Download Economic Analysis of the

Economic Analysis of the
Energy Sector
Prof. Bartholomew Armah
List of Acronyms
CPESD
GDP
GPRS
MTP
TOR
VALCO
VRA
Coordinated Programme of Economic and Social Development
Gross Domestic Product
Ghana Poverty Reduction Strategy
Medium Term Priorities
Tema Oil Refinery
Volta Aluminium Company
Volta River Authority
i
Executive Summary
This report provides the economic context for the formulation of the Strategic National
Energy Plan for the period 2000-2020. The first part of the report describes the
economic structure of Ghana. The salient aspects of the economy are that it is largely
agrarian as evidenced by the dominant share of agriculture in total GDP. The relative
shares of the sectors have changed little over time, however, the service sector has
experienced marginal increases in its relative share of the economy. Furthermore, the
growth of the economy has been spurred largely by the service sector. Agriculture and
industry by comparison have experienced relatively slow growth.
The description of the economy is followed by an analysis of the contribution of energy
to the Ghanaian economy. This discussion is restricted to the direct effects of crude oil
and petroleum taxes to the GDP. The indirect effects that occur when a firm uses energy
as an input into its final production requires estimates of input output relationships by
sector.
Since Ghana is a non-oil producing country, crude oil imports are an important
component of its trade basket. Crude oil imports constitute approximately 25 percent of
export earnings, 18 percent of imports and 13 percent of total revenue and grants. In
2001, crude oil imports accounted for approximately 80 percent of the trade deficit.
Given the importance of crude oil to the GDP the discussion then examines the energy
needs of each sector and the types of energy used by such sectors. Woodfuels,
petroleum products and electricity are the main sources of energy used in Ghana. Wood
fuel is used predominantly in rural households and accounts for approximately 60
percent of total energy consumption. Diesel and gasoline on the other hand are the most
widely used petroleum products.
At the sectoral level, total energy consumption is highest at the household level followed
by transport and industry. Agriculture uses the least amount of energy.
The report also discusses the implications of the nation’s development policies for its
future energy needs. The drivers of growth according to the Ghana Poverty Reduction
Strategy
and
the
CPESD
are
agro-based
ii
manufacturing
and
Information
Communications Technology. In effect, the key sectors of emphasis are the agriculture
sector, the manufacturing and the communications subsectors. Of these sectors,
however, energy consumption is highest in manufacturing. Hence, a critical analysis of
the manufacturing sector’s growth path is essential to key to assessing the nation’s
future energy needs.
iii
Introduction
Ghana is largely a small open agrarian economy characterized by frequent episodes of
macro-economic instability. The National Census Secretariat estimates the population
headcount at 18.4 million and the intercensal growth rate at 2.7 percent. The Gross
Domestic product is estimated at $6.0 billion in 2002, which yields a per capita GDP of
$326. As a non-oil producing country, Ghana depends on imported crude oil to meet a
significant share of her energy needs. The dependence on imported crude oil, however,
makes the country vulnerable to changes in crude oil prices. Crude oil imports account
for approximately 10 percent of total commodity trade (i.e., import plus exports), and
consumes between 15 and 40 percent of the nation’s export earnings.
On the other
hand, as a source of tax revenue and input into domestic industrial production, crude oil
contributes to and thereby influences the Gross Domestic Product of the country. Hence,
an assessment of the energy needs of the nation is critical to estimating the growth path
of the economy.
Trends in the GDP
Growth in the Gross Domestic Product (GDP) of Ghana averaged 4.1 percent between
1995 and 2002 and ranged between 3.7 percent and 4.5 percent during the same
period. Notwithstanding the fact that real GDP growth appears to be trapped in a lowlevel equilibrium of approximately 4 percent, for the first time in 7 years real GDP has
increased at an increasing rate for three consecutive years.
After declining from a
recent high 4.7 percent in 1998 to 4.4 percent in 1999, real GDP rose steadily from 3.7
percent in 2000 to 4.2 percent in 2001 and then to 4.5 percent in 2002.
Growth was spurred largely by the service sector which has averaged a growth rate of
5.3 percent since 1995. Although the agricultural sector accounts for over a third of the
GDP (36 percent) and averaged 4.1 percent in growth over the 1995-2002 period, the
sector’s growth has lagged behind the industrial and service sectors. In 2001, the
service sector accounted for the largest (1.5 percentage points) contribution to the
overall real GDP growth rate of 4.2 percent followed by the agricultural sector (1.4
percentage points) and the industrial sector (0.7 percentage points).
1
Figure 1
Real GDP Growth Trends
Re al GDP Gr ow th
4 .5
4 .7
4 .6
5 .0
4 .5
4 .4
4 .2
4 .0
4 .2
3 .7
4 .0
percent
3 .5
3 .0
2 .5
2 .0
1 .5
1 .0
0 .5
0 .0
1995
1996
1997
1998
1999
2000
2001
2002
Y ear
In the medium to long term, projected real GDP growth rate is based on two national
development frameworks; the Ghana Poverty reduction Strategy GPRS and the
Coordinated Programme of Economic and Social Development of Ghana (2003-2012).
The Ghana Poverty Reduction Strategy (GPRS) projects the GDP to rise from 4.2
percent in 2001 to 5 percent in 2005 while The Coordinated Programme of Economic
and Social Development projects an average GDP growth of 7-10 percent for the period
2003 to 2012. This growth rate is expected to double the per capita income by 2012.
Figure 2
Sectoral Growth Rates
7.0
6.0
percent
5.0
4.0
3.0
2.0
1.0
0.0
1995
1996
1997
1998
Agric.
2
1999
Ind.
Service
2000
2001*
2002
Sectoral Composition of GDP
The sectoral composition of the GDP reveals an economic structure that has been fairly
stagnant over time with marginal increases in the relative share of the service sector.
Such increases have occurred largely at the expense of the agricultural sector, which
accounts for (35.3 percent) the largest share of total GDP followed by Services (29
percent) and Industry (25.5 percent). The sector averaged a growth rate of 4.1 percent
over the period 1996-2001 compared to growth rates of 4.3 percent and 5.6 percent in
the industrial and service sectors respectively. As a result of its relative size however,
the sector accounted for 30 percent of the GDP growth rate of 4.2 percent in 2001.
Nevertheless, this growth share is less than the sector’s 35 percent contribution to the
total level of GDP in the same year.
Figure 3
Sectoral GDP Shares
40.0
35.0
percent
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2002
Service
2001*
Ind.
2000
3
1999
1998
1997
1996
1995
Agric.
Table 1
Sectoral and Sub-Sectoral Growth Shares
1995
1. AGRICULTURE
1996
1997
1998
1999
%Growth
2000 2001* 2002 Average Shares
Weighted
Shares
(2001)
3.7
5.2
4.3
5.1
3.9
2.1
4.0
4.4
4.1
100.0
1.4
3.5
11.0
6.3
2.9
2.6
9.3
4.4
11.1
4.7
-0.5
1.1
6.2
5.0
-1.0
5.3
9.8
3.9
5.6
68.3
9.2
1.2
0.0
1.3 Forestry and Logging
1.4 Fishing
2.0
1.6
2.7
3.0
21.5
0.6
10.0
1.8
6.8
1.0
11.1
-1.6
4.8
2.0
5.0
2.8
8.4
1.2
9.9
12.6
0.2
0.1
2. INDUSTRY
2.1 Mining and Quarrying
4.1
5.5
4.7
4.2
6.4
5.6
3.2
6.1
4.9
3.0
3.8
1.5
2.9
-1.6
4.7
4.5
4.3
3.5
100.0
21.1
0.7
-0.1
2.2 Manufacturing
2.3 Electricity and Water
1.8
6.0
3.5
6.4
7.3
10.2
4.0
-10.0
4.8
7.8
3.8
4.5
3.7
4.2
4.8
4.1
4.1
4.2
36.7
10.3
0.3
0.1
2.4 Construction
3. SERVICES
5.2
4.7
6.1
4.2
4.4
6.5
5.0
6.0
5.5
5.0
5.1
5.4
4.8
5.1
5.0
4.7
5.2
5.3
31.9
100.0
0.4
1.5
3.1 Transport, Storage and Communication
3.2 Wholesale and Retail Trade, Restaurant and
Hotels
3.3 Finance, Insurance, Real Estate and Business
Services
4.2
5.0
7.2
5.5
6.0
6.0
5.5
5.7
5.6
16.1
0.3
6.5
8.3
9.5
6.0
6.5
4.0
5.1
5.6
6.6
23.0
0.4
3.0
4.2
6.7
6.5
4.0
5.0
4.5
5.5
4.8
14.3
0.2
3.4 Government Services
3.5 Community, Social and Personal Services
5.0
2.6
2.4
1.1
4.3
7.3
6.2
5.9
4.0
5.9
6.0
6.9
5.0
6.5
3.6
4.4
4.7
5.2
37.0
6.5
0.6
0.1
3.6 Producers of Private non-profit Services
4. SUB-TOTAL
3.0
4.1
1.8
4.8
7.2
5.6
5.1
4.9
4.1
4.5
3.1
3.6
3.2
4.1
3.1
4.6
3.9
4.5 -
3.0
0.0
0.0
Net Indirect Taxes
Equals: G.D.P in Purchasers' Values
3.1
4.0
3.1
4.6
-7.5
4.2
3.0
4.7
3.5
4.4
5.0
3.7
5.4
4.2
4.3
4.57
2.2 4.3 -
1.1 Agriculture and livestock
1.2 Cocoa Production and Marketing
4
0.5
4.2
Table 2
Sectoral Share of GDP (Percent)
Percent Shares in GDP of each Sector and Sub Sector
1995
1996
1997
1998
1999
2000
2001*
1. AGRICULTURE
Item
36.3
36.5
36.6
36.7
36.5
36.0
35.9
1.1 Agriculture and livestock
25.0
25.4
25.0
25.0
25.0
24.3
24.5
1.2 Cocoa Production and Marketing
3.2
3.2
3.3
3.5
3.4
3.5
3.3
1.3 Forestry and Logging
2.7
2.6
3.1
3.2
3.3
3.5
3.6
1.4 Fishing
5.4
5.4
5.2
5.0
4.9
4.6
4.5
2. INDUSTRY
24.9
24.9
25.4
25.1
25.2
25.2
24.9
2.1 Mining and Quarrying
24.9
5.6
5.7
5.8
5.7
5.6
5.3
2.2 Manufacturing
9.0
8.9
9.2
9.1
9.2
9.2
9.1
2.3 Electricity and Water
2.7
2.7
2.9
2.5
2.6
2.6
2.6
2.4 Construction
7.6
7.7
7.7
7.7
7.8
7.9
7.9
3. SERVICES
28.1
28.0
28.7
29.0
29.2
29.7
29.9
3.1 Transport, Storage and Communication
4.4
4.4
4.6
4.6
4.7
4.8
4.8
3.2 Wholesale and Retail Trade, Restaurant and Hotels
6.1
6.3
6.6
6.7
6.8
6.8
6.9
3.3 Finance, Insurance, Real Estate and Business Services
4.1
4.1
4.2
4.2
4.2
4.3
4.3
10.9
10.6
10.6
10.8
10.7
11.0
11.1
3.5 Community, Social and Personal Services
1.8
1.7
1.8
1.8
1.8
1.9
1.9
3.6 Producers of Private non-profit Services
0.9
0.9
0.9
0.9
0.9
0.9
0.9
Net Indirect Taxes
10.6
10.5
9.3
9.2
9.1
9.2
9.3
Equals: G.D.P in Purchasers' Values
100
100
100
100
100
100
100
3.4 Government Services
Source: Bank of Ghana Statistical Bulletin.
5
The Energy Sector and the GDP
The energy sector generates both inflows and outflows to the GDP. With respect to
inflows the energy sector contributes to the GDP indirectly through its use as inputs for
production. Such inputs are used in varying proportions across all the sectors of the
economy. Indirect estimates of the contribution of energy to the GDP will, however,
require detailed information on input-output relationships, which were unavailable at the
time of writing this report.
The sector also contributes directly to the GDP through its contribution to tax revenues.
Such taxes accrue largely in the form of petroleum taxes.
With respect to outflows from the GDP, crude constitute a significant share of total
imports and the balance of trade. Data on crude oil imports is easily available hence,
one can estimate the contribution of crude oil imports to imports and the trade balance.
Figure 4
O il Im p o rts a s % o f T o ta l Im p o rts
30.00
25.00
20.00
15.00
10.00
5.00
Dec-02
Nov-02
Oct-02
Sep-02
Aug-02
Jul-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Jan-02
0.00
Source: Bank of Ghana Statistical Bulletin, March, 2003
Crude Oil imports on average represented 18 percent ($508 million) of total imports
($2705.0 million) in Ghana in 2002 and accounted 1.7 percentage points of the 8.9
percent decline in total imports during the 2001-2002 period. Average Monthly crude oil
imports amounted to $42 million in 2002 with the highest import level occurring in April
2002.
6
Table 3
Trends in Crude Oil Imports
(in $ millions unless otherwise stated)
Imports
Crude Oil
Total Import
Exports
Oil/Import
percent
Oil/export %
Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02
37.93 22.13 46.93 58.12 45.09 40.99 30.92 45.02 50.06 31.46 59.42 40.03
239.8 168.68 235.81 226.85 220.77 208.3 301.3 216.19 227.12 215.84 246.66 197.46
142.62 139.58 261.08 146.85 142.05 237.19 127.32 108.57 231.01 101.93 151.78 273.93
15.82 13.12 19.90 25.62
26.6
15.9
18.0
20.42 19.68 10.26
39.6
31.7
17.3
24.3
20.82 22.04 14.58
41.5
21.7
30.9
24.09 20.27
39.1
14.6
Source: Bank of Ghana Statistical Bulletin, March 2003.
In 2002, approximately a quarter (25 percent) of the country export earnings was used to
finance the nation’s crude oil imports. In August, crude oil imports accounted for
approximately 41 percent of export earnings. By December, the figure had declined to
14.6 percent. Overall, April, August and November represented peaks in the crude oil to
export ratio.
Figure 5
O il Im p o rts a s % o f T o ta l E x p o rts
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Dec-02
Nov-02
Oct-02
Sep-02
Aug-02
Jul-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Jan-02
Contribution to Trade Balance
Crude oil imports have contributed significantly to the deficits in the trade balance.
Between 1999 and 2000, crude oil imports accounted for between 50 and 80 percent of
the trade deficit.
7
Figure 6
Oil Im p o rt S h are o f T rad e D eficit
90
80
70
percent
60
50
40
30
20
10
0
1999
2000
2001
2002
2003
Crude imports accounted for roughly 8-11 percent of total commodity trade, although this
figure has fluctuated over the years.
Figure 7
Crude Oil Share of Total Trade
12
10
8
6
4
2
0
1999
2000
2001
2002
2003
percent
Contribution to Total Revenue and Grants
The contribution of petroleum taxes to total revenues has been declining over time. After
reaching a level of 13 percent in 1996, the contribution of petroleum taxes to revenues
declined to less than 8 percent in 2001 before rising to under 10 percent in 2002.
Depending on the elasticity of demand for fuel, the recent rise in fuel prices may result in
a further decline in petrol tax revenues if the increase in price is associated with a
disproportionate decline in demand.
8
Figure 8
Petroleum Tax as a Percent of Total Revenue and Grants
14.0
12.0
percent
10.0
8.0
6.0
4.0
2.0
0.0
1996
1997
1998
1999
2000
2001
2002
Contribution to the Budget
After increasing between 2001 and 2002 the energy sector’s share of the budget
declined between 2002 and 2003 largely on account of declining donor contributions to
the sector. The sector’s relative share of GoG contributions declined marginally (from
0.54 percent to 0.37 percent) between 2002 and 2003 however its share of donor
allocations declined even more markedly from 21 percent to 4.5 percent during the same
period. The reason for the decline is not obvious, however, the decline will have adverse
consequences for the sector’s ability to implement its programmes under the Medium
Term Priorities. For instance, the 2003 budget was only able to finance 11 percent of the
sector’s Medium Term Priorities.
9
Table 4
Distribution of Total Discretionary Expenditure: 2001-2003
Sector
2001
34.9
Administration
Local Govt.
3.3%
Finance
2.2%
GGS
21.2%
Economic Services
15.0
Agriculture
7.2
Energy
4.9
11.6
Infrastructure
Social
30.2
Education
22.4
Health
6.7
7.9
Public Safety
Utilities
Revenue Agencies Contingency
0.4
2002
19.8
2.4%
3.1%
6.9%
18.0
4.7
11.2
17.2
34.7
24.1
9.4
9.7
0.0
0.0
0.6
2003
14.2
2.62
2.21
9.3
4.0
1.4
15.9
39.0
26.6
11.1
11.7
2.8
3.2
3.9
Source: 2001-2003 Budget Statements
Table 5
Trends in the Distribution of GoG Discretionary Funds
2001a
41.5
2.4
2.9
27.8
5.3
1.4
3.26
4.4
37.2
28.4
7.4
11.0
0.5
-
2002
25.8
1.7
4.0
7.9
6.8
2.3
0.54
3.7
47.4
35.3
10.3
15.3
1.0
-
2003
15.7
1.6
1.8
5.6
1.8
0.37
3.9
46.1
33.3
11.5
15.1
5.3
3.7
4.3
100.00
100.00
100.00
Administration
Local govt.
Finance
GGS
Economic Services
Agriculture
Energy
Infrastructure
Social Services
Education
Health
Public Safety
Contingency
Utilities
Revenue Agencies
Total
Source: 2001-2003 Budget Statements
a Original 2001 budget figures
10
Table 6
Distribution of Donor Funds 2001-2003
Donor
2001
Administration
Local Govt.
Finance
GGS
Economic Services
Agriculture
Energy
Infrastructure
Social
Education
Health
Public Safety
Contingency
Total
17.5
5.7
0.5
3.8
40.2
22.3
30.5
11.8
6.9
4.9
0.0
0.0
2002
10.4
3
2
5
35.4
8.5
21.5
38.2
15.0
6.8
8.0
1.0
0.0
2003
9.90
5.54
3.33
20.28
10.69
4.55
51.55
16.72
6.70
9.88
1.55
0.0
Source: 2001-2003 Budget Statements
Financing Crude Oil Imports
Traditionally, government has subsidized the price of petroleum products in Ghana as a
result energy pricing policies combined with inefficiencies in the Tema Oil Refinery have
resulted in a huge buildup in the debt of the Refinery.
In 2001 the government
restructured a portion of the debt of TOR by transforming them into government bonds
which are currently held by the Ghana Commercial Bank. By December 2002, TOR
bonds amounted to ¢2.4 trillion or 17 percent of the domestic debt stock. Besides
restructuring the TOR debt, government in 2003 imposed a debt recovery charge of
¢640 per liter on petroleum products. In January, the price of fuel was increased by
approximately 90 percent to ensure cost recovery. Sustaining cost recovery pricing will
however, require the implementation of the petroleum pricing formula which ensures that
domestic prices adjust to changing cost conditions.
11
Sectoral Energy Sources and Shares
Overview
The nation’s consumption pattern with respect to energy has changed little since 2000.
Recent survey data (Energy Commission) indicate that wood fuels including charcoal
account for approximately 60 percent of total energy consumption in the country followed
by petroleum products. Diesel and gasoline are the most widely used petroleum
products in the nation, accounting for approximately 35 percent of energy consumption
in 2001. Electricity consumption at both the wholesale (i.e., Electricity bulk) and retail
level accounted for roughly 10 percent of total energy consumed in 2001.
Table 7
Energy Shares By Type
2000
Biomass (unspecified)
Charcoal
Diesel
Electricity
Gasoline
Gasoline premix
Jet Kerosene
Kerosene
LPG
Residual Fuel Oil
Wood
Sum
0.6
15.1
14.2
9.8
10.4
0.6
1.8
2.1
0.7
0.7
44
100
Electric power generation in Ghana has however, fluctuated throughout the 1990s. In
relation to its 1990 level, power generation peaked in 1997, but fell sharply in 1998 by as
much 37 percent below the 1997 level (or 14 percent below the 1990 level). Production
however, increased in 1999 following the return of the rains, but remained below the
1997 level in 1999.
12
Figure 9
Total Energy Generated and Imported
Millions of Kwh
Total Generated
Total Imported
8000
7000
6000
5000
4000
3000
2000
1000
0
1995*
1996
1997
1998*
1999
*Years of National Load Curtailment
Source: Volta River Authority, 38th Report & Accounts, 1999
There are two levels of electricity distribution in Ghana; the wholesale and retail. The
Volta River Authority (VRA) sells bulk or wholesale power to Electricity Company of
Ghana (ECG) and the Northern Electricity Department (NED) who together retail
electricity to residential and industrial/ commercial users in the southern and northern
parts of the country, respectively. The Volta Aluminum Company (VALCO) is the single
largest electricity purchaser, consuming between 25 and 38 percent of total domestic
sales. Approximately 40 to 56 percent of domestic sales go to ECG for onward sales to
residential, industrial, and commercial consumers.
Figure 10
Annual Percentage of Energy Consumed per Class
of Customer
100
4.7
5.2
5.7
14.8
15.1
14.5
46.4
46.1
Percentage
80
60
44.3
4.8
36.2
33.2
Exports
15.5
Mines and
Others
51.3
55.6
40
20
8.4
18.9
33.6
17.1
ECG
28.3
Valco
0
1995*
1996
1997
1998*
1999
Years of National Load Curtailment
Source: Volta River Authority, 38th Annual Report & Accounts
Survey data from the Energy Commission disaggregates energy demand into six
sectors; Households, Transport, Industry, Agriculture and Fisheries, VALCO and
Commercial and Services. Total energy demand is highest at the level of the household,
which account for over half the total energy consumed in the country. The transport
sector is the second largest consumer of energy followed by industry (15.8 percent) and
VALCO, which accounts for less than 5 percent of total energy consumption. However,
13
VALCO is intensive in the use of electricity hence, its dominance as a consumer is
masked when wood fuels, the largest source of energy, is included in the total. The
Agricultural sector together with the Commercial and Services sector utilizes the least
amount of total energy. Survey data reveal that in 2001 both sectors accounted for less
than 2 percent of total energy consumption.
14
ANTICIPATING THE NATION’S FUTURE ENERGY NEEDS
Recent Developments in Government Policy
Ghana’s development framework is governed by two documents, The Ghana Poverty
Reduction Strategy and the Coordinated Program of Economic and Social Development.
The GPRS
In recognition of the need to spur economic growth and reduce poverty, The Ghana
Poverty Reduction Strategy (hereafter the GPRS) was initiated in 2000 and by February
2002 a final draft had been produced. The GPRS is a framework that identifies the
requisite strategies to achieve the twin objectives of economic growth and poverty
reduction.
The GPRS has two components, the broad strategic areas and the Medium Term
Priorities (MTP), which focus on immediate interventions that are pre-requisites for
longer-term actions. Five thematic areas underpin the broad GPRS framework are:

Macro-Stability

Production and Gainful Employment

Human Resource Development

Special Programmes for the Vulnerable and Excluded

Good Governance
Macro Stability
The focus of macro-stability in the medium term is to ensure prudent fiscal and monetary
policy management to ensure price stability, interest rates that are conducive to
maximizing both savings and investments, ensuring stable yet competitive exchange
rates and a maintaining a fiscally sustainable debt burden. The key policy initiatives
focus on improved debt and expenditure management and more effective resource
mobilization. They also include deepening capital markets, improving budgeting and
cash forecasting, strengthening revenue collecting agencies and fostering transparency
and accountability in the area of public financial management.
15
Production and Gainful Employment
Under
production
and gainful
employment,
the
emphasis
is
on
agricultural
modernization, the promotion of agro-processing industries, increasing environmental
protection through re-afforestation, enhancing infrastructure development to facilitate
internal commerce, intra-regional trade and access to ports and strengthening the
private sector.
In particular, efforts to increase production and gainful employment focus on increasing
the profitability and productivity of the agricultural sector through improved storage and
distribution systems, improved access to irrigation facilities and growing the internal
demand for agricultural products through the development agro-processing industries.
Human Resource Development
This thematic area focuses on programmes geared towards enhancing access to
education, reducing gender disparities in education, improving skills through training,
enhancing access to and delivery of health services, enhancing access by women to
reproductive health services, increasing access to potable water and improving
sanitation.
Programmes for the Vulnerable and Excluded
The emphasis is on rights protection for the vulnerable segments of society particularly
women and children; assisting and supporting people living with HIV/AIDS, supporting
orphans, the handicapped and the aged and providing employable skills for the youth.
Good Governance
Programmes for good governance focus on improving the efficiency and effectiveness of
the civil service, ensuring the rule of law, respect for human rights and the attainment of
social justice and equity.
The Medium Term Priorities
The Medium Term priority areas are a sub-component of the GPRS. They comprise five
priority areas, which are linked to the GPRS. The priority areas are:

Infrastructure development and upgrading

Rural development based on modernized agriculture

Enhanced social services
16

Good governance and

Private sector development
The priority areas were distilled from the five thematic areas of the Growth and Poverty
Reduction Strategy and hence are linked to the GPRS thematic areas. For instance
Infrastructure development and modernized agriculture derive from the Production and
Gainful Employment Thematic Area. Enhanced social Services on the other hand falls
under the thematic area of Human Resource Development. Private sector development
is a crosscutting category that straddles all thematic areas but in particular MacroStability and Production and Gainful Employment.
Infrastructure
The goal of infrastructure development is to facilitate both inter regional trade and to
open up the rural areas for investment, productivity expansion and job creation. This
includes modernizing and extending the rail networks to major centers of development,
linking food growing areas to markets, constructing houses and other facilities for critical
groups such as teachers, medical and security personnel. It also includes improving the
telecommunications infrastructure to support and boost the development of Information
Communication Technology Industry (ICT).
Modernized Agriculture Based on Rural Development
Modernizing agriculture based on rural development focuses on transforming the
economy into an agro-processing hub. This involves reforms in the area of land
acquisition to facilitate access to land and more efficient land ownership and title
processes.
To assist and support private sector commitment to the production of
foodcrops, government will provide extension and research services, irrigation facilities
and affordable credit to farmers. In addition, government will provide support for storage
facilities for persishables to assist in reducing the incidence of post harvest losses.
Enhanced Social Services
Under the priority area of Enhanced social services, the emphasis is on improving the
quality and access to education, primary health services and access to potable water. To
this end the government has committed itself to developing model senior secondary
school and health center in every district, ensuring that there is uninterrupted quality
17
education for all Ghanaians from pre-school age to the age of 17 and reforming and
strengthening the technical and vocational education systems including the traditional
apprenticeship system.
Good Governance
Programmes for good governance focus on improving the efficiency and effectiveness of
the civil service, ensuring the rule of law, respect for human rights and the attainment of
social justice and equity.
Private Sector Development
Private sector development is based on the premise that the private sector is the prime
engine of growth hence, constraints to its development must be removed or relaxed to
ensure the efficiency of the private sector. Key actions to be taken include removing
major bureaucratic, legal and regulatory obstacles to the development of Small and
Medium Scale Enterprise development, strengthening the capital markets and creating a
positive environment for investment.
Based on the GPRS/MTP macro-economic projections, over the period 2002-2005, the
GDP is projected to grow at rates of 4.5, 4.7, 5.0 and 5.0 percent 2002, 2003, 2004 and
2005 respectively. These modest growth projections in the short term will be spurred by
improvements in agricultural and manufacturing productivity.
The Coordinated Programme of Economic and Social Development (CPESD)
Although CPESD is based on the medium Term Priorities of the GPRS, it is a more
broad based strategic framework with a greater focus on economic growth. Specifically,
the CPESD is informed by the goal of realizing a per capita income of approximately
$1000 by 2012. At the current per capita of $290, this will require a GDP growth rate in
the range of 7-10% in the medium term and 11-15% in the long term. It is expected that
the emphasis on agricultural modernization will ensure that the food crop growers who
constitute the poorest occupational group, will benefit disproportionately from the
increase in growth.
A critical factor for the successful realization of these growth objectives will be the ability
to meet the energy needs of the country. Like several non-oil producing developing
18
countries, the economy of Ghana is very sensitive to developments energy sector. As a
result, disruptions in energy supply due to droughts and hikes in the world price of crude
oil constitute the key avenues for energy-related shocks, which in turn have potentially
destabilizing effects on the domestic economy. Such developments increase the cost of
production through their impact on the cost of transportation and the price of utilities.
Consequently, they also influence the likelihood that the nation will achieve it’s growth
targets.
It is therefore is essential to forecast the medium to long term energy needs of the
country taking into account its impact on sectoral output. One way this can be done is by
estimating the elasticities of demand for energy in the energy intensive sectors with
respect to changes in output. Where such estimates are unavailable, trend projections
are a good substitute. This in turn requires an assessment of sectoral output trends and
then relating such trends to the sector’s energy needs.
The Growth Drivers of the GPRS and CPESD
The drivers of growth according to the Ghana Poverty Reduction Strategy and the
CPESD are agro-based manufacturing and Information Communications Technology. In
effect, the key sectors of emphasis are the agriculture sector, the manufacturing and the
communications subsectors. Of these sectors, however, energy consumption is highest
in the manufacturing sector. Hence, a critical analysis of the manufacturing sector’s
growth path is essential to key to assessing the nation’s future energy needs.
19
Sectoral Energy Shares
This section of the report describes the various sectors of the economy in terms of their
energy shares or contributions to total energy consumption. The discussion also
provides an indication of the types of energy used in various sectors of the economy.
This information can then be used to make both quantitative and qualitative judgments of
the energy resource implications of alternative sectoral growth rates. The sectors
examined are:

Agriculture and Fisheries

Commercial & Services

Households

Industry

Transport

VALCO
Table 8
Total Energy Demand by Sector
(percent)
Sector
Agriculture & Fisheries
Commercial & Services
Households
Industry
Transport
VALCO
Sum
2000
1.65
1.65
52.7
15.8
23.9
4.05
100
As shown in the figure above, Households and Transport sectors account for
approximately 70 percent of total energy demand. Hence, population growth rates will
tend to exert an upward pressure on the demand for energy in the nation.
The Household Sector
Households predominantly rely on wood (60.7 percent) and charcoal (26.8 percent) for
their energy needs. Together, both types of energy accounted for 87 percent of the
sector’s total energy demand. Relative to wood and charcoal, the overall contributions of
20
electricity and kerosene to the total energy consumption needs of households are
minimal.
A rural urban disaggregation of household energy consumption however reveals subtle
differences in the consumption patterns. First, rural inhabitants account for
approximately 75 percent of total energy consumption in the country. Secondly, the
majority of the energy used in the rural sector is in the form of woodfuels (i.e., wood and
charcoal).
Table 9
Distribution of Energy Demand by Rural Urban Categories
(percent)
2000
75.7
24.3
100
Rural
Urban
Sum
Source: Energy Commission
Compared to the urban sector, wood is a relatively more significant source of energy in
the rural sector. It accounted for 76 percent of total energy requirements in both 2000
and 2001. On the other hand, electricity is a marginal source of energy in the rural
sector, accounting for only 1 percent of the sector’s energy needs in the same period.
Although, wood constitutes a relatively smaller share of the urban energy consumption
basket, the urban use of charcoal translates into even greater demand for woodfuel
since charcoal production is woodfuel intensive; it takes 6 units of wood to produce a
unit of charcoal. In effect, increased urbanization can accelerate deforestation and
environmental degradation.
21
Table 10
Distribution of Rural Energy Shares
(percent)
Biomass (unspecified)
Charcoal
Electricity
Kerosene
LPG
Paraffin Wax
Solar
Wood
Sum
2000
1.6
17.7
0.9
3.8
0.1
0
0
75.9
100
Energy consumption in the urban sector is less concentrated in a few energy sources.
Although charcoal is the largest source of energy consumption in the urban sector, it
accounted for just over one half (54 percent ) of the sector’s total energy needs in 2000.
Table 11
Distribution of Urban Energy Shareses
(percent)
2000
54.7
22.6
4.2
3.4
0
15.1
100
Charcoal
Electricity
Kerosene
LPG
Solar
Wood
Sum
Source: Energy Commission
Together, wood (15 percent) and electricity (23 percent) accounted for almost 40 percent
of urban energy consumption in 2001. Kerosene and LPG are important yet insignificant
sources of urban energy requirements.
22
Table 12
Distribution of Total Household Energy Demand by Source
(percent)
Biomass (unspecified)
Charcoal
Electricity
Kerosene
LPG
Paraffin Wax
Solar
Wood
Sum
2000
1.2
26.7
6.2
3.9
0.9
0
0
61.2
100
Household Consumption Drivers
The factors that drive energy consumption at the household level can be classified as
either demand side drivers or supply side drivers. On the demand side the factors are:






Real Incomes (reflects price changes)
Rate of increase in wages
Expectations about prices
Population growth rate
Access to credit
Tariffs
Real Income
An individual’s real income is the purchasing power of his/her earnings. Real incomes
take into account the erosion in the value of money that may arise from rising prices. All
things being equal, declining real incomes will be associated with a decline in demand
for all commodities including energy. However, given the importance of energy as a
commodity, a 1 percent decline in purchasing power will be associated with a less than 1
percent decline in the demand for energy products. Furthermore, since firewood is
usually not a cash item it is less likely to be affected by changing real incomes. Rising
incomes on the other hand, is associated with increased demand for luxury goods which
tend to be energy intensive (i.e., cars, televisions etc.,).
Expectations
Expectations about future price changes particularly in an upward direction could also
lead to panic buying in the short run particularly for energy products such as LPG ,
23
kerosene and petrol. However, difficulties with storage make this a fairly insignificant
driver of energy demand.
Credit
Access to credit not only boosts one’s real income but facilitates investments which may
be energy intensive (e.g., cold stores, super markets etc.,).
Tariffs
On the other hand, higher tariffs on energy products such as electricity will tend to curb
demand or slow the rate of increase in energy demand. Furthermore, it can lead to a
more judicious use of energy. Subsidized rates will have a reverse impact on demand.
Population Growth
The population growth rate on the other hand can have significant impacts on energy
demand particularly if it is associated with an increase in the ability to purchase energy
intensive commodities such as vehicles, fridges, televisions etc.
Supply Side Drivers
Energy demand cannot exist in a vacuum. It must be validated by a supply of energy.
Hence, supply side factors are also significant drivers of energy consumption. Such
factors include:



Government policy with respect to rural and urban electrification
Rainfall patterns and impact on supply of hydroelectricity
The price of crude oil and its impact on:
o thermal energy, electricity
o crude oil products
 petrol
 diesel
 kerosene
Government Policy
Government policies such as the Self Help Electrification Project invariably increase the
supply of electricity and facilitate access to electricity even without a change in incomes.
The realization of such projects of course depends on access to funds. In this respect,
donor funding and in the absence of such, the ability of government to finance such
projects domestically either through increased revenue generation or increased
borrowing is critical.
24
Rainfall Patterns
Given the nation’s dependence on hydro-electricity, rainfall patterns have a significant
impact on energy supply and may result in a greater demand for diesel powered
generators and other alternative energy sources.
Crude Oil Prices
Rising crude oil prices also impacts negatively on the supply of energy and depending
on the degree of subsidization may depress domestic energy consumption. In Ghana,
prior to January 18, subsidized prices of petroleum products implied that government
had to finance the difference through deficit financing, hence, higher crude prices were
not associated with changes in demand since domestic prices were unaffected by
changing crude prices.
The Agricultural Sector
The agricultural sector is dominated by the crops and livestock farming sub-sector
which accounts for 24.5 percent of GDP. The Fisheries, cocoa and forestry and logging
account for roughly equal shares of approximately 3-4 percent. Despite its
disproportionate share of the agricultural sub-sector, crops and livestock farming growth
has been only averaged 4 percent since 1996. After a disappointing growth of 1.1
percent in 2000, the latter sub-sector experienced strong growth rates of 5.0 and 5.2 in
2001 and 2002.
The agricultural sector is projected to grow at 4.7 percent in 2003 up from the provisional
4.5 percent rate experienced in 2002. Historically, agricultural growth has been
dominated by the forestry & logging and cocoa production & marketing subsectors
which averaged 9.5 percent and 4.7 percent respectively over the period 1996-2001.
However, given the relatively limited subsectoral shares (i.e., their contribution to total
output) of both sectors, their contribution to the overall GDP growth was marginal. In
2001, the forestry sub-sector’s accounted for 0.2 percent of the overall growth rate while
the cocoa production and marketing contributed zero percent on account of its negative
growth in 2001.
On the other hand, the foodcrop and livestock sub-sector, which accounts for
approximately 68 percent of the agricultural sectors total output in 2001, accounted for
25
1.2 percentage points of the overall GDP growth in 2001. The fishing subsector is the
second largest component of the agricultural sector, however, its average growth rate
appears to have stagnated at the very low level of 1.1 percent. Consequently, the
sector’s contribution to overall GDP growth in 2001 was a mere 0.1 percentage points.
Agricultural Energy Demand
By virtue of its relatively low capital intensity, limited adaptation of irrigation technology
and heavy reliance on labor-intensive technologies, the agricultural sector has the lowest
energy share of all the sectors. It accounted for approximately 1.7 percent of total energy
consumption in 2001.
Table 13
Agricultural Energy Shares by Fuel Type
(percent)
Fuel Type
Diesel
Electricity
Gasoline premix
LPG
Solar
Wood
Sum
2000
60.7
0.2
35.8
0
0
3.2
100
Source: Energy Commission
Survey data (Energy Commission) indicate that the agricultural sector largely consumes
petroleum products particularly diesel and pre-mix fuel; its demand for electricity is
minimal. Indeed, sectoral analysis of electricity consumption reveals that agriculture’s
share of electricity remained unchanged at the less than 1 percent between 2000 and
2001.
26
Table 14
Energy Share by Sub-sector in the Agricultural Sector
(percent)
Sub-Sector
2000
Fishing
75.6
Irrigation
0.5
Land preparation & harvest 20.6
Tobacco Curing
3.2
Post harvest processing
0
Poultry
0.1
Sum
100
In order of importance, the energy intensive activities within the agricultural sector are
fishing, plowing, tobacco curing irrigation and poultry. The fishing subsector accounts for
the largest share of energy use in the agricultural sector largely because of the use of
diesel and pre-mix fuel to power fishing vessels.
Plowing activities account for the second largest source of energy use in agriculture
because of the diesel required to power tractors. Poultry activities tend to be electricity
intensive while irrigation facilities are powered by both diesel and electricity. Estimates
by the University of Ghana suggest that approximately 49 percent of irrigation facilities
are powered by electricity (43 percent) or diesel (6 percent). The remainder utilizes
gravity. Recent surveys commissioned in 2001 by the Energy Commission however,
indicate that the majority (60 percent in 2001) of irrigation facilities are diesel powered.
On the other hand tobacco curing relies almost exclusively on woodfuel as an energy
source.
Table 15
Energy Shares in the Irrigation Sub-Sector
Fuel Type
Diesel
Electricity
Sum
2000
66.4
33.6
100
Although irrigation and post harvest processing currently account for less than 1 percent
of energy utilization within the agricultural sector, this share will tend to rise if
government intensifies its irrigation and agro-processing programmes.
27
Table 16
Energy Shares in the Poultry Sub-Sector
Fuel Type
Electricity
LPG
Sum
2000
100
0
100
These findings suggest that based on current consumption patterns the growth in
agriculture will have limited impact on the nation’s energy consumption. However,
factors such as crude oil price hikes which impact on the demand for petroleum products
will have the greatest impact on the fishing sub-sector followed by the foodcrop sector
because of the plowing activities involved.
Table 17
Energy Shares in the Fisheries Sub-Sector
Fuel Type
Diesel
Gasoline premix
Sum
2000
52.6
47.4
100
The current priority given to agricultural modernization will imply increased
mechanization and increased use of irrigation facilities, which will increase the demand
for diesel fuel. However, the impact of improved access to irrigation on energy
consumption will depend on the mix of gravity and non-gravity powered irrigation
technologies adopted.
Table 18
Energy Shares in the Tobacco Sub-Sector
2000
0
100
100
Solar
Wood
Sum
The GPRS adopts a two-pronged approach to irrigation. One approach emphasizes
micro and small irrigation while the second focuses on medium to large scale irrigation.
In general unlike the macro approach, which is relatively capital-intensive, the micro
approach will tend to require less energy due to its labor-intensiveness. The key aspects
of micro and small scale irrigation are the:
28

development of valley bottoms to harness waterlogged river valleys for the
cultivation of food and other crops;

provision of small dugouts, bore holes, tube wells and other simple water
harvesting structures especially in the three Northern regions.
Medium/large scale irrigation on the other hand, involves the construction of major
dams, pumping stations, diversion canals and long distance conveyance pressure pipe
systems for commercial operators and investors.
With respect to fisheries development, the GPRS strategy is to place more emphasis on
inland fisheries as opposed to marine fisheries because of the depletion of fish from
marine sources. Consequently, aquaculture will be given greater priority. The
development of aquaculture will include the development of hatcheries and production of
fingerlings and the construction of ponds, pens and cages. Undoubtedly, to the extent
that aquaculture is less energy intensive, the focus on aquaculture will minimize the
agricultural sector’s demand for energy, particularly pre-mix fuel.
29
The Industrial Sector
The sectoral composition of industry has changed little over time. The Industrial sector is
dominated by the manufacturing and construction sub-sectors which together account
for approximately 71 percent of the industrial sector’s contribution to the GDP. The
mining sector is the third largest sub-sector (19.4 percent) in the industrial sector
followed by the utilities sub-sector (i.e., electricity, water and gas).
Figure 11
Industry Growth Rates
7
6
percent
5
4
3
2
1
0
1995
1996
1997
1998
1999
2000
2001
2002
Source: Bank of Ghana Statistical Bulletin, March 2003
Industrial growth in 2002 was 4.7 percent. However, growth averaged 4.3 percent over
the period 1995-2002 with highest growth rate of 6.4 percent occurring in 1997 and the
lowest growth of 2.9 percent occurring in 2001. Based on the GPRS projections, the
industrial sector is targeted to realize a growth rate of 5.2 percent by 2005 representing
approximately a 1 percentage point increase over its average growth rate (over the
1995-2001 period).
30
Figure 12
Sectoral Composition of Industry
(percent)
100%
% of Total
80%
60%
40%
20%
Electricity
2002
2001*
2000
Manuf.
1999
1998
Mining & Quarrying
1997
1996
1995
0%
Constr.
Energy Utilization
The Industrial sector accounts for the largest share of electricity consumption in the
country, however, the majority of the electricity is consumed in the formal sector;
informal sector activities are intensive in the use of wood fuels. Electricity is used for
cooling, hot air, hot water, steam, direct heat chemicals production and mechanical
purposes. In 2000, the formal sector consumed 80 percent of total energy production.
The majority of electricity consumption in the industrial sector originates from the
manufacturing sub-sector, which accounted for approximately 40 percent of the total
followed by mining and quarrying (27 percent).
Besides electricity fuel oil and diesel are also widely used in production for furnaces,
boilers, hot air, hot water and steam. LPG, kerosene, charcoal and wood are less
significant sources of energy in the formal industrial sector.
On the other hand, the informal Industrial sector is heavily dependent on wood fuels for
food processing activities in the manufacturing subsector. Woodfuel accounts for
approximately 73 percent of the energy used in the formal and informal industrial sector.
31
Table 19
Energy Share In the Industrial Sector
(percent)
Fuel Type
Charcoal
Diesel
Electricity
Gasoline
Kerosene
LPG
Natural Gas_Nigerian
Residual Fuel Oil
Wood
Sum
2000
0.1
8.3
14.7
0.2
0.1
1.1
0
3
72.5
100
Note: Includes informal industrial activities
When wood fuels are excluded from the total, the energy consumption of the industrial
sector is intensive in the use of both electricity and petroleum products. Estimates from
the survey commissioned by the Energy Commission reveals that approximately 54
percent of the energy consumed by the sector is in the form of electricity while the key
petroleum products (Residual Fuel and Diesel) account for approximately 11 percent
and 30 percent of the sector’s total energy consumption respectively.
Table 20
Energy Shares in the Industrial Sector Excluding Wood and Charcoal
Fuel Type
Diesel
Electricity
Gasoline
Kerosene
LPG
Residual Fuel Oil
Solar
Sum
2000
30.4
53.9
0.6
0.4
4
10.8
0
100
Sub-Sectoral Energy Shares
A subsectoral disaggregation of energy Shares reveals that mining and quarrying
accounts for the majority of energy consumption in the industrial sector, consuming
approximately 50 percent of the sector’s total energy requirements in 2001. The
manufacturing subsector is a close second in terms of energy consumption, accounting
for 44 percent of industrial energy consumption in 2001.
32
Table 21
Energy Shares in the Industrial Sub-Sector Excluding Wood and Charcoal
Construction
Utilities
Manufacturing
Mining & quarrying
Sum
2000
0
5.9
44.1
50.0
100
Manufacturing
The manufacturing sub-sector accounts for a significant (44 percent) proportion of
energy consumption and hence, deserves further analysis of the types of energy
consumed by the subsector. Electricity, diesel and residual fuel oil are the major fuels
types consumed by the formal manufacturing sector. The informal manufacturing sector,
on the other hand, is dominated by food processing activities that depend largely on
wood fuel.
Table 22
Breakdown of Energy Consumption in the Formal Manufacturing Sector
Charcoal
Diesel
Electricity
Electricity bulk
Gasoline
Kerosene
LPG
Natural Gas_Nigerian
Residual Fuel Oil
Wood
Sum
2000
0
27.8
32.6
1
1.1
0.8
1.1
0
23.2
12.3
100
*Excludes wood and charcoal fuels
The dominant energy users in the manufacturing sector are sawmill & wood products,
textiles, food processing, beverages and iron and steel. With the exception of the
sawmill and wood products sub-sector, which is intensive in the use of wood fuel, the
33
remaining energy intensive sub-sectors are intensive in the use of residual fuel oil,
electricity and diesel.
Table 23
Energy Shares in the Formal Manufacturing Sub-Sector
Sub-Sector
2000
Chemicals other than Petrol.
7.7
Cutlery and nonferrous
4.9
Other
5.1
Paper & Printing
2.7
Petroleum products
0.3
Textiles
15.5
Tobacco Processing
0.5
Beverages
11.6
Cement & minerals
5.8
Food processing
12.9
Iron & steel
10.6
Sawmill & wood products
22.3
Sum
100
*Excludes wood and charcoal fuels
Table 24
Manufacturing Energy Shares: All Fuels
Chemicals other than Petrol.
Cutlery and nonferrous
Other
Paper & Printing
Petroleum products
Textiles
Tobacco Processing
beverages
cement & minerals
food processing
iron & steel
sawmill & wood products
Sum
2000
6.8
4.3
4.5
2.4
0.3
13.6
0.4
10.1
5.1
11.3
9.3
31.8
100
Includes Wood and Charcoal
Diesel, wood fuel and electricity are the major types of energy consumed by the sawmill
industry while the Textiles industry is very intensive in the use of residual fuel oil (80.6
percent). Food processing is intensive in the use of RFO (44.8 percent) and electricity
34
(32 percent) and to a lesser extent diesel fuel (19.7 percent). Beverages is similarly
intensive in the use of RFO however, diesel (35.8 percent) is used more intensively in
this industry than electricity (19.1 percent). The iron and steel industry, on the other
hand, relies quite heavily on electricity (52.5 percent) although diesel (27.1 percent) and
RFO (15.7 percent) are also consumed in significant quantities. The sub-category
Chemicals and Other Products is similarly intensive in the use of electricity (62 percent),
diesel (20.4 percent) and RFO (13.2 percent).
Construction
The survey results indicate that the construction sector relies almost exclusively on
electricity for its source of power. Since construction underpins the infrastructure sector,
developments in this sector will have far reaching consequences for the successful
implementation of the Medium Term Priorities. In 2001, construction accounted for over
50 percent of the total growth in the industrial sector.
Table 25
Energy Shares in the Construction Sector
2000
Diesel
0
Electricity
100
Sum
100
They key drivers of this sector are private sector demand for housing and public sector
infrastructure budget which is heavily donor funded. Thus, donor inflows are a critical
source of financing for construction projects.
Mining
The main source of energy for the mining subsector is electricity. Approximately 66
percent of the total energy consumed in this sector is in the form of electricity of which
45 percent is purchased in bulk from the Volta River Authority (VRA). Although diesel
fuel accounts for over a third of the sector’s energy consumption, other petroleum
products such as gasoline and RFO are insignificant sources of energy for the mining
sector. Given the sector’s importance as the leading foreign exchange earner,
disruptions in the supply of electricity will have profound effects on the nation’s foreign
35
exchange potential. That said, it is important to note that over 60 percent of the foreign
exchange earned in the mining sector is repatriated abroad.
Table 26
Energy Shares in the Mining Sub-Sector
Fuel Type
2000
Diesel
34.4
Electricity
20.2
Electricity bulk
45.2
Gasoline
0.2
Kerosene
0
LPG
0
Residual Fuel Oil
0
Solar
0
Sum
100
The Volta Aluminum Company
Kaiser Aluminium Company has a 90 percent stake in the Volta Aluminium Company.
Although VALCO technically falls in the manufacturing sector, its significance as an
energy consumer places it in a special position. VALCO’s energy needs are met almost
exclusively (92.3 percent) from bulk electricity purchases from VRA. RFO and diesel
account for less than 10 percent of VALCO’s energy needs.
VALCO’s shareholders are currently embroiled in a legal battle with the Volta River
Authority over issues concerning the terms of their contract agreement with government.
One of the issues relates to whether the 1967 Power Contract agreement which
presumably expired in 1997 is currently in force. One school of legal thought is that the
1967 Power Contract expired without being renewed in 1997 and that the ad hoc
arrangements made between VRA and Valco since then are not legally binding.
The second emanates from the first issue and revolves around the appropriate price that
VALCO should pay for its energy. VALCO apparently pays 1.23 UScents per kWh, which
is considerably below the already low tariffs that it should pay according to the original
contract escalation provisions. VALCOs position has been strengthened by VRA’s
admission that it has been negligent by not delivering electricity in full to Valco.
However, given the average electricity cost of US6¢ per kilowatt hour and the current
water level of the Akosombo Dam, even the US¢ 2.26 proposed by VRA for Valco
36
appears overly generous, unsustainable and inequitable. Incidentally, VALCO currently
operates 1 out of its 4 potlines because of the low water level. This has freed up more
electricity for other users who on average pay higher rates than does VALCO.
Table 27
Energy Shares By VALCO Excluding Wood and Charcoal
Fuel Type
Diesel
Electricity
Electricity bulk
LPG
Natural Gas_Nigerian
Residual Fuel Oil
Sum
2000
0.6
0
92.3
0.5
0
6.6
100
Manufacturing Growth Drivers
The key factors driving the manufacturing sector growth can be summarized as follows:







Access to credit: real interest rates
Energy prices
o Level of rainfall
o Price of crude oil
Rate of increase in inflation
Rate of increase in public sector wages
Rate of increase in government expenditure (of which wages form a part)
Price of inputs (excl. wages and energy)
o Exchange rate (imported inputs)
Foreign Direct Investment
Access to credit is largely determined by the real interest rate. The tendency for
government to borrow excessively from the domestic markets through the sale of money
market instruments (i.e., Treasury Bills) has tended to raise interest rates and deprived
the manufacturing sector of loanable funds both in terms of quantity and price (i.e.,
interest rates). Hence, one should expect rising rates on Treasury Bills to be associated
with declining credit to the private sector. It is important to add that rising interest rates
have also been associated with a higher incidence of non-performing loans as the pool
of credible borrowers has declined.
Increases in the inflation rate also undermine manufacturing growth by creating an
environment of uncertainty and thereby creating a disincentive for long-term
investments. Higher rates of inflation also increase input costs, which cannot always be
37
passed on to the consumer particularly in a low wage economy such as Ghana. In a
flexible exchange rate regime, rising inflation rates cause the nominal exchange rate to
depreciate and as a result the price of imported manufacturing inputs rises in terms of
the domestic currency. To the extent that output prices do not rise in step with the rising
cost of imports, manufacturing profits will be squeezed. Furthermore, firms that contract
foreign currency denominated loans are vulnerable to depreciations in the exchange rate
since more local currency will be required to defray their debts.
Increases in the public sector wage bill may compromise manufacturing sector output if
the wage increases are financed through increases in the money supply. On the other
hand, by enhancing public sector productivity, non-inflationary financing of wage bill can
improve manufacturing productivity because of the synergies that exist between the
public and private sector.
Because of the manufacturing sector is intensive in the use of electricity, diesel, RFO
and other energy products, its performance is influenced by the availability of such fuels.
Hence, increased imports of crude oil will tend to have a positive impact on the
performance of the sector.
Furthermore, increased foreign direct investment in the manufacturing sector will boost
the sector’s growth rate.
The Services Sector
The Services Sector accounts for a third of GDP and experienced the fastest growth
rates of all the sectors averaging 5.3 percent over the period 1995-2001. At
approximately 29.0 of GPD, the sector is the second largest contributor to the GDP. Its
share has seen a steady increase in recent years particularly at the expense of the
agricultural sector. The largest sub-sectors in the service sector are government
services , wholesale and retail trade, restaurants & hotels and Transport Storage and
Communication. The Wholesale and Retail Trade, Restaurants & Hotels and the
Transport Storage and Communication subsectors experienced the fastest average
growth rates of 5.9 and 6.6 percent respectively during the 1995-2001 period.
38
The GPRS projects the sector’s share of GDP to remain steady at 5.1 percent between
2003 and 2005. However, the service sector is expected to contribute significantly to the
realization of the $1000 per capita income level expected by 2012. The key drivers of
growth in this sector will be investments in Information Communications Technology and
improvements in the marketing and distribution networks which will be reflected in
increases in the level of wholesale and retail trade in particular. Access to financial
support services is also a critical input for the growth of this sector as is access to
uninterrupted energy supply particularly electricity.
Services Growth Drivers
Several of the factors that drive the manufacturing also influence the service sector.
They include the rate of increase in government expenditure, access to credit, rate of
increase in wages




Rate of increase in government expenditure
Inflation rate
Energy prices
o Level of rainfall
Prices of other inputs
o The real exchange rate
Government expenditures have a significant positive impact on the service sector
particularly because government services is the largest sub-sector of the service sector
in Ghana. Between 1996 and 2002 the government services sub-sector accounted for
11 percent of GDP and grew at a rate (4.6 percent) higher than the average growth rate
of 4.3 percent over the same period.
Energy Consumption
The service sector is second only to the industrial sector in electricity consumption.
During the period 2000-2001 it accounted for approximately 18 percent of total electricity
consumption. The Community, Personal and social services sub-sector accounted for
the majority of electricity consumption in the service sector over the same period.
39
Table 28
Energy Shares in the Commercial & Services Sector
Charcoal
Diesel
Electricity
Kerosene
LPG
Wood
Sum
2000
60.7
0
20.4
0
4.4
14.5
100
Table 29
Energy Shares in the Commercial & Services Sector
Chop bars etc
Cold stores
Defence
Education
Health
Hotels
Offices
Other
Restaurants
Street lighting
Street selling
Sum
2000
60.5
0.9
5.9
11
2.8
2.2
3.3
0.6
11
1.7
0
100
The Transport Sub-Sector
The transport sector is traditionally listed under the services category, however, its
significance as a consumer of energy necessitates separate categorization. Energy
consumption in the Transport sector is almost evenly split between Diesel and Gasoline
consumption, which represent 49 percent and 43 percent respectively of the sub-sector’s
energy consumption. Jet Kerosene on the other hand, accounts for less than 10 percent
of the total.
40
Table 30
Energy Shares in the Transport Sector
Fuel Type
Diesel
Electricity
Ethanol
Gasoline
Jet Kerosene
Sum
2000
49.3
0
0
43.1
7.6
100
An efficient transportation system is critical to growth in all sectors of the economy. In
particular, the level of post harvest losses in the agricultural sector depends on an
efficient marketing and distribution system anchored by a dependable transport system.
The key factors that drive the transportation sector are household incomes, the size of
the public sector, population growth rates and the price of petroleum products.
Furthermore, the growth in the private sector as evidenced by sectoral growth rates in
agriculture and manufacturing in particular will have a positive impact on the transport
sector through increased household incomes and because of the fact that transport is an
input for production in all sectors of the economy.
Utilities
Table 31
Energy Shares in The Utility Sector
2000
Diesel
4.8
Electricity 94.3
Gasoline
0.9
Sum
100
The utilities subsector relies heavily on electricity for its activities, particularly for
pumping water. Obviously this partly explains the erratic supply of utility services since
the supply and hence consumption of electricity is generally erratic.
41
Appendix
Table 32: Energy Shares in Paper and Printing
Diesel
Electricity
Gasoline
Kerosene
LPG
Residual Fuel Oil
Sum
2000
33.9
35.7
11.4
0.3
17.2
1.5
100
Table 33: Energy Shares in Food Processing
Heavy distillate
LPG bulk supply
Natural Gas
Residual Fuel Oil
diesel all use
electricity all use
petrol
Sum
2000
0
2.8
0
44.8
19.7
32
0.6
100
Table 34 Energy Shares in Cutlery and Non-Ferrous Materials
Diesel
Electricity
Electricity bulk
Gasoline
Kerosene
LPG
Natural Gas_Nigerian
Residual Fuel Oil
Sum
42
2000
52.1
6.2
22.4
0.1
7.2
0.8
0
11.1
100
Table 35: Energy Shares in Iron and Steel
Charcoal
Diesel
Electricity
Gasoline
Kerosene
LPG
Natural Gas_Nigerian
Residual Fuel Oil
Sum
2000
0
27.1
52.5
0.7
3.6
0.4
0
15.7
100
Table 36: Energy Shares in Tobacco Processing
2000
Diesel
44.3
Electricity
46
Gasoline
7.1
Residual Fuel Oil
2.7
Sum
100
Table 37: Energy Shares in Petroleum Products
2000
Electricity
100
LPG
0
Sum
100
Table 38: Energy Shares in Textiles
Diesel
Electricity
Electricity bulk
Gasoline
Kerosene
LPG
Natural Gas_Nigerian
Residual Fuel Oil
Sum
43
2000
4.5
14.2
0
0.5
0
0
0
80.6
100
Table 39: Energy Shares in Chemicals other than Petrol
Diesel
Electricity
Gasoline
Kerosene
LPG
Natural Gas_Nigerian
Residual Fuel Oil
Sum
2000
20.4
62.5
0.8
1.4
1.7
0
13.2
100
Table 40: Energy Shares in Sawmill and Wood Products
2000
Diesel
Electricity
Gasoline
Residual Fuel Oil
Wood
Sum
44
41.4
19.3
0.7
0
38.7
100