Ghana reconsiders oil’s role in its economy as prices fall

ACCRA (Bloomberg) - The global slump in crude prices is giving Ghana a chance to rethink its dependence on a sector that was its key driver of economic growth in recent years.

Hit by the double-whammy of collapsing oil prices and the coronavirus pandemic, West Africa’s second-biggest economy is forecast to grow at its slowest pace in 37 years. This follows three years during which the oil sector more than doubled to fuel annual growth of 6.3% or more.

Oil receipts will contribute nearly $1 billion less to the fiscus than what was initially projected, widening the budget deficit. Explorers such as Aker Energy ASA have shelved plans for the development of new fields.

The pain could be a blessing in disguise, said Godfred Bokpin, a finance lecturer at the University of Ghana. The boost of the oil sector has given the government little incentive to develop other growth drivers and the downturn will force it to change tact, he said.

Ghana can realign its economy “with a focus on the non-oil sectors, particularly agriculture,” said Bokpin. “Ghana cannot miss it a second time.”

Planting for food and setting up factories were key policy areas to reduce the country’s dependence on imports when President Nana Akufo-Addo took power in January 2017. The government has achieved mixed success, with agriculture lagging the economic growth average while manufacturing exceeded it, although not to the same extent as oil.

To be sure, Ghana is far less reliant on crude than oil-producing peers in sub-Saharan Africa such as Nigeria, Angola and Gabon. Gold is its biggest export while services account for nearly half of gross domestic product.

“Countries like Ghana should continue to chase diversification of the country’s growth drivers,” said Albert Touna Mama, the International Monetary Fund’s country representative in Ghana. “That will make the economy more resilient to commodity price shocks.”