National Income Determinants and the Economy of Ghana

Economy of Ghana
National income determinants and the economy of Ghana

NATIONAL INCOME ACCOUNTING National income accounting refers to a set of rules and techniques that are used to measure the national income of a country.
In other words, National income is a measure of the value of goods and goods produced by the residents of an economy in a given period of time, usually a quarter or a year.

National income can be real or nominal. Nominal national income refers to the current year production of goods and services valued at current year prices.
Real national income refers to the current year production of goods and service valued at base year prices.

In estimating national income, only productive activities are included in the computation of national income. In addition, only the values of goods and services produced in the current year are included in the computation of national income. Hence, gains from resale are excluded but the services provided by the agents are counted.
Similarly, transfer payments are excluded as there is income received but no good or service produced in return. However, not all goods and services from productive activities enter into market transactions. Hence, imputations are made for these non-marketed but productive activities e.g. imputed rental for owner-occupied housing. Thus, national income refers to the market value or imputed value of additional goods and services produced and services performed in the current period.

GDP, GNP, NDP and NNP
National income in many countries are either in Gross Domestic Product (GDP) or Gross National Product (GNP).
Gross Domestic product (GDP) refers to the total value of goods and services produced within the geographical boundary of a country before the deduction of capital consumption.
Net Domestic product (NPD) refers to the total value of goods and services produced within the geographical boundary of a country after the deduction of capital consumption.
Gross National Product (GNP) refers to the total value of goods and services produced by productive factors owned by residents of the country both inside and outside of the country before the deduction of capital consumption.
Net National Product (NNP) refers to the total value of goods and services produced by productive factors owned by residents of the country both inside and outside of the country after the deduction of capital consumption. Relationship between GDP and GNP
GNP = GDP + NPIFA (Net Property Income from Abroad)
Net Property Income from abroad refers to the difference between income from abroad and income to abroad.
Measurement of National Income
There are 3 approaches to measure national income i.e. output approach, income approach and expenditure approach

Output Approach
Output approach measures national income by adding the total value of the final goods and services produced in the year or by adding the value added by each sector of the economy.
Where Value added refers to the difference between the value of gross output of all goods and services produced in a given period and the value of intermediate inputs used in the production process during the same period.
In distributive trade, value added is the difference between the gross margin and the cost of intermediate inputs. In the banking sector, value added is the difference between the sum of actual and imputed bank service charges and intermediate inputs. For government services and non-profit institutions, value added is the wages and salaries, and depreciation allowance set aside for consumption of fixed capital.
The output approach consists of the sum of value added by each sector in the economy i.e.
Agriculture and Fishing, Quarrying, Manufacturing, Utilities, Construction, Commerce, Transport and Communication, Financial and Business Services.

Income Approach
Income approach measures national income by adding the income earned by the factor owners that are residents of the country, undistributed company profits and government income from economic participation. It excludes transfer payments and stock appreciation because transfer payments and stock appreciation are not due to goods and services performed.
Value Added and Contributions to a nation’s GDP * There are three main wealth-generating sectors of the economy – manufacturing and construction, primary (including oil & gas, farming, forestry & fishing) and a wide range of service-sector industries. * This measure of GDP adds together the value of output produced by each of the productive sectors in the economy using the concept of value added. .
Value added is the increase in the value of goods or services as a result of the production process
Value added = value of production - value of intermediate goods

Say you buy a pizza from Dominos at a price of ¢10. This is the retail price and will count as consumption. The pizza has many ingredients at different stages of the supply chain – for example tomato growers, dough, mushroom farmers and also the value created by Dominos as they put the pizza together and deliver to the consumer.
Some products have a low value-added, for example cheap tee-shirts that you might find in a supermarket for little more than ¢5. These are low cost, high volume, low priced products.
Other goods and services are such that lots of value can be added as we move from sourcing the raw materials through to the final product. Examples include jewelry designer, perfumes, meals in expensive restaurants and sports cars. And also the increasingly lucrative computer games industry.
The computation of National Income by Income Approach involves the following
Income from Employment, Income from Self-employment, Gross trading profits of companies,
Gross trading surplus of public corporations, Gross trading surplus of general government enterprises, Rent, Interest and Dividend, Imputed rent for owner-occupied houses.

Expenditure Approach
Expenditure Approach measures national income by adding the private consumption expenditure, government consumption expenditure, gross fixed capital formation i.e. investment expenditure, increase in physical stocks and net exports of goods and services i.e. the difference between exports and imports.
It only includes expenditure on goods and services to satisfy the needs of final buyers. It excludes expenditure on intermediate of goods and services. Moreover, resale of consumer and capital goods are excluded because the expenditures are on these resale goods, not goods produced in the current period and hence expenditures on resale goods are not counted.
Private Consumption Expenditure
Private consumption expenditure refers to the final purchases of goods and services by households. It includes expenditure on single use consumption or non-durable goods e.g. food, durable goods e.g. TV, washing machines, and services e.g. hairdressing services and medical services.
Household purchases of new houses are treated as investment expenditure and hence residential investments are not included in private consumption expenditure. Instead residential investments are included in investment expenditure.
Resale of consumer durables e.g. second hand TV are excluded as the expenditures are on second hand TV, not TV produced in the current year and hence expenditures on second hand TV are not included in the private consumption expenditure.

Government Consumption Expenditure / General Government Expenditure
Government consumption expenditure refers to the cost of running the various government departments and public non-profit organizations to provide goods and services for the public. It excludes the expenditure by government on grants, interest subsidies, transfer payments, loans and repayments.

Gross Domestic Fixed Capital Formation / Investment Expenditure
Investment expenditure refers to the expenditure on equipments and machinery, residential and non-residential construction, and changes in inventories. An increase in inventories is treated as an investment and a fall in inventories is treated as dis-investment. Resale of capital goods are excluded from investment expenditure.
Gross Investment = Net Investment + Replacement Investment

Gross investment refers to the new capital goods produced that can be used to the capital stock or to replace the existing worn-out capital goods. Net Investment refers to the new capital goods that are added to the capital stock. Replacement investment refers to the new capital goods that are used to replace the existing worn-out capital goods.

Net Exports of Goods and Services
Net exports of goods and services refer to the difference between the exports of goods and services and imports of goods and services.
Exports of goods and services refer to goods and services that are produced in the country but they are sold to foreigners for their consumption. Imports of goods and services refer to goods and services that are produced by other countries but they are consumed within the country.
The full equation for GDP using this approach is GDP = C + I + G + (X-M) where
C: Household spending
I: Capital Investment spending
G: Government spending
X: Exports of Goods and Services
M: Imports of Goods and Services
Ghana National Income Accounting
The economy of Ghana, has a diverse and rich resource base, and as such, has one of the highest GDP per capita in Africa. Ghana is one of the top–ten fastest growing economies in the world, and the fastest growing economy in Africa.
Ghana remains somewhat dependent on international financial and technical assistance as well as the activities of the extensive Ghanaian Diasporas. Gold, timber, cocoa, diamond, bauxite, manganese, and many other exports are major sources of foreign exchange.
An oilfield which is reported to contain up to 3 billion barrels (480×106 m3) of light oil was discovered in 2007. Oil exploration is ongoing and, the amount of oil continues to increase.
The domestic economy revolves around services, which accounts for 48.5% of GDP and employs 28% of the work force. On the negative side, public sector wage increases and regional peacekeeping commitments have led to continued inflationary deficit financing, depreciation of the Cedi, and rising public discontent with Ghana's austerity measures. Furthermore, according to the World Bank, Ghana's per capita income has barely doubled over the past 45 years. Even so, Ghana remains one of the more economically sound countries in all of Africa.
Macro-economic trend
National GDP per capita ranges from wealthier states in the north and south to poorer states in the east. These figures from the 2002 World Bank are converted to US dollars.
This is a chart of trend of gross domestic product of Ghana at market prices estimated by the International Monetary Fund with figures in millions of Ghanaian Cedis. Year | Gross Domestic Product | US Dollar exchange | 1980 | 43,229 | 2.74 Cedis | 1985 | 361,370 | 54.36 Cedis | 1990 | 2,158,213 | 326.30 Cedis | 1995 | 7,751,700 | 1,200.51 Cedis | 2000 | 27,152,500 | 5,455.59 Cedis | 2005 | 97,017,315 | 9,072.12 Cedis |

AGRICULTURE
Agriculture in Ghana constitutes Agriculture sector, Forestry sector, and Fishing industry
Agriculture in Ghana
Agriculture is Ghana's most important economic sector, employing more than half the population on a formal and informal basis and accounting for almost half of GDP and export earnings. The country produces a variety of crops in various climatic zones which range from dry savanna to wet forest and which run in east west bands across the country. Agricultural crops, including yams, grains, cocoa, oil palms, kola nuts, and timber, form the base of Ghana's economy.

Fishing in Ghana
Fishing in Ghana increased considerably in the late 1960s, from 105,100 tons of marine fish caught in 1967 to 230,100 tons in 1971. In 1982 the yield was 234,100 tons, composed of 199,100 tons of marine varieties and 35,000 tons of freshwater fish from Lake Volta. The industry was hit by fuel shortages, inadequate storage facilities, and the general economic difficulties of the 1970s and the 1980s. Nevertheless, by 1988 the fish catch was 302,900 tons; by 1991 it amounted to 289,675 tons, down from more than 319,000 tons in 1990.
MINING AND PETROLEUM
The Mining industry of Ghana accounts for 5% of the country's GDP and minerals make up 37% of total exports, of which gold contributes over 90% of the total mineral exports. Thus, the main focus of Ghana's mining and minerals development industry remains focused on gold. Ghana is Africa's 2nd largest gold producer, producing 80.5 t in 2008. Ghana is also a major producer of bauxite, manganese and diamonds. The country has 23 large-scale mining companies producing gold, diamonds, bauxite and manganese, and, there are also over 300 registered small scale mining groups and 90 mine support service companies.

MANUFACTURING
Industry in Ghana accounts for about 25.3% of total GDP.[1] However, Ghana's industrial production is rising at a 7.8% rate, giving it the 38th fastest growing industrial production in the world due to government industrialization policies.
Ghana's most important manufacturing industries include light manufacturing, aluminum smelting, food processing, cement, and small commercial ship building. A relatively small glass-making industry has also developed due to the high-quality sand available from the Tarkwa mining area. The lack of capital has slowed growth in Ghana, but foreign capital has increased in recent years. Most products are for local consumption, and most of Ghana's exports are raw materials.
Other industries include the production of food and beverages, textiles, chemicals and pharmaceuticals, and the processing of metals and wood products.
Ghana's industrial base is relatively advanced compared to many other African countries. Import-substitution industries include textiles; steel (using scrap); tires; oil refining; flour milling; beverages; tobacco; simple consumer goods; and car, truck, and bus assembly.
ENERGY
Ghana gets 97% of its energy from damming lake Volta and exports much of this to neighboring countries, however organizations such as the Ghana Nuclear Society have advocated the introduction of nuclear power into Ghana and indeed the country now has an atomic energy commission.
SERVICES
Tourism has become one of Ghana's largest foreign income earners (ranking third in 1997), and the Ghanaian Government has placed great emphasis upon further tourism support and development.
The financial services in Ghana has seen a lot of reforms in the past years. Ghana through the Banking (Amendment) Act 2007 has included the awarding of General Banking license to qualified Banks and this allows Offshore Banks to operate in the country. Barclays Bank (Ghana) limited has become the first Bank in Ghana to be awarded the General Banking license in the Country. It has therefore become possible for non–resident individuals and foreign companies to open offshore Bank Accounts in Ghana.

Analyses on the Economy of Ghana and National Income Accounting
Before every country can determine its economic state, talk of National Income computation, Interest Rate, Unemployment Rate, Inflation and other economic factors, it must consider the total level of output since most of the economic factors are influenced by it.
Considering the question at hand, i.e. the determinants of National Income and the most suitable approach that can be used to arrive at the total national Income figure for a nation like Ghana, the output approach will be much suitable considering the below factors.
The output determinant measures national income by adding the total value of the final goods and services produced in the year or by adding the value added by each sector of the economy.
Because the economy of Ghana has a diverse and rich resource base, it as such has one of the highest GDP per capita in Africa. Ghana is one of the top–ten fastest growing economies in the world, and the fastest growing economy in Africa.
Because most of the economic activities are centered on the natural resources in the country, the country is mostly into the production of primary goods. Talk of the agriculture sector, manufacturing sector, mining and petroleum sector and the services sector.
Agriculture is Ghana's most important economic sector, employing more than half the population on a formal and informal basis and accounting for almost half of GDP and export earnings. The country produces a variety of crops in various climatic zones which range from dry savanna to wet forest and which run in east west bands across the country. Agricultural crops, including yams, grains, cocoa, oil palms, kola nuts, and timber, form the base of Ghana's economy.

The Mining industry of Ghana accounts for 5% of the country's GDP and minerals make up 37% of total exports, of which gold contributes over 90% of the total mineral exports. Thus, the main focus of Ghana's mining and minerals development industry remains focused on gold. Ghana is Africa's 2nd largest gold producer, producing 80.5 t in 2008. Ghana is also a major producer of bauxite, manganese and diamonds. The country has 23 large-scale mining companies producing gold, diamonds, bauxite and manganese, and, there are also over 300 registered small scale mining groups and 90 mine support service companies. An oilfield which is reported to contain up to 3 billion barrels (480×106 m3) of light oil was discovered in 2007. Oil exploration is ongoing and, the amount of oil continues to increase.

The Manufacturing Industries in Ghana accounts for about 25.3% of total GDP. However, Ghana's industrial production is rising at a 7.8% rate, giving it the 38th fastest growing industrial production in the world due to government industrialization policies.
Services
Tourism has become one of Ghana's largest foreign income earners (ranking third in 1997), and the Ghanaian Government has placed great emphasis upon further tourism support and development.
The financial services in Ghana have seen a lot of reforms in the past years. Ghana through the Banking (Amendment) Act 2007 has included the awarding of General Banking license to qualified Banks and this allows Offshore Banks to operate in the country. Barclays Bank (Ghana) limited has become the first Bank in Ghana to be awarded the General Banking license in the Country. It has therefore become possible for non–resident individuals and foreign companies to open offshore Bank Accounts in Ghana.
The above economic activities illustrate how Ghana works around to grow its economy. If the country wants to know its National income level which refers to the national income of a country, then the output approach will be the ideal method to determine it.
This is because; Ghana is more like a production country considering the above illustrations so the best approach to calculate for the total earnings of the whole country will be to use the output determinant.