Economist, Professor Godfred Bopkin has urged government to diversify the economy to reduce the country’s over reliance on oil proceeds.
This follows a caution by the World Bank in its latest report stating that oil exporting countries in Sub Sarahan Africa could face challenging times as the price of the commodity drops on the world market.
Ghana’s economy has suffered several setbacks in recent times with Finance Minister Seth Terkper going back to parliament with supplementary budgets due to the country’s inability to meet projected revenue from oil and other commodities.
Speaking in an interview with Citi Business News, Prof. Bokpin maintained that proceeds from oil is insignificant, hence the need to diversify the economy to make it stable when the price dips.
“We are even making too much noise about the oil because at the end of the day in terms of export earnings from that side, Ghana’s share of the oil as a percentage of our total revenue is less than 10 percent. its around 5.6 percent,” he said.
He stated that government must diversify the economy to complement other sectors.
He pointed out that the country is losing about 2.2billion dollars through tax exemptions, putting the country in a position that makes it not to benefit fully from the commodity.
“Since we started oil production how much have we earned, its not much. If you look at how much we have been losing through irregularities and tax exemption you will see that we are not making any gains. We lose 2.2 billion dollars annually from tax exemptions,” he stressed.
Prof. Bokpin’s Recommendations
Giving some recommendations, Prof. Bokpin urged government to block all financial leakages that create room for oil revenue to be misappropriated.
He maintained that it is imperative for government to channel the revenue in to the real sectors of the economy to improve the lives of Ghanaians.
He added that in the medium term, government could also consider a review of the tax system to enable the country increase its share of the oil revenue.
According to him, if oil revenue is diversified, it will create enough liquidity in the economy, channeling fund to the private sector to stimulate growth.
The World Bank on Sub Saharan Africa
The report released by the World Bank predicted economic growth in Sub-Saharan Africa to slow again in 2016, to 2.5 percent, down from an estimated 3.0 percent in 2015.
More alarming, it forecasted commodity prices to remain low with weak global activity, and tightening financial conditions.
According to the report, oil exporters in West Africa such as Ghana and Nigeria may not experience any significant pickup in consumption growth, while lower inflation in oil imports are expected to support consumer spending.
Further, food price inflation due to drought, high unemployment, and the effect of currency depreciation could offset some gains that could be achieved in other areas of economic activities.
Touching on investment growth, the report predicted that investment growth is expected to slow in many countries as governments and investors cut or delay capital expenditures in a context of fiscal consolidation.
General Overview of the report
Generally, the report downgraded global growth in 2016 to 2.4 percent from the 2.9 percent pace projected in January.
“The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows,” it said.
According to the latest update of its Global Economic Prospects report, commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities.
This accounts for half of the downward revision which is expected to hit major economies in 2016.
Growth in these economies is projected to advance at a meager 0.4 percent pace this year, a downward revision of 1.2 percentage points from the January outlook.
In an earlier report, the World Bank Group President Jim Yong Kim, warned countries to undertake pragmatic steps to protect the vulnerable from the harsh economic conditions.
“This sluggish growth underscores why it’s critically important for countries to pursue policies that will boost economic growth and improve the lives of those living in extreme poverty,” President Kim said.
He cautioned that “Economic growth remains the most important driver of poverty reduction, and that’s why we’re very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices.”
Effects on commodity-importing markets
Commodity-importing markets and developing economies have been more resilient than exporters, although the benefits of lower prices for energy and other commodities have been slow to materialize.
These economies are forecast to expand at a 5.8 percent rate in 2016, down modestly from the 5.9 percent pace estimated for 2015, as low energy prices and the modest recovery in advanced economies support economic activity.
Among major emerging market economies, China is forecast to grow at 6.7 percent in 2016 after 6.9 percent last year.
India’s robust economic expansion is expected to hold steady at 7.6 percent; while Brazil and Russia are projected to remain in deeper recessions than forecast in January.
South Africa is forecast to grow at a 0.6 percent rate in 2016, 0.8 of a percentage point more slowly than the January forecast.
A significant increase in private sector credit– fueled by an era of low interest rates and, more recently, rising financing needs — raise potential risks for several emerging market and developing economies, the report finds.
“As advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly, as are commodity-importing emerging economies around the world,” said World Bank Chief Economist and Senior Vice President Kaushik Basu.
He however stated that, one development that bears caution is the rapid rise of private debt in several emerging and developing economies.
Pointing out the banking sector as one such area, Mr. Basu stated that in the wake of a borrowing boom, it is not uncommon to find non-performing bank loans, as a share of gross loans, to quadruple.
By:Lawrence Segbefia /citibusinessnews.com/Ghana