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2024 Budget review: Balance scorecard of 2017-2023 growth stability pursuit (III)

C-Nergy Ghana Ltd. Business News Dec - 19 - 2023 , 04:20

To turn around the fortunes of the Agric sector, a mid-long-term financing plan is needed to scale up financing for productivity in the pursuit of food security.

More importantly for developing countries like Ghana, prioritising investment in agricultural storage and transport infrastructure increases the capacity to ensure food security for a fast-growing population (~+2.2% p.a.).

Further, we must invest in the development and implementation of new technologies to make Ghana more resilient to changing weather patterns considering climate change implications.

The agricultural sector experienced a growth of 1.3% in the second quarter of 2023, which is lower than the 2.0% growth recorded in the first quarter of 2023.

However, overall, the sector contributed to a 6.2% GDP growth in the first half of 2023. This growth was mainly driven by the crops and livestock sub-sector which both saw growth rates of 6.8%, compared to 3.8% and 5.7% respectively in the same period in 2022.

Despite experiencing a decline of 3.3% in the first quarter of 2023, the fishing sub-sector recovered strongly in the second quarter, with a growth rate of 12.2%, resulting in an overall growth of 4.9% for the first half of 2023.

However, the forestry and logging sub-sectors growth rate decreased marginally by 0.7 percentage points, from 0.4% in the first quarter of 2022 to -1.1% in the second quarter of 2023.

Over the past seven years, the agriculture sector's contribution to the GDP has been increasing, with a CAGR of 307.8%. As of the first half of 2023, the agriculture sector's contribution to GDP was 21.4%, which was a slight increase of 0.01% from the same period in 2022.

Real sector performance | Industry

Government of Ghana’s industry revamping efforts were timely as the industrial sector was performing way below its expected capacity. These policies by the government served as a means of shoring up growth for the economy. The government‘s focus should be to achieve congruence on all projects to enhance long-term sustainable impacts.

Performance of new industrial policies

The Industrial Sector’s contribution to exports has soared from US$2.09 billion in 2016 to US$3.02 billion in 2022 due to growth in the underlying sub-sectors and growing global demand. This period has been marked by several key events, policy initiatives, and economic trends that have shaped the sector's trajectory and contributed to its overall growth.

In the past seven years, these activities have included:

• Investing GH¢32.7bn to keep the lights on and support the growth of businesses;

• Invested GH¢25.3bn to facilitate the repositioning of the financial sector and enhance its ability to assist business operations;

• Supported 100,000 young graduates to secure workplace experience and employment by investing GH¢2.4 billion in NABCO;

• Invested GH¢7.1 billion to build road and transport infrastructure to improve connectivity and productivity;

• Invested GH¢541.5 million in 169 1D1F enterprises to scale up value addition and provide 140,000 additional jobs;

• Created over 2.3 million jobs in the private and public sectors (approximately 900,000 in the private sector and 1.4 million in the public sector).

• In the Automotive sector, the government through the Ghana Automotive Development Policy has attracted global brands such as Volkswagen, Suzuki, Nissan and Sinotruk with a combined assemblage capacity of over 30,000 units per annum. These new assembling facilities created 10,000 jobs.

Real sector performance | Industry

Ghana’s industry has been instrumental to the growth of Ghana’s economy. The industrial subsector consists of Mining and quarrying, Manufacturing, Electricity, Water and Sewerage and Construction.

Together, Mining & Quarrying and Manufacturing constitute more than 50% of industry’s contribution to GDP since 2013. Industry contributed about GH¢56,382.4 million, 32% of GDP in Q2 2023.

Ghana's industrial sector has witnessed significant growth and transformation between 2016 and 2023. The Sector’s contribution to GDP has increased from GH¢60 billion in 2016 to Gh¢189 billion as of the end of 2022, a CAGR of 21%.

Value as of H1 2023 stands at GH¢120.61 Billion. Ghana’s industrial sector encompasses a diverse range of subsectors, each playing a significant role in the country's economy. Manufacturing: The manufacturing subsector remains one of the largest contributors to Ghana’s industrial sector, accounting for an average of 30.2% of the Industrial sector’s contribution to GDP from 2017 to 2021.

The subsector shrunk by 2.5% and 0.5% in Q1 and Q2 of 2023, respectively.

The subsector is a major contributor to Ghana’s overall growth as it produces key mineral resources for local and foreign utilisation. The mining sector has witnessed notable growth between 2016 and 2023, driven by rising global prices for oil and demand for minerals.

The subsector grew by 3.5% in Q2 2023. The sector has however been plagued by challenges including inadequate infrastructure (lack of cheap and reliable electricity supply and inefficient transportation networks), lack of access to finance for SMEs, and growing shortage in skills due to low TVET education.

Ghana’s industry has been instrumental to the growth of Ghana’s economy. The industrial subsector consists of mining and quarrying, Manufacturing, Electricity, Water and Sewerage and Construction. Together, Mining & Quarrying and Manufacturing constitute more than 50% of industry’s contribution to GDP since 2013. Industry contributed about GH¢56,382.4 million, 32% of GDP in Q2 2023.

Industry’s Contribution to GDP (GH¢ Billions) 60.81 78.71 96.21 110.91 117.10 131.14 189.24 120.61 2016 2017 2018 2019 2020 2021 2022 H1 2023 Source: MoFEP 1.1% 1.2% 4.3% 15.6% 10.5% 6.7% -2.5% -5.0% 9.0% -3.2% -10% -5% 0% 5% 10% 15% 20% 2014 2015 2016 2017 2018 2019 2020 2021 2022 H1 2023 GDP Growth Rate Industry (Rate) Source: MoFEP Industry Growth Rate “In recent years depreciation of the Cedi has had a mixed effect on the industrial sector in Ghana. While it could have boosted the competitiveness of local producers in the export market, it rather increased their cost of production due to their dependence on imported inputs, a challenge commonly faced by many developing countries.”

Real sector performance | Energy

“Ghana’s energy sector has been plagued by legacy debts owing to factors like low collection rates, lack of automatic electricity tariff adjustments and excess generation capacity on a take-or-pay basis. The sector debt currently exceeds US$3 billion despite the introduction of the energy sector levy (ESLA) and bonds in 2015.”

This administration has chalked many successes in the energy sector chief among them, the expansion of electricity access from 79.3% in 2016 to 85.4% by the end of the first term. Electricity access currently stands at about 88.5% making Ghana a top 6 African country in terms of universal access to electricity.

This administration set a target of a 90% access rate and appears to be on course to achieve the target by the year-end of 2024. Several power purchase agreements (PPA) with independent power producers (IPPs) were entered into between 2014 and 2016 to deal with the power crises the country faced at the time.

Unfortunately, this resulted in excess capacity which demand has not caught up for and as a result, the government pays for undertake-or-pay clauses in PPAs with IPPs. As of 2019, Ghana’s energy sector had legacy debt of about US$2.2 billion accumulated over 2 decades.

This debt was paid down to a balance of about US$900 million in 2020. Several factors including recovered LNG prices have caused the sector debt to balloon to US$3.1bn.

Government intervention has been mainly via the use of the ESLA Bonds and some new levies. The collection of new energy sector levies under the Energy Sector Recovery Program (ESRP) has slowed down significantly post-pandemic due to the deterioration of the economy.

The government is currently negotiating with IPPs to restructure legacy debt owed and power purchase agreements (PPAs) with a renewed focus on the sustainability of the energy sector and mechanisms to ensure timely payments to IPPs.

These critical reforms may cover the current cash waterfall payment mechanism in place. The government aims to finalize commercial agreements with key IPPs in the coming weeks.

According to the IMF, the government of Ghana has signed Power Purchase Agreements with 32 IPPs since 2014 resulting in excess power supply. The IMF in its latest report called for Ghana to expedite implementation of the Energy Sector Recovery Plan as Ghana spends approximately 2-5% of GDP to support the energy sector annually.

Major problems facing the power industry are excess power generation capacity and gas supply, high producer fixed costs, limited transmission capacity, large distribution losses, and especially low and subsidised electricity tariffs. In the short term, the following remedies are required urgently to bring the energy sector debt to a sustainable level and the industry to self-sufficiency:

• Automatic/inflation-indexed tariff adjustment

• Infrastructure development to tackle transmission losses

• Restructuring of PPAs to align with the energy demands of the country

• Refinancing of IPP legacy debt. 79.3 79.0 80.4 83.5 85.4 86.3 88.5 2016 2017 2018 2019 2020 2021 2022 Source: World Bank Electricity Access Rate REAL SECTOR PERFORM.

Real sector performance | Housing

“The National Rental Assistance Scheme launched in February 2023 has great potential to be a gamechanger for housing in Ghana if well-funded and implemented. It is the first demand-side intervention introduced in a housing market which has a deficit of more than 2.4 million units heavily concentrated in the low end of the market.”

The government rolled out the National Rental Assistance Scheme in February 2023 to ease the burden of multi-year rent advance payments on prospective tenants.

This is a very commendable initiative especially because successive governments have struggled to enforce the 6-month limit on rent advance payments due to severe housing deficit in cities like Accra.

Between February and October 2023, the Scheme disbursed about GH¢13.8million to cover the payment of rent advance for 1,105 individuals in the Greater Accra, Ashanti, Northern, Eastern, Bono East and Western Regions.

The government has attempted to increase the supply of housing units via several affordable housing schemes over the years. Currently, several affordable housing projects are under construction as shown in the table adjacent.

Expenditure on housing projects that remain incomplete represents a waste. These projects can be considered “dead capital projects” because until they are complete and inhabited, funds invested do not yield a return to the public in terms of housing supply or government revenue.

Some of these affordable housing projects like Saglemi have received budgetary allocations consistently for more than a decade but remain incomplete and consequently unoccupied. For a developing nation like Ghana, one would expect that such capital-intensive massive projects would be rolled out one after the other instead of concurrently.

Government-sponsored affordable housing projects across the country are located in Tamale, Borteyman, Kpone, Asokore Mampong, Koforidua, Wa, Saglemi and Sagnarigu. Although the 2022 Budget aimed to complete projects in Borteyman, Kpone, and Saglemi by the end of 2022, they currently remain incomplete and can reasonably be expected to remain so for the next few years given the country’s financial circumstances.

In 2022, The Ministry of Works and Housing announced