Despite its vast endowment of oil, gold and cocoa, Ghana does not fully benefit from higher prices of these commodities due to retention agreements in these sectors, the Bank of Ghana (BoG) revealed in a press release on Monday May 23, 2022.

As a resource dependent nation, the progress of the economy is resource-backed; largely pivoted around the contributions of these commodities with gold remaining the largest foreign exchange earner of the country among the three major commodities though slightly above that of oil in April 2022.

Expectations are that such growth momentum would serve as a cushion for the economy, supporting the economy by reducing the pressure on the local currency and its resultant impact on prices and other macroeconomic parameters.

However, the BoG indicated that “The domestic economy does not fully benefit from higher oil and gold prices due to retention agreements in these sectors”. It noted that the increased repatriation from dividend payments and profits as well as “the net portfolio reversals from these two sectors, have resulted in a widened balance of payments outturn and loss of reserves.”

The evolution of commodity prices over the period have generally remained volatile due to the on-going geopolitical tensions. Average crude oil prices gained 42.0 percent on a year-to-date basis to settle at US$106.2 per barrel in April 2022, supported by supply constraints arising from the geopolitical tensions between Russia and Ukraine.

Gold prices also gained 8.1 percent to settle at $1,935.89 per fine ounce, on the back of increased safe-haven demand amid global inflation concerns. Similarly, cocoa prices went up by 4.4 percent to settle at $2,591.06 per tonne in April 2022, compared to the $2,481.95 per tonne in December 2021, due to unfavourable weather conditions across West Africa.

Trade Surplus Improve

According to Bank of Ghana’s data, ‘Summary of Economic Financial Data’, the country’s trade account was positively impacted as export inflows outweighed imports due to these higher prices. The data indicates a trade surplus of $1.3 billion in the first four months of the year, compared with a trade surplus of $778.00 million in the same period of last year.

The improvement in export earnings was attributed to crude oil and non-traditional exports. Crude oil export receipts recorded significant growth of 60.9 percent to $1.9 billion, due to price effects, while gold exports improved by 3.6 percent, also supported by price effects.

Non-traditional export receipts crossed the $1.0 billion mark in the review period and contributed significantly to the trade surplus. These developments far outweighed the 7.7 percent growth in total oil imports in the review period, on the back of compressed non-oil imports.

In 2020, the Ghana Chamber of Mines reported that proceeds from export of minerals was $6.998 billion; out of which producing member companies of the Chamber returned $3.67 billion out of the mineral revenue of $5.14 billion to the country. This represents 71 per cent of the revenue of producing member companies.

The proportion of mineral revenues returned exclusively through commercial banks was more than the statutory threshold prescribed in the various Development Agreements as well as the Minerals and Mining Act 2006 (Act 703) which in turn supported growth of the economy, the Chamber noted.

With indications that mineral and oil revenues are being repatriated out of the country, this will continue to adversely affect the domestic currency and further worsen the outlook of other macroeconomic indicators.