Economic Management versus Structural Change: What was Ghana’s story in the last eight years?

market-womanArguably, the Ghanaian economy was more macroeconomically stable in the last eight years than the preceding one.

To explain, annual inflation from 2001 to 2008 ranged between 32.9 percent (recorded in 2006) and 11.0 percent (recorded in 2001), representing an average of 17.99 percent compared to the period from 1993 to 2000 when annual inflation averaged 29.50 percent, in the range of 59.5 percent (in 1995) and 12.4 percent (in 1999).

Interest rates have generally followed inflationary trend with instances where the benchmark 91-day Treasury bill rate dropped to single digits per annum in the last eight years, compared to the modal treasury bill rate of 40 percent five years before 2001 (treasury bills replaced Bank of Ghana bills in 1996).

Developments in the exchange rates of the cedi to trading partners also explain the point. For instance, in the immediate past eight years, depreciation of the cedi to the US dollar ranged between 1.4 percent (in 2006) and 25.45 percent (in 2008) compared to an annual depreciation of at least 35 percent during the eight years before 2001.

A number of journals hailed the immediate past eight years as a period of good economic management. This was supportive of private sector activity, which largely accounted for the economic growth recorded over the period.

Growth, or growth and development?

From a real gross domestic product (GDP) growth rate of 4.2 percent in 2000, the economy sustained growth to 6.4 percent in 2006 before slipping to 6.2 percent in 2007. An average growth of 4.3 percent was recorded in the preceding eight years to 2001.

This trend is encouraging but it is short­-lived by the fact that the sustained growth that was witnessed was at a low pace of structural transformation.

To explain it simply, Ghana’s economy from the ages, has ridden on the back of agriculture for growth and on gold and cocoa for export revenue. In the last eight years, the agricultural sector and the two commodities still maintained their place as key determinants of the status of the economy, be it in terms of value for growth or for exports.

The annual contribution of the agricultural sector to growth indeed reduced from 40 percent average, eight years before 2001 to an average of about 35 percent in the eight years after, but of course, this was not enough to undermine the leadership role of agriculture in Ghana’s GDP.

The industrial sector’s share in GDP rose from 17 percent in 1990 to 25 percent in 2003 and further to 26 percent in 2007.

Though the services sector maintained its place as the second largest GDP contributor, it fell from 38 percent in 1990 to an average of 29.9 percent in the last eight, years.

Clearly the fundamental structure of Ghana’s economy has not changed. The external sector buttresses it, where gold and cocoa are yet to lose their place as the leading export earners for the country.

The country’s earnings from gold increased from US$1.27 billion in 2006 to US$1.73 billion in 2007. Cocoa dropped from US$1.04 billion in 2006 to US$946.26 million in 2007. The third largest single commodity foreign exchange earner timber and timber products earned US$198.58 million in 2006 and US$250.13 million in 2007.

All non-traditional exports put together do not beat gold or cocoa. Value from this source was US$678.43 million in 2006 and US$920.93 million in 2007.

To note that Ghana is a net importer of high value food products alone explains that the transformation of the economy through industry is yet to be realized. In 2006, the country imported a total of US$384 million high food products compared to its exports which were valued just a little over US$100 million (produced specifically for the export market and not as a result of excess domestic supply).

High value food products are industry processed foods, usually consumed by the middle and high class and sold through supermarkets and stores.

Data from the Ministry of Trade and Industry shows that of the total US$1,200 million retail food sales recorded in the country in 2006, only 15 percent were processed locally, eight percent were partly processed and packaged locally and 32 percent represents imports of processed food. The rest were made up of fresh food stuffs, vegetables, fruits, meat and fish, which were sourced from both local and foreign sources.

In the limit, the economist would describe the last eight years as a period of “growth without development.” The structural change that was needed, depicted by more value addition to primary commodities to hasten the path towards convergence with emerging countries like India, Malaysia and South Korea is yet to be realized.

The social angle

The social dimension to development may look at indicators as poverty rate, social exclusion and vulnerability, and inequality. The sustainability of the development effort is also measured against the level of protection for the natural environment.

According to 2006 figures from the Ghana Statistical Service, poverty at the national level reduced from 39.5 percent in 1998/99 to 28.5 percent in the year 2005/06 but inequality has been growing. The report categorically emphasized that urban poverty was on the surge.

The natural environment is also negatively impacted by an unregulated population explosion, especially the menace of migration of the teeming unemployed rural poor to the cities.

This growing segment of the city’s population is very vulnerable. Apart from becoming street dwellers who take over every available pavement attached to buildings and road infrastructure for trading and hawking purposes during the day and sleeping place at night, they are also widely exposed to the consequences of engaging in all kinds of social vices.

Even though the population growth rate has reduced from its high level of three percent in 1994 to around 2.7 percent in 2000, it continues to outstrip the provision of social services and infrastructure across the country.

Reports by the Environmental Health and Sanitation Directorate of the Ministry of Local Government, Rural Development and Environment indicates that only 30 percent of solid waste generated daily by the nation is managed. The 70 percent deficit accounts for the incremental heaps that are found in almost every corner of cities like Accra, Kumasi and Tamale.

The contribution or role of industry to the poor management of solid waste, from the small sachet water producer to the big multinational is what must be found out and addressed. Given the degradation suffered by the environment due to such externalities, one wants to query the actual value of the economic growth that was experienced over the last eight years.

To where from here

The National Democratic Congress (NDC) party that has just taken over the governance of the country should first and foremost direct attention to expansion of the real economy. Each sector deserves attention to the extent of exhausting its potential but the growth must be industry led to achieve structural transformation. This must be approached as a basis for achieving macroeconomic stability as well as drawing back the teeming unemployed migrants in the cities back to their former base.

The fragile economy as it has been can only become strong and be able to withstand shocks effectively if its real constituents are well built. This must be done by emphasizing the private sector, and enhanced framework of public-private partnership.

The economic growth agenda and aiding policies must, as a matter of urgency, be used as a tool to restore hope to the unemployed and low income earners.

From what has been espoused, the NDC is being urged to pursue growth and development. It should leverage on its already predisposed-governance philosophy by restoring dignity to the Ghanaian in terms of housing, housing policies and other social amenities.

Credit: Moses Mozart Dzawu

Source: B&FT

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