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 By many indicators, Ghana surpasses most development benchmarks for low-income countries
Ghana still remains a significant stretch away from attaining the standards of a middle-income economy, so one is right to say that the country lies somewhere between the two. This reveals two basic truths: that Ghana has done quite a lot over the years to improve living standards amongst its people, but also that its best efforts so far have not been enough to achieve its lofty economic and national goals.
The growth of Gross Domestic Product (GDP) has been consistently positive since the 1990s, even soaring to 7.3% in 2008. The incidence of poverty at 28.5% shows a remarkable decline and in many ways suggests that growth has had a meaningful correlation with welfare. Macro stability, judging by a turbulent past, is considerably better and appears to be a priority for all governments. Despite a jolt to this stable run in 2008, a return to the path of stability has been made with inflation – measured in May at 10.7% - nearing the elusive single-digit.
The Bank of Ghana (BoG), in its Monetary Policy Report of April 2010, stated that the cedi had fared strongly against its major trading currencies in the first quarter of the year, recording significant appreciations.
It also mentioned that the Bank’s Gross International Reserves (GIR) position had increased from US$1.8 billion in March 2009 to US$3.3 billion in March 2010 – enough to cover three months of imports. As impressive as these indicators are, they should be viewed against the backdrop of a similar picture before 2008, when multifaceted external and internal shocks exposed some fragility in the economy. A more important indicator of the economy’s health – employment – seems a bit trickier to estimate, leaving room for both plausible and wild speculation.
A number of things spurred Ghana’s dramatic leap from the ranks of its previous low-income peers in the sub-region. First, three decades of progressive reforms starting from the 1980s returned the economy to a predictable path of growth and kick-started efforts to alter the structure of the economy. Second, consistent economic growth has been achieved since this period, reinforcing the goodwill of international partners towards the country. Hence, the third factor is the level of increased development assistance from the World Bank and others which enhanced Ghana’s financial muscle, enabling the undertaking of massive public spending in infrastructure and growth-enhancing projects. As always, the final factor is the stable political situation that has engendered an environment conducive to sound social and economic development.
These developments are not without their downsides. The structure of the economy remains similar to what it was before, calling into question the propriety of some of the actions taken and the management of the reform process. Then external assistance brought with it a whole new ‘aid industry’ that deepened dependence and today threatens the country’s self-determination goals. With these in mind, the overall outcome is not a foregone conclusion and thus experts are already discussing the risks and prospects for Ghana as it works to achieve middle-income conditions within the next decade.
Middle-income means one basic thing: an income per capita range of US$1,000 – US$11,000. And Ghana falls short of this basic criterion with an income per capita of US$600. But there is more to look out for in the actual process of reaching this goal than a mere income target. Besides, benchmarking is more meaningful when clear pathways towards achieving set standards are known and the implications of attaining the desired goal are not only well understood, but inform the collective action taken to reach that destination.
Following the transfer of political power in 2008, the target-year was moved from 2015 to 2020. This, though, has not changed the fundamental requirement that growth must accelerate beyond the average of about 5.8% recorded in the last decade to between 7 and 8%. High growth hinges on increased investment in infrastructure where, according to a World Bank-sponsored study, an annual funding gap of US$2.3 billion exists - which is necessary to reach the middle-income goal. Power infrastructure, a crucial component of total infrastructural spending, faces funding needs amounting to US$1.2 billion per annum. This figure, according to the report, can be significantly reduced by tackling inefficiencies in the power sector that currently cost the economy 2.8% of GDP.
More spending is also needed in ICT, water provision and transport infrastructure.
Infrastructural development is every government’s way of prodding a market economy toward greater competitiveness and productive capacity. It is one crucial way of supporting an already depressed industrial sector. Industry in Ghana continues to growl about high raw material costs, expensive credit, cheap import competition and poor energy supply. Of the three main sectors of the economy, industry, under prevailing structures, looks to be a laggard in terms of sectoral contributions towards attaining middle-income growth conditions. Currently, it accounts for less than 10% of GDP – a consistently poor run over the last decade.
Agriculture is the perennial mainstay of Ghana’s economy. From about 60% contribution to GDP five decades ago, it now provides about 35% of national output and 55% of jobs. This was the typical profile of many middle-income economies at the start of their transformation process. The long-term goal would be to give industry - particularly manufacturing, a greater share of GDP. But agriculture is sure to drive growth towards reaching middle-income for two key reasons. First, it has huge potential for export diversification by focusing on high-value non-traditional exports. Second, high growth and income in the sector will have a greater impact on further poverty reduction.
Oil is set to add a new dimension to the economy. With billions of proven oil and gas reserves, and with commercial production set to begin in the last quarter of 2010, Ghana at face-value stands on the brink of colossal wealth. But this yet remains a hope as oil resource management, as is evidently clear in parts of the world, is harder than the initial search for the resource. Nevertheless, it opens up new growth opportunities that perhaps did not count in previous assessments. If the resource is well-managed alongside a strong and effective local content policy, growth would pace more quickly and greater prosperity would be the outcome.
The concept of middle-income is not without its critics. Dr. Nii Moi Thompson, a leading development economist, argues: “Development is more than attaining a middle-income level. You (Ghana) can get to middle-income level and not know what to do next.” This brings into sharp focus Ghana’s progress towards achieving the Millennium Development Goals (MDGs). Despite being close to halving the poverty rate and incremental steps towards providing universal access to primary education, public health is a serious bottleneck with maternal and infant mortality rates at uninspiring levels. Herein lays the dangers of focusing on a mere per capita income level which can be inflated by sudden inflows of foreign earnings, exchange rate adjustments and the population growth rate.
Pull-quote
Agriculture is the perennial mainstay of Ghana’s economy. From about 60% contribution to GDP five decades ago, it now provides about 35% of national output and 55% of jobs.
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