The Golden Age Beckons

When Ghana overtook South Africa as the world’s biggest gold producer in 2019, it owed its success to three factors: competitive costs of mining activities (which date back to the beginning of the 19th century); significant economic openness; new development projects.  

But for 40 years Ghana has also excelled in another sector: cocoa bean production. Ghana is the second largest cocoa exporter in the world after Côte d'Ivoire: the two countries together produce 66% of the world's cocoa. Exports amount to around 2 billion dollars a year. Conversely, chocolate imports barely reach 8 million. A gap that a new class of entrepreneurs wants to fill, strengthened by the new demand for chocolate with a more cosmopolitan flavor that has developed among the growing middle class. This has led to chocolate factories being set up that exclusively serve the domestic market, particularly thanks to Chinese investments and a strong push towards digitalization.

Let's go back to 2010, the year when the first oil field was inaugurated. Africa’s “golden child” - a definition coined by the international community in the early 2000s - can count on a stable democratic system, following the transition to a multi-party system in 1993, a free press, and a dynamic civil society.  Ghana is aiming to protect the domestic market and raise the standard of living of a population of nearly 30 million, in search of a sustainable development model for the entire African continent.

Since President Nana Akufo-Addo came to power in 2017, the development of agri-food has been central to his policy to reduce dependence on imports. The World Bank is celebrating his efforts to raise employment rates and ensure access to education. Not all these goals have been achieved, the report notes. This is demonstrated by the data.

According to the Ghana Statistical Service, the industrial sector - including oil and gas - contributes 34.2% of GDP. The role of oil, especially in the last three years, has increased significantly, rising to 4.5% from 0.6% in 2016. Today it is second only to gold (7.1%), but it is not the only sector driving the economy. Gold remains the most exported product; the service sector accounts for almost half of gross domestic production; agriculture - driven by cocoa beans - accounts for 18.5%.  

And agriculture should be more supported precisely by the resources generated by the oil and gas, the director of the Africa Center for Energy Policy (ACEP), Benjamin Boakye, tells us in an interview. The development of the oil industry risks discouraging the government developing other growth drivers. In 2013, the contribution made by agriculture to the country’s GDP was much higher, equal to 21.7%. Overall, the non-oil sector is still strong but has been shrinking slowly, from 6.5% in 2018 to 5.8%.

The collapse in the price of oil and the impact of COVID-19 have widened the internal debate about the need to accelerate the process of economic diversification. Ghana is not lacking in determination to rebalance its economy. The country shows a significantly lower degree of dependence on oil and gas than other producing countries in sub-Saharan Africa, such as Nigeria, Angola and Gabon. Similarly, there appears to be a clear strategy to break free from a dependence on imports of raw materials and accelerate regional integration. The country's strong support for the new African Continental Free Trade Area (AfCFTA) is also significant in this respect. The Ghanaian Parliament was among the very first to ratify it, confirming the Pan-Africanism that has always characterized Ghana. Last April, Accra won the competition to host the headquarters of the Secretariat.

Until 2007, biomass energy consumption amounted to 49%. In 2016, the use of biomass dropped to 39%.  The use of hydrocarbons and a strong push towards electrification have transformed the energy sector. Today Ghana continues to develop both upstream and midstream infrastructure. In addition to Jubilee, the other two main fields - TEN and Sankofa – are concentrated in the Tano Basin. Three companies are active in the sector: Eni, the Norwegian Aker and the African Tullow. In 2019, Ghana produced almost 200,000 barrels a day. Oil is destined for export: crude oil is a major export (4.57 billion dollars in 2018). Gas, on the other hand, is essential to meet internal consumption, which is growing at a rate of 10-15% per year, and to fuel the electricity sector.

Before the development of OCTP (2018), the Ghanaian offshore exploration project, in which Eni is heavily involved, Ghana fueled its power plants mainly with oil and gas imported from Nigeria via the  West African Gas Pipeline (WAGP). It also used a large hydroelectric power plant on the Volta River, in the south-eastern area of the country: the Akosombo dam, built in the 1960s by the Italian Salini Impregilo - the biggest artificial lake in the world. These sources still play an important role in Ghanaian electricity generation, but the growing contribution of gas from OCTP will gradually help Ghana achieve greater energy independence.  

Ten years ago, supplies were not enough: the lake was insufficient to meet the energy needs of an African country that boasted of providing access to electricity for 84% of the population in 2018. In addition to this there was some discontinuity in Nigerian supplies. As a result, a massive blackout caused many industries to fail. Ghana had been one of the hubs of the textile industry in West Africa: the crisis wiped out the textile companies and only three have survived.

The country was thus forced to review its energy policy. Encouraged by the World Bank and the International Monetary Fund, the Accra government identified gas production as the key to ensuring the diversification of the energy mix and the stability of low-cost supplies, also leveraging private investors. Thus, Eni's project, which consists of producing oil for export and gas for internal consumption, was welcomed.

At the same time, this policy of building a large number of power plants has created a problem of overcapacity. Every year, the government finds itself having to pay 450 million dollars to independent producers for electricity that goes unused. Experts believe that the sector needs to be reorganized, particularly to thin out an extremely overcrowded market, dominated by state-owned companies in some sectors, and by obstacles that impede the progress of other sectors. Particularly renewables.

The debate about the development of solar power is struggling to achieve a concrete solution. The goal of achieving an energy mix in which renewables will account for 10%, initially planned for 2020, has been moved forward to 2030. The authorities may theoretically be interested in developing renewable energy projects (the General Plan for Renewable Energy was published in 2019) but, given the availability of resources, they continue to favor more profitable projects related to oil and gas. The completed conversion of the Karpowership 2019 to generate electricity from oil and gas is significant as it contributes to reducing the carbon footprint in the energy transition.

After three consecutive years of high rate economic growth, in 2020 the country risks recording the lowest growth in the last 37 years, warns the IMF. The budget deficit to GDP ratio also risks expanding to 10%, the largest in six years, nullifying the effect of fiscal discipline efforts. Rising inflation, a weak currency and a restrictive monetary policy are also having an effect as the country prepares for presidential elections next December. With the collapse in the price of oil, the country’s revenues have also shrunk. The energy sector has always influenced the country's economic performance and the balance of its public accounts. The recovery will have to wait until 2021, said the governor of the Bank of Ghana, Ernest Addison. But the turbulence in the oil market has not affected the activities of Eni, the only company currently carrying out exploration activities: the other energy companies are not planning to increase production.