GHANAS MERCHANDISE TRADE WITH CHINA

Eugene Nanakyere Afranie

Cohort B
Word Count - 4000

Table of Contents
Abstract ......................................................................................................................................................... 2
Introduction .................................................................................................................................................. 3
Background ............................................................................................................................................... 3
Research Question .................................................................................................................................... 4
Research Objective ................................................................................................................................... 4
Methodology............................................................................................................................................. 4
Literature Review .......................................................................................................................................... 5
Conceptual Framework ............................................................................................................................. 6
Analysis of Trade Data and Key Finding ........................................................................................................ 7
Exports ...................................................................................................................................................... 7
Imports ...................................................................................................................................................... 9
Trade Balance.......................................................................................................................................... 11
The Relationship between Ghana Trade Balance and Its Real GDP ........................................................... 12
Conclusion and Recommendation .............................................................................................................. 13
References .................................................................................................................................................. 15
Appendix ..................................................................................................................................................... 17

Abstract
Ghana is one of country that is faced with the trade deficits problems for a long time. In 2014,
exports value were estimated at $11.95 billion, falling by 6% and imports value were at $ 15.19
billion, rising 16 % compare with last year. There was a negative trade balance in Ghana in 2014.
The main objectives of this study is to examine the merchandise import and export data of Ghana
from 2001 to 2014. The import and export data will be used to assess it effect on the trade balance
for each year. Finally, we will assess the result of the trade balance by exploring its relationship
with GDP of each year.
The expected benefit of the study is to understand how merchandise import and export affects
trade balance and the relationship between the trade balance and real GDP. This study used trend
analysis with the variables being import, export and trade balance. From the result of this study,
there is a negative impact of the composition of Ghanaian exports to China on the Ghanaian trade
balance. This means that, an increase in the export of traditional and unprocessed merchandise will
make our exports less attractive to companies in China. This will lead to a reduction in demand.
Hence having a negative effect on trade balance.
Finally, the study using trend analysis showed a positive relationship between Ghanas trade deficit
with China and its real GDP. A possible reason is that Ghana is still on the ladder of
industrialization to outsource a lot of intermediate products and machinery for production, this
may cause Ghanas total imports to exceed its total exports.

Introduction
Background
Since the beginning of the twentyfirst century, Chinese products are increasingly flocking to
Africa in search of larger market opportunities. The fast growth of China trade prowess in recent
years has raised many questions about its effects on the world economy and especially SubSaharan African countries like Ghana. Growth in China may intensify competition amongst
countries who are exporting raw materials to China for production. Based on data from Ghana
Statistical services, Ghana Promotion Council, Ministry of trade and Industry and World Bank,
my aim is to explore how the evolution of Ghanas trade with China has over the past decade has
affected its balance of trade and Gross Domestic Product (GDP).
Over the past 59 years, China and Ghana cooperation on trade has been inspiring. The trade volume
between these two countries has surged from less than USD 100 million in 2000 to USD 5.6 billion
in 2014, making China one of the largest trade partners of Ghana. Ms Sun Baohong the Chinese
Ambassador to Ghana, on 20th January, 2016 revealed during inauguration of the Upper East
branch of the Ghana Chinese Friendship Association (GHACHIFA) in Bolgatanga that trade
volume between Ghana and China for 2015 has amounted to about 6 billion dollars. Chinas trade
relationship with Ghana is important to both trading partners. For China, Ghana represents a
growing source of raw materials. Most importantly crude oil, iron ore and copper; which have
helped fuel Chinas rapid infrastructure development. For Ghana, China represents a major trading
partner that provides it with cheap consumer products, buys its natural resources, and helps build
its infrastructure. In essence, we realise that trade volume between Ghana and China have been
increasing steadily for almost 2 decade now. The high growth of trade are mainly driven by the
imports and exports of goods and services to and from China respectively. The subject of trade
between Ghana and china is particular relevant because as their markets grow, they expected that

opportunities in the consumer, agricultural, industrial, banking, logistics and other sectors will
grow simultaneously.

Research Question
This paper seeks to answer the following research questions which are based on the merchandise
trade relation between Ghana and China between 2000 to 2014. The questions are as follow:
i.

What are the reasons for these changes in exports and imports?

ii.

How do export and imports affect trade balance in Ghana?

iii.

What is the relationship between Ghanas trade balance and its GDP?

Research Objective
Based on the research questions above, this study examines the merchandise import and export
data of Ghana from 2001 to 2014. The import and export data will be used to estimate the trade
balance for each year. Finally, we will assess the trade balance by exploring its relationship with
GDP.

Methodology
This section will present the approach of analysis relating to the research questions and conceptual
framework. This study employs the quantitative method of research design. The paper used annual
data for all the variables (Ghanas import, export and trade balance with China) during the period
2001 2014. Total of four variables were used in this study. For every variable, data was collected
annually during the period 2001 2014. This was because of the source of data was limited before
2001 and after 2014. Export, import and trade balance data was collected from the International
Trade Centre. Data of real GDP was collected from the World Bank database.
In this study the statistical program used to analyze the data was the use of Microsoft Excel to sort
and organize data. I used the trend analysis approach to further analysis the data. Trend analysis
was used to reflect the changes in the variables during different time periods. The time series graph
function in Excel was used to generate graphs for these trend analysis.

Literature Review
This study will explores trade balance particularly the difference between the monetary value of
exports and imports of merchandise in an economy over the period 2000 to 2014. This in other
words is the association between imports and exports in an economy. In the international trade,
export refers to selling goods and services produced in the home country to the other markets
(Joshi, 2005). Conferring from Ram (1985), his paper revealed that a rise in a countrys exports
will have a positive effect on the Gross Domestic Product of a country. Exports are major sources
of the national income for many small countries and developing countries (Sena, 2004). One other
important factor of trade balance is imports. Import is a key in finding the trade balance of a
country. For example, importation becomes the production material sourcing strategies of most
firms in developing countries (Thomas and Grosse 2005). According to Thomas and Grosse (2005)
study on Mexico, a rise in import come before an increase in export. The imports of production
materials into a country may lead an increase of domestic products of that country. Besides that,
the consistency of the input supply and lower purchasing cost is assured. Tilelioglu and Al Waqfi
(1994) explore the determining factor of imports demand in small open less developed countries
like Jordan in the Middle East. They empirical presented that Jordans imports are highly income
elastic and price inelastic which implies an adverse effect on the trade balance: Trade deficits.
Kandil (2009) studied the trade balance in developing countries. One of his insights supported the
assertion that the random fluctuation of trade balance in many developing countries will lead to
unequal of financing and created a wide deficit in trade balance in these developing countries.
Helpman (1984) further scrutinized the determining factors of trade balance in Pakistan. His report
showed that, trade balance has been in deficits position continuously for a longtime. This problem
comes from the imbalance between the value of imports and exports. In the case of Pakistan the
value of import is greater than the value of export. Thus, they have a trade deficit. Pakistan is an

agricultural country with 70% of its inhabitants working on this major. As a result, almost all the
products in export are raw unprocessed agricultural produce. Moreover, almost all their imported
goods and services are technology and manufactured goods.

Conceptual Framework
The conceptual framework for this paper is based on the concept of trade balance, however it is
buildup of on all the literatures that were reviewed earlier on in this session. The trade balance is
the term for net exports that forms a component of the Gross Domestic Product (GDP). Trade
balance can be termed as surplus when exports exceed imports. Conversely, it can be also termed
as unfavorable or a deficit when imports exceed exports. With respect to GDP, recall the formula
for gross domestic product (see appendix). The expression (Ex - Im) equals net exports, which
may be either positive or negative. If net exports are positive, the nation's GDP increases. If they
are negative, GDP decreases. All nations want their GDP to be higher rather than lower, so all
nations want their net exports to be positive. It is not possible for all nations to have positive net
exports because one or more nations must import more than they export if the others export more
than they import. Ghana is one of the many nations suffering from unfavorable trade balance with
China. This paper will assess how the changes in the Ghana and Chinese trade has affected our
trade balance and GDP. The framework in the diagram below will be used as a road map in this
paper. This will be done analyzing the historical data of real GDP, export and import data from
2001 to 2014.

Reasons for
falling
merchandise
export to China

Reasons for
rising
merchandise
import from
china

Imports

Trade Deficit
Exports

Real GDP
Conceptual Framework

Analysis of Trade Data and Key Finding

Exports
Generally, the results indicate that Chinas share of total exports from Ghana is very low compared
to the total amount of exported goods and services. It has been consistently less than 3 percent of
their total exports since 2001 (Table1). The lowest level was recorded in 2002, when Chinas share
of total exports was 0.43 percent. From figure 1, we also note that China share of Ghanas total
exports was fairly constants with only a couple of fluctuation. For instance in 2014, the total value
of goods and services exported to china amounted to 1.4 billion Ghana cedis. However, the gap
between Chinas share and the total exports has been widening over the past decade (2004 - 2014)
showing that even though there has been an increase in total export trade over the years, our exports
to China has remained almost the same. This is graphical represented in figure 1, where Ghanas
exports to China is relatively constant throughout the year under review. The question becomes
what is the cause of our relatively constant exports to China even though our total exports is
increasing.

Ghana Exports Percentage of China's Total

Years to China
Share in Total exports Exported
2001
24691
1.44
1716127
2002
7660
0.43
1793390
2003
32281
1.39
2324296
2004
15924
0.64
2486818
2005
41720
1.36
3059743
2006
38805
1.07
3613994
2007
32695
0.93
3533792
2008
71599
1.88
3809919
2009
46019
0.91
5070533
2010
51253
0.98
5233390
2011
257853
1.42
18146653
2012
626810
3.98
15761184
2013
457594
3.62
12643899
2014
1400000
11.72
11948895
Table 1: Showing Export data from 2001 -2014 (figures in 000)

% Change in
Exports to
China
-222%
76%
-103%
62%
-8%
-19%
54%
-56%
10%
80%
59%
-37%
67%

One main reason that explains this is Ghanas exports to China and the rest of the world are
concentrated in primary commodities, especially extractable resources such as oil, aluminum,
copper, nickel, and gold, as well as renewable resources and agricultural commodities such as
timber, rubber, coffee, cotton, cocoa and cashew nuts. Ghanas export basket is widely focused on
the primary sector, as a result, importers in countries like China do not have access to any form of
product variety. So China either keep importing the same quantity of traditional products or reduce
the import of traditional products from Ghana and rather import from other competing countries
that has a wider product variety.
We noticed that total exports in 2014 declined 5.4 %. Raw cocoa bean and timber exports
increased by 8.5% and 9.3% in 2014 over the previous year as a result of higher product prices.
However, the benefit of higher agriculture product exports was more than offset by 11.6% and
6.2% decline in gold and crude oil exports (Ghana Export Promotion Council). Therefore, world
price on the product also pre-determines the export quantity for producers in Ghana, as it was
reflected in 2014 where agricultural products benefited from an increase in prices and minerals

and oil suffered from a decrease in price. This in effect had exports increasing for agricultural
products and decreasing for mineral and oil products. Overall in resulting in lower total exports
during 2014
In relation to Ghanas exports to China, 2014s exports was the historical highest ever achieved
regardless of the general decline in Ghanaian exports. This highest export to China was associated
with the increase in the commodity prices of cocoa and timber which led to 8.5% and 9.3% increase
in the quantity exported of these commodities (WorldBank). Conceivably, considerable variation
could occur in the export performance of Ghana to China depending on their specific basket of
traditional exports. Traditional exports from Ghana to China occasionally experienced a negative
demand growth during 2004 and 2009, and in some cases the declines were dramatic (Chinese
Embassy). The export of traditional products to China is vulnerable to unforeseen adverse demand
and price shocks when global economic activity weakens (Ram, 1985).

Imports
Overall, the outcomes of the data analysis indicate that Chinas share of total imports to Ghana has
gradually increased from five percent of total value of imports to Ghana in 2001 to 35 percent in
2012 and dropping to 31 percent in 2013 and 27 percent in 2014 (Table 2). However since 2002
the gap between Chinas share and the total has been widening showing that even though there has
been an increase in the importation of goods from China, total imports from other countries is also
on the rise at even higher rate than that of China, this is shown in figure 2. This is also reflects in
table 2 below, where we see that the after 2012 Ghana import from China has been falling
significantly.
Over the past years China has become the key source of Ghanas imports. The rising share of
Ghanas imports from China during 2001 - 2012 was because the Chinese goods are more
diversified and cheaper imports relative to the imports from other countries. This can be traced

10

partly to the competitiveness of Chinas imports compared to other traditional sources of Ghanas
imports. Part of the causes of Ghanas increasing import from China was as a result of the
introduction of the Structural Adjustment Program that not only encouraged increased
liberalization of imports but created an austerity environment that made importers look towards
cheaper sources (Joshi, 2002).
In the perspective of explaining China and Ghana trade, the product composition of trade clearly
suggests that resource endowment is the reason for trade in primary commodities while
competitive advantage explains the trade in manufactured goods. In other words, because China
has productivity advantage in manufactured goods it exports more of these goods to Ghana,
whereas Ghana is endowed with huge primary resources and thus exports more primary goods to
China. Apart from this, it was reported that Ghanas businessmen import sub-standard products
from China by costume ordering lower quality product specifications. In a paper by Jenkins &
Edwards (2005) this was confirmed by firms in China which said Chinese firms do not produce
sub-standard goods generally but produce to the specification of Ghanaian importers. The paper
further explained that Chinese products are of different grades of quality and are targeted at
different types of consumers. Most of the Chinese products in the Ghanaian markets are of low
quality and the prices are relatively lower. Thus they basically meet the demand of low income
groups. To a reasonable extent these groups of consumers benefit from inflow of Chinese products
(IMF, 2014). However, with respect to the quality of Chinese goods, imports from China has
reduced in recent years as it is shown in table 2. After 2012, the amount of Chinese goods as a
percentage of total imports has fallen significantly in 2013 and 2014. The issues of low quality
goods from China has scared off domestic importers in Ghana. In recent years these importers
import from other Asian countries with cheaper prices but of better quality than the Chinese goods
(Tilelioglu & Al-Waqfi, 1994).

11

% change in
imports from
China

Ghana imports
Ghana's total
Years
from China
imports
2001
145885
3153792
2002
182305
20%
3175670
2003
321786
43%
3210160
2004
510400
37%
3840917
2005
672424
24%
4878389
2006
803092
16%
5328825
2007
1228016
35%
7278290
2008
1747886
30%
8536051
2009
1533701
-14%
6464803
2010
1932872
21%
8057141
2011
3109948
38%
12602676
2012
4790753
35%
13578113
2013
3946028
-21%
12787233
2014
4134193
5%
15193638
Table 2: Showing the import data between 2001 2014 (figures in 000)

Chinese goods as a
% of Ghana total
imports
5%
6%
10%
13%
14%
15%
17%
20%
24%
24%
25%
35%
31%
27%

Trade Balance
This paper studies how merchandise trade between Ghana and China has had an impact on Trade
balance in Ghana during the period 2001 2014. From table 3 and figure 3, we realise that the trade
balance of Ghana has always been a negative figure from 2001 to 2014. This in effects means that
Ghana has for the past 14 year has suffered a trade deficit, which is as a result of the negative
difference between the exports and imports of the country. From figure 3, we realise that even
though the past decade and a half in Ghana has suffered a deficits. Some years had their deficit
increasing faster than other years. For instance in the percentage increase in the trade deficit peaked
in 2004, where there was about 50% increase in the trade deficit of Ghana. Merchandise imports
increased by 13 percent resulting in the trade deficit increasing by almost 50 percent. This was
caused, to a large extent, by a substantial increase in non-oil imports. Non-oil imports increased
by 21.5 percent in 2004 compared with a 10.4 percent increase in oil imports (IMF, 2014).
Considering figure 3, we notice that all the years been looked have negative trade balances. This
was as a result of the changes in the composition of exports and imports which also had a ripple

12

effect on the trade balance. For instance, from 2001 to date Ghanas import composition is made
of manufactured goods like phones, clothes, shoes, plastic bowls, toys and processed foods. This
increasing amount these merchandise is one of the main reason why Ghanas non- oil imports are
high, which also aggregately increases our trade deficit.
Years
Trade Balance ($)
Real GDP ($)
2001
-97309
5314909954
2002
-107764
6166330136
2003
-147297
7632406553
2004
-292807
8881368538
2005
-354075
10731634117
2006
-465235
20409257610
2007
-773365
24758819718
2008
-928015
28526891010
2009
-789820
25977847814
2010
-1009672
32174772956
2011
-1804256
39566292433
2012
-1780632
41939728979
2013
-1822876
47805069495
2014
-1989704
38616536132
Table 3: Showing the trade balance and real GDP of Ghana (Trade balance is in 000)
The findings show that the export trade from Ghana to China is very low compared to imports.
The composition of exports to China shows the absence of manufactured goods. It is quite obvious
that the industrial sector in Ghana is being challenged with the increased imports of manufactured
goods from China. These industries face competition both in the internal and external markets.
Given that most of these industries are currently poorly developed and claim to still be infant
industries, Ghana has to find policies that will deal with the increasing trade deficit that may occur
if Chinese imports continue to grow coupled with job losses and the obstruction of economic
diversification.

The Relationship between Ghana Trade Balance and Its Real GDP
A trade deficit may take away from a countrys GDP. The GDP is calculated as Consumer
Spending (C) plus Business Investment (I) plus Government Spending (G) plus Exports (E) minus

13

Imports (I). Imports therefore reduce the size of a countrys GDP. However, from figure 4, it is
notable that despite the increasing in the trade deficit from 2001 to 2014 GDP has also been
increasing steadily throughout this period. Therefore it is evident by the positive correlation
between the Ghanas GDP and the trade deficit. This could be explained by the fact that the Ghana
is a demand-based consumer society with a negative savings rate. In addition, as the Ghana evolves
into a more industrial society, the products that individuals demand will no longer be made in the
country. Hence, producers will import intermediate goods and machines to be able to meet both
domestic and international market demand. As a result as more intermediate goods and
machineries are imported a trade imbalance may be inevitable. However since these imports will
be used in production, it may lead to an increase in Ghanas Gross Domestic Product.

Conclusion and Recommendation

This study used Ghanas import from and export to China to determine the impact on trade balance
in Ghana by using trend analysis from the period 2001 2014. This import and export only takes
into consideration trade in merchandise. This research found out exactly what may be the cause of
the changes in export and import values from 2001 to 2014. From the result of this study, there is
a negative impact of the composition of Ghanaian exports to China on the Ghanaian trade balance.
This means that, an increase in the export of traditional and unprocessed merchandise will make
our exports less attractive to companies in China. This will lead to a reduction in demand. Hence
having a negative effect on trade balance. Furthermore, trade balance also remains as one of factors
that are very important in the determination of Ghanas GDP. This study further revealed that
However since 2002 the gap between Chinas share and the total has been widening showing that
even though there has been an increase in the importation of goods from China. This means total
imports from other countries are also on the rise because in recent years the value of Ghanas
import from China has fallen significantly. It is seen that even though Ghana imports from China

14

has fallen in the past years, Ghana still suffers an increasing trade deficit. This supports the
argument of increasing the exports of processed products in order to reduce the trade deficit.
Finally, the study using trend analysis showed a positive relationship between Ghanas trade deficit
with China and its real GDP. A possible reason is that Ghana is still on the ladder of
industrialization to outsource a lot of intermediate products and machinery for production, this
may cause Ghanas total imports to exceed its total exports. This may lead to a negative trade
balance even though GDP may be growing. It is important to note that this reason may not be
sufficient enough for the existing relationship between trade deficit and GDP because there may
be other unconsidered factors that influence the rise or fall of the GDP. Further research should
take into consideration running a regression that tests whether trade balance is statistically
significant in the determination of the GDP.

15

References
China. 2013. Chinas African Policy. Ministry of Foreign Affairs of the Peoples Republic
of China.
Ghana Investment Promotion Center (GIPC). 2014.
Helpman, E. (1984). A Simple Theory of International Trade with Multinational
Corporations. Journal of Political Economy 92, 451 71.
International Monetary Fund (IMF). 2014. Direction of Trade Statistics
Institute of Statistical, Social and Economic Research (ISSER). 2014. State of the
Ghanaian Economy
Joshi, R. (2005). International Marketing. New Delhi and New York: Oxford
University Press and New York.

Jenkins, R. &Edwards, C. (2005). The Effect of China and Indias growth and Trade
Liberalisation on Poverty in Africa, Dept for International Development, DCP
70, London: DFID
Kandil, M. (2009). Exchange rate fluctuations and disaggregate economic activity in the
U.S.: Theory and evidence. Journal of International Money and Finance 21, 131
Kaplinsky, R. & Morris M. (2006). Dangling by a thread: How sharp are the Chinese
Scissors? Mimeo, Brighton: Institute of Development Studies.
Ram, R. (1985). Exports and Economic Growth: Sine Additional Evidence. Economic
Development and Cultural Change 33, 415 452.
Sena, V. (2004). The return of the prince of Denmark: a survey of recent developments in
the economics of innovation. Economic Journal 114 (496), 312332.

16

Thomas, D. & Grosse, R. E. (2005). Explaining Imports and Exports: A Focus on NonMaquiladora Mexican Firms. Multinational Business Review 13, 25 40.
Tilelioglu, A. & Al-Waqfi, M.A. (1994). Structure and Determinants of Imports Demand in
Small Open Less Developed Countries: The Case of Jordan. Dirasat 21, 7 23.
Kandil, M. (2009). Exchange rate fluctuations and disaggregate economic activity in the
U.S.: Theory and evidence. Journal of International Money and Finance 21, 131
Helpman, E. (1984). A Simple Theory of International Trade with Multinational
Corporations. Journal of Political Economy 92, 451 71.
Trade statistics for international business development. (n.d.). Retrieved April 05, 2016,
from http://www.trademap.org/Bilateral_TS.aspx

17

Appendix
Total Exported Figure
20000000
18000000
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ghana Exports to China

Total Exported

Figure 1: A graph showing the exports to and total exports of Ghana.

Source of data: World Bank

Import Figure
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ghana

Ghana's total imports

Figure 2: A graph showing the import and total imports of Ghana.

Source of data: World Bank

18

Trade Balance
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-500000

-1000000

-1500000

-2000000

-2500000

Figure 3: A graph showing the trade balance between Ghana and China.
Source of data: World Bank

% Change in the Trade Balance and GDP

60%
50%
40%
30%
20%
10%
0%
-10%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

-20%
-30%
% Change in Trade Balance ($)

% Change GDP ($)

Figure 3: A graph showing the % change trade balance and real GDP between Ghana and China.
Source of data: World Bank
Formula
Written out, the equation for calculating GDP is:
GDP = private consumption + gross investment + government investment + government
spending + (exports - imports).
GDP = C + I + G + (X - M)