This book aims to make a further contribution to our study of the development of the economy of Ghana. The earlier volume—The Economy of Ghana: The First 25 Years Since Independence (Huq 1989)—examined the economic progress of the country since independence in 1957 up to the early 1980s. This volume takes forward the story to the present, thus enabling us to cover a period of some six decades in total.
An aspect of the Ghana story which is of particular interest is the fact that the country has, since its independence in 1957, experienced quite different forms of economic organisation and control. Initially, the country sought to achieve economic progress most often by means of a dirigiste system of economic management with government closely involved in planning and attempting to guide the course of development. This approach (as described in some detail in our previous volume) proved mostly unsuccessful, with the economy being brought to its knees by the late 1970s and the early 1980s. In the mid-1980s a complete turnaround of economic strategy occurred—a neoliberal policy characterised by reliance on market forces rather than state controls was instituted. With help from the World Bank and the International Monetary Fund (IMF), a Structural Adjustment Programme was begun (Chap. 2). Set within a four-year time span, the first year (1983) was devoted to stabilisation and consolidation, thus preparing for the launch of a three-year medium-term plan (1984–1986). This was followed by the second phase of the Economic Recovery Programme (Phase II: 1987–1989) when, among other things, there took place radical foreign exchange reforms based on a further devaluation of the cedi. Since 1989, what may be called a liberalisation strategy involving active collaboration with the World Bank and the IMF has been adopted.
Indeed, Ghana provides a good example of a developing country which started its economic life greatly influenced by a planning strategy with strong state controls and, subsequently, made a complete turnaround, adopting a neoliberal strategy which, in some way, is more liberal than followed even by some of its mentors in the Western world. The implementation of the former strategy covered a quarter century of development while the latter, adopted in the mid-1980s, is currently being actively pursued. Thus, we have a good opportunity of reviewing the strengths and weaknesses of the two diametrically opposite economic strategies which have been pursued by a developing country. It is true that notable successes have been achieved during the period of liberalisation, but one cannot deny that serious problems exist. The question likely to be asked is whether Ghana has yet found the optimal balance between reliance on market forces and state control. While the strategy of resource allocation based on severe administrative controls was found difficult to implement, there is also a danger that the neoliberal strategy might undermine the role that the state in a developing country has at times to play not only in mitigating market failures but also in promoting distributive justice. The rich literature which has developed in this regard since the early 1940s is of great help in contributing to our understanding of such pertinent issues (see e.g. Amsden 1989; Brown and Jackson 1990; Lewis 1955; Nurkse 1953; Prebisch 1950; Rosenstein-Rodan 1943; Singer 1950; Wade 1990).1
Not surprisingly, a number of critics are raising their voices against the neoliberal strategy now being pursued in Ghana. A particular criticism has been that the version of neoliberalism adopted by the Ghana Government has not been accompanied by an emphasis on the development of local private enterprise. Indeed, Opoku (2010, pp. 1–2) suggests that there has been an anti-private capital ethos within the bureaucracy, arguing that “Ghana’s patronage-based politics and the accumulating strategies of rulers meant that political—not economic considerations dominated policy making and government attitudes, leaving little room for autonomous capitalists.” Ayelazuno (2014, p. 80) is even more critical terming the application of the neoliberal ideological push generating a “paradox of growth without development.”
1.1 Achievements and Concerns
The adoption of the liberalisation strategy greatly helped the economy—not only by bringing it out of the decline which reached a critical level in the early 1980s but also by enabling it to maintain consistently positive growth rates. For the 25-year period (1990–2015), an average annual GDP growth rate of 5.6 per cent has been achieved and a highly respectable figure of 7.64 per cent during the 2010–2015 period. The growth in per capita income, which witnessed negative average annual growth rates during the 1970–1985 period, recovered and has remained positive since the mid-1980s, with an average annual growth rate of about 2.8 per cent (3.81 per cent during 2005–2010 and 5.10 per cent during 2010–2015) (Chap. 3 and Tables B.1 and B.2).
There have also taken place some positive developments in many sectors of the economy. These include agriculture (Chaps. 5 and 6). Likewise, the physical infrastructure which was collapsing in the early 1980s is now in a much better shape in most of the transport sub-sectors (Chap. 14). Similarly, both exports and imports (which almost collapsed in the early 1980s) now constitute larger shares of Gross Domestic Product (GDP), respectively 42.42 per cent and 53.83 per cent in 2015 (Chaps. 3 and 12). In exports, the contribution of gold mining has been particularly remarkable (Chap. 8). This sub-sector, which witnessed a rapid decline in output from 915,320 ounces in 1960 to 283,820 ounces in 1985, has recovered and maintained its growth since the mid-1980s, producing 3.6 million ounces in 2015. The country is also attracting large volumes of Foreign Direct Investment (FDI): as a percentage of GDP, the FDI flow had declined from 2.52 per cent in 1975 to 0.12 per cent in 1985, but since then it has been consistently increasing; the figure in 2015 was 8.43 per cent (Chap. 13). Development in the case of the banking and finance sector has also been phenomenal (Chap. 11) compared to what it was even some 20 years ago.
However, while appreciating that highly positive developments have taken place, we also need to be aware of various concerns, a number of which are listed below.
One particular problem area relates to the severe fiscal deficits which Ghana has on occasions been experiencing (Chap. 4). The negative fiscal balance which prevailed during the 1970s and the first half of the 1980s (a high figure of an average annual rate of −7.03 per cent of GDP during 1976–1980) was gradually brought down, and the corresponding figure remained positive for a number of years but, since the beginning of the last decade, turning negative (an average annual rate of −3.95 per cent of GDP during 2001–2005, −4.54 per cent during 2006–2010 and −4.95 per cent during 2011–2015) (Table 4.1). Understandably, there existed inflationary pressures, following domestic financing to cover part of the negative fiscal balance (Chap. 4). It was also necessary to incur heavy foreign debts. Fortunately, the Highly Indebted Poor Country (HIPC) status, granted to Ghana in 2001, offered a great respite.2 It is, however, regrettable that a country which was promoted by the World Bank and the IMF as a great success story of African economic development had to suffer the humiliation of joining the HIPC.
The low level of gross savings is another area of concern (Chap. 3). In Ghana, gross savings as a percentage of GDP has not only remained low but also has been showing signs of decline. From 19.99 per cent of GDP in 2012, it fell to 15.69 per cent in 2013; it increased in 2014 but fell again to 17.57 per cent in 2015. It may also be noted that over the last ten-year period, 2005–2015, gross savings as a percentage of GDP never reached 20 per cent (at 2006 constant prices, Table B.8). It may also be noted that there appears to be a belief on the part of the policy makers that the flexible interest rate on savings (providing a positive interest rate to attract savers) will help to serve the purpose of raising savings. It is true that those advocating the neoliberal agenda do not specify this explicitly but their reluctance to argue for a specific government role for making a deliberate attempt to raise the savings rate needs to be questioned, especially given the serious savings deficiency relative to what is required to maintain the desired high GDP growth rate.
The continued heavy dependence on primary produce is also another area of concern. It is true that with the increase in the GDP share of the services sector (as high as 50.60 per cent of GDP in 2015), there has been a significant decline in the share, for example, of agriculture (21.66 per cent of GDP in 2015) but, including mining, the share of the primary produce was still around 30 per cent in 2015. Such dependence becomes particularly stronger when it comes to exports which are dominated by primary produce (over 70 per cent in 2015, with minerals accounting for 32.1 per cent, and cocoa 19.5 per cent) (Chap. 12). Such a heavy dependence on minerals, which are an exhaustible resource, is an obvious cause for concern. Furthermore, in the economic literature, a strong argument has been made focusing on the secular deterioration of the terms of trade when a developing country continues to depend on the export of primary produce as an engine of growth (see e.g. Nurkse 1953; Prebisch 1950; Singer 1950; See also Chap. 12).
Related to the above, the failure of the economy to diversify, especially to develop the manufacturing sector is another matter of serious concern. The normal expectation would be that a developing country such as Ghana, in order to diversify its economy and also achieve employ...