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Feature Article of Saturday, 30 April 2005

Columnist: Louis, Kimberly

The Lament of a Nation: Ghana?s SAP Experience.

When Ghana emerged politically independent from colonial domination in 1957, the first country in sub-Saharan Africa to do so, there was tremendous hope for a new age of structural and social changes ? otherwise deemed ?development?. The country possessed a stable economy based on natural resources such as timber, gold and cocoa (of which Ghana was the world?s leading producer). There was relatively high per capita income, low national debt, and sizeable foreign currency reserves. The education system was relatively advanced, and ?its people were heirs to a tradition of parliamentary government?. As one observer noted at the time, ?Ghana?s future looked promising, and it seemed destined to be a leader in Africa.?

However, the high hopes of Kwame Nkrumah (Ghana?s original nationalist leader) and the Ghanaian people have dwindled as they have yet to realize the fruits of development that they were hoping for during the struggle for liberation. The following quarter century saw Ghana teetering toward bankruptcy; with dried up foreign reserves, plummeting GDP and serious national debt among other economic woes. Kwame Nkrumah?s removal from office is perhaps one of the most devastating things that happened to this vibrant West African nation. Between Nkrumah overthrow and the early 1980 could best described as catastrophic. Beginning in the early 1980s, through to the mid 1990s attempts were made to rebuild the government and restore Ghana?s tarnished image. The reconstruction efforts fell under the application of IMF and World Bank sponsored Structural Adjustment Programs (SAPs). The Bretton Woods institutions have touted Ghana as one of the best examples of successful economic restructuring in Africa. This however is a false representation. The ramifications of these ?successful? programs have produced dire costs to Ghana. These reflections will examine the impact of these adjustment programs in Ghana and prove that the SAPs have not been totally beneficial to Ghana?s development as is often claimed by the IMF and World Bank.

Social science thinking during the early period of independence argued that the path to development that would move Ghana from its supposed underdeveloped state, alleviate poverty and improve the quality of life was the one successfully taken by Western European countries and the US. The ?modernization? paradigm saw development as a linear path through which societies must journey in order to develop. This implied that Ghana was to follow the same patterns that had been pursued in earlier decades by North America and Western Europe, and had resulted in significant changes in these societies. The process of development was thus portrayed as unilinear, requiring the then developing countries to jettison certain behavioral, social and cultural traits that were considered to be anti-development, in favor of European traits. This would enable them the argument went at the time, to achieve the characteristics of modernity.

The basic approach was to seek economic growth at all cost by concentrating on increasing the gross domestic product (GDP) and the gross national product (GNP) with the hope that the benefits thereby accrued would ?trickle down? to the whole society at large in the form of jobs and other economic opportunities, or create the necessary conditions for the wider distribution of the economic and social benefits of growth. However, the years after independence saw the failure of the transformation to modern industrial societies, and the failure of the anticipated ?trickle down? effects to materialize. That notwithstanding, years later the World Bank, the major industrialized nations and aid granting agencies, still prescribed policies aimed at achieving economic growth measured in terms of GNP and GDP, and resultant ?trickle down? benefits. The new ?goddess of growth at all cost? was christened ?Structural Adjustment Programs?. In effect, like modernization, SAPs seek to get rid of, or minimize the impact of, the so called internal constraints or bottlenecks that are perceived as being the major factors responsible for the state of underdevelopment, and to openly embrace capitalism as the ideal path to development.

Structural adjustment can be defined as the process by which key institutions and policies are reconstructed with the intent on advancing economic growth, bettering resource allocation, improving economic efficiency and increasing the economy?s resilience to changes in its domestic or global market. This process is normally supported by policies designed to achieve sustainable deficit reduction and to reduce the rate of price inflation. The SAPs are designed by the World Bank and the IMF, and are administered to debtor countries as a pre-condition for debt relief, or the acquisition of new loans or the attraction of foreign investment. SAPs most often consist of two parts: shorter-term stabilization and longer-term adjustments. Stabilization measures are primarily designed to reduce short term imbalances between demand and supply, which are normally manifest in balance of payment and budget deficits, while structural adjustments seek to address a wider range of obstacles to growth, many of them limiting the ability of the economy to increase supply.

According to a 1994 World Bank report on adjustment in Africa, the Bretton Woods agencies claim that the implementation of SAPs almost invariably leads to poverty reduction and bridges the gaps between the rich and the poor and between the rural and urban areas, and that countries that adjust tend to be better off than the non-adjusting ones. With these deemed ?invariable? benefits how then can these institutions boldly tout Ghana a success story of SAPs? Arguably Ghana did experience a significant transformation over the years with its development programs; the country?s woeful economic situation in the pre-1983 did improve based on standard economic indicators. In addition to other things SAPs have produced consistent GDP growth of 4-6 percent, a tremendous increase from an annual average of 1.5 percent in 1970-83. Ghana has been experiencing continuous positive rates of per capita income GDP growth of more than 2 percent a year. Also notable is that real incomes per head have also grown by an average of 2 percent. SAPs have also resulted in improvements in infrastructure services, and a shift towards developing non-traditional export goods like arts and crafts and horticultural produce. Furthermore, industrial capacity expanded from about 25 percent of installed capacity before 1984 to 35-46 percent in the 1990s, while exports goods production more than tripled between 1986 and 1998. More significant, annual inflation also dropped from 123 percent p.a. in 1984 to 10 percent in 1999. The programs have also boosted international confidence in Ghana?s economy and therefore helped to attract foreign capital especially in the areas of telecommunications, banking, mining and infrastructure.

These are the impressive improvements that have been attributed to SAPs and in the view of the Bretton Woods institutions made Ghana a model for others to emulate. However as impressive as these improvements are, one must beg the question how much has Ghana really ?developed?? Has development taken place? Are growth rates in GNP and GDP and other seemingly numerical improvements conclusive signs of development? The development programs have involved significant borrowing over the years, to the extent that Ghana is listed among the 41 highly indebted poor countries (HIPC) in the world. Its total external debt amounted to approximately US$7,510 billion in 1999, 75.6 percent of which are multilateral debts. In addition, Ghana?s total debt has been growing at an average of 7 percent each year since 1987 and now amounts to over $350 per person. The result of the extensive borrowing under the SAPs is the fact that debt service now absorbs a large portion of Ghana?s exports revenues. The debt service ratio increased from only 3.7 percent of export goods in 1977 to 45 percent in 1987; the debt commitment is far too high and has greatly eroded the ability of the state to cater for educational, health and other needs.

The IMF alone receives close to one third of Ghana?s expenditure on external debts, and the Bretton Woods agencies, in addition to other multilateral organizations based in the G-7 nations receive more than 70 percent. The rest is owed to these powerful nations who also dominate the IMF and the World Bank. The influence of the G-7 nations on the two Bretton Woods institutions (who are the architects of the adjustment programs), allow those nations to promote open and free markets, which is profitable for the developed countries but not for the fragile economies of many developing countries. The powerful countries also benefit in a more direct way from the loans given by the World Bank to the developing countries. In 1992, for instance, the recipient countries to purchase foreign goods and services used more than half of the World Bank?s loans. With the evidence available, one must concur with Hittle?s argument that ?the World Bank is a body whose loans allow a country to go into debt in order to purchase developed country goods or developed country advice.? The vast external indebtedness and the very high proportion of export earnings allocated for debt servicing have had dire ramifications for adjusting countries like Ghana who have lost their ability to use their earnings to service their own socio-economic programs and to make long term investments. According to a 1999 UNICEF report Ghana now spends about four times more on debt servicing than on health care.

Another prominent feature of SAPs, which has had disastrous ramifications on the Ghanaian economy, is the massive devaluation of the Ghanaian currency, the cedi. Owing to SAPs mandated currency devaluation, the value of Ghana?s currency vis a vis the US dollar, has been reduced by over 120,000 percent over the years (i.e. from 2.75 cedis = US$ 1 in 1983 to 3400 cedis = US$ 1 in 1999). While the principal purpose of currency devaluation is to stimulate exports by making export products cheaper, this strategy has not worked well for Ghana since the country?s primary produce have to compete with those of other developing countries producing similar commodities, and using the same devaluation strategy. The IMF stimulates all the poor countries to simultaneously lower prices and to produce more for a market, which is already saturated. As a result, the country faces the prospect of having to exploit and export more resources in order to reach or exceed previous earning levels. More so, devaluation leads to higher import prices, which is often harmful for developing countries as imports often make up a large share of the economy. Ghana?s dependence on imports for essential supplies such as fuel, medicines and machinery has made SAPs unconditional devaluation a serious burden. The effects of higher import prices has been to increase the cost of living through its effects on the prices of all items that are either imported or is manufactured or serviced with imported components and fuels. In this case virtually everything bought or sold in Ghana is affected.

The period of adjusting has seen considerable cut backs in both government and private sector employment; due to another salient feature of SAPs that require the governments of adjusting countries to cut back on public sector employment and thereby reduce government expenditure and improve public sector performance. Between 1983 and 1992, 200,000 public sector employees were retrenched. The Cocoa Marketing Board alone retrenched 40,000 workers in 1985, and an additional 12,000 were retrenched in 1987. The private sector also retrenched more than 48,000 workers between 1987 and 1995. The huge cut backs by both government and private sector have diminished the size of the labor force in formal sector employment to less than 10 percent. This has resulted in high levels of unemployment and underemployment especially among educated people, including university graduates, who have traditionally been employed by this sector.

SAPs also require that the state in adjusting countries make drastic cuts in government expenditure on social services like education, health and welfare. Therefore the Ghanaian government, in order to meet these conditions, made an onslaught on these services and shifted a significant portion of the cost to the beneficiaries of these services by introducing user-pay system for health and education. Although state expenditure on health care may have fallen from 8.2 percent of public expenditure in 1974 to 4.3 percent in 1983 prior to the introduction of the restructuring programs, the era of SAPs has worsened the situation. The insufficient funding of the public health sector has caused a number of problems that include dilapidated, outmoded and insufficient infrastructure, understaffed facilities, low pay and low morale that has resulted in massive brain drain of health professionals out of the public sector health system and also out of the country. The rural areas do not receive a fair share of the health care budget and one?s place of residence determines to a great extent one?s access to available healthcare services. Acute malnutrition has also been a fact of life in an era of SAPs. A 1990 report by the United Nations Children?s Fund (UNICEF) showed that 30 percent of all Ghanaian children are malnourished to some degree, 28 percent of the 12 to 23-month-olds were considered wasted and 2 percent of 24 to 59 month olds were stunted. Education, like health has also suffered from government cutbacks. The introduction of a number of user fees that include book costs, furniture, and building fees has driven a number of poor children out of school. According to UNICEF in addition to the inability to pay fees, students also stay out of school because there are a large number of schools which either operate in dilapidated buildings with no protection from the natural elements, or are without a building altogether.

A contentious feature of SAPs is the impact on poverty alleviation. The World Bank maintains that the primary aim of SAPs is the alleviation of poverty; however the reality in Ghana is very contrary. There may be more poor people in Ghana now than there were in the 1970s, and inequalities between the rich and poor seem to be widening. The nation is more disillusioned more now than it was in the early 1960s. The World Bank and the IMF and supporters of SAPs tend to see development as being synonymous with economic growth measured in terms of Gross National Product per capita, however this is not the case, it is argued that the problems with this view are clear. Economic success, the argument goes, is not the same thing as welfare, and measures of economic success are not necessarily measures or indices of welfare. Dudley Seers echoes this argument when he wrote:

The questions to ask about a country?s development are therefore: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from higher levels, then beyond doubt this has been a period of development. If one or two of these central problems have been growing less, especially if all three have, then it will be strange to call the result development, even if per capita income doubled.

Therefore it can be said that contrary to what the program sponsors and the ruling government have been telling the world about SAPs in Ghana, life has not improved for a majority of Ghanaians. The nation has been sliding down the UNDP?s HDI scale. Ghana ranked 129th among 174 countries in 1995 and 133rd in 1999. The IMF has indicated that at the recent rate and pattern of economic growth, it will take the average poor in Ghana at least 30 years to cross the poverty line. The economic restructuring program in Ghana may have succeeded in improving the quality of life at the micro-level, but unemployment, poverty, and socio-economic disparities have not disappeared and if anything appears to be worse. These situations are a great cause for worry because the first nation south of the Sahara is usually perceived as the touch-bearer for countries in the sub-Saharan region of African. Even though, there had been a change in government in the 2000 general elections, from the National Democratic Congress (NDC) to the New Patriotic Party (NPP), there seem to be no change in terms of economic policy and development agenda. In any case the current ruling, NPP is seem to be flirting with the Bretton woods institutions than any government in the country?s history. Agreeably, Ghanaians have a reason to worry, because for a long time, the political elite have delegated their responsibilities to the un-elected foreign individuals sitting the in the comfort of fortified buildings in Washington D.C. Sadly, Ghana?s poor performance reflects very much the situation in many African countries and the rest of the third world. Clearly what is missing is leadership. Confident and visionary leaders would obviously confront the Bretons woods institutions with alternative development programs that respond to the socio-cultural dynamics of the region. The question that stirs everyone one in the face is; how does Ghana justify its continuous reliance on the Bretton Wood for economic salvation when it is evidently clear that such past reliance is negatively correlated to standard of living, human well-being and people centered development? Ghanaians may well reflect on this situation.

Kimberly Louis is an Honours student at Brock University, Ontario, Canada. She comes from St. Lucia in the Caribbean (the Island) but has special interest in issues affecting Africa within the global system. She is an advocate for a closer relationship between the Caribbean and African nations.

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

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