Ghana’s export revenues dip

• Posted on October 10, 2014
• by Nana Kwesi Coomson
• Comment

STATISTICS for the first eight months of 2014 have shown a fall in some of the major export earners for Ghana.

Even though it still remained the highest export earner for the country, gold export earnings dropped by 14.71% to US$2.9 billion compared to US$3.4 billion in the corresponding period of 2013. This is the second consecutive drop for the first eight months of the year, gold export revenues having dipped by 12.6% to US$3.4 billion in 2013 compared to US$3.5 billion it netted in for the first eight months of 2012.

Gold opened this year trading at around US$1,200 – haven fallen from US$1,600 at the beginning of 2013. The commodity this year however, having peaked at an all year high of US$1,380, has since dropped to about US$1,190 currently.

Similarly, non-traditional exports (NTEs, including cocoa products), for the first eight months of this year, went down marginally by about US$44.9 million to US$2.1 billion – reversing last year’s performance when NTEs went up by 22.2% from 2012’s US$1.5 billion to US$2.2 billion.   Curiously this year should have been the best performing year for NTEs considering the fall in the cedi’s value (it fell by about 40% till it started picking up last month) against major trading currencies – which was supposed to make Ghanaian exporters more price competitive since they could now price their exports cheaper in dollar terms to generate the same amount of cedis.

Oil exports remained virtually unchanged at US$2.6 billion, while cocoa exports increased to US$1.4 billion from US$1.2 billion, due to higher volumes and a marginal improvement in price.

Crude oil, which Ghana started producing almost four years ago and NTEs, managed to still maintain the second and third spots in the ranking of Ghana’s largest export earners, keeping cocoa at the fourth position. In all, total merchandise exports however fell by US$400 million to earn US$9 billion, down from 2013’s US$9.4 billion.

It is however difficult to assess the relative performances of cocoa and NTEs compared to each other because prior to 2014, only cocoa beans were considered as cocoa exports whereas cocoa products were considered to be NTEs. But for the first five months of 2014 however, the Bank of Ghana (BoG) classified both cocoa beans and cocoa products as cocoa exports which effectively increased cocoa export earnings and, resultantly, reduced NTE earnings.

However in its latest report, the BoG has reversed the categorisation to have only cocoa beans as cocoa exports and has captured cocoa products under NTEs. What this means is that, the marginal slump in NTE revenues could either be attributed to the exclusion of cocoa products under NTEs for the first five months of this year (which otherwise has increased cocoa export earnings because it was included under the commodity for the given period), or a general fall production in that segment. It is unclear which is the actual cause of the marginal decline in NTE earnings.

In the course of this year, many manufacturers complained about the ease and cost of doing business which most said was not favourable at all. Despite government’s promise in the 2014 budget to develop and support cashew and shea nut production in the savannah regions of Ghana, and to encourage the production of fresh horticultural products for exports to reinstate the enviable market share Ghana had in the European Union in the mid-2000s, very little has been done this year to improve production.

Importantly, the introduction of ‘Export Incentives’ that was announced in the 2014 budget to boost the efforts of exporters of non-traditional products, and the Export Leaders Award scheme which was to be operationalised to reward entrepreneurs entering into exports with outstanding export oriented innovations both never came into being.

However NTEs are expected to expand as many more private sector investors venture into the production of non-traditional goods because of their market potentials and value for export. The cedi’s sharp depreciation this year is supposed to have made the export of non-traditional more attractive. Indeed the Ghana Export Promotion Authority [GEPC] aims to facilitate an increase in NTE earnings to at least US$5 billion annually from 2019.

However, non-traditional product exporters have so far been unable to take advantage of the cedi’s decline to boost their export volumes because the local currency’s depreciation has increased their production costs as much as it has offered them better price competitiveness in dollar terms. The cedi’s depreciation has forced major increases in utility tariffs, petroleum prices and other overheads which have negated the improved price competitiveness. This problem is exacerbated by the fact that most non-traditional exporters do not add much value locally; much of their production inputs are imported and so cedi depreciation simply raises their production costs commensurately to their improved price competitiveness.

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Instructively, two of the three biggest gold producers in the country, AngloGold Ashanti and Newmont Ghana, have been trumpeted heavily in the media from last year for having series of cost of production problems.

In August this year, AngloGold Ashanti announced shutting its loss-making Obuasi mine in a US$300 million exercise involving laying off hundreds of workers to reconfigure the mine over the next 18 months as a smaller, more profitable operation.

AngloGold also announced slashing its exploration budget to between US$150 to US$175 million this year from US$400 million in 2013 to focus on a few projects that could deliver “the most bang for the buck.”

Newmont Ghana had also, in 2013, laid off 240 workers due to a fall in gold price on the world market and the rising cost of doing business in the last five years. It again announced in June this year that it would lay off 600 more workers by the close of the second quarter this year as part of efforts to improve and ensure cost and operational efficiency at its Ahafo Mine.

However, there are potentials for Ghana’s gold exports to rise significantly – indeed Newmont’s second mine at Akyem in the Eastern Region which commenced production early this year will add up to 500,000 ounces to national annual production. However those potentials may not be fully exploited because of the economics of gold mining in Ghana currently.

While cash costs for producing an ounce of gold is only about US$750 on average, which is still well below the gold price, the gold mining companies real costs are measured by notional cash expenditure [NCE] which adds on exploration costs, capital expenditure, the cost of paying taxes and levies, as well as corporate social responsibility (CSR) costs.

According to the Ghana Chamber of Mines, the average NCE per ounce of gold mined in the country is about US$1,200. This means that at the current gold price and level of taxes and levies there is little incentive for mining firms to invest further in expanding production.

The falling revenues from Ghana’s export base needs to be addressed urgently. Despite the unprecedentedly high foreign exchange revenues the country’s exports bring, one big worry now is that export revenues are now inordinately led by the extractive industries which are completely dependent on world prices. This means Ghana will have to work harder at diversifying its export base, especially by adding more value to the unprocessed products it exports cu

-The Finder