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Ghana’s economy: hope rekindled

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Ghana’s economy: hope rekindled

Ups and downs give way to cautious revival
From Africa Renewal: 
UN Africa Renewal / Ernest Harsch
Cameroon and 16 other African countries celebrate their 50th anniversary of independence this yearDrying cocoa in Ghana’s Ashanti Region: Will cocoa, the economy’s mainstay for the past century, now be joined by oil?
Photograph: UN Africa Renewal / Ernest Harsch

When the church bells rang across the city of Accra to signal the birth of modern Ghana, it was a period of hope and optimism for a better future. Victor Adams was in his home village of Shiashi, a suburb of the Ghanaian capital. At the time, in 1957, Shiashi had no electricity, roads or piped water. "There were only eight of these houses in the entire village," recalls Mr. Adams, as he points to a mud house.

"This part of the village was bushy and we farmed the land," he says of what is now one of Accra's high-priced residential areas. Today a tract of land measuring 100 metres by 80 metres can fetch the equivalent of US$65,000, according to Mr. Adams, who manages the family-owned land. Prices are being pushed further up by the exponential expansion of the nation's capital.

Shiashi and its surrounding areas have been transformed since independence. But signs of underdevelopment still abound, including poor sanitation, unpaved roads and makeshift homes. In a way, the story of Shiashi reflects Ghana's uneven economic and social development over the years. Mr. Adams, a middle school student at the time of independence, says, "Our country could have done better." It is a feeling shared by many Ghanaians.

The early decades

At independence, Ghana had a relatively good education system. It held foreign reserves of about US$481 mn, and its gross domestic product (GDP) was on a par with those of Malaysia and South Korea. It could afford to provide assistance to some of its African neighbours.

But as in other African countries after independence, there followed decades of political instability and economic collapse. The question of why Ghana's fortunes declined "is a deep one," says Ishac Diwan, the World Bank country director in Ghana.

Ghana's first president, Kwame Nkrumah, pursued a strategy of state-directed economic growth. Many of his grand projects later collapsed as revenue from cocoa, the main source of foreign exchange, dived with the fall in world prices. Some of the state corporations provided Ghanaians with social benefits, but those were "expensive in economic terms," notes Joe Abbey, head of the Centre for Policy Analysis, an independent think-tank. "The reality is that a lot of them were making losses."

Later, in the 1980s, much of the country's manufacturing sector, including the garment industry, collapsed after Ghana adopted the now-discredited structural adjustment programmes pushed by the World Bank and the International Monetary Fund.

On the political front, the overthrow of Mr. Nkrumah in 1966 initiated a series of destabilizing coups. When there were elections, no leader could complete a full term. That changed only after Flight Lt. Jerry Rawlings transformed himself from a military ruler into an elected civilian president in 1992. His transfer of power to a democratically elected opposition in 2000 marked the start of the reversal of Ghana's political fortunes. According to Mr. Abbey, no one can deny the role of President Rawlings in helping to return Ghana to democratic governance. "You can't take it from him."

Marketplace in northern Ghana: Although economic growth has been strong, the economy remains poorly diversified and faces energy constraints.Marketplace in northern Ghana: Although economic growth has been strong, the economy remains poorly diversified and faces energy constraints.
Photograph: UN Africa Renewal / Ernest Harsch

Turning the page

In the last decade Ghana has enjoyed strong economic growth rates, rising from 5.4 per cent at the start of the decade to 6.3 per cent in 2008. If growth can be maintained at 6 to 8 per cent, some hope, Ghana may be able to achieve middle-income status by 2015.

Economic growth and fiscal expansion have also allowed for significant progress towards some of the UN's Millennium Development Goals (MDGs), according to a March 2010 World Bank report on Ghana. Ghana is on track to attain the goals for primary school completion rates, gender parity in school enrolment and access to water.

"I think Ghana is a good example of what can be done with stability and openness," says Mr. Diwan. "We saw agriculture based on small-scale production increase at 5 per cent year after year. We saw services emerge. And we saw a more competitive financial sector."

Energy crucial

The economy, however, is only poorly diversified. For a century cocoa has been the economic mainstay. Agriculture contributes about three-quarters of export earnings, but is still mainly rain-fed, small-scale and labour-intensive. Post-harvest losses run at 30 to 35 per cent. The government has embarked on large-scale mechanized farming, especially in rice production, but that requires massive investments.

Industry is struggling with high input costs, high interest rates and inadequate infrastructure. Still, Ghana spends about $1.1 bn, or 10 per cent of its GDP, on infrastructure, according to a March 2010 Africa Infrastructure Country Diagnostic Report, published by a consortium of donor and African institutions. Perhaps the "most pressing challenge," it says, is the supply of energy. Ghana largely relies on its rain-dependent Akosombo hydroelectric dam for electrical power, but with its emerging oil and gas sector, the authorities are looking to promote gas-fuelled power generation.

The institutional weaknesses of the West African subregion are also an obstacle, says Mr. Abbey. Mr. Diwan agrees. "Opening of the barriers in the whole of West Africa is very crucial" to expanding the domestic market, he says.

Oil on the horizon

Recent oil discoveries have increased hopes of an economic breakthrough. Oil, says Mr. Abbey, may be able to break "the chains that are paralyzing Ghana and its industries and making us uncompetitive."

While opportunities beckon, there are risks as well. Mr. Abbey notes the common phenomenon of the "resource curse," in which poor management of oil, diamonds or other natural resources can distort economies and breed corruption. Oil production, adds Mr. Diwan, "should be approached with open eyes," since the social impact could be huge.

The government insists it is determined to get it right. With support from donor agencies, the government is revising the legal codes that govern oil exploration and production, local participation and revenue management. In addition, a strong and dynamic civil society has emerged in recent years and is pushing for transparency and accountability.

There are reasons to be optimistic. "There is a lot of robustness in the movement towards progress," says Mr. Diwan. "We are building on a well educated population, large private sector and pretty organized government." In managing its oil, he believes, Ghana will succeed where other African countries have failed.