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Opinions of Tuesday, 9 September 2003

Columnist: Folson, Ako

Does Enhanced Exports Equate to a Better Standard of Living?

The current crusade to enhance exports in Ghana is fine and well. However, an export led economy also has several considerations, which need to be made since the impact on the welfare of the people is not always as simple as it is made to be.

First of all why are we advocating for more export? I believe it is a means to provide local producers to secure or extend markets beyond their physical boundaries, thus enabling them to sell more than what the local market could demand, and as such creating the platform for more production, thus reducing cost of production, enhancing revenues and the list goes on. It also provides them the opportunity to receive world market prices, which may far exceed what is offered on the domestic market. Export also has a way of stimulating the economy as local producers with a bigger market, continue to expand production to enhance export quantities, thus engaging more local resources, some being capital, human and other resources needed for their business.

However, let us look at what it does for the general populace. First of all, locally produced items start taking on pricing similar to that of the international markets if not equal to that. Which means items that become exported become more expensive on the local market as the prices are determined by what is paid on the international market and not so much what the buying power is in the local economy.

This may not be all that bad for the producers or even the workers, if wages increased and other cost indices stayed the same, to provide the average Ghanaian with either the same level of buying power over time or other wise an enhanced buying power. Normally this is not the case.

The distribution of wealth, which is in a sorry state in Ghana, makes the above more of wishful thinking. Increased earnings from export will not necessarily mean enhanced incomes for especially those working for the export oriented firms. Their revenues increase as organizations but do not necessarily enhance the lives of the individuals working to create this wealth.

Definitely increasing exports of course has good sides to it, but how it benefits the workers and not only the organizations is a bit gray. Yes, an expanded export oriented company will employ more people as demand for the exported product goes beyond that of the local market. As such, the employment equation with respect to increased employment is true. However, in terms of how increased exports will enhance lives beyond increased employment is questionable, from the viewpoint that if wages paid are not equitable, it only provides employment but not necessarily enhanced buying power.

Depending on what is export oriented or not, the scenario above could hurt industries that are sustained primarily by the strength of local buying power, especially if they draw on some of the export oriented items as input for those locally demanded products. Prices go up more because of the prevailing price, which is influenced by international pricing for such inputs.

Of course one can argue that imports will become expensive, due to some level of eroded buying power, should this scenario occur, thus reducing demand for imported goods which will favor local industry, since imports may be shunned for local substitutes.

However, one must realize the complexity of international trade. This will not necessarily be all that good because what happens again is that local producers in the absence of imports will move domestic prices upward to make some gains. Cheap imports have a way of creating efficient local production, and it is not always a matter of cheap labor. As such, the lower patronage of imports provides no gain for the local consumer as it means they still will pay more for products because local products have increased prices to enhance profits, especially in the absence of cheaper imports. Also they may have to settle for inferior goods since there is no incentive for local industry to be competitive.

International trade is complex and as a nation we need to keep educating the public on issues of this nature and how they can use demand and supply to affect their own lives as opposed to making blind assumptions which could raise the expectations of many only to let them down. There are so many African experiences to draw from but government must make it a point to keep the people informed of trends and implications.

The simple point of the matter is to find ways to enhance the purchasing power of the average Ghanaian and this will be done with a whole mix of policies not anyone single policy. Education, training, health, infrastructure are some of the areas that once government takes a hold off will create conditions for an enhanced standard of living. Exports alone do not have the ability to do it, especially where volume of exports are cyclical in nature with currency values and world demand and supply influencing it. Not to mention the nature of the portfolio mix of our export commodities.


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