AfCFTA could raise Ghana’s GDP – World Bank

The World Bank has advised Ghana to better harness the transformative potential of trade by leveraging the prospects of the African Continental Free Trade Area (AfCFTA) to boost its economic growth and transformation.

According to the World Bank, its modelling estimates on the AfCFTA show that the agreement could raise Ghana’s GDP by 7 percent by 2040, but the greatest benefits will come from the trade facilitation measures and not tariff reductions alone.

The World Bank highlighted that the trade agreement is a golden opportunity for Ghana to boost its manufacturing sector and regional value chains which could be a major force for economic transformation.

“These estimates suggest that the major beneficiary sector would be manufacturing. The AfCFTA could reverse Ghana’s trends of stagnant manufacturing exports and declining trade with the continent. As secretariat of the AfCFTA, Ghana can also play a major position in shaping the direction of the AfCFTA and ensuring its benefits are realized”.

Strong performance of exports

Ghana’s strong performance in goods exports over the past decade, according to the World Bank, has mainly stemmed from the export of primary commodities, limiting the potential of goods trade to drive structural transformation.

“Ghana’s export performance over the past decade has been outstanding and Ghana’s trade to GDP ratio has increased rapidly. However, growth in exports of goods has been fueled by extractives, and exports are increasingly concentrated in primary commodities, offering limited scope for productivity spillovers or employment generation.

“Over the last decade, trade in goods not related to extractives has declined relative to GDP, while manufacturing exports have increased only modestly. Moreover, the share of intra-Africa trade has also declined over the past decade”.

The World Bank stated that the rapid growth of FDI inflows and exports of services over the last decade have offered more potential for driving economic transformation.

FDI flows into Ghana increased nearly tenfold between 2007 and 2018, with inflows roughly evenly split between natural resources on the one hand and manufacturing and services on the other, the World Bank disclosed.

However, the Breton Woods Institution warned that there are still some major barriers to export diversification, global value chain participation, FDI and the growth of large firms in Ghana. Ghana’s trade-weighted tariffs remain high, particularly on imported raw materials and intermediate goods.

Ghana’s business environment is also potentially a constraint to growth. The World Bank averred that it is also still too costly and time consuming to start a business in Ghana, reducing market entry. Additionally, access to land and minimal capital requirements remain barriers to FDI.

Leveraging on services sector

Over the past five years, Ghana has also transitioned from being mainly a commodity exporter to a commodity and services exporter. The World Bank stated in a new report that Exports of services increased fivefold between 2014 and 2018, and the country’s services sector is now the largest contributor to value-added exports.

Yet, the World Bank underscored that still, a large share of the increase in services exports relates to services that are embedded in commodity exports. However, services are increasingly interlinked with other areas of the economy, and the sectoral linkages between services and goods production have grown stronger, according to the World Bank.

The Breton Woods Institution urged Ghana to build on the high performance of ‘global innovator’ services by expanding into segments of these services that also create more low-and middle-skilled jobs.

ICT particularly has been one of Ghana’s best performing sectors over the past decade and grew on average by 19 percent per year between 2014 and 2020, according to the World Bank. Currently, ‘global innovator’ services employ relatively few, with employees being highly skilled and highly paid. The World Bank stated that employment conditions in these service sectors are also currently far more favorable than in manufacturing.