The Institute of Economic Affairs (IEA) recently revealed a sobering assessment of Ghana’s economic growth, indicating that the country is operating well below its potential.
The findings, published in the IEA’s latest bi-monthly Economic Outlook report, outline several structural challenges, including low public investments, macroeconomic instability, and the high cost of doing business. These challenges are hampering Ghana’s ability to fully leverage its natural resources and drive sustainable growth. Although recent data from the Ghana Statistical Service (GSS) shows some progress, the IEA argues that a more strategic approach is needed to unlock the country’s full economic potential.
Ghana’s Gross Domestic Product (GDP) growth has shown a promising upward trajectory between the second quarter of 2023 and the second quarter of 2024, as reported by the GSS. The year-on-year GDP growth rate rose from 2.5% to 6.9%, marking a notable recovery.
Similarly, non-oil GDP growth saw an increase from 3.1% to 7.0% over the same period. These figures suggest an overall resilience in the Ghanaian economy despite existing challenges, particularly following the economic disruptions caused by the COVID-19 pandemic.
Sector-specific data further reveals some consistent growth in agriculture, which recorded steady positive rates between 4.3% and 5.4%. The services sector also displayed positive growth, ranging between 3.2% and 6.0%, driven by increasing demand in finance, telecommunications, and public administration. However, the industrial sector exhibited erratic growth patterns, fluctuating significantly from quarter to quarter. For example, industry saw negative growth rates in the second and third quarters of 2023 but rebounded in subsequent quarters, with growth rates ranging from 1.6% to 9.3%.
Industry’s Erratic Performance and Oil Output
The IEA report identifies the volatility in the industrial sector as a major factor hindering consistent economic growth. Much of this erratic performance has been attributed to fluctuations in oil output, a primary contributor to Ghana’s industrial activity. Ghana’s reliance on oil revenue renders the sector vulnerable to global oil price volatility and production inconsistencies, which disrupt economic stability.
According to the IEA, these fluctuations underscore the need for economic diversification beyond oil dependency. While oil remains a valuable asset, the country would benefit from strengthening other industries, particularly those related to value-added production and manufacturing. By investing in these areas, Ghana could reduce its vulnerability to external shocks and enhance economic resilience.
The IEA report highlights structural issues, such as the high cost of doing business in Ghana, as a significant obstacle to growth. Business costs are affected by various factors, including regulatory inefficiencies, infrastructure deficiencies, and high utility prices. These issues increase the operational costs for companies and reduce the country’s appeal to both domestic and foreign investors.
Low public investment is another challenge. Adequate public spending on infrastructure, education, and healthcare is essential for sustainable economic growth, as these areas form the foundation for private sector development and job creation. Unfortunately, Ghana’s public investment levels remain below the necessary threshold to drive long-term development. Without substantial investment in these areas, the economy’s potential remains largely untapped, limiting opportunities for growth and socio-economic transformation.
IMF’s Growth Projection Revision and Economic Recovery
Despite the challenges outlined by the IEA, the International Monetary Fund (IMF) recently revised its growth projection for Ghana, raising it from 3.1% to 4.0%. This upward revision reflects a moderate economic recovery, spurred by the government’s stabilization efforts and Ghana’s strategic positioning in global commodity markets.
The revision indicates that Ghana is on a path to recovery from the pandemic’s impacts and the broader economic crises of the past few years. However, the IMF’s cautious optimism suggests that further efforts are necessary to sustain this growth trajectory.
To address these challenges and maximize Ghana’s economic potential, the IEA report offers several strategic recommendations. First, the IEA emphasizes the importance of leveraging Ghana’s substantial natural resource wealth to boost investments in physical and human capital. By developing its natural resources responsibly, Ghana could generate revenue to fund critical sectors like infrastructure, education, and healthcare, which are essential for long-term growth.
Additionally, the IEA recommends reducing the high cost of doing business by streamlining regulations, improving infrastructure, and addressing inefficiencies in the public sector. Simplifying administrative processes and enhancing energy supply could help attract foreign investment and empower local businesses to expand and create jobs.
Sustaining macroeconomic stability is also critical. The IEA suggests that stabilizing the local currency, controlling inflation, and maintaining prudent fiscal policies would create a more conducive environment for investment. Achieving stability in these areas would enhance investor confidence and enable Ghana to better weather economic uncertainties.
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