Oil, financial sectors slump slow 2018 economic growth

Reforms in the financial sector and declines in the oil and gas sector have resulted in a significant decline in the country’s annual economic growth rate for 2018 as measured by GDP, after an impressive growth recorded the previous year.

Data show that the nominal GDP growth rate for 2018 dipped to 6.3 percent compared to 8.1 percent recorded in 2017, representing a 1.8 percentage points decline. In monetary terms, the economy is worth some GH¢300.5billion (using 2013 as the base year).

A close look at the figures indicates that the financial and insurance sector is partly responsible for the decline in 2018 growth, as the sector contracted by 8.2 percent – making it the worst-performing among all sectors of the economy.

The oil and gas sector, on the other hand, was the sector that experienced a tremendous decline in growth as it saw a terrific tumble to 3.6 percent from the 80.3 percent recorded in 2017 – a 76.7 percentage points decline.

Commenting on this, Head of Department of Finance at the University of Cape Coast, Prof. John Gatsi, said happenings in the oil and gas sector are normal and expected; but challenges in the financial sector need to be fixed immediately to restore accelerated growth.

“Normally, when new significant oil discoveries come on the production scene, they have some immediate significant positive impact before some normality takes place.

“So, the huge performance of 2017 was the result of both resolving the energy sector crisis and investment in the oil and gas sector that brought on-stream the ENI production and other fields. So it was expected that the growth rate for 2018 should be normalised,” he said in an interview with the B&FT.

“But beyond that, we also realise that there was a significant negative influence by the banking and insurance sector on economic activities; because, to a large extent, credit to the private sector was very limited and people were not getting access to funds to undertake the real sector economic activities. So, that is why the reduction in the banking and insurance sectors’ contribution to GDP was very significant, and this needs to be restored quickly.

“As we speak, it is not restored. We see a lot of asset management companies going through turmoil right now as a result of the pass-through effect of the policy reforms in the banking sector.

“There are many asset management companies which are challenged in terms of liquidity because their funds are locked up in the banks which were consolidated… We need to work assiduously to restore that, to allow the banking and financial services sector to actively play its significant role in financing activities that will contribute to the country’s GDP,” he said.

In sectoral terms, the industrial sector outpaced the other two sectors—agriculture and services—in growth. Industry grew by 10.6 percent, a 5.1 percentage drop from 2017; services also saw a drop of 0.6 percentage points to record 2.7 percent; and agriculture declined by 1.3 percentage points to record a growth of 4.8 percent.

However, the services sector maintained its position as the largest contributor to the economy with 46.3 percent; followed by industry with 34 percent; and agriculture sector 19.7 percent.