President, GSS claim hugely different 2nd quarter economic growth rates

…President claims 8.9%

…but Statistical Office says 3.9%

On Wednesday last week, corporate Ghana found itself bemused – or in some cases confounded – when the Ghana Statistical Service announced that Ghana’s economy grew 3.9% in the second quarter of 2021. While this represents an improvement on the 3.1 percent growth recorded for the first quarter of the year, confirming that Ghana is enjoying a strong economic rebound after suffering a COVID 19 induced economic recession during the second and third quarters of 2020, the figures differ widely from the growth figures announced by President Akufo-Addo himself just a couple of hours when, while addressing a Presidential investment conference, we declared  that the second quarter gross domestic product growth rate was at 8.9 percent.

This is not as lip of tongue by the President; he had given the same figure to German investors a fortnight ago during his working visit to that country.

Interestingly, the statistics office has not commented on the figure given by the president and this is raising suspicions in some quarters that it is the GSS that has got its announcement wrong rather than the president. However, the conventional wisdom is that the president has been misled by his aides ahead of GSS completing its own computations and the statistics office has opted not to point to the presidential error to avoid embarrassing the nation’s chief executive, who obviously is simply a victim of a mistake by a subordinate.

This belief derives from the fact that the GSS is the technical institution with responsibility for computing such data – economic growth and inflation data being its headline data sets – and indeed its own computations are backed by the usual comprehensive breakdowns and interpretations of the data, unlike the President’s two declarations that only comprised the headline economic growth figure of 8.9 percent and so breakdowns underlying the figure.

Whoever caused the President’s error though, it is he himself that will face the heat, which will be fuelled by the glaring political opportunity that the opposition National Democratic Congress will try to exploit. Already there are rumblings among his political opponents that the President deliberately grossly exaggerated Ghana’s current economic performance to make his administration appear more successful than it really has been.

More neutral – and better informed – public policy commentators however take a more charitable view, pointing out that both of his declarations were made while soliciting for major new, direly needed foreign investment. Therefore, even if the President knowingly exaggerated Ghana’s growth rate – which completely neutral commentators agree is most unlikely – it was to improve Ghana’s economic fortunes rather than for political gain for himself and the ruling party which he leads.  

Ghana’s economy improved in the second quarter; however, the mining sector shrank for the sixth consecutive quarter.

Trade, manufacturing, information and communication, health and social services, and the agricultural sub-sectors were the key drivers of growth throughout this period.

The Ghanaian economy grew by 3.9% y/y in Q2-2021, up from 3.1% y/y in Q1-2021 and a decline of 5.7% y/y in Q2-2020, according to data from the Ghana Statistical Service (GSS).

• Non-oil growth increased to 5.2% y/y in Q1-2021, up from 4.6% y/y in Q1-2021. The agricultural sector (20.6 percent of GDP) expanded by 5.5 % y/y in Q2-2021, compared to 4.3% y/y in Q1-2021 and 5.6 percent y/y in Q2-2020.
• Agriculture growth was driven by the crops sub-sector which grew by 4.5% y/y during the period and contributed 81.4% to the sector (from 78.8% same period last year).
• The sub-sectors of fishing, forestry, and livestock all grew by 12.7%, 11.9%, and 5.7%, respectively.
• The services sector (50.3% of GDP) experienced strong growth, with annual growth of 11.0% y/y.
• The health & social work sub-sector recorded the strongest growth in the sub-sector, with 22.5% y/y. None of the sub-sectors in the services sector recorded contractions during the period under review.
• In contrast, after recovering from a recession in Q1-2020, the industry sector (29.1% of GDP) decreased in Q2-2021. The sector shrank by 4.3% in the three months leading up to June-2021, after expanding by 1.3% in Q1-2021 and contracting by 7.7% in Q2-2020.
• Although the sub-sectors of water & sewage (+20.5% y/y), electricity (+9.5% y/y), and manufacturing (+8.3% y/y) grew, the mining & quarrying sub-sector (the sector’s greatest contributor) continued to drag on total growth. In Q2-2021, the sub-sector shrank for the sixth consecutive quarter, falling 18.9% year over year.

What are experts saying?

According to experts for The Apakan Research Team, “We remain optimistic about a strong economic recovery of about 4.5% in 2021. We believe the monetary and fiscal authorities will continue to implement policies that are growth-supportive.

“Also, the pass-through effects of the 100bps monetary policy rate cut this year will be one of the key stimulators of Ghana’s economic recovery. On the industrial side, the recovery of the mining & quarrying sub-sector has stalled ostensively due to the prolonged effects of the COVID-19 pandemic on capital expenditure. A swift recovery in the sub-sector will further boost the economic recovery.

“For the rest of the year, we think favourable base effects could be supportive of growth although weighed down by the stalled recovery in the mining & quarrying sub-sector.”    

To be sure, despite the GSS figures indicating that Ghana’s economic rebound is on course, the growth figure is disappointing, since early data from the Bank of Ghana had suggested a growth rate closer to the one announced by the President than the one subsequently announced by the statistics office. Prior to the official announcement of the much lower figure by the GSS on Wednesday, the President’s figure had been unanimously accepted as correct and not just because it had come from the nation’s highest official. The Bank of Ghana’s latest Composite Index of Economic Activity, covering the 12 month period up to May this year had recorded a record high growth of 33.1 percent. Although the CEIA measures economic activity as different from the GSS’s economic growth figures which measure changes in the value of the economy, both data sets tend to loosely correlate, moving in the same direction and having a certain degree of quantitative correlation. Consequently, based on previous correlations economists had done ‘back of the envelope computations’ which suggested that Ghana’s second quarter growth, when announced by the GSS would be somewhere between 6 percent and 10 percent. Thus, the President’s 8.9 percent announcement fit in with such expectations.

Indeed, when Finance Ministerv Ken Ofori Atta had at the 2021 mid-year budget review, announced just a marginal increase in government’s economic growth target for the full year 2021 from the original 5.0 percent to 5.1 percent – an increase of just 10 basis points, shortly after the central bank had released its own encouraging data on surging economic activity – many economists felt government was being overly conservative in its raised expectations.

A subsequent surge in consumer price inflation to 9.8 percent – close to the BoG’s upper end of its target band of between 6 percent and 10 percent – accompanied by the fastest cedi exchange rate depreciation in over two years, was consequently attributed to surging economic growth which was putting the economy in danger of over-heating.

Such analyses have now been put on the back burner as economists, public policy analysts and other stakeholders in Ghana’s economic fortunes – both local and foreign – now await a clarification as to the true growth figures and how either the President or the GSS has presented very wrong data. Indeed, the gap between the two is so large that a few public policy commentators are actually suspecting that neither figure is correct and the true figure is somewhere in between.

Going by the GSS statistics, Ghana’s economy improved in the second quarter despite, the mining sector shrinking for the sixth consecutive quarter. This supports the warnings from the Ghana Chamber of Mines that the tightening if the country’s fiscal regime for the industry is lowering its competitiveness, even as neighbouring countries such as Burkina Faso and Mali strive to become attractive to mining industry investors. It is instructive, for instance that Ghana, which half a decade ago attracted more investment into exploration for new gold deposits than any other country in West Africa, only ranked fourth in that regard last year,

Trade, manufacturing, information and communication, health and social services, and the agricultural sub-sectors were the key drivers of growth throughout the second quarter of this year.

The Ghanaian economy grew by 3.9 percent year on year in the 2^nd quarter of 2021, up from 3.1 percent year on year in the first quarter and 3.3 percent in the last quarter of 2020, which itself had followed two consecutive quarters of contraction (5.7 percent for the 2^nd quarter and 1.1 percent for the 3^rd quarter) which had translated officially into a recession, which is defined as two consecutive quarters of economic contraction.

• Non-oil growth increased to 5.2 percent tear on year in the 2^nd quarter of 2021, up from 4.6 percent y/y in the first quarter. The agricultural sector (which accounts for 20.6 percent of GDP) expanded by 5.5 percent y/y in the 2^nd quarter, compared to 4.3 percent y/y in the 1^st quarter of2021 and 5.6 percent y/y in the second quarter of 2020.
• Agriculture growth was driven by the crops sub-sector which grew by 4.5 percent y/y during the period and contributed 81.4 percent to the sector (from 78.8 percent during the corresponding period last year).
• The sub-sectors of fishing, forestry, and livestock all grew by 12.7 percent, 11.9 percent, and 5.7 percent, respectively.
• The services sector (which contributed50.3 percent of GDP) experienced strong growth, with annual growth of 11.0 percent y/y.
• The health & social work sub-sector recorded the strongest growth in the sub-sector, with 22.5 percent y/y. None of the sub-sectors in the services sector recorded contractions during the second quarter of this year evidencing that the economic rebound in the services sector is broad based.
• In contrast, after recovering from a recession early 2020 the industrial sector (which contributes 29.1 percent of GDP) decreased in the second quarter 2021. The sector shrank by 4.3 percent in the three months leading up to June-2021, after expanding by 1.3 percent in the 1^st quarter of the year after contracting by 7.7 percent in the corresponding quarter of 2020.
• Although the sub-sectors of water & sewage (up 20.5 percent y/y), electricity (up 9.5 percent y/y), and manufacturing (up 8.3 percent y/y) grew, the mining & quarrying sub-sector (the sector’s greatest contributor) continued to drag on total growth. In the 2^nd quarter of 2021, the sub-sector shrank for the sixth consecutive quarter, falling 18.9 percent year over year.

Earlier this week the Finance Ministry issued a press release down playing the unflattering sovereign credit risk ratings assigned it recently by Moody’s and Standard & Poors – of B3 with negative outlook and B- respectively – and rather focusing on the two rating agencies appreciation of the country’s extraordinary growth.

To be sure, even at 3.9 percent Ghana is significantly outperforming the average growth for sub–Saharan Africa in 2021 which is projected at a little over 3.0 percent.

However, the sharply conflicting second quarter growth figures are casting a major pall over the quality of economic data being given by government. Eventually government will have to formally explain the huge difference between the President’s 2^nd quarter economic growth rate and that announced by the GSS. The credibility of that explanation will largely determine the degree of acceptance of government’s data   – especially data from senior government officials outside of the GSS going forward -, which in turn will greatly influence how the President Nana Akuffo Addo administration’s economic performance is rated.