Managers of Ghana’s economy would have to brace themselves for yet another challenging year in the country’s exports sector, as Ghana is set to lose hundreds of millions of dollars in export revenues due to falling commodity prices on the international market.
The Ghanaian economy which not so long ago was a beacon of hope for other emerging economies when it gained the ‘one of the fastest growing economies in the world’ status, has recently been sailing in rough waters.
Most of the country’s major exports including cocoa, oil and gold are having a tough time on the global market. This has been further compounded by serious challenges in the management of the economy.
Total export revenues for these three major commodities amounted to $8.2 billion for the period between January and September 2014. This reduced by $2.4 billion to $5.8 billion for the same period in 2015 and it is expected to fall further this year.
Oil prices have fallen by more than 50 per cent since May 2015, further squeezing Ghana’s export revenues from the commodity. Brent crude recorded a 1-year high of $71 a barrel in May 2015 but has since been falling gently and is now trading at $32.
From January to September 2014, Ghana made $2.9 billion from oil revenues. However, for the same period in 2015, the proceeds were almost halved to $1.5 as made between January to September 2015.
With oil prices fast approaching the $20 mark, Ghana’s expectations from the commodity will indeed be abysmal – further putting a strain on government’s finances.
Equally disturbing is the fact that cocoa export is not expected to rake in much for the country this year. Price of the commodity is reeling on an 8-month low at $2,866 a tonne (MT).
Additionally, Ghana’s cocoa sector has lately been suffering from various domestic setbacks which have collectively resulted in the gradual fall in total production.
From unfavourable rain patterns, poor policy initiatives, disease infestation, to smuggling, government and the Ghana Cocoa Board (COCOBOD) have a lot of work to do to put the sector back on firm footing.
Competition from neighbouring Ivory Coast, which is now the world’s largest producer of the commodity, is not helping matters. Ivory Coast is growing by leaps and bounds with everything that has to do with cocoa. It is even set to outdo Netherlands as the world’s top processor of the commodity in the next few years.
A slight rise in production in Ivory Coast during the 2014/15 season resulted in the price of the commodity heading downwards. Favourable weather condition in that country this year, is promising a further increase in production.
Ghana produced about 800,000MT while Ivory Coast produced 1,700,000MT in the 2014/15 crop season.
Ghana’s cocoa export revenues for the period from January to September 2015 was $1.9 billion – a repetition of what the country made the same period a year earlier in 2014.
It is expected that this year’s revenues from the commodity would fall short of last year’s as Ivory Coast gears up for yet another bumper harvest.
Gold export, despite also being volatile on the world market, holds the potential to stabilise Ghana’s export revenues in 2016, however the country’s mining industry faces various challenges which affect production.
A long standing power crisis and high taxes have often been at the top of the industry’s outcry. These factors have pushed the industry’s cost of production almost to the ceiling, squeezing the profits of gold mining companies.
The Notional Cost Expenditure (NCE) – which includes all cost incurred from production together with taxes, royalties, CSR, etc. - for producing an ounce of gold in Ghana is currently pegged around $1,200 while the commodity is currently trading at $1,100.
Nonetheless, an increase in production which could be triggered by reducing taxes on’ exploration as well as solving the power crisis could help put the gold mining industry back on track.
Ghana made $3.4 billion from gold exports from January to September 2014. The gains made within the same period in 2015 fell short by $1 billion to $2.4 billion and is expected to plummet further.
Analysts and market watchers like the Institute of Statistical, Social and Economic Research has repeatedly said that the economic challenges confronting this nation are enormous.
According to the policy think tank, the nation will have to find other means of boosting its revenue following dips in commodity prices.
It had stated in its recent state of the economy report that commodity prices will not be very attractive in the next couple of years, hence the need for the country to explore more avenue of raising revenue.
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