Petroleum has assumed a growing importance to the Ghanaian economy. It is becoming a vital source of employment for some of the teeming unemployed youth, through direct engagement and spin-off activities. The petroleum sector has contributed increasingly and consistently to Ghana’s revenue and gross domestic product (GDP) over the years and also helping to boost the nation’s gross international reserves essential to economic self-sufficiency.
Impact of the Upstream Petroleum Sector on GDP and Revenue
The petroleum industry forms part of the Mining and Quarrying (gold, diamond, bauxite, etc.) subsector of the Industry Sector. The share of petroleum in the overall Mining and Quarrying (M&Q) subsector output has grown significantly since production began; and the share of M&Q in the Industry Sector’s output has also grown proportionately, mainly on account of the activities in the upstream petroleum sector over the period. In the last few years, the share of petroleum in M&Q GDP has grown from 79.9 percent in 2011 to 89.8 percent in 2014.That of M&Q in the Industry Sector’s GDP has also grown consistently from 32.9 percent in 2011 to 33.3 percent in 2012 and further to 35.5 percent in 2014.The share of petroleum in overall GDP has increased consistently from 6.7 percent, to 7.8 percent, 8.0 percent and 9.3 percent in 2011, 2012, 2013 and 2014, respectively. This underscores the growing importance of the petroleum industry to the Ghanaian economy.
In addition to boosting GDP, petroleum activities have become a critical source of government revenue. At US$444.12 million in 2011, petroleum revenue constituted 5.9 percent of Ghana’s domestic revenue, rising to 6.6 percent in 2012, 9.5 percent in 2013 and further to 13.5 percent in 2014. As a share of total revenue and grants, petroleum revenue grew steadily from 5.4 percent in 2011 to 13.1 percent in 2014. This also underscores the level of importance of petroleum revenue to the Ghanaian economy.From the foregoing, petroleum revenue has played a pivotal role in Ghana’s budget. Given Ghana’s current liquidity challenges, petroleum revenues have been the main source of funds for infrastructure development. Not less than 60 percent of all infrastructure projects in Ghana since 2012 have been supported by petroleum revenues.
Gold and cocoa are traditionally Ghana’s major foreign exchange earners. However, in recent years, crude oil exports have assumed a significant proportion of total exports, rising from 21.7 percent in 2011 to 22.0 percent in 2012 and further to 28.7 percent in 2014. Thus, the impact of crude oil exports on Ghana’s external reserves position has been dramatic.Furthermore, part of the export earnings that come to the government is used for budget stabilization purposes and for further development of the export market. The rising export earnings have coincided with a rising import bill, leading to the furtherance of a current account deficit.
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Authors : Isma-il Sulaiman and Bernard Boachie-Danquah are the Founding Partners of Goodman AMC, and are both renowned strategy consultants with extensive experience on the African market.