilizer arriving late, especially in the south where the growing season starts earliest. Second, fertilizer distributors feel that procedures associated with the waybill system remain cumbersome, including a lack of clarity of the procedures for all aspects of the operations. Overall, the fiscal cost of the agricultural input subsidy program is substantial relative to the benefits. This aspect lowers the overall efficiency of public spending in the agricultural sector. Source: Adapted from Kolavalli et al. 2015. Moreover, these programs tend to crowd out invest- growth (Figures 2.2.1–2.2.2) (World Bank 2016d). ment in proven strategies for promoting sustainable Investment in irrigation development is especially low long-term productivity growth, such as encouraging at about 3 percent of agricultural spending. The Ghana the use of improved seeds and fertilizers, expanding Irrigation Development Authority (GIDA) receives no irrigation networks, and investment in public R&D investment budget from the Government, which pro- (Asare and Essegbey 2016). A 2016 World Bank vides financing for salaries only.14 From 2008 to 2014, Agriculture Public Expenditure Review indicated that real public spending on agriculture was negatively Ghana remains one of the front runners of spend- correlated with agricultural output growth (–0.39), ing on agriculture research in Africa; but this is only suggesting an inefficient allocation of expenditures. because just six countries in Africa had agriculture Donor financing plays an increasingly impor- research expenditure above 1 percent of their respec- tant role in the MoFA’s investment budget. Donor tive agriculture GDP —Swaziland, Cabo Verde, funding rose from 40 percent of the MoFA’s total South African, Botswana, Namibia, and Mauritius. Using an average annual growth rate for the period 14 Ghana currently has less than 20,000 hectares under irrigation, and 2000 to 2011, Ghana is among the top six in terms most irrigation systems are inadequately maintained. Under the World Bank-financed Ghana Commercial Agriculture Project, most irrigation of growth rate of agriculture research spending: half schemes are being rehabilitated, and the institutions that govern the the countries in Africa have zero or negative spending irrigation subsector are being reformed. Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 31 investment expenditures in 2006 to 61 percent in in this important area, access to good quality seed 2011. In 2017, GH¢501.5 million was allocated among smallholder farmers remains a major issue. In to the Ministry of Food and Agriculture, of which the cocoa sector, Government’s direct intervention in GH¢322.1 million is from the Government of Ghana markets and price setting is another example of distor- budget, GH¢4.1 million is from internally gener- tions that result from policy inconsistency. ated funds and over GH¢175.3 is from development partners.15 Quality and efficiency of legal and Sector policies are inconsistent, and in some regulatory framework affecting private instances, are reversed or unpredictable. Examples sector investment in agriculture include the lack of Government’s commitment toward fiscal decentralization, which has affected the The legal and regulatory framework for attracting functionality of local governments. First, while the private sector investment into agriculture is weak. decentralization policy has been implemented, with According to the 2017 World Bank’s Enabling the extension service provision devolved to the district Business of Agriculture (EBA) report, reforms are councils, there is limited budgetary support to the needed to improve the quality and efficiency of regu- councils, which cripples the provision of extension latory systems that govern access to key agricultural services. Second, significant productivity growth in factors such as seed, fertilizer, machinery, finance, agriculture requires a vibrant agricultural input sup- markets, transport and information and communi- ply system, particularly for seed. However, although cation technologies. Ghana fairs well compared to Ghana’s seed sector has undergone some significant other countries in terms of access to fertilizer, finance, changes in the past few years, including the approval water, and ICT but needs improvement in terms of of a new seed law and regulations, the appointment seed regulation, machinery, markets, and transport of a National Seed Council, and the emergence of (see Figures 2.2.3 and 2.2.4).16 In an earlier assess- a more diversified commercial seed sector, there are ment of the agribusiness indicators undertaken in still regulatory and administrative bottlenecks affect- 2012, it was observed that Ghana’s regulatory envi- ing full liberalization of the seed sector. Trip and ronment was not so conducive to attracting strong Mensah-Bonsu (2013) reviewed factors critical to private sector investment, relative to other compara- the development of the seed sector, including proce- tor countries. The regulations governing access to key dures for variety release, seed quality inspection and factors required for agribusiness investment were still certification, consumer protection, access to breeder seen to be somehow restrictive or limiting, relative seed, provision of information to farmers, and seed to the best practice benchmarks (World Bank 2012). prices and subsidies. They also evaluated the traits of Improvements have been achieved, but the 2017 EBA major public-sector crop varieties, the nature of farm- assessment indicates that the pace of reform is slow ers’ seed demand, and the composition of the local and it may take longer before Ghana catches up with seed industry. They concluded that the seed system the best practices. in Ghana is still largely dependent on public support (with minimal private sector participation), and the 15 Agriculture Analysis of the 2017 Budget: https://www.modernghana. seed value-chain (from the production of breeder seed, com/news/759593/agriculture-analysis-on-the-2017-budget-ilapi-ghana. foundation seed, its multiplication, and the produc- html. 16 The Enabling the Business of Agriculture (EBA) measures the quality tion and distribution of certified seed) has inherent and efficiency of the regulatory systems that facilitate access to seed, cost inefficiencies that invariably affect the competi- fertilizer, machinery, finance, markets, transport, water, and ICT. EBA measures are provided in terms of ranking of countries based on their tiveness of the domestic seed industry. Furthermore, Distance to Frontier (DTF) scores. DTF score benchmarks countries on with the limited development of the private sector a scale from 0-100 with respect to the regulatory best practice. 32 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION Without a strong regulatory framework, it is 1 million households involved in cocoa production. challenging for investors to invest in the agricul- Ghana is the world’s second-largest cocoa producer, tural sector. The agribusiness sector is very important representing over one-fifth of global cocoa production for vibrant sector performance and creation of high (Table 2.2). The cocoa subsector accounts for about quality jobs because the private sector can invest in 12 percent of total agricultural value added, 7 percent other activities beyond the primary level, such as GDP, and 20–25 percent of export earnings. Cocoa agro-processing, transport, finance, ICT, etc., which is a key source of foreign exchange and the country’s enhance agricultural value-added, and create better largest non-resource export. However, after peaking at and higher-wage jobs. During the past 5 years, Ghana 1 million tons in 2011–12, cocoa production seems to has seen growth in private sector investment in agri- have plateaued at an average of around 800,000 tons culture (as seen from an increase in non-traditional per year. It is clear that the cocoa subsector is operat- agricultural exports). However, the country needs to ing far below its potential. There are many challenges deepen and broaden reforms to attract more private facing the cocoa sub-sector. sector players into the sector as a basis for sustaining Ghana and Cote d’Ivoire account for a com- growth and creating more and better jobs. bined more than 60 percent of global cocoa sup- ply. Their main export markets are the Netherlands, Specific challenges in Ghana’s cocoa sector United States, Belgium, and Japan. Cocoa farming has evolved around these two countries because of the opti- Cocoa is Ghana’s most important agricultural mal weather and soil conditions for the crop around export, and the sector is a major employer with over the equator. Other countries such as Ecuador and the TABLE 2.2: Ghana’s Position in Global Cocoa Supply % of global % of global % of global 2014/15 supply 2015/16 supply 2016/17 supply Cameroon 232 5.4 211 5.3 250 5.5 Cote d’Ivoire 1796 42.1 1581 39.9 1900 41.7 Ghana 740 17.4 778 19.6 850 18.7 Nigeria 195 4.6 200 5.0 230 5.1 Others 110 2.6 141 3.6 135 3.0 Total Africa 3074 72.1 2911 73.4 3365 73.9 Brazil 230 5.4 140 3.5 190 4.2 Ecuador 261 6.1 232 5.9 270 5.9 Others 286 6.7 285 7.2 306 6.7 Total America 777 18.2 657 16.6 766 16.8 Indonesia 325 7.6 320 8.1 330 7.2 Papua New Guinea 36 0.8 36 0.9 41 0.9 Others Asia & Oceania 39 0.9 41 1.0 50 1.1 Total Asia & Oceania 400 9.4 397 10.0 421 9.2 World Total 4261 100 3965 100 4552 100 Source: ICCO Quarterly Bulletin of Cocoa Statistics, Vol. XLIII, No.1, published 28–02–2017. 0 1 2 3 4 5 0 10 20 30 40 50 60 Guinea-Biseau 0 1,000 2,000 3,000 4,000 5,000 6,000 Gabon 48 Chad (2017c). 1996/97 Seed Madagascar 39 Central African 1997/98 Sudan Ethiopia 34 1998/99 Fertilizer Congo, Dem. Guinea 45 1999/2000 Sierra Leone Nigeria 2000/01 Eritrea Machinery Tanzania 2001/02 38 39 Mozambique Zambia 2002/03 Côte d’Ivoire Ghana Togo FOB price (US$/MT) 16 2003/04 Finance Mauritania 31 Burundi 2004/05 Producer price (GHc/MT) Liberia Mali 2005/06 54 Benin Markets Rwanda 47 2006/07 Ghana 2007/08 Burkina Faso Senegal 59 2008/09 Zimbabwe Average SSA Transport Gambia, The 32 Uganda Share of Agriculture GDP, 2011 2009/10 Kenya 2010/11 Congo, Rep. 1) Agriculture Research Spending as a 30 5) Cocoa Prices in Ghana: 1996–2014 3) Ghana's EBA Ranking vs SSA Average Water Lesotho Malawi 35 2011/12 Swaziland 2012/13 Cabo Verde South Africa 22 2013/14 ICT Botswana Producer price (US$/MT) 38 Namibia 2014/15 Mauritius Percent 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0 10 20 30 40 50 60 70 80 90 100 –15 –10 –5 0 5 10 1996/97 Seed 46.46 1997/98 Eritrea 48.16 FIGURE 2.2: Research and Business of Agriculture in Ghana 1998/99 Guinea Gabon 1999/2000 Fertilizer 54.44 Togo 38.86 Zambia 2000/01 Gambia, The 2001/02 46.27 South Africa Machinery Côte d’Ivoire 2002/03 41.49 Mauritius 2003/04 Madagascar Ghana 62.43 Burkina Faso 2004/05 Finance 52.27 Mali 2005/06 Ethiopia Senegal 2006/07 40.18 Markets Kenya 46.05 Zimbabwe 2007/08 Botswana 2008/09 16.16 Lesotho Transport Average Annual, 2000–2011 research spending, 2000–2011 Average SSA Malawi 2009/10 54.53 y = 0.0092x + 0.5088 Nigeria 2010/11 6) Ghana, Cocoa Producer Prices 54.53 Sudan 2011/12 as a Share of FOB Prices (%): 1996–2013 Water Ghana 2) Agriculture Research Expenditure Growth, 44.70 Burundi Average annual growth rate of agricultural 2012/13 Benin Source: 2.1–2: World Bank (2016d); 2.3: World Bank (2016c) based on data from IFPRI (2015); 2.4–6: World Bank (2016) and World Bank 4) Ghana's Distance to Frontier (DTF) vs SSA Average 2013/14 61.11 Tanzania Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 ICT 48.51 Congo, Rep. 2014/15 Uganda 33 34 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION United States have been increasing their participation possibly through a domestic commodity exchange for but from a low base. Cote d’Ivoire and Ghana are not cocoa. Third, what would be the most appropriate likely to lose their supply dominance in the medium strategy to enhance domestic value addition? Could term. However, cocoa farming in west Africa faces derivative products of cocoa be identified that corre- significant structural challenges that could affect the spond to the comparative advantage of the two coun- long-term sustainability of global cocoa supply. This tries as well as the binding constraints that prevent analysis aims to provide some policy options for Ghana’ the realization of this market potential. For the latter, cocoa sector’s longer-term viability (IFC 2017). an in-depth understanding of the opportunities and Ghana and Cote d’Ivoire chose very different challenges through the Cocoa Global Value Chains paths to deal with the recent decline in interna- would be instrumental (IFC 2017). tional cocoa market prices. In Cote d’Ivoire, the One of the key challenges in Ghana is that, cocoa sector was reformed in 2012 with the Coffee and unlike other crops, cocoa production operates Cocoa Council (CCC) fixing the price at 60 percent under a controlled marketing system. COCOBOD of the reference export price. The fixed farmgate price manages the subsector under the authority of the guarantees minimum revenue to farmers and aims Ministry of Finance.17 It controls the marketing of to reduce price volatility. However, low prices and cocoa exports and, via its subsidiaries, delivers inputs, excessive supply prompted the CCC in Oct 2017 to research and extension services, pest and disease set the minimum cocoa farm price at 700 CFA Francs control, and some forms of infrastructure. Thus, the (US$1.26) per Kg, lower than previous season’s 1.100 cocoa value chain is quite complicated and subject to CFA Francs and the lowest since 2012 (IFC 2017). Government intervention (Figure 2.3). COCOBOD This is a pointed difference to the policy response purchases cocoa through Licensed Buying Companies in Ghana. There, the domestic market price was left (LBCs), which sell primarily to the Cocoa Marketing unchanged. Besides having important fiscal implica- Company (CMC), another COCOBOD subsidiary. tions, Ghana’s decision to keep prices unchanged led to The subsector’s current structure results from the par- a wide gap between prices in Ghana and Cote d’Ivoire tial privatization of a state-owned monopoly. and increased the likelihood of smuggling cocoa from While COCOBOD’s intervention has several Cote d’Ivoire to Ghana to the point that security forces important advantages, there are also several issues were deployed in Cote d’Ivoire to increase surveillance emanating from its direct intervention that affect of border areas and reduce smuggling. the development of the cocoa sub-sector. First, The cocoa sector in Ghana faces a number of COCOBOD has managed to increase the share of challenges, including from the differential domes- the export price received by farmers without fully tic policies vis-à-vis Cote d’Ivoire. It is important to liberalizing domestic and export markets, and the reflect on how to harmonize current domestic policies way in which internal cocoa marketing is organized in the sector to create the appropriate conditions for assures that farmers are paid promptly. COCOBOD’s improved farmer income and enhanced private sec- quality-control apparatus is also effective, and as a tor for domestic value addition. In this context, three result Ghanaian cocoa receives a price premium of areas seem to be important entry points for reforms. 3–5 percent on the world market. In addition, the First, through the establishment of a joint commission Cocoa Marketing Company’s use of forward contracts between the two countries the harmonization of poli- mitigates the price and exchange-rate risks faced by cies could be advance. Second, it would be beneficial to buyers, though it does so by effectively transferring think through the design of mechanisms to reinforce the ability of the two countries to strengthen their 17 Under the new Government, it has been announced that the cocoa influence on the global commodity prices, including sub-sector will be under the Ministry of Food and Agriculture (MoFA). Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 35 FIGURE 2.3: Organization of the Cocoa Value-Chain in Ghana Extension and Input Providers The largest LBCs are PBC (35%), Akuafo Adamfo (13%), Government controlled Quality Control Division (QCD) Armajaro (11%), Olam (8%), and Federated Commodities (6%) grades and seals cocoa into export sacks Licensed Buying Smallholder Collection and Quality Companies (LBCs) or Farmers Bagging Assurance Farmers Association Cocoa farming is mainly done by There are 32 LBCs buying cocoa from farmers at the village level smallholders with almost no (there are about 3000 buying centers LBCs purchase form) competition as buyers are readily available and prices are fixed Warehouse or Other Logistics COCOBOD and private parties offer warehousing and storage facilities for farmers and LBCs There are ~10 companies Domestic International Sales Domestic that produce cocoa Manufacturers Through COCOBOD LCBs sell mostly to Grinders confectionery products for the sole exporter, local consumption – (COCOBOD) or to domestic industries There are five large however their total production domestic cocoa grinders is rather small Quality Assurance for local processing in Ghana that process the and Sealing at Port cocoa beans into primary Local or products, althrough Multinational international processing Distrubutor The largest international is much larger International grinders are Barry Shipping Callebaut, Cargill, CPC and ADM International In-country processing Local Processing and companies do not Retailers Production always meet quality and hygiene standards demanded by end-users. They also face high Local operating costs Consumers The Netherlands International is the world’s leading Consumers cocoa grinder Production and Quality Assurance Processing and Sales Outside Ghana Source: Cocoa Sector Scenario Planning, World Bank Staff. these risks to farmers. Finally, the Cocoa Research farmers to earn a decent return on investment. Institute, which is also a COCOBOD subsidiary, Instead, successive Governments have prioritized rev- is among the country’s most important agricultural enue collection, while implicitly levying a tax on the research agencies. producer price paid to cocoa farmers. COCOBOD’s The COCOBOD has not been able to fully price-setting mechanism distorts economic incen- achieve one of its most important goals, which is tives to farmers. COCOBOD sets yearly producer to stabilize farm-gate prices at levels that permit prices in advance of the harvest season, and the Cocoa 36 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION BOX 5: Lessons from Commodity Boards and Producer Price Interventions in Africa Many countries in Sub-Saharan Africa have intervened in setting commodity prices, either directly or indirectly through the management of the exchange rate system. Many countries have reformed such policies and no longer intervene directly in commodity markets. However, other countries still maintain such policies. Examples are numerous and include (but not limited to) the COCOBOD in Ghana, and the Agricultural Development and Marketing Corporation (ADMARC) in Malawi. Similar boards still exist in most countries in southern, eastern, and western Africa. The establishment of such institutions seem to be justified on the basis of protecting producers and/or consumers, and in some cases because of revenue generation. However, experience has shown that the use of public policy to exert control on the commodity marketing system, though widespread, does not often work. Price interventions often exert an implicit and sometimes direct taxation on the smallholder farmers and in the long-run undermines productivity and competitiveness objectives. In the case of Ghana’s COCOBOD for example, total direct taxation—defined as the sum of COCOBOD’s costs, industry costs and explicit taxes—can be estimated at between 25 and 30 percent of the FOB price. This has distorted the incentives and discourages productive investments thereby leading to long-run decline in growth. There are examples where the removal of state control on commodity prices has led to increased incomes and profitability of smallholder sector. For example, in the case of the liberalization of the Gum Arabic Board in Sudan in 2009, the average price received by small producers of the gum has increased due to the competition generated by over 30 private companies that have entered the gum market. Similar experiences apply in the case of the liberalization of the cocoa market in Cote d’Ivoire where the average price for cocoa paid to farmers is relatively higher than in other countries, including Ghana. Commodity boards curtail the development of the private sector market, because they often are associated with inconsistent and incoherent policies, which is a disincentive for private sector players. They also represent a significant fiscal burden as most them have cost-inefficiencies that tend to be absorbed by the Government. In an era where private sector commodity exchanges are taking shape, it is important for Governments to continue reforms to create the space for the development of the private sector in commodity marketing. Source: World Bank Agriculture Analysis, Various Countries; and World Bank Sudan Country Economic Memorandum 2016. Marketing Company sells about 70 percent of the Even though the official tax on cocoa exports country’s cocoa exports via forward contracts. The has fallen over time to about 3–4 percent, the producer price is based on a cost-plus principle, which Government retains a substantial share of the FOB reflects the expected export price, the operating costs price, which is effectively a form of direct taxation. of COCOBOD and its subsidiaries, explicit taxes, Cocoa is the only export commodity from which and farmers’ production costs. Through this system, foreign-exchange earnings flow directly into the cen- COCOBOD pays producers at least 70 percent of the tral bank. Although no official data are available, total so-called “net free-on-board (FOB) price,” which it direct taxation—defined as the sum of COCOBOD’s defines as the FOB price minus allowances for “industry costs, industry costs and explicit taxes—can be esti- costs” and direct marketing costs.18 Industry costs have mated at between 25 and 30 percent of the FOB price. been rising over time and are now estimated at close In addition, the depreciation of the cedi since 2011 has to 15 percent of the FOB price. They mainly include acted as a form of implicit taxation. The export mar- the cost of input supply programs and social programs gin in Ghana is roughly double that of Côte d’Ivoire targeting cocoa farmers. Direct marketing costs include and many times higher than the margins of most transportation, storage and quality control. Thus, the Asian cocoa exporters. In addition, COCOBOD’s producer price is often different from the real FOB price marketing and quality-control subsidiaries have little (Figure 2.2.5), and the producer share in the real FOB incentive to increase their efficiency, and their shares price is typically below 70 percent, even when there is of the FOB price have increased even as production an upward swing in international prices, as observed in levels have risen. recent years (Figure 2.2.6). This price setting mecha- nism may be distorting the incentives for producers to 18 The term “FOB price” refers to an export’s final value in the export- invest in productivity enhancing practices (see Box 5). ing country. Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 37 BOX 6: The Ghana Cocoa Sector Development Strategy II For Ghana to continue as a key leader in the global cocoa supply chain, there is need to have a strategy to guide the development of the sector as well as provide a framework for public-private partnerships to leverage stronger investment in this key sector. Ghana’s Cocoa Sector Development Strategy (CSDS II) developed by COCOBOD seeks to modernize Ghana’s cocoa sector and produce climate smart cocoa through increased farm productivity. The vision and strategy for modernizing Ghana’s cocoa sector is based on three pillars: competitiveness, resilience, and robustness. To modernize and have a more sustainable cocoa sector, Ghana needs to be more: (i) competitive by increasing the productivity of cocoa producers and improve cost efficiency along the cocoa supply chain; (ii) resilient to challenges and risks related to global cocoa markets (demand and supply), and climate change; and (iii) robust by being an industry leader through innovation and differentiation by focusing on high quality cocoa and niche markets. The strategy was developed following several scenario planning exercises in 2015, supported by the World Bank, World Cocoa Foundation, the Royal Netherlands Embassy, and other stakeholders. However, while it has just been adopted by the COCOBOD, its implementation has yet to take effect. Ghana’s COCOBOD has just adopted its devel- middle-class, whose demand for quality and safe opment strategy for the cocoa sub-sector, but its foodstuff is rapidly increasing. This derived demand implementation is yet to take effect. The sub-sector’s will push producers and other players in the food development strategy, which should provide the direc- value-chain to look for better ways to expand their tion and guidance on many issues affecting the develop- production and trading practices to meet rapidly ment of cocoa, is still yet to be implemented (see Box 6). changing market requirements. The rapidly increasing The other source of inefficiency is that demand for quality and safe foodstuffs and the fact COCOBOD’s pricing mechanism limits compe- that Ghana’s food markets are currently stocked largely tition in the cocoa subsector. The fixed price that with imported commodities, imply ample opportunity LBCs pay farmers based on minimum quality stan- for import substitution. Given the current consumer dards effectively eliminates the possibility of price tastes, shaped largely by imported foodstuffs, import competition or product differentiation, and it dis- substitution will not simply be about improving pro- courages farmers from investing in quality beyond ductivity, but would also involve food quality and the minimum standard required. Moreover, prices are safety issues, improved post-harvest management at uniform across the country and do not reflect regional farm-level, agro-processing, etc. Primary producers differences in production costs or local environmental and food processors adaptation to these changing and social impacts. However, even in the absence of consumer tastes and preferences is what will continue meaningful price competition among buyers, farmers to drive the transformation of the production systems have benefited from a marked decrease in the collu- and innovations throughout the food value chain. sion that characterized contract negotiations in the Ghana is currently a net importer of basic foods past when the state was the sole buyer. such as rice, poultry, sugar, vegetable oils, and the import bill is growing. The annual food import bill Key Opportunities and Policy Options now exceeds the estimated annual $2 billion earned to Transform Agriculture for Economic from cocoa exports (Table 2.3). Population growth, Growth, Job Creation and Food Security high rates of urbanization, and increasing incomes are driving the demand for imported foodstuffs because of Key opportunities increased demand for more quality and safe foodstuffs such as meat, dairy, and fresh and processed vegeta- Ghana’s lower middle-income status combined bles. In 2015, food imports account for 16.8 percent with the emerging oil economy imply a growing of total merchandise imports estimated at US$13.3 38 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION billion,19 and the food import bill is projected to infrastructure. This could create over 400,000 per- increase fourfold over the next 20 years, unless local manent jobs along the targeted value-chains. Per the production is increased (World Bank, 2017e)). The Masterplan for the “Inclusive Agriculture-led Economic food import bill is large enough to create adequate Transformation of the NSEZ,” the area is endowed space for investors to increase investment in the sector with key features that are associated with significant to take advantage of import substitution. Rapid urban- agricultural growth potential. These include: Large tracts ization and associated shifts in consumer preferences of land available for agricultural expansion: More than are also boosting demand for processed foods, much of 6 million hectares of arable land which is suitable for a which is currently satisfied by imports. Food demand wide range of crops, livestock, forestry, and aquaculture in urban areas is projected to increase fourfold over the production. Significant irrigation potential: The NSEZ next 20 years. Ghana currently produces less than 30 has 23 large and medium sized dam sites which can be per cent of the raw materials needed by its agro-based developed for multiple uses such as hydropower gen- industries. The Government has introduced incentives eration, irrigation development, flood control, aqua- (e.g., tax holidays) to promote food processing but the culture. Some of these dams are estimated to be able response has been low as major bottlenecks such as lack to command 209,000 to 547,000 hectares of irrigable of space, infrastructure, finance, erratic power supply, land. There are also an estimated 104 small dam sites etc. remain (USAID 2017). Therefore, an opportu- across 95 catchment areas with potential to harness nity exists to venture into import substitution for raw over 104,000 hectares under irrigation. materials for the agro-processing industry as this will Despite its potential, the NSEZ remains the also lead to the creation of more and better jobs. poorest region in the country. According to the Ghana is endowed with areas of high agri- Ghana Living Standards Survey (GLSS), the northern cultural production potential that can support regions collectively are home to more than one-third the growing of a wide-range of commodities. For of all poor households in the country. Social indica- example, the Northern Savannah Ecological Zone tors such education, health, access to safe water, as (NSEZ), Afram plains, the Accra plains, and other well as maternal and child health are among the low- high agricultural potential areas are endowed with est in the country. Furthermore, the generally poor abundant and fertile land to produce a wide range of state of infrastructure means that the vast agricultural commodities. Given its vast size, low population den- and other productive potentials that the region pos- sity and availability of water resources, the Northern sesses remain largely unexploited, resulting in low per Savannah Ecological Zone (NSEZ) is considered to capita incomes and a relatively low contribution to have one of the highest potentials for agricultural Gross Domestic Product (GDP). While Ghana is a production in Ghana. The NSEZ covers 54 percent lower-middle income country, the northern regions, of the country’s surface area (comprising the Upper with over 40 per cent of the land area and 30 per cent East, Upper West and the Northern Regions as well of its population, remain the least developed. While as the northern districts of Brong-Ahafo and Volta Ghana has achieved the extreme poverty reduction Regions). The NSEZ has about six million hectares goal (as per the Millennium Development Goals), of arable land, with great potential for commercial the northern regions have consistently lagged behind production of cereals/grains, sugar cane, cassava, cot- the rest of the country. ton, shea, and livestock. Another opportunity to spur agricultural trans- The existing agricultural potential of the formation could emanate from better design and NSEZ is estimated to attract between US$1.9 and US$2.3 billion of private investment in agriculture. 19 World Bank staff own calculations, based on World Development This includes downstream processing and irrigation Indicators (WDI), Global Merchandise Imports. Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 39 Summary of Ghana’s TABLE 2.3:  as a whole, and the third refers to improvements spe- Merchandise Imports cifically in the cocoa sector. Given the importance of 2000 2015 the agriculture sector in the Ghanaian economy in general and the jobs creation potential in particular, Total imports value (US$ million) 2,973 13,291 of which (% of total) comprehensive consideration of the three areas is Food 13 17 needed. The following offers some reflections of issues Agricultural raw materials 2 1 within each of the three areas. Fuels 22 4 Improving the quality and effectiveness Ores and metals 1 1 of public expenditure in agriculture is an Manufactures 62 77 imperative in the context of limited fiscal Source: World Bank, World Development Indicators (2016). space In the context of chronic agricultural underin- implementation of a sector strategy in line with the vestment, enhancing the efficiency and quality of new flagship program—the Planting for Food and sectoral spending could generate substantial gains Jobs. The MoFA recently launched the Planting for in productivity, employment, and rural poverty Food and Jobs program, which aims to rapidly increase reduction without compromising the Government’s food production to achieve food self-sufficiency and ongoing fiscal consolidation program. From 2008 create jobs. The program focuses on five key staple to 2014, real public spending on agriculture was crops: maize, rice, soybean, sorghum, and vegetables. Its negatively correlated with agricultural output growth implementation is anchored on five pillars: (i) provision (-0.39), suggesting an inefficient allocation of expen- of improved seeds; (ii) supply of fertilizers; (iii) pro- ditures (Younger 2015). Public spending on the live- vision of extension services; (iv) marketing arrange- stock, fisheries, and forestry subsectors is significantly ments and reduction of post-harvest losses; and (v) an higher than their respective shares in agricultural electronic platform to capture and monitor program output. Spending on cocoa exceeds its share in agri- implementation. The program targets 200,000 farmers cultural output by a factor of three; however, a recent in all 216 districts of the country. The program’s targets study by IFPRI (Benin 2016) concluded that the rate for 2017 are 1 million metric tons of additional food of return to public spending in the non-cocoa sector output and creation of over 750,000 jobs within the is significantly higher than in the cocoa sector. agricultural value chain. The program cost is estimated The international experience shows how better at GH¢560 million (about US$140 million) and the expenditure targeting can drive agricultural growth. estimated incremental production is valued at over Agricultural research is crucial for increasing produc- GH¢1.3 billion (about US$420 million). Although tivity and competitiveness, yet it remains chronically this is a public-sector driven program, the delivery of underfunded. Refocusing sectoral resources on the the key inputs will be done through the private sector. commercialization of smallholder farming and the integration of smallholder farmers into agricultural Policy Options to Improve the value chains could significantly boost production. Agriculture Sector Efforts to link smallholder farmers to markets or to aggregate production throughout grower schemes This analysis of the agriculture sector points to three could accelerate rural income growth. Eliminating overarching areas with policy options to improve price distortions that discourage investment in the the sector. Two of these relate to the agriculture sector cocoa subsector could boost export earnings. A new 40 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION strategy for agricultural investment and policy reform administrative systems that affect the quality and that effectively targets these bottlenecks could deliver efficiency of public sector services to agribusinesses major gains in poverty reduction, employment and other stakeholders that need to invest in the agri- growth, social development and food security at a cultural value-chain. This will enhance the growth of relatively low fiscal cost (World Bank PER 2017). the agro-industry, which is critical to raise agricultural Robust expenditure oversight and regular data value-added through agro-processing and value- collection are necessary to ensure the effectiveness addition. These create enough space for more decent of public spending. The available data are not suf- jobs compared to the primary production. Reform ficient to enable a reliable analysis of the returns to in land administration and governance is critical to different types of expenditures, and no information speed-up the processing of land and property trans- on agricultural investment by region is currently actions in a transparent and accountable manner. available. Ideally, the MoFA should produce spatially This is important in view of Ghana’s complex land disaggregated time-series data showing spending tenure systems. on agricultural subsectors, functions, and activities Linking farmers to markets is essential to agri- in each region. Increasing investment in systematic cultural development and rural poverty reduction data collection should be a priority objective of a and is also critical for job creation. Integrating Government-wide effort to enhance information man- smallholders into value chains boosts incomes, encour- agement and improve public expenditure targeting. ages technology transfer, supports diversification, The MoFA is currently seeking assistance from Ghana’s and facilitates agribusiness investments. The Ghana development partners to strengthen its data-collection Commercial Agriculture Project (GCAP) attempts to capacity (World Bank PER 2017). leverage the benefits of integration by supporting the commercialization of smallholder farming through Improving the environment for doing Public-Private Partnership (PPP)-type arrangements agriculture businesses is key to adding with large agricultural investors. The project also helps value to the existing production and to improve smallholder productivity and tighten mar- creating jobs ket linkages via the nucleus farmer/out-grower model, while building the Government’s investment-promo- Ghana presents overall favorable conditions for tion capacity, strengthening land tenure, promoting agribusiness. It has vast expanses of arable land sustainable land-access arrangements, supporting across the country with access to large resources of private investors through matching grants, expanding freshwater (for example, the Volta river, which runs and rehabilitating irrigation networks, and promoting through the entire length of the country). Ghana also institutional reform in the irrigation subsector. enjoys rapidly growing domestic and regional markets, Skills-development, particularly focusing on easy and preferential access to the European Union technical, managerial, and organizational skills (EU)/U.S. markets, political stability, and resourceful required for agribusiness investment is critical. If English-speaking workers and farmers (World Bank Ghana’s agricultural transformation is to boost job cre- CPSD 2017). ation, there is need to strengthen the capacity of local But there is need to deepen and quicken the agribusinesses and farmers, including the youth, in the pace of reforms required to attract private sector technical, managerial, and organizational skills. One investment in agriculture/agribusiness. If the sec- way to do this is to enhance the creation of productive tor is to achieve the scale of transformation required alliances between foreign agribusinesses and farmers to sustain its growth and to create decent jobs, there throughout-grower arrangements. This helps the out- is need to deepen reforms in legal, regulatory and growers to gain skills and experience on how to deal Agriculture as engine of growth and jobs creation: Transforming the sector and creating agribusiness opportunities7 41 with organized supply chains, while also having ready marketing schemes can be important inputs in the access to the market for their produce. Furthermore, it COCOBOD reform efforts. is essential to promote entrepreneurship and business Strict adherence to social certifications in the start-up training to create the “demonstration effect” cocoa sector is important for international cocoa to attract investors, including young people into the trade. There is need to improve productive and social agricultural sector. infrastructures in the cocoa producing areas, and strengthen the role of women and youth in the sec- Fixing the cocoa sector is important given tor, while adhering to international commitments the large size of the cocoa economy restricting the use of child labor in cocoa production. For more than four years, Ghana has not submitted a Better coordination of policies between Ghana and national report on efforts to eliminate the worst forms Cote d’Ivoire would allow more efficiency in the of child labor (WFCL) in cocoa in compliance with sector to flourish. Coordination of domestic price the Harken-Engel Protocol. This breach may have management would minimize the propensity for dire consequence for the country in terms of cocoa smuggling and illegal activities. Cooperation of the trading. The Ghana Child Labor Monitoring System two cocoa economies, which account for more than (GCLMS) developed to monitor WFCL and remedi- 60 percent of cocoa supply in the world, would allow ate children at risk of trafficking has lacked funding more market power in international negotiations. And and institutional support. It is recommended that the a coordinated approach to domestic value addition Government resumes funding to revitalize the National would minimize competition on crowded segments Program for the Elimination of Worst Forms of Child on the world market. Labor in Cocoa (NPECLC) to coordinate and report The COCOBOD’s current organizational on public and private sector efforts in this area. structure and functions need to be reformed to Not only are cocoa yields low, but are also under make the institution operate in a more efficient threat of further decline; hence sustaining and rais- manner and deliver value to farmers. There is need ing the productivity in the cocoa sector is crucial. to improve data collection and analyses, mapping In view of the aging of the trees, the attack from pests and registration of farmers to promote farm and and diseases, as well as the effects of climate change, farmer identification, introduce digital accounting productivity enhancement is essential if Ghana is to and management information systems, improve the maintain its enviable position as one of the leading logistical, quality control and traceability systems, countries in the global cocoa supply chain. Adoption tree rehabilitation, cocoa agroforestry, sustainable of climate-smart cocoa technologies is also required, land use management, and better coordination of but this implies proper planning given the potential programs and projects. 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Washington http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/ DC: The World Bank. id/129784/filename/129995.pdf. 45 ANNEX: TABLES TABLE A.1.1: Ghana: Selected Macroeconomic Indicators Indicator 2012 2013 2014 2015 2016 2017 (p) Real GDP (% growth) 8.0 7.3 4.0 3.8 3.5 6.1 Real GDP(non-oil) 7.3 6.7 4 4.1 4.8 4.3 GDP per capita (U.S. dollars) 1,683 1,870 1,479 1,372 1,551 1,608 Consumer prices (end of period %) 8.1 13.5 17 17.7 15.4 10 Exchange rate (end of period L$/US$) 1.9 2.16 3.2 3.8 4.2 — Exports, f.o.b (US$ Millions) 13,552 13,752 13,217 10,321 11,137 12,045 Imports, f.o.b (US$ Millions) 17,763 17,600 14,600 13,465 12,910 13,494 Current account balance incl. grants (% of GDP) –11.7 –11.9 –9.5 –7.5 –6.7 –5.8 Gross official reserves (US$ Millions) 5,348 4,587 3,824 4,403 4,862 5,783 Gross official reserves (months of imports) 2.9 2.5 2.1 2.6 2.8 3.0 Broad Money (% Change) 24.3 19.1 36.8 23.0 28.3 24.1 Credit to the private sector (% change) 32.9 29.0 42.0 24.7 9.1 11.0 Revenues and Grants (% of GDP) 18.5 16.7 18.4 19.6 17.3 18.9 Expenditures (% of GDP) 30.1 27.3 28.5 26.6 26.6 25.2 Overall surplus / deficit (incl. grants) –11.6 –10.7 –10.1 –7.0 –9.3 –6.3 Primary Balance –3.9 –0.4 –2.4 0.2 Central Government Debt (% of GDP) 49.1 56.2 70.2 72.2 73.4 70.5 Public sector domestic debt (% of GDP) 27.2 32.3 31.0 28.5 32.1 32.5 Public sector external debt (% of GDP) 21.8 24.0 39.1 43.7 41.3 38.0 Nominal GDP (GH Millions) 75,315 93,416 113,343 136,957 167,315 204,078 Source: IMF, World bank, Ministry of Finance, Ghana Statistical Service, Bank of Ghana. 46 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION TABLE A.1.2: Ghana: Medium Term Macroeconomic Indicators 2014 2015 2016 f 2017 f 2018 f 2019 f Real GDP growth, at constant market prices 4.0 3.8 3.5 6.1 8.3 5.5 Private Consumption –6.9 3.1 1.7 7.5 9.3 4.8 Government Consumption 6.5 16.8 10.7 –6.2 –0.4 3.4 Gross Fixed Capital Investment 19.7 6.4 –11.8 16.4 14.6 4.5 Exports, Goods and Services –5.8 8.1 –8.4 6.8 9.0 12.0 Imports, Goods and Services –14.4 7.9 –5.6 8.8 10.4 9.0 Real GDP growth, at constant factor prices 4.0 3.8 3.5 6.1 8.3 5.5 Agriculture 4.6 2.8 3.0 6.1 7.6 9.4 Industry 0.8 –0.3 –1.4 11.5 12.9 3.9 Services 5.5 6.6 6.3 3.5 6.2 4.7 Inflation (Private Consumption Deflator) 18.5 17.1 15.4 11.2 10.0 8.0 Current Account Balance (% of GDP) –9.6 –7.6 –6.6 –5.8 –5.4 –5.0 Fiscal Balance (% of GDP) –10.1 –7.0 –9.3 –6.3 –3.8 –3.2 Debt (% of GDP) 69.3 73.1 73.4 70.5 66.1 62.8 Primary Balance (% of GDP) –3.8 –0.5 –3.0 0.6 2.2 2.2 Source: World Bank, Macroeconomics and Fiscal Management Global Practice, and Poverty Global Practice. Households Engaged in Agricultural Activities by Locality, Region and Type of TABLE A.2.1:  Activity Type of locality/ Households employed Agricultural Activity Region* in agriculture Crops Livestock Game Ghana 2,203,965 1,538,005 2,157,928 2,180,905 Urban 428,065 241,758 417,984 426,790 Rural 1,775,900 1,296,247 1,739,944 1,754,115 Western 255,479 163,643 252,689 252,465 Central 247,438 174,697 243,295 244,995 Greater Accra 40,673 16,795 38,727 40,673 Volta 255,611 179,586 254,111 254,102 Eastern 384,850 206,536 383,229 384,850 Ashanti 251,944 161,884 251,944 247,804 Brong Ahafo 325,672 273,546 324,692 324,699 Northern 294,672 268,127 268,984 283,833 Upper East 70,652 57,506 63,425 70,652 Upper West 76,831 35,685 76,831 76,831 Source: Ghana Statistical Services, 2015 Labor Force Report. * Most households engage in more than one activity. Annex: Tables 47 Estimated Total Annual Income from Aales of Agricultural Commodities by TABLE A.2.2:  Locality, Region and Type of Activity (GH Cedis Million) Type of locality/ Total annual earnings Agricultural Activity Region (GH Cedis Million) Crops Livestock and fishing* Game Ghana 9,257 4,029 — 5,227 Urban 715 510 — 205 Rural 8,524 3,519 — 5,023 Western 1,104 926 — 178 Central 306 303 — 3 Greater Accra 57 23 — 34 Volta 444 443 — 1 Eastern 691 684 — 7 Ashanti 469 469 — - Brong Ahafo 435 431 — 4 Northern 666 657 — 9 Upper East 47 46 — 1 Upper West 5,037 47 — 4,990 Source: Ghana Statistical Services, 2015 Labor Force Report. * Incomes estimated at less than GH Cedis 1 million. Table A.2.3 Agriculture Sector in Ghana: Selected Tables TABLE A.2.3.1: Actual and Potential Crop Yields in Ghana (mt/ha) Actual as % of Commodity Potential 2008 2009 2010 2011 2012 2013 2014 Potential Maize 5.0 1.7 1.7 1.9 1.7 1.4 1.7 1.7 35.0 Rice (paddy) 6.0 2.3 2.4 2.7 2.4 2.5 2.6 2.7 45.0 Cassava 48.7 13.5 13.8 15.4 15.8 16.7 18.3 18.6 38.0 Yam 49.0 14.2 15.3 15.5 14.5 15.6 16.8 16.6 34.0 Sorghum 2.0 1.2 1.3 13.0 1.2 1.2 1.1 1.1 57.0 Cowpea 3.0 1.2 1.7 1.8 1.6 1.8 1.2 1.2 41.0 48 3RD GHANA ECONOMIC UPDATE – AGRICULTURE AS AN ENGINE OF GROWTH AND JOBS CREATION TABLE A.2.3.2: Ghana Formal Employment by Sector (2015) All Employment Rural Employment (Million) (Million) Sector Male Female Total Male Female Total Agriculture, forestry and fishing 1.85 1.48 3.33 1.54 1.29 2.83 Other sectors 2.43 3.50 5.93 0.64 1.08 1.72 TOTAL 4.28 4.98 9.26 2.18 2.37 4.55 TABLE A.2.3.3: Crop Production (000’ Metric Tons) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Maize 1171 1189 1220 1470 1620 1872 1684 1950 1765 1762 1692 Rice 237 250 185 302 391 492 464 481 570 604 688 Cassava 9567 9638 10218 11351 12231 13504 14241 14547 15990 16524 17213 Yam 3923 4288 4376 4895 5778 5861 5855 6639 7075 7119 7296 Sorghum 305 315 155 331 351 353 287 280 257 259 264 Soybeans 39 54 50 75 113 145 165 152 139 141 142 Millet 185 165 113 165 113 194 246 219 183 180 — Cowpea 144 167 119 180 205 219 237 223 200 201 — TABLE A.2.3.4: Area Cultivated (000’ Hectares) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Maize 740 793 790 846 954 992 1023 1042 1023 1025 Rice 120 125 109 133 162 181 197 189 216 224 Cassava 750 790 801 840 886 875 889 869 875 889 Yam 300 325 324 348 379 385 204 426 422 428 Sorghum 305 320 208 276 267 253 243 231 226 227 Soybeans 45 52 47 62 77 91 86 85 85 87 Millet 185 200 163 182 187 177 180 172 — — Cowpea 180 185 139 161 163 167 182 169 162 166 Source: 1.1 - SRID (2010, 2011); MoFA (2011, 2012, 2014); 2008–10: “Agriculture in Ghana – Facts and Figures (2010)” Statistics, Research and Information Directorate (SRID), MoFA (2011); 2011: “Agriculture in Ghana – Facts and Figures (2011)” Statistics, Research and Information Direc- torate (SRID), MoFA (2012); 2012–15 and potential yields: MoFA (2014); MoFA (2015), 1.2 - Authors’ own calculation based on the 2015 Labor Force Report – Ghana Statistics Services; Ghana Statistical Service, Revised 2014 Annual GDP Bulletin (June, 2015); 1.3 and 1.4 - MoFA (2015), Ghana Statistical Service, Revised 2014 Annual GDP Bulletin (June, 2015). 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