Can Ghana’s extractive industry sustain GDP growth?

Ghana's economy has experienced a significant surge in growth, with the GDP expanding by 6.9 per cent year-on-year in the second quarter, marking its fastest growth rate in five years. The driving force behind this remarkable growth has been the extractive sector, particularly the expansion in gold production. Benjamin Boachie, Chief Economist at Second Stacks, expressed his satisfaction with the results, attributing the growth to the government's fiscal policy program, capital restraints, revenue expansion efforts, and investments in sectors like the extractive industries. While all sectors including agriculture, industry, and services saw an increase, the substantial portion of the growth emanated from the upsurge in gold production. Boachie acknowledged the positive impact of focusing on the extractive sector, notably gold production, for the recent growth spurt. He highlighted the rise in gold prices as a hedge against inflation, signaling a favorable short-term projection, albeit the medium to long-term sustainability remains uncertain. The spotlight then shifted to the challenges faced by the cocoa sector, which has contracted for the fourth consecutive quarter. Boachie attributed this decline to uncontrollable factors such as adverse weather patterns due to climate change. Despite the recent contraction in cocoa's contribution to GDP, the government's efforts to enhance the infrastructure supporting the cocoa industry provide optimism for future growth. Boachie suggested that ongoing repairs and focus on beans production could lead to an improvement in the ensuing quarters. The conversation delved into the financing strategies of the cocoa regulator, Cocoa Board, regarding loan syndication. Boachie emphasized the importance of utilizing financing instruments with the lowest cost of capital to optimize corporate strategy. He encouraged leveraging domestic financing instruments amidst the country's debt restructuring phase, stating that the current financing approach does not reflect future cocoa financing models. The discussion then transitioned to Ghana's debt restructuring process and the impending invitation to bondholders to swap. Boachie expressed confidence in the successful completion of the swap, citing the support from various parties and anticipating a return to the international capital markets post-resolution. The dialogue culminated in an examination of the US Fed rate cuts and their potential impact on capital flows in African markets. Boachie's optimism regarding the Fed's rate reduction, signaling a possible reduction in rates to stimulate economic growth, contrasted opinions that doubted its effect on capital flows. The weaker US dollar was predicted to have positive implications for the Ghanaian city due to favorable growth projections and global rate cutting trends. Boachie's positive outlook on Ghana's economic performance stemmed from the country's progress post-debt restructuring, robust growth fundamentals, and the current global economic landscape, making Ghana an attractive destination for investors. With burgeoning opportunities in the extractive sector, coupled with government initiatives to address sectoral challenges, Ghana's economic future appears promising despite the hurdles faced by the cocoa industry.