Ghana’s exports could see a major boost as oil prices begin to pick up in the international market. The price of oil stood at $59.58 per barrel as of Monday, February 8, 2021, according to OPEC Secretariat calculations.
Influenced by COVID-related global market conditions, crude oil prices declined by 22.9 percent year-on-year in December 2020, driven mainly by weak demand. In 2020, crude oil prices averaged US$50.2 per barrel, compared with an average of US$65.2 per barrel in 2019.
Recent economic and financial data from the Bank of Ghana shows that Ghana is a net exporter of oil as the county’s oil exports outweighed its imports last year. At the end of December 2020, oil exports amounted to US$2,910.6 million as compared to oil imports of US$1,900.3 million. The Bank of Ghana pointed out in its 98th Monetary Policy Committee (MPC) meeting that the development in the global commodity prices was mixed in 2020, a situation that impacted the trade balance.
Total exports contracted by 7.8 percent year-on-year to US$14.5 billion in 2020, driven mainly by a significant decline of US$1.6 billion in crude oil export receipts on the back of low prices. Similarly, total imports went down by US$974 million to US$12.4 billion, underpinned by significant declines in both oil and non-oil imports.
Consequently, the trade balance recorded a lower surplus of US$2.0 billion in 2020, compared with US$2.3 billion in 2019. Expressed as a percentage of the country’s Gross Domestic Product (GDP), the trade surplus in 2020 accounted for 3.0 percent of GDP as against 3.4 percent of GDP recorded in 2019.
As a net exporter of crude oil, the recent rebound in oil prices will have a significant positive impact on the trade balance should these prices remain stable for most parts of the year. On the other hand, as an importer of oil, another effect of the recent rebound in oil prices will be an increase in fuel prices at the pump since Ghana currently practices the automatic fuel pricing mechanism.
The adoption of an automatic fuel pricing mechanism helps to pass-on increases in international fuel prices to domestic retail prices. The mechanism also helps to incorporate a price smoothing mechanism that can ensure pass-on over the medium term but also avoid sharp increases (and decreases) in domestic prices.
Earlier this week, the Executive Secretary of the Chamber of Petroleum Consumers (COPEC), Duncan Amoah, stated that the continuous increase in global crude oil prices could potentially lead to an increase of 16 pesewas in fuel prices at the pumps due to the “price taker” inclinations of the country.
He explained that although some increment has already been recorded, it has not been effected as yet and he advised relevant authorities to take effective measures to address the imminent fuel price increase in the country as international market price surges.
However, any increment in fuel prices, small as it may be, may increase transport fares and ultimately translate into high prices of goods and services in the country.
Already the stakes are high for a rise in general prices in the country. The recent surge in COVID-19 cases in the country poses high risks of imminent price hikes dependent on the kind of containment measures that government will put in place.
