Ghana, the eleventh largest economy in Africa, is heavily dependent on its natural resources and agriculture sector for its economic strength. The majority of the state’s exports are primary commodities, a good in a raw or unprocessed state. Gold, cocoa beans, and crude petroleum make up 77% of the state’s total exports. Yet, Ghana is unable to fully capture the profitability of its resources due to the states lack the industrial resources. Cocoa beans are less profitable than a chocolate bar, unfinished gold is less than a finished gold ring, etc., and until industrial resources are readily available the state will continue to lose these potential profits.
While there are some advantages to an economy based off primary commodities, the disadvantages are far more prevalent. Primary commodities can be profitable to developing countries as they often have a comparative advantage, for production is labor, rather than capital, intensive. But inelastic demand for primary commodities results in large price fluctuations. Primary commodities such as agriculture crops are also heavily affected by weather and disease, as many crops are grown relying on rainfall and with minimal pesticide application.
Gold: Ghana is the 10th largest global producer of gold, which makes up 57% of state’s total exports, valued at USD 9.41 B. The exported gold is exclusively unwrought or semi-manufactured. Ghana exports no recognizable amount of finished gold goods, such as jewelry. The vast majority of Ghana’s gold is exported to Switzerland and the United Arab Emirates. While still robust, Ghana’s gold production has been slowing down slightly and the market is currently plagued by illegal mining operations, significantly costing the state.
Cocoa: Foodstuffs make up approximately 20% of Ghana’s total exports and are valued at USD 3.17B. Ghana is the second largest global producer of cocoa and cocoa related goods make up approximately 93% of total foodstuff exports. Of this, raw cocoa beans make up approximately 76%. Cocoa butter, while requiring fairly extensive processing, has market prices of 3-5 times higher than raw beans but make up just 10% of cocoa related exports.
Broken down, the consumer price of a chocolate bar is approximately 44% retail markup, while just 6.6% of the cost is to cover the input costs of cocoa beans. Despite the considerable profit margins, finished chocolate make up only .02% of Ghana’s cocoa related exports.
Petroleum: Petroleum goods make up 8.5% of Ghana’s total exports. Ghana exports 6 times as much crude petroleum as refined. While are considerable costs associated with oil refinery as infrastructure is needed, there is a significant gross profit margin for refining. The vast majority of Ghana’s unrefined petroleum is exported to China.
The 1 District, 1 Factory initiative has funded several the establishment of several processing plants for locally produced crops, such as cassava, avocado, and cashews, but government projects can be timely ordeals.
While natural resources can be extremely profitable, Ghana needs to industrialize to be able to fully capture the wealth of its natural resource endowments.
By: Andrew David
