Ghana’s 9% GDP Growth Lays Bare Nigeria’s Policy Failures

West Africa’s two largest economies, Nigeria and Ghana bled in 2016 as the global commodity price rout took a toll on economic activity, but Ghana has come out the strongest of both, helped considerably by pro-growth policies, while Nigeria hobbles off with 0.55 per cent expansion, despite growing from a far lower base, compared to Ghana.

Ghana’s economy expanded at the fastest pace in 26 years in 2016, according to data by the country’s statistical service, after a shutdown at oil and gas fields weighed on output, while Nigeria slumped to its first economic recession in a quarter of a century, after militant agitations reduced crude oil output by a third and global prices retreated.

Both economies are underpinned by the improving fortunes of their oil industries this year.

Ghana’s industry sector, which includes oil and gas and accounts for 26.5 per cent of GDP, expanded 19.3 per cent, to boost overall growth to a near three-year high, according to data compiled by BusinessDay.

On the other hand, Nigeria’s oil and gas sector swung from 15.6 per cent contraction in Q1 to a 1.64 per cent growth in Q2, lifting overall growth in the process.

Beyond oil, however, Ghana’s economy is thriving on the back of sound government policies, a well co-ordinated government, strong institutions and market-driven reforms, according to Bismarck Rewane, CEO of Lagos-based advisory firm; Financial Derivatives Ltd. Rewane admits same cannot be said of Nigeria.

An e-mail seeking comment from the finance ministry was not replied.

“Nigeria needs a better interest rate environment to start with and must court private capital to diversify from oil,” said Rewane. “Ghana is less dependent on oil, compared to Nigeria and boasts of consistent and market friendly policies, as well as strong institutions to boost economic growth,” he added.

The role of government policy in Ghana’s economic prosperity should indeed get Nigeria taking notes, says Taiwo Oyedele, partner and head of tax and regulatory services at Price Water House Coopers (PWC).

“The challenges both countries face are different but it is no surprise Ghana is doing better,” says Oyedele.

“The Ghanaian economy is not overly dependent on oil, its tax to GDP ratio is higher than Nigeria’s, and it ranks better on the ease of doing business index and global competitiveness index. Nigeria’s government must restructure the economy and seek policy-induced economic growth,” Oyedele adds.

Ghana’s tax to GDP ratio is 20 per cent, bettered only by South-Africa on the continent. Nigeria’s tax to GDP ratio is a lowly 6 per cent and when stripped of the oil sector, that ratio is reduced to 2.5 per cent. Of the 70 million adult Nigerians associated with one form of economic activity or the other, only 14 million are on the tax register.

This lays bare the loop holes in revenue generation from the non-oil sector which is by far the biggest contributor to GDP (90 per cent of GDP versus the oil sector’s 10 per cent).

Ghana is the tenth easiest country to do business in, among the 48 countries in Sub-Saharan Africa, says the World Bank, while Nigeria settles at a lowly 37.

On the Global Competitiveness Index, Ghana also outshines its West African neighbour, sitting at number 111 of 137 countries, while Nigeria lags 14 spots beneath Ghana, at 125.

The impact of government policy is conspicuously absent in Nigeria’s improving economic fortunes, whether it’s the trade surplus in Q2 or the narrow exit from recession, and private capital has hardly been tapped to engender the sustainable and inclusive growth required for Africa’s most populous nation, analysts say.

“The bottom-line is that we do not yet have a policy-driven, sustainable recovery, but one aided by events beyond our control- oil prices,” Opeyemi Agbaje, CEO of RTC advisory services firm, said in an earlier comment.

Yemi Kale, who heads government-funded National Bureau of Statistics (NBS) agrees.

“As much as I would want to say the economy expanded in Q2 on the back of government policies, the story is it was driven by stable oil prices and production,” Kale said at a conference last week.

Ghana’s economy has had a soft landing under Akufo-Addo’s New Patriotic Party, with Finance Minister, Ken Ofori-Atta announcing tax cuts in March and pledging to reduce the budget deficit by more than half over the next three years.

“Economic prospects for 2017 are encouraging, as economic growth is expected to pick up, inflation is declining and prospects for a significant increase in international reserves, boosted by recent sizable foreign exchange inflows,” the International Monetary Fund (IMF) which expects Ghana’s economy to expand 7.5 per cent in 2017, said last month.

Nigeria’s 74-year old president, Muhammadu Buhari, hasn’t had it quite easy.

Under Buhari’s watch, the economy has ground to a halt, as oil prices tumbled to decades-low, starving both the government of cash to implement its budget and the economy of dollars.

Despite slowing in the last six months, headline inflation in Nigeria remains at an 11-year high of 16 percent (August) while unemployment rate sits at a six-year high of 14 per cent, according to data compiled by BusinessDay and sourced from the NBS.

When the Monetary Policy Committee (MPC) met last week, it voted to keep the benchmark interest rate at 14 per cent for the seventh consecutive time, to balance growth and inflation concerns.

Despite recently revising its growth outlook for South-Africa and Russia upwards, the Washington-based IMF overlooked Nigeria, which it tips to grow 0.8 per cent.

“That is questionable, as one will expect Nigeria should have earned an upgrade as well, but maybe the IMF isn’t as convinced to act yet,” said Muda Yusuf, director- general of trade advocacy group, the Lagos Chamber of Commerce and Industry (LCCI).

The IMF expects Africa’s most industrialised economy, South Africa, to grow by 1 per cent this year, more than an earlier projection of 0.8 per cent, while Russia is now forecast to expand 1.4 per cent from an earlier projection of 1.1 per cent.

The aftermath of the oil price rout which initially pushed Russia into recession, has seen Moscow rebound by expanding 2.5 per cent year-on-year in the second quarter of 2017, following a 0.5 per cent growth in the previous period.

It was the strongest pace of expansion since the third quarter of 2012, as output grew firmly for wholesale and retail trade, mining, manufacturing and construction.

Meanwhile, Ayo Teriba, CEO of advisory firm, Economic Associates, refuses to be drawn into a comparison between Nigeria and Ghana.

“It is like comparing a pond with an ocean,” Teriba joked.

“Ghana’s economy is merely 10 per cent of Nigeria’s GDP and so there is no basis for comparison,” he said.

“I do however agree that Nigeria must pursue growth outside oil. Attracting investment through privatisation is the surest way to go.

“Saudi Arabia, also hit by lower oil prices, has publicised intentions to privatise 16 sectors of its economy, from healthcare to education.

“Another drastic oil price slump will pose less a threat to the Saudi economy because the economy is being given a complete overhaul which I think we must learn from,” Teriba added.

For a country that produces people at 3 per cent annually, Nigeria’s fragile economic growth of 0.55 per cent is unlikely to make a dent on average per capital income and create the required jobs for a country that will become the third most populous nation by 2050.

(BusinessDay)