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Ghana’s 2018 Economic Outlook Positive but Challenges Remain

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Ghana’s macroeconomic performance improved in 2017 after a difficult 2016. The country’s economy expanded for the fifth successive quarter in September 2017, at a rate almost double that of 2016, according to a World Bank report released today.

The 3rd edition of the Ghana Economic Update, which focuses on agriculture as the engine of growth and jobs creation, notes that the service sector bounced back, and the fiscal consolidation is paying off. The inflation rate is also down to close of 10 percent.

“The macroeconomic outlook was largely positive based on the 2017 performance.  GDP growth for 2017 is estimated to have almost doubled from the 3.7 percent in 2016, and is expected to stay at that elevated level through 2018,” said Henry Kerali, World Bank Country Director for Ghana.

The external position has improved as the trade balance has shifted to a surplus. Ghana has made good progress in macro-stabilization in 2017, but it needs to sustain the fiscal consolidation efforts. According to the report, inflation is likely to fall within or be close to the Bank of Ghana’s medium-term target range of 6-10 percent in 2018. Based on the 2017 trends, and sustained fiscal consolidation, the report expects that the fiscal deficit could fall within the Government’s target of below 5 percent of GDP from 2018 onwards.  To sustain the fiscal consolidation efforts, two areas are particularly important over the medium-term—domestic resource mobilization and expenditure controls.

Despite the positive outlook, challenges remain, including further containing inflation and strengthening and deepening the financial sector to lower interest rates. Ghana’s economic performance over the medium term will, to a large extent, depend on the success of the economic stabilization program. The report recommends that the Government sustain the fiscal consolidation efforts. Improvements in domestic revenue mobilization and more forward-looking expenditure planning will be key. But fiscal consolidation will only be sustainable when social and economic activities can thrive in an expanding and increasingly diverse economy. Ghana is also likely to face higher financing costs in both the domestic and external markets in the context of a strong U.S. dollar and rising global bond yields.

The country’s heavy reliance on primary commodities, including cocoa, gold, and oil—all prone to volatility in international commodity prices—create uncertainty about its actual future paths for growth, inflation, export receipts, and domestic revenue,” said Michael Geiger, Senior Economist and co-author of the report.

The report highlights that with the right reforms, agriculture has the potential to be one of the leading sectors for a more diverse economy and can be transformed to be an engine of growth and job creation. Agriculture has a very large multiplier effect on employment, creating over 750 jobs for every additional $1million of output. However, as the importance of the extractive sector has risen, it appears agriculture sector growth has slowed.

The report therefore recommends three policy options to strengthen the agriculture sector:

  • Improving the quality and effectiveness of public expenditure in agriculture would be important in the context of limited fiscal space;
  • Improving the environment for agriculture businesses is key to adding value to the existing production and for jobs creation; and
  • Fixing challenges in the cocoa sector given the large size of the cocoa economy.

“There is need to channel public resources into research to increase the use of technology, invest in irrigation infrastructure to increase productivity and mitigate the potential adverse effects of climate change, and leverage increased private sector investment in agriculture” said Hardwick Tchale, Senior Agric Economist and co-author.

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Study Finds Ways To Boost Intra-African Trade and Build Resilience

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On 1 January 2021, the African Union launched the Africa Continental Free Trade Area (AfCFTA), the world’s biggest free trade area and Africa’s most ambitious and recent effort to liberalize trade. The World Economic Forum’s Connecting Countries and Cities for Regional Value Chain Integration – Operationalizing the African Continental Free Trade Area (AfCFTA) released today analyses the impact that COVID-19 has had on Africa’s supply chains.

Developed by the World Economic Forum’s Regional Action Group for Africa in partnership with Deloitte, the report provides policy advice for accelerating the expansion of regional value chains in emerging manufacturing economies such as the automotive industry.

The paper is part of a series investigating five ways to drive economic recovery and build resilience in the context of the AfCFTA Agreement, namely:

  • New financing models for rapid recovery
  • Unlocking manufacturing to mitigate global supply chain risks
  • Leveraging integration and regional value chains
  • Revitalizing infrastructure and connectivity
  • Scaling up digital transformation and inclusive innovation

“The African Continental Free Trade Area holds immense potential for the social and economic development of Africa. Renewing the rules of trading will facilitate better cooperation to boost growth, reduce poverty and broaden economic inclusion,” said Børge Brende, President of the World Economic Forum. “This timely report of the Regional Action Group for Africa presents detailed insights and recommendations on how to advance public-private collaboration on regional integration, with a view of deepening and strengthening regional value chains.”

“It is perhaps the most ambitious free trade project since the creation of the World Trade Organization itself. Actively promoting trade liberalization to encourage new areas of growth is a pragmatic response to the reduction in global trade due to the COVID-19 pandemic and will position Africa as an enhanced destination for investment from multinationals”, said Martyn Davies, Managing Director of Emerging Markets at Deloitte Africa. “Although the continent can do little to counter the global forces inclining towards deglobalization, it can embrace a self-supportive regionalism through enhanced intra-African trade.”

Insufficient and inert inter-linkages between African economies have exacerbated the impact of the COVID-19 pandemic on the continent’s supply chains. Yet, from local production of essential products to improving port and customs efficiencies – often flagged as a challenge in Africa – the response to the pandemic illustrated how meaningful impact is created through collaborative efforts. Successfully implemented, current efforts by the African Union will stimulate trade as well as deepen and create new regional value chains in Africa. Lessons learned should be applied to improving production capabilities in other industries so that economic and trade benefits can be realized.

The paper places emphasis on the automotive sector as a case study as advances in that industry have the potential to set the tone and pace for other sectors to mobilize and create stronger integrated regional value chains. The industry is on the cusp of an evolution, with advances in electric and autonomous vehicles and transformations in mobility, but as Africa builds its automotive industry, it should focus on development that promotes innovation and drives adoptions that will be sustainable for the growth and development of the sector.

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Health, Jobs and Environment Top Personal Risk List

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A new World Economic Forum/Ipsos survey found most adults are optimistic about accessing technology, digital tools and training in the next 12 months, but have serious concerns about the state of the climate, job market and global health. These findings ahead of the Davos Agenda week highlight the importance of leaders across the public and private sectors coming together to address the changes needed in a crucial year ahead.

According to the survey, the percentage of those expecting the availability of digital tools and technology to improve in 2021 exceeds the percentage of those who think it will get worse across geographies. This is most of all the case in Saudi Arabia (by 57 points), Peru (55 points), and India (48 points). Italy is the only country where, while the proportion of optimists is greater than that of pessimists by 3 points, the difference is not statistically significant.

Significantly larger proportions of people expect opportunities for training and education to improve in 2021 than to get worse in 12 countries — most of all in Saudi Arabia (by 45 points), Peru (44 points), Mexico (36 points), and China (36 points).

Image: IPSOS/World Economic Forum

However, there are global concerns with deteriorating health, loss of income or employment, and more frequent weather-related natural disasters – each perceived as a real threat by three out of five adults across the world.

Pessimists outnumber optimists on the other five issues measured: The pace of climate change (by 20 points); Employment opportunities (by 15 points); General health conditions (by 5 points); Inequality (by 4 points), and Relations between one’s country and other countries (by 2 points).

Expected Change in 2021 Image: IPSOS/World Economic Forum

The pandemic has accelerated systemic changes that were apparent before its inception. The fault lines that emerged in 2020 now appear as critical crossroads in 2021. The Davos Agenda will help leaders choose innovative and bold solutions to stem the pandemic and drive a robust recovery over the next year.

In regards to the Davos Agenda, Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum said: “In the context of the COVID-19 pandemic, the need to reset priorities and the urgency to reform systems have been growing stronger around the world. Rebuilding trust and increasing global cooperation are crucial to fostering innovative and bold solutions to stem the pandemic and drive a robust recovery. This unique meeting will be an opportunity for leaders to outline their vision and address the most important issues of our time, such as the need to accelerate job creation and to protect the environment.”

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Key Trends Shaping the Global Economy in 2021

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Accelerating inequality, remote work and greater tech market dominance are among the pandemic’s emerging trends that are likely here to stay for some years. Beyond managing the pandemic and vaccine rollout, these trends could shape a new era of fiscal, monetary and competition policy, as well as bigger government. Deglobalization is seen as the least likely of current trends to continue in the longer term; particularly as international coordination is key to resolving global challenges such as vaccine manufacturing and distribution. These are some of the findings of the World Economic Forum’s Chief Economists Outlook, published today.

The latest edition of the Forum’s Chief Economists Outlook is the outcome of consultations with leading chief economists from the public and private sectors. The report outlines the global economic outlook and lays out the priorities for policy-makers and business leaders to chart a post-pandemic recovery agenda that is fair, inclusive and sustainable.

Chief economists are impressed at the speed and scale of fiscal policy measures taken in the wake of the pandemic. However, as the global vaccination campaign picks up pace, they see the second half of 2021 as the optimal time to begin transitioning from general emergency spending to more targeted spending on future growth sectors. A majority suggest that taking action to pay down the significant national debts accumulated in the past year can wait until 2024 or beyond.

With central bank financing of public debt through quantitative easing now at the core of monetary policy in response to the crisis, chief economists believe this could lead to less central bank independence over time. Many also suggested that central banks should be pursuing environmental objectives directly through their asset purchases, which would represent a significant departure from past practice.

Most chief economists expect a brighter outlook as the vaccine helps accelerate the recovery, and as a new US administration contributes to tackling short-and long-term challenges, both domestically and globally, through revived multilateral institutions. However, most of those surveyed see virus mutations as the biggest risk for 2021, slowing efforts to contain the pandemic and leading to new lockdowns. Another concern relates to poorly calibrated policy responses that risk failing to differentiate between the deep structural impact of the pandemic on some sectors and the temporary halting of activity in other sectors.

“This report makes clear that precisely calibrated and coordinated fiscal, monetary and competition policy hold the key to global economic recovery and transformation. As the roll-out of vaccines picks up pace, there won’t be a better time for governments to work together and invest in a fair transition to a greener, more inclusive economy,” says Saadia Zahidi, Manging Director at the World Economic Forum.

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