Ghana’s response to import dependence

John Boateng, Accra, Ghana
February 25, 2024

I mport dependence has a negative impact on Ghana’s balance of payment and economic growth. On average, the country’s annual import bill exceeds US$10.0 billion¹. Ghana continues to depend on import for staple food such as rice, meat and also fertilizers. It also imports manufacturing and construction items (iron, steel, aluminum, and cement), pharmaceutical products, and refined petroleum products.

Dependence on import of cereal (especially rice and wheat) continues to fuel food inflation, especially during global food price hikes. In 2021, Ghana became the 15th largest importer of poultry meat in the world ². Import of agricultural and related products reached US$2.6 billion in 2022, representing 15 percent of total import. According to the African Development Bank ³, Ghana’s dependence on food import exposes the country to international trade disruptions. The Ghana Statistical Service (GSS) has detected similar trade vulnerabilities in hydrocarbon products. In 2022, the import of diesel and light oils, motor spirit, super reached US$3.3 billion (GH₵34.9 billion), which represents a quarter of imports ⁴.

Import concentration and risks

According to the Ghana Statistical Service ⁵, the highest share of Ghana’s imports comes from China, with a total import value of over US$2 billion (GH₵25 billion) in 2022. Europe is the second supplier, especially of commodities. In 2022, Ghana imported 55.6 percent of mineral fuels and oils from Europe. Asia supplied 19.1 percent of machinery and electrical equipment, while North America provided 32.8 percent of vehicles and automotive parts.

The United Kingdom supplied 84.1 percent and the Netherlands, and 82.3 percent of hydrocarbon and mineral oils imported by Ghana. The government estimates that the country can produce 45 percent of imported items. These include rice, fish, sugar, poultry, cement, and pharmaceuticals.

Import and currency depreciation

When the local currency depreciates, imports become expensive, so local companies must earmark additional funds for small quantities of imported goods. In 2022, the Ghanaian Cedi declined by 54 percent. It recovered during the first quarter of 2023, by 25.6 percent, 23.2 percent and 23.0 percent (against the US dollar, the euro, and the pound sterling)⁶.

The Cedi fell against major currencies in the first three quarters of 2023. At the end of the fourth quarter of 2023, the Bank of Ghana reported 6.6 percent cumulative depreciation against the US dollar, between February and November 20th, 2023. Since January 1st, 2024, the Cedi has depreciated on average 6 percent against the US dollar, with one dollar equaling GH¢13.05. On February 28th, 2024, the cedi dropped further to GH¢13 against the US dollar. Currencies have a natural tendency to fluctuate. However, chronic currency depreciation has become an inflation pass-through⁷.

As a response, authorities reduced customs duties and excise taxes to ease inflationary pressures. Other measures included temporary suspensions of “non-essential” import items. The short-term goal was to encourage the consumption of domestic products and a relaxation of foreign exchange restrictions. But in the long-term, authorities have stressed the need to tackle chronic inflation through a new industrialization strategy.

Reform

The government’s flagship industrialization policy is the ‟One District, One Factory or 1D1F” initiative. Ghanaian authorities launched this policy in 2017 to reverse import dependency. ”We must work to ensure that the majority of goods in our shops and marketplaces are those we produce and grow here in Ghana”, the president of Ghana declared on October 31st, 2022, during an address to the nation⁸. Additional objectives of this program included job creation, digitalization and the fostering of inclusive growth.

The government earmarked US$60 million for the project. The African Development Bank and the United States Agency for International Development (USAID) provided technical advice and funds. Further help for the “1D1F” initiative came from the German Corporation for International Cooperation (The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH). Four domestic banks in Ghana (Ghana Exim Bank, Ghana Commercial Bank, Universal merchant bank of Ghana and CalBank) funded several manufacturing projects through loans.

Results

In 2022, authorities reported the completion of 296 factories⁹, which saw the emergence of 126 new manufacturing firms. In addition, 143 companies are under construction and 27 in a feasibility study phase.

A breakdown by economic sectors shows that 40.6 percent of factories are agricultural processing companies, 43.9 percent in manufacturing and 7.9 percent in meat processing (livestock, poultry, and fish). The remaining 7.6 percent are in other sub-sectors. According to the state-owned Government News Agency (GNA), the private sector companies developed and funded 233 projects (out of the 296) while the State funded the development of 63 projects.

Intervention of the Bank of Ghana

New companies under the “1D1F” project benefitted from limited trade protection. In an address to the nation on October 31st, 2022, the President of Ghana announced a six-month restriction on imported items that Ghana produces. In November 2022, the Bank of Ghana restricted access to foreign exchange used to finance the importation of ‟non-critical” or ‟non-essential”. The products included food items (pasta, fruit juice, bottled water, vegetable oils) construction materials (ceramic tiles) and also consumer goods or non-critical goods such as toothpicks. The bank argued that the import of these items was fueling high inflation and currency depreciation and also depleting reserves.

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