Statement on the state of the economy

OIL REVENUE PERFORMANCE IN 2013 IMPRESSIVE BUT DUTCH DISEASE EFFECTS LOOM WITH LOW PRODUCTIVITY IN THE ECONOMY - ACEP

PRESS STATEMENT
ACCRA, 3RD October 2013.
The Africa Centre for Energy Policy (ACEP) has observed that we have been vindicated in our analysis last year that oil revenue projections by Government for the 2013 fiscal year were understated. ACEP projected last year that crude oil prices were expected to remain above US$100 per barrel against Government’s projection of US$94.36 per barrel; whilst oil production levels would exceed Government’s projection of 83,341 barrels per day for 2013. Crude oil production currently averages about 95,000 barrels whilst Brent crude price is above US$100 per barrel.
The Minister of Finance at a press conference on the state of the economy yesterday confirmed ACEP’s observations when he announced that all revenue types performed poorly over the last 8 months of the year except oil revenues due to “higher than expected crude oil prices, higher production levels and higher corporate taxes”. Therefore, with total oil revenues of GHC1,150.4 million by August 2013, the revenues for the year so far exceeds the target for the period by GHC362.3 million (about 46%).
With this, we are waiting to see how Government handles allocations to the Ghana Petroleum Funds this year as we expect substantial revenues to be transferred to the Funds relative to the magnitude of the excess revenues reported so far. In other words, the quarterly targets for the Annual Budget Funding Amount have been exceeded, a condition that is required by law to warrant transfers to the Funds. We wish therefore to caution against the violation of Section 23 of the Petroleum Revenue Management Act 2011 (Act 815) on the conditions for allocating oil revenues to the Ghana Petroleum Funds as Government’s desire to meet its fiscal targets could potentially undermine the spirit behind the creation of the Funds.
We are also worried that the oil and gas sector which has low linkages with the economy has now overtaken cocoa as the second largest export of the country. Oil exports for the period under consideration stood at US$2.8 billion due to increased oil production as against cocoa with US$1.4 billion. Whilst this has been attributed to the decline in global cocoa prices, we strongly believe also that “Dutch disease” effects cannot be discounted. The evidence that the agriculture sector has generally not performed well (a decline by 3.9% in the second quarter of 2013 against 1.1% growth during the same period in 2012) has reflected in the poor performance of cocoa, forestry and logging, all export commodities. The is further supported by the relatively lower depreciation of the cedi by 3.9% over the period in 2013 against 18% for the same period in 2012, indicating a real currency appreciation, a condition that dampens demand for the country’s export commodities and general international competitiveness.
We recommend that Government must take steps to address the “Dutch disease” effects especially as the Bank of Ghana plans to inject more United States Dollars into the economy to stabilize the Cedi without increase in productivity. The need to support the competitiveness of the domestic production sector cannot be overemphasized. Government should therefore work to reduce the domestic cost of production and the slow supply side response caused by energy shortfalls, higher tariffs without quality of reliable service, and higher petroleum product prices among others. Accordingly, we encourage Government to revisit its proposal of passing an Industrial Competitiveness Law.
Also, the local content policy should be pursued seriously to ensure that the growing oil sector does not become an enclave and foreign exchange earner only but also compensates for the declining growth in the agriculture and manufacturing sectors through value addition. The delay in passing the Petroleum (Local Content and Local Participation) Regulations currently before Parliament is therefore worrying.

Signed


Mohammed Amin Adam
Executive Director