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Feature Article of Saturday, 9 June 2012

Columnist: Nchor, Dennis

Structural Transformation and Economic Diversification in Ghana

: The Role of the 2012 Budget

In spite of investments after independence in industrialization, education, infrastructure and series of reforms, Ghana has still not registered any appreciable structural transformation and diversification of the economy to deliver high output, employment and poverty reduction against the backdrop that she has signed several human rights obligations to which she must respond. The country’s inability to meet these rights obligations is due largely to the nature and character of her integration in the international system where she is assigned the role of an exporter of primary products and a consumer of imported manufactured goods and services through over liberalization of the economy.

Against the backdrop of the oil find and high public expectations, the type of investments made by government in the budgets, especially in the next two to three years, will determine whether there will be qualitative structural transformation and diversification of the national economy or not. Even though some form of growth is often imposed on the economy because of Ghana’s, like many African countries, transition to a more urbanised and services-dominated economy, we are concerned with the nature of this growth, especially whether it is pro-poor, inclusive and sustainable as well as how the benefits of growth is distributed. Factors driving Ghana and other African countries’ economic transition include: the population dynamics, decreasing role of the agricultural sector without improved productivity of the manufacturing sector, rural-urban migration and the ceding of space in labour-intensive and low skilled manufactures by the newly industrialising countries.

The national budget has become the fundamental tool for operationalising government’s policies and priorities. It is in this context that this study on the impact of the 2012 budget on structural transformation and economic diversification of the national economy and its human development implications became relevant. In terms of human rights, the UNDP human indicators in Ghana show mixed prospects towards progressive realization. Social allocation is increasing mainly as a result of the contribution of the funds from the oil revenue (Annual Budget Funding Amount-ABFA) which when managed properly will improve the social sector. Public expenditure and social priority ratios are declining. Human expenditure ratio also dropped sharply by 3.1% in 2012 indicating the performance of total poverty reduction allocation to that of GDP which may not augur very well for the further reduction of poverty.

With regards to the nature and structure of the economy there exists a great similarity between the current system and the colonial and economic model and stresses the need for structural changes in the economy. In particular, it finds the need for diversification of the country’s product mix, with a view to carving out new niches beyond the prevailing system, capable of producing the desired economic transformation.

The agricultural sector has been overtaken by the services sector in terms of contribution to GDP though the sector still employs a large proportion of the labour force. Growth rate of the sector in 2011 showed a decline and this was attributed to stalling performance of some of its subsectors. The services sector recorded the highest growth in the economy but this growth was propelled by the telecommunications subsector raising questions about the impact of the growth on poverty reduction. Growth in the industrial sector was largely contributed by the oil exploration and mining activities. This is expected to continue leading to high overall growth in National GDP.

The economy remains largely agrarian and is devoid of several sectoral clusters that are needed to stimulate the necessary growth in output, create job opportunities whiles generating the needed income levels for the labour force.

There is a failure of trade and employment policies implemented in Ghana to transform the economy from a primary producer to a producer of value added goods and services while the country remains a net importer of foreign goods. The policy environment has not been conducive to technological adaptation and transfer and therefore needs to be re-examined and strengthened to support the industrial sector. The Executive arm of government should report at least once a year to Parliament on all the steps taken for achieving constitutional policy objectivesespecially the realization of basic human rights, a healthy economy, and the rights to work, good health care and education.

The State must guarantee a fair and realistic remuneration for production and productivity, even and balanced development of all regions of Ghana especially improvement in the conditions of life in the rural areas and the assurance of the basic necessities of life for its people as a fundamental duty.

The agricultural sector should be adequately supported in a way that prevents it from suffering neglect under the newly found oil and gas sector as has been the case in Nigeria and Gabon. It suggests a need to pursue an integrated approach towards the implementation of the country’s elaborate industrial policies into practice tapping from the new opportunities offered by the petroleum sector. The privatisation of public institutions did not yield the much expected dividends. Government is therefore cautioned against the call in some quarters for further privatisation of state enterprises.

Strong intervention by the state in a way that favours sustainable development is recommended. Although role of the private sector as an engine of growth is acknowledged, the state should play a legitimate and active role in ensuring transformation and diversification of the national economy through a nationally owned development framework, especially identifying and promoting a cluster-based development framework among others. The industrial sector needs restructuring to be in a capacity to make more contribution to national output and exports.

The state needs to maximise the benefits of the petroleum sector through the development of local capabilities, the achievement of ninety percent (90%) local content and develop the oil and gas allied industrial sub-sector for the rapid transformation of the national economy.

Last but not the least recommendation is that, the national budget should place emphasis on sustainability, equity and long term human and infrastructural development to pave the way for the much needed rapid socio-economic transformation associated with transparent and accountable national budgets.

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