Ghana – Country profile

Share on facebook
Share on twitter
Share on whatsapp

Background

Located on the Atlantic Ocean and sharing borders with Togo, Cote d’Ivoire and Burkina Faso, Ghana has a population of 29.6 million. Ghana has made significant advancements in recent decades, as a multi-party system settled in and is progressively embedding democracy and an independent judiciary. The country appears to have gone through a sectoral transformation, as GDP is composed of 18.3 percent from agriculture, 24.5 percent from industry and 57.2 percent from services, as of 2017. Moreover, its labor force appears to be divided between 44.7 percent in agriculture and 40.9 percent in services [1]. Ghana has a market-based economy with relatively few policy barriers to trade and investment in comparison with other countries in the region. Ghana’s economy was strengthened by a quarter century of relatively sound management, a competitive business environment, and sustained reductions in poverty levels [2].

Well-endowed with natural resources, the economy revolves around gold mining, cocoa farming, logging and oil production. Illegal logging and unsustainable use of ore and timber have led to major environmental challenges, specifically deforestation and desertification. Ghana may be losing as much as US$37 million per year in public revenue due to a combination of uncontrolled illegal logging, poor royalty collection and outdated fees [3]. These activities have caused the loss of 1.9 million hectares – equivalent to 26 per cent of the country’s forest cover – in fifteen years.

Overall Fiscal Profile

In some respects, Ghana has had good economic performance. GDP growth increased from 4% in 2000 to 6.4% in 2006, higher than the Sub-Saharan Africa average. It experienced a large peak in 2008 with an estimated 9.15% of annual GDP growth however, as a result of the global financial crisis, the fuel and food crises of 2007-2008, GDP growth declined for the following years. A subsequent peak occurred in 2011 where growth reached its highest point of 14.04%. An underlying structural weakness in the economy persists, as Ghana faces a fiscal deficit and a low savings rate. In 2011, the fiscal deficit stood at 11.8% of GDP, which has contributed to the rapid growth of domestic credit, the crowding out of private sector activity by high interest rates, a chronically high rate of inflation and general upward pressure on the real exchange rate. Inflation has been chronically high, averaging more than 20% a year between 1990 and 2008, although it declined slightly to 14.5% in 2014, then rose to 17.5% in 2016 followed by a decrease to 11.8% in 2017. Moreover, the public sector wage is rather large, taking up 50 percent of total government revenue.

After the peak of 2011, GDP growth experienced a downward trend, and reached 2.17 % in 2015 and rose to 8.1% in 2017 [4]. Ghana is expected to grow 7.4% in 2019, mainly driven by the industry sector, especially oil, gas and mining. Industry’s growth is expected to improve to 9.7%; the agriculture sector is expected to grow by 7.3% on the back of the government flagship programs in the sector, which will enhance performance in the crops sub-sector. The service sector growth, however, is projected at 6.1%, slightly below the 2018 projection of 6.2% as the financial sector continues to recover from its recent challenges [5]. The World Bank estimated that between 2019-2022, overall GDP is projected to grow on average at 7.0%, as the effects of oil on growth declines and non-oil growth strengthens. Inflation is expected to remain in the central bank’s target range of 6-10% in 2019, while the fiscal deficit is expected to be marginally higher at 4.2% of GDP.

The Tax-to-GDP ratio rose from 17.2 percent in 2015 to 17.6 percent in 2016, just below the average for the 21 African countries in the same period. The highest share of tax revenue in Ghana in 2016 was contributed by other taxes on goods and services (35%), followed by value added taxes (29%). Personal and corporate income tax make up only 13 and 14 percent respectively [6].

Policy and Legal Framework for the Green Economy

Ghana has recognized that Green Economy (GE) is a key vehicle for achieving sustainable development, and that the transition would need significant amount of green finance. Across sectors, there are significant green finance opportunities (energy, agriculture, transport, waste and industrial building), where the public and private sector play a strategic role in greening the economy.

Protecting the environment is a clear policy objective of the Government of Ghana and it has been featured in several national development plans. In “Ghana’s Shared Growth and Development Agenda: 2010-2013”, the government emphasized that sound management of natural resources and respect for the environment were key to attaining the country’s development goals. Additionally, the Medium Term National Development Policy Framework integrates components of the Green Economy. The main target of the policy framework was to enhance per capita income to at least US $3000 by 2020, while simultaneously achieving the MDGs. The Framework also highlighted future commitment to promote environmental issues in policy design. For instance, it set out to introduce new taxes and levies to establish the right prices for natural and environmental capital, thus generating more government revenue while providing the right incentives for reducing environmental degradation.

Moreover, Ghana’s plan on “Shared Growth and Development Agenda: 2014-2017 “included as one of the main objectives to be pursued “sustainable environment, land and water management”, with specific strategies to manage land, as well as water, biodiversity, natural resources, minerals extraction and protected areas. It also included objectives to restore degraded forests, to maintain the integrity of coastal areas, to manage waste and reduce pollution and noise. The plan also discussed ways to address climate variability concerns, to enhance the capacity of the relevant agencies to adapt to the impacts of climate change, mitigate the impact of climate variability and generally promote green economy [7].

Other important strategies related to the Green Economy include the National Biosafety Framework, the National Program on Sustainable Consumption and Production as well as the Climate Change Adaptation and Development Strategy. In 2015, the government of Ghana submitted its unconditional Intended Nationally Determined Contribution [8] (INDC), where they committed to cut greenhouse gas emissions by 12% by 2025 and 15% by 2030, and energy including transport, industrial process and production and waste were determined as priority sectors. A National Climate Change Policy Framework (NCCPF) has also been developed to ensure a climate-resilient and climate-compatible economy while achieving sustainable development and equitable low-carbon economic growth for Ghana.

Fiscal Measures for Green Economy

The Government of Ghana is already implementing several environmental fiscal reforms across different sectors, while reallocating the public budget to create the enabling conditions for a green economy transition.

One reform involved the use of fiscal incentives in the timber industry. The fiscal regime in the forestry sector has three components: 1) stumpage fees charged per volume of wood extracted; 2) export taxes; and 3) timber rights fees (TRFs). TRFs were introduced in 2003 to better collect other taxes and ensure transparency in the allocation of logging rights. However, in theory, these taxing mechanisms should provide effective instruments for conservation and revenue generation, in practice revenue collection is below expectation. Moderate improvement in enforcement of a sustainable level of logging could imply revenue gains of US$ 15-25 million.

Specific taxes have been introduced to encourage environmental protection, such as a 20 per cent tax on plastic materials, penalties on over-aged vehicles, as well as a progressive increase in water tariffs to reflect the environmental costs of water resource withdrawal and distribution. Although data is largely unavailable, environmental tax revenues remain small in Ghana, and currently make a limited contribution to opening up fiscal space. However, while small in revenue terms, these taxes can still be effective in changing behavior in line with environmental objectives.

Targeted incentives are being provided to stimulate investments in green sectors and to encourage the purchase of environmentally friendly goods and services. These include, for example, feed-in tariffs on renewable energy [9], targeted financial support programmes for the purchase of energy efficient appliances and extension services to assist farmers in sustainable cocoa practices, among others. Ghana also offers a range of fiscal incentives, including exemption for duties and taxes for imports of plant and machinery [10].

Fossil Fuel Subsidy Reform

The past decade has been marked by attempts to deregulate fuel prices in Ghana. In 2000, a change in government saw a renewed surge in petroleum taxes, which was then reversed in 2005 while further cuts were announced in 2008. In 2003, a commitment to cost recovery pricing with a 90% increase in pump price was made, which was then abandoned in 2005 as a result of social unrest. At this time, Ghana worked to successfully reform petroleum subsidies after realizing that such subsidies disproportionately benefitted higher-income groups, instead of benefitting the poor. The money saved in this initial reform went towards providing free education, improving healthcare in the poorest areas and funding a rural electrification scheme. This has enabled Ghana to 1) eliminate fees for primary and junior secondary schools; 2) allocate extra funds for primary health care in the poorest areas; 3) expand the provision of mass urban transport; and 4) increase funds for a rural electrification scheme. These policies redirect government revenues to where they are needed most.

Despite these initial reforms, subsidies still persisted for various fuels including petrol, diesel, kerosene, and LPG. As of 2012, fuel and utility subsidies were 72.1% higher than the budget target of 470.0 million Ghanaian cedi (US$ 235 million), contributing to an overall fiscal deficit of 11.8% in 2012.

These reforms were expected to improve energy efficiency, reduce carbon emissions, as well as cushion the fiscal budget used for utility agencies. In 2011, Ghana emitted 59 million metric tons (MtCO2e), with 53 percent of emissions coming from the Land-Use Change and Forestry sector. Greenhouse gas (GHG) emissions grew 20 percent from 1991 – 2011 and the energy intensity of the economy rose alongside a growing demand in industry, transport and households [11]. The total national GHG emissions are estimated at 42.2 million tonnes carbon dioxide equivalent in 2016, which is 66.4% and 7.1% more than the levels reported in 1990 and 2012 [12]. The largest source is the AFOLU sector; it contributes 54.4% of the total national GHG emissions in 2016. Where, grassland (38.4%) and cropland (36.3%) contribute most to the emissions through deforestation. The second largest contributor (35.6%) to the national GHG emissions in 2016 was the energy sector, where road transport (47.7%) and thermal electricity generation (32%) are the two dominant sources of GHG.

In response, the government took additional steps to improve fossil fuel subsidies. Automatic price adjustment mechanisms were reintroduced in 2013. As a result, the prices of petrol, kerosene, diesel marine diesel, RFO and LPG rose 15% to 50% until the price reached the market level in September 2013. To mitigate the impacts of rising prices, compensation mechanisms targeting vulnerable groups were put into place. For example, Ghana implemented a cash transfer programme (LEAP) to compensate 150,000 households in 2014. Another mitigation effort was an increase in the minimum wage by 17 per cent. Additionally, a subsidy on public transport helped to keep public transport affordable for commuters. The reform led to a fiscal surplus to channel into other economic and social programmes.

However, this reform was incomplete because it consisted of an increase in the prices of fossil fuels and not an overhaul of the system of administered prices, whereby the government fixes the wholesale price of fuels and adds a number of taxes to determine the retail price. When the administered price is lower than the ex-refinery (reference) price, a subsidy is paid to the importer or refiner. This system risks continuing government subsidies to fossil fuels [13]. This was followed by a decrease in subsidies on electricity and water. However, significant subsidies remained on crop and fish production.

National renewable energy programmes and projects implemented in recent years demonstrated that renewable energy interventions have enormous potential to reduce poverty and improve the socio-economic development of the country, particularly, in rural communities. In 2015, renewable energy in the form of hydropower accounted for 43.2% of total installed electricity generation capacity. In 2019, the Government of Ghana developed and approved the “Renewable Energy Master Plan” with the goal of providing an investment-focused framework for the promotion and development of the country’s rich renewable energy resources for sustainable economic growth, contributing to improved social life and reducing adverse climate change effects [14].

The country’s reliance on the exploitation of natural resources for economic development against the backdrop of rising population led to rapid urbanisation, deforestation and fossil-intensive energy consumption especially in transportation and electricity generation. This provoked an increase in GHG emissions. Nevertheless, the development choices promise to deliver growth-focus, people-centred and climate-proof outcomes.

References [1] CIA World Factbook (2019) « Ghana country profile », available at https://www.cia.gov/library/publications/the-world-factbook/geos/gh.html [2] Index Mundi (2018) “Ghana Economy Profile 2018”, available at https://www.indexmundi.com/ghana/economy_profile.html [3] SGS (2003) Forest Law Enforcement in Selected African Countries, prepared by the World Bank / WWF Alliance for Forest Conservation and Sustainable Use, available at: http://siteresources.worldbank.org/INTTOPWBWWFFORALL/NewsandAnnouncements/20685387/ForestLawAssessmentInSelectedAfricanCountriesDraftReportOctober2002.pdf [4] World Bank Data (2018) Ghana, available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=GH [5] The World Bank (2019) « The World Bank in Ghana – Overview », available at: https://www.worldbank.org/en/country/ghana/overview#1 [6] OECD (2018) « Revenue Statistics in Africa 2018 – Ghana », available at : http://www.oecd.org/countries/ghana/revenue-statistics-africa-ghana.pdf [7] Government of Ghana « Ghana Shared Growth and Development Agenda (GSGDA) II – 2014-2017 », available at: https://www.un-page.org/files/public/gsgda.pdf [8] Government of Ghana (2015) « Ghana’s intended nationally determined contribution (INDC) and accompanying explanatory note”, available at: https://www4.unfccc.int/sites/submissions/INDC/Published%20Documents/Ghana/1/GH_INDC_2392015.pdf [9] Overview of Ghana Feed-in Tariff, available at: http://global-climatescope.org/policies/4125 [10] Overview of Ghana’s Import Duty Exemptions, available at: http://global-climatescope.org/policies/4303 [11] USAID (2016) « Greenhouse Gas Emissions Factsheet : Ghana », available at: https://unfccc.int/sites/default/files/resource/gh_bur2_rev-2.pdfhttps://www.climatelinks.org/resources/greenhouse-gas-emissions-factsheet-ghana [12] Environmental Protection Agency (2018) « Ghana’s Second Biennial Update Report”, available at: https://unfccc.int/sites/default/files/resource/gh_bur2_rev-2.pdf [13] UNEP. (2014). “Green Economy Fiscal Policy Scoping Study –Ghana.” available at: https://www.un-page.org/files/public/ghana-fiscal-policy-study_-final.pdf [14] Government of Ghana (2019) “The Renewable Energy Master Plan (REMP)”, available at : http://www.energycom.gov.gh/files/Renewable-Energy-Masterplan-February-2019.pdf   Related documents: GIZ. Environmental Fiscal Reform. A practice-orientated training for policy makers, administration officials, consultants and NGO representatives. Retrieved from: http://www.greengrowthknowledge.org/sites/default/files/Parallel_session_1c_DRC_Klarer_part1.pdf GIZ, 2013. Green Economy in Sub-Saharan Africa. Lessons from Benin, Ethiopia, Ghana, Namibia and Nigeria Retrieved from: http://www.greengrowthknowledge.org/sites/default/files/downloads/resource/green_economy_in_sub_saharan_africa_GIZ.pdf Government of Ghana. Ghana goes for green growth. Retrieved from: http://cdkn.org/wp-content/uploads/2011/04/NCCPF-Summary-FINAL.pdf Government of Ghana (2010) Ghana shared Growth and Development Agenda: 2010-2013, available at: https://new-ndpc-static1.s3.amazonaws.com/pubication/(GSGDA)+2010-2013_December+2010.pdf IMF, 2013. Energy Subsidy Reform in Sub-Saharan Africa. Retrieved from: https://www.imf.org/external/pubs/ft/dp/2013/afr1302.pdf Institute of Development Studies. Ghana Report. Taxation and Development in Ghana. Finance, Equity, Accountability. Retrieved from: http://www.taxjustice.net/cms/upload/pdf/Ghana_0906_Report_widescreen.pdf Ministry of Environment Science and Technology (2012). National Assessment Report on Achievement of Sustainable Development Goals and Targets for Rio+20 Conference. Retrieved from: http://sustainabledevelopment.un.org/content/documents/1016ghananationalreport.pdf United Nations Country Team (2005) United Nations Development Assistance Framework (UNDAF) for Ghana, 2006-2010. https://planipolis.iiep.unesco.org/en/2005/united-nations-development-assistance-framework-undaf-ghana-2006-2010-4286 UNEP and UNDP. Government of Ghana National Climate Change Adaptation Strategy. Retrieved from: https://www.adaptation-undp.org/sites/default/files/downloads/ghana_national_climate_change_adaptation_strategy_nccas.pdf UNEP (2014) Fiscal Policy Scoping Study – Ghana. Download here UNEP (2015) Fiscal Policy Assessment – Ghana. Download here