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Opinions of Thursday, 6 March 2008

Columnist: Ossei, Nana Yaw

Challenges of the Ghanaian Economy.

For Ghana to achieve Middle-Income Status by 2015, there is an urgent need to change the structure of the economy. There are certain challenges pertaining to the structure of the economy which if not reversed, our quest for middle-income status via industrialisation will continually remain elusive. The structural characteristics identifiable with the pattern of production, consumption and exchange of the Ghanaian economy constitute the most fundamental causes of its underdevelopment and retrogression. Question is, what are the underlying causes of Ghana’s social and economic crisis? This question must be answered otherwise, we will never know how Ghana gets out of crisis and gets on with the business of development for the benefit of its suffering people. The very structure of the Ghanaian economy is the primary underlying cause of its persistent crisis. It is a structure that obliges Ghana to keep producing commodities it does not need because, its people consume very little of such commodities while it depends on other people for production of its own need. It is a structure of dependency rather than self-reliance. Ghana’s economy is more import-export oriented rather than production-oriented. I have always wondered why as a gold producing nation, the wearing of gold is a luxury rather than the norm but rather, imported “copper plated jewellery” has certainly become the norm among Ghanaians. The same applies to chocolate and yet, Ghana is a big exporter of cocoa.

During the 1992 exchange rate mechanism crisis in England, the then Chancellor of Exchequer Norman Lamont sold £4 billion pounds worth of gold bars held by the Bank of England to prop up and stabilise the British pound sterling. Ironically, the strategy worked. Question is, does Ghana have any gold bars in reserves sitting in volts at the Bank of Ghana or is it a case of selling all the gold we produce annually without necessarily saving a fraction for a rainy day?. Are we a nation that consumes all its resources today with the believe that, tomorrow will take care of it self.? Can gold be used to stabilise the Ghanaian cedi? I have always wondered whether this could be done.

While the Ghanaian economy is predominantly a subsistence economy, the non-subsistence sector is also characterised by the predominance of commercial and trading activities based mainly on imports and exports with domestic production playing a secondary role. The services sectors like banking, finance and insurance as well as the transport sector are also oriented towards external trade. For example, can the banks in Ghana today provide the much needed capital to finance oil exploration? The production base in Ghana is very narrow both in terms of size and in relation to the range of goods produced. It is also characterised by weak inter-sectoral linkages that uses backward and unscientific methods and which has no modern machinery or technology.

Agriculture, on which Ghana depend primarily for employment, income, government revenue and foreign exchange, is characterised by traditional production techniques and generally low level of productivity. Attempts made at agricultural transformation have been concentrated mainly on exports whilst the development of the food and the raw materials subsectors has been neglected. Although women play an important role in agricultural production, particularly in the food sub-sector, their role as producers and agents of change in the much needed rural transformation has been severely constrained by their meagre share in the means of production (land, credit, technology, capital, etc) and by their marginalisation in production relations..

As a result of inadequacies and weakness of the agricultural production base, the industrial sector has also remained structurally weak and narrow and with insufficient internal linkages. This weakness perpetuates the structural dependence of the manufacturing sector on imported inputs such as capital, skilled manpower, technology and finance as well as spare parts and even raw materials. There are several causal factors why Ghana has failed to transform and expand its production base:

1. Capital shortage to sustain transformation investments in the physical infrastructure, notably transport and energy as well as industries with international potential. The disadvantage in infrastructure costs makes Ghanaian goods sometimes uncompetitive on the international market. For example, it cost more to ship a car from Ghana to Kenya than to ship a car from Japan to Ghana. In addition, Africa’s shipping lanes are plied by old ships who consume more diesal and takes longer to get to their destinations. These are additional costs to Ghanaian exporters. In Uganda, transportation costs adds a further 80% of additional costs to textile exporters.

2. The low level of scientific and technological application. Ghana is at the bottom of the global league in industrial sophistication and technology. There is a critical need not just to develop science and technology curriculum in our schools but, science and technology cultures in our societies. Comparative experience tells us that, in a world increasingly driven by knowledge rather than physical resources, there is no way we can hope to become competitive with such low investments in technological advancement. Information technology, in particular, offers a means for Ghana to leapfrog into the 21st century. Apart from the importance of information and knowledge to any development effort, IT reduces the costs of doing business, cuts across the huge geographical barriers that have been such impediments to development in Ghana, offers numerous economic opportunities for small-scale entrepreneurs, and opens up huge possibilities in the social sectors such as distant education and telemedicine.

3. The limited size of the private sector and weak institutional capabilities. The private sector is very weak, dominated by a few major multinationals at one extreme and a mass of small enterprises at the other. The middle of medium-sized indigenous firms is missing. The long and unacceptable delays in securing land, telephone services (land line), unreliable and costly mobile telephony services, insufficient power and water supply, unacceptable multi year rents that stifle new businesses of working capital, hard to get capital, higher interest rates on capital are some of the problems affecting the growth and development of the private sector.

The difficulties outlined above, place the private sector at a competitive disadvantage in global markets. The private sector cannot function without a strong state. For the private sector to be successful, we need an efficient public sector. Many services provided by the public sector which many businesses depends on are outrageously outmoded and works against the most efficient and best resourced businesses. As per Dr. Nii Moi Thompson, “many government offices continue to shut down for a break from 2-4pm daily, when all they have to do is stagger break times among employees to ensure uninterrupted service to the public, including businesses. The question that arises is, what are their counterparts in the better-organised societies doing during those two hours of fully paid idleness? Those counterparts are working of course, raising productivity and incomes and inevitably becoming the rich countries that we always run to for aid”. The current on-going public sector reforms should be customer oriented, ICT driven, enforcement of charters, on the job staff training, recruitment of staff based on competence, knowledge, and experience, performance oriented targets and performance related bonus and pay.

4. Shortages of trained personnel together with poor integration of development schemes into the framework of development planning. Growth, development and innovation are ultimately by people, for people. A feature of the Ghanaian economic performance even during the good times of rapid growth was achieved through expanded use of resources in agriculture rather than gains in productivity. Addressing productivity is now a matter of urgency. That means investing in people. Low levels of investment in human capital have been identified as a major obstacle to growth. Ghana needs to invest heavily in education and training. We need to develop an efficient industrially oriented higher education structure along with a good system for specialised training.

5. Neglect of the informal sector. Ghana’s informal sector plays a significant and growing role in economic activity, particularly in production, distribution, finance and employment creation. This sector in currently underdeveloped and characterised by low productivity. The challenge for Ghana is how to plan and harness the energies of the so-called informal sector. Government policy has generally neglected or discriminated against this sector. Additional impediments include poor interlinkages with the modern formal sector, competition from imported manufactures, and limited access to more productive resources. In Accra today, you can buy dog chains to apples at traffic lights but, is this really the most productive use of these people’s time? Sixty percent of our people are engaged in fringe activities from which, because of a lack of support and training, they eke a living. How can we improve productivity? How can we boost their enterprises? How can we introduce them to new knowledge and technology, which in revolutionizing their lives, would lift the rest of the Ghanaian economy. It is important therefore to support the informal sector with clear policies aimed at increasing its productivity. With reforms, the informal sector would be captured by the tax net and the men and women who eke a living in this sector would be able to mobilise savings through SSNIT for a rainy day.

For Ghana to break and reverse the vicious cycle of under-development, poverty, decline, dependence and marginalization, we have to undergo the same kind of deep, systematic economic transformation that the Asian Tigers embarked on some five decades ago. The main difference in the huge gap of development was due to investment in physical and human capital and innovation. The Asians also had a deliberate policy of transformation whereby the invested capital was used to increase productivity and value added from the primary level of production up to the level of services. Concretely, the Asians invested in an educated, flexible and disciplined labour force, technical education and technology, R&D and a capable civil service. To transform the Ghanaian economy, agriculture should be modernized by increasing productivity from production through processing to the services levels. Adequate investment in human capital, especially women, science and technology and adequate health must be undertaken. Government must support small and medium enterprises to grow, use innovation and provide employment by boosting local investment and foreign investment. A mutually rewarding international trade and regional co-operation should be promoted.


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