Export diversification

Dr. Ahmad Laamihi, Accra, Ghana
January 3rd, 2024

T he external trade sector in Ghana is dynamic and remains a major source of foreign currency earnings for the country. However, trade data also shows a concentration in terms of destinations and export items. Agricultural commodities and minerals dominate Ghana’s trade. This concentration exposes the country to the economic uncertainties from destination countries, currency risks, and also to global price volatility. In 2017, authorities in Ghana declared export diversification as an economic priority goal. Ghana ranked Export 123 (out of 190 countries) on the 2021 Export concentration Index of the United Nations¹.

Ghana exported US$14.1 billion of goods and services 2021, making it the number 84 exporter in the world. In aggregate, between 2016 and 2021, the exports of Ghana increased in value from - US$2.1 billion from US$16.2 billion in 2016 to US$14.1 billion in 2021. Crude oil was a major contributor to this increase. However, the trade balance of Ghana remained negative for the period from 2002 to 2019, then turned positive for the following four years (January 2020–May 2023).

Geographical concentration

Ghana exports to every continent but with a concentration on Europe, Asia, North America and Africa. Country concentration is a also a major feature of Ghana's international trade. For example, in Europe, Switzerland alone accounts for over half of Ghanaian export to the entire European continent. In Asia, the major export destinations are China and India, which account for 78 percent of Ghanaian export trade. Trade data reveal similar concentrations on the African and American continents.

Five countries accounted for 60.4 percent of Ghana exports, with Switzerland alone capturing 17.3 percent in 2021. The United Arab Emirates, the United States, India and also China are part of this group of five. Geographical export concentration carries economic risks. According to a United Nations research, diversifying the destination countries reduces the exposure to country-specific demand shocks ².

Products concentration

Ghana’s three largest export products come from the extractive and agricultural sectors. They include precious minerals (gold, manganese with 37 percent of export), oil and gas (31.7 percent), and cocoa (15.1 percent). Together, these three products accounted for 86.3 percent of export goods. In 2022, the leading export products were gold (US$5.29 billion), crude petroleum (US$3.57 billion), cocoa beans (US$1.51 billion), cocoa paste (US$477 million). Other agricultural products which contributed to export are coconuts, Brazil nuts, and cashews. Together, these products earned the country US$477 million.

Export diversification potential

Ghana wants to diversify its export both in terms of products and destinations. In 2020, authorities released a National Export Diversification Strategy (NES). The document contains an outline of structural changes, particularly the reallocation of factors of production across different economic sectors and cluster industries³. The Ghana Export Promotion Agency (GEPA) facilitates the development and promotion of exports and coordinates export diversification.

The NES also promotes non-traditional export products as a diversification strategy. The GEPA says that they generated US$3.5 billion in 2022 (or 25 percent quarter of total export) and forcasts that non-traditional export products have the potential to grow to US$25.3 billion over the next decade.

However, non-traditional export products also remain confined to three categories. They include agricultural products (fruits, horticultural products, and fish), processed and semi-processed products (such as wood products, aluminum products, and canned foods) and handicrafts.

Information technology is blurring the boundaries between economic sectors, rendering the distinction between “traditional” and “non-traditional” products obsolete. While such designations are relevant in agriculture, in manufacturing, services, and telecommunication, for example, the distinction between “traditional” and “non-traditional” product is not applicable. Ghana and development organizations are exploring other approaches to export diversification. The World Bank thinks that Ghana’s product space shows clusters of “nearby” products, which offer the basis for a viable export diversification⁴.

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