WHY INCREASED FOCUS ON AGRICULTURE IS MORE IMPERATIVE THAN EVER
Even in the best of times, Ghana’s agricultural sector has been undersourced, both by the public and the private sectors; by the public sector because it is not given the priority level it deserves in the allocation of government’s funds and by the private sector because it is perceived as too risky to lend to by financial institutions and invest in by entrepreneurs and equity investors.
Now the recent rebasing of the country’s Gross Domestic Product has inadvertently worsened the situation. In revising the relative contributions of various areas of activity to the GDP, agriculture’s contribution has fallen to an all-time low of 32.37% for 2010, which for the first time has been eclipsed by the 32.82% contribution of the services sector, which even before the GDP rebasing, was more attractive to public policy makers and private sector investors alike. The lowering of agriculture’s contribution to GDP means that government, in seeking the highest GDP growth rate possible, has less reason to focus on its resources on agriculture than was hitherto the case.
Which is why this newspaper sees reason to warn that while such a temptation may look good to macro-economic modelers, it would beckon disaster for the ultimate overall economy in practical terms, for several reasons.
Firstly, the structure of the weighted basket of goods and services used by the Ghana Statistical Service to compute consumer price inflation – itself derived from the Ghana Living Standards Survey which tracks the average relative expenditure of households on various goods and services – evidences the fact that nearly half of the average Ghanaian household’s expenditure goes into food and beverages. Thus, the abundance and therefore relative cheapness of food is crucial, not only in lowering consumer price inflation, but in determining how far the average household’s income can go. Of course local agricultural activity is the biggest determinant of the volume of food available and how much it costs.
Secondly, even though agriculture now is computed to account for less than a third of Ghana’s GDP it still accounts for more than half of overall employment. Which means the amount of agricultural activity in Ghana is crucial in providing opportunities for its citizens to be employed. In turn therefore, the amount of agricultural activity in Ghana is a vital pillar in alleviating poverty and creating wealth for households all across the country.
Thirdly, agriculture also is key in providing raw materials for industry. Indeed the linkage between agricultural output and the availability and pricing of industrial raw materials has for too long been underplayed, and this has had dire consequences for local industry which itself currently contributes more than a quarter of Ghana’s GDP.
It is instructive that the latest Business Barometer of the Association of Ghana Industries, covering the first quarter of 2011 cites the high cost of raw materials as the biggest challenge to industrial performance in Ghana, ahead even of the inadequate access to and high cost of credit, both of which are far more often addressed in public discourse.
More intense attention to agriculture can significantly reduce the problem of high cost of raw materials. For instance, Ghana’s breweries have in recent years enjoyed a lowering of raw material costs by their substitution of imported malted barley hops with locally cultivated sorghum. This has been made possible by a special initiative promoted by the Venture Capital Trust Fund, which is now looking to replicate this success in the area of local cultivation of yellow maize to replace imported inputs in the production of poultry feed. There are myriad other similar opportunities for Ghana’s industries with regards to raw material supply by local agriculture if only similar attention is given to exploiting them.
Which is why, we believe that the newly drawn up strategy-driven Food and Agriculture Sector Development Policy (FASDEP II) and the quantitative Medium Term Agriculture Sector Investment Plan (METASIP) are absolutely crucial to Ghana’s fortunes into the future. Simply put, the policy and accompanying investment plan, properly implemented with the requisite resources, are key to the success of all of Ghana’s broader economic programmes, such as the Growth and Poverty Reduction Strategy (GPRS II) and the new Industrial Policy, due to be launched this week. They are also crucial to key stated macro-economic targets such as the lowering of inflation, and unstated targets (in terms of quantitative targets) such as the lowering of unemployment.
Thus, as GDP growth strategy shifts towards the newly emergent oil and gas industry and key service sub-sectors such as information and communication technology, which have now been recognized to be much more important than earlier thought with regards to economic growth, both government and the private sector must not lose sight of the fact that the agricultural sector is the most important sector of all. It may not be glamorous. It may not be an investment safe haven. It may not be as important to GDP growth in statistical or econometric modeling terms as it used to be. But Ghana’s agricultural sector still, more than any other sector, holds the key to improving the country’s macro-economic fortunes and even more importantly, it holds the key to providing the country’s citizenry with improved living standards.
Even in the best of times, Ghana’s agricultural sector has been undersourced, both by the public and the private sectors; by the public sector because it is not given the priority level it deserves in the allocation of government’s funds and by the private sector because it is perceived as too risky to lend to by financial institutions and invest in by entrepreneurs and equity investors.
Now the recent rebasing of the country’s Gross Domestic Product has inadvertently worsened the situation. In revising the relative contributions of various areas of activity to the GDP, agriculture’s contribution has fallen to an all-time low of 32.37% for 2010, which for the first time has been eclipsed by the 32.82% contribution of the services sector, which even before the GDP rebasing, was more attractive to public policy makers and private sector investors alike. The lowering of agriculture’s contribution to GDP means that government, in seeking the highest GDP growth rate possible, has less reason to focus on its resources on agriculture than was hitherto the case.
Which is why this newspaper sees reason to warn that while such a temptation may look good to macro-economic modelers, it would beckon disaster for the ultimate overall economy in practical terms, for several reasons.
Firstly, the structure of the weighted basket of goods and services used by the Ghana Statistical Service to compute consumer price inflation – itself derived from the Ghana Living Standards Survey which tracks the average relative expenditure of households on various goods and services – evidences the fact that nearly half of the average Ghanaian household’s expenditure goes into food and beverages. Thus, the abundance and therefore relative cheapness of food is crucial, not only in lowering consumer price inflation, but in determining how far the average household’s income can go. Of course local agricultural activity is the biggest determinant of the volume of food available and how much it costs.
Secondly, even though agriculture now is computed to account for less than a third of Ghana’s GDP it still accounts for more than half of overall employment. Which means the amount of agricultural activity in Ghana is crucial in providing opportunities for its citizens to be employed. In turn therefore, the amount of agricultural activity in Ghana is a vital pillar in alleviating poverty and creating wealth for households all across the country.
Thirdly, agriculture also is key in providing raw materials for industry. Indeed the linkage between agricultural output and the availability and pricing of industrial raw materials has for too long been underplayed, and this has had dire consequences for local industry which itself currently contributes more than a quarter of Ghana’s GDP.
It is instructive that the latest Business Barometer of the Association of Ghana Industries, covering the first quarter of 2011 cites the high cost of raw materials as the biggest challenge to industrial performance in Ghana, ahead even of the inadequate access to and high cost of credit, both of which are far more often addressed in public discourse.
More intense attention to agriculture can significantly reduce the problem of high cost of raw materials. For instance, Ghana’s breweries have in recent years enjoyed a lowering of raw material costs by their substitution of imported malted barley hops with locally cultivated sorghum. This has been made possible by a special initiative promoted by the Venture Capital Trust Fund, which is now looking to replicate this success in the area of local cultivation of yellow maize to replace imported inputs in the production of poultry feed. There are myriad other similar opportunities for Ghana’s industries with regards to raw material supply by local agriculture if only similar attention is given to exploiting them.
Which is why, we believe that the newly drawn up strategy-driven Food and Agriculture Sector Development Policy (FASDEP II) and the quantitative Medium Term Agriculture Sector Investment Plan (METASIP) are absolutely crucial to Ghana’s fortunes into the future. Simply put, the policy and accompanying investment plan, properly implemented with the requisite resources, are key to the success of all of Ghana’s broader economic programmes, such as the Growth and Poverty Reduction Strategy (GPRS II) and the new Industrial Policy, due to be launched this week. They are also crucial to key stated macro-economic targets such as the lowering of inflation, and unstated targets (in terms of quantitative targets) such as the lowering of unemployment.
Thus, as GDP growth strategy shifts towards the newly emergent oil and gas industry and key service sub-sectors such as information and communication technology, which have now been recognized to be much more important than earlier thought with regards to economic growth, both government and the private sector must not lose sight of the fact that the agricultural sector is the most important sector of all. It may not be glamorous. It may not be an investment safe haven. It may not be as important to GDP growth in statistical or econometric modeling terms as it used to be. But Ghana’s agricultural sector still, more than any other sector, holds the key to improving the country’s macro-economic fortunes and even more importantly, it holds the key to providing the country’s citizenry with improved living standards.
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