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Opinions of Friday, 24 December 2010

Columnist: Agyeman, Harold

Modernising And Restructuring Ghana’s Economy (I)

MODERNISING AND RESTRUCTURING GHANA’S ECONOMY:
IDEOLOGY OR PRAGMATIC INNOVATION?


History of state involvement in Ghana’s economy
On the eve of Ghana’s independence an emotional Kwame Nkrumah, first Prime Minister
of Ghana stood before an ecstatic and expectant crowd of compatriots and proclaimed
with great passion that “… from now on, there is a new African in the world; that
new African is ready to fight his own battle, and to show that after all the
Blackman is capable of managing his own affairs”. Nkrumah believed that with
political freedom and control all other things were possible for Ghana.

Motivated by his personal orientation of life, and vision of the role of the African
race in world affairs, the economic philosophy of Nkrumah’s government and
subsequently the economic policies they pursued conformed to his African socialistic
model for national development, once the agents of internal restraint[1] and
external constraints were effectively removed when Ghana became a fully-fledged
republic on 1 July 1960.

Cognisant of the structural inertia that had set in the Ghanaian economy after 1911,
[2] the early leadership of Ghana, just like all other subsequent leaders, were
determined to restructure Ghana’s economy away from a few primary commodity products
towards a more value-added and diversified economy.

It was therefore the intention of Nkrumah’s government to modernise Ghana’s economy
and promote rapid development. The government of Nkrumah however realised that
without a sustainable source of energy supply it could not effectively industrialise
Ghana along the scientific lines it envisaged. It therefore reactivated a colonial
government-designed Volta River project, and although it went through many domestic
and international challenges, it finally secured commitment and finance for the
construction and completion of the Akosombo hydro-electric dam by 22 January 1966,
which today, together with the related Kpong hydro power plant, supplies 1,180
megawatts of electricity for Ghana. It was the predominant thinking at the time,
shaped by theories such as Walt Rostow’s take-off model that availability of power
to Ghana would lead to industrialisation.

At the same time, the Nkrumah government elaborated a Seven-Year Development Plan,
spanning the period July 1963 to June 1970, which instituted a wide variety of
socialistic industrial reforms and, as Joyce Meng observes, established, through a
big push strategy, several import substitution industries [Meng, 1998] to
manufacture import-substitutes such as boats, bricks, jute bags, glass, marble,
paint, paper, steel, shoes, mango juice, etc.

Though the new push for state enterprises appeared novel, it was in fact a build-up
on the model state-owned public utilities that the colonial government had
established[3] for water, electricity, postal and telegraphic services, rail and
road networks, and bus services, towards their economic objectives of exploiting the
natural resources of the Gold Coast for their metropolitan import needs.

By the mid-1960s, therefore, state-owned enterprises were strewn throughout the
country, as the state over-extended its involvement in the economy in an attempt to
provide jobs to many, deliver home-made goods, make a contribution to national
development, and serve as a model for the wider world and other aspiring African
peoples that were still under colonial rule and exploitation that the African was
capable, and an African solution possible.

The ambitious and good intentions of the government of Nkrumah however contrasted
with the realities of implementation[4]. With low capacity utilisation, a financial
regime of unaccountability or moral hazard, a bloated workforce, and a dearth of
appropriate managerial expertise, coupled with the rent seeking activities of
managers and foreign suppliers, these inefficient state-owned enterprises woefully
failed to achieve their intended purposes as the process for their establishment and
operations ignored the normal business principles pervasive in the Western world,
particularly the United States, but for which there was a dearth in the communist
bloc from where most of the support for the establishment of Ghana’s state-owned
enterprises had come.

As a consequence of the failure of these SOE’s in delivering the
products they were established to manufacture and breaking even, the
Ghanaian economy was confronted with a situation of shortages of
essential items and the state was often called upon to bail out these
non-efficient[5] loss-making industries, leading to budget deficits,
spiralling debts, and a foreign reserve crisis[6] by the time the
government of Nkrumah was overthrown on 24 February 1966, in what
history has confirmed to be a Central Intelligence Agency (CIA) designed
and executed putsch.

The Busia government that came to power in 1969 made a feeble attempt at
privatising some of the loss-making SOEs. However, under pressure from
an unfavourable international economic environment, including the
pre-event pangs of the 1973 oil crisis and the removal of the gold
standard of exchange, the government devalued the local Ghanaian
currency in 1971 as a measure to cope, which in turn triggered domestic
political discontent leading to the overthrown of the government in a
military coup led by then Colonel Ignatius Kutu Acheampong.

The Acheampong government, stood in opposition to the liberalist orientation of the
Busia government, and on assuming power nationalised most economic entities as they
sought to satisfy their power base and put Ghanaians at ‘the commanding heights of
the economy’. With initial success on many fronts there was great expectation from
the policies of the Acheampong government, but all hopes were dashed when corruption
pervaded every segment of society and virtually brought the economy to its knees.

By the early 1980s, the economy of Ghana was in dire straits and the
Rawlings-led military regime with its socialist touting rhetoric, which
had overthrown the brief civilian regime of Hilla Liman, was compelled
to pursue an Economic Recovery Programme (ERP) with a neo-liberal agenda
dictated by the Structural Adjustment Programme (SAP) of the World Bank
and International Monetary Fund.

A changing global economic system
Preceding the fall of communism in the late 1980s, but presciently having that
implosion in its sights, the Bretton Woods institutions and other related
international organisations emphasised for Ghana and other developing countries the
liberalisation of the economy as the only way to development; and amidst domestic
political resistance, forced the Ghanaian government which was in need of critical
financial assistance, to move towards the privatisation of state-owned enterprise
and removal of subsidies, among many other neo-liberal conditionalities that were
justified as necessary to remove the crippling constraints on the national budget.

By 1984 there were 235 state-owned enterprises, and except for some 22
sensitive enterprises, including the major public utilities and key
enterprises in transportation, cocoa, banking and mining [United States
Library of Congress], there was commitment by the government of Ghana to
disinvest all public enterprises. That commitment has since enjoyed
affirmation by all subsequent governments in Ghana.

National discontent
However, the fundamental concerns that had existed since independence,
about the need to modernise the Ghanaian economy and provide
development, remained, even as many commentators have also questioned
how Ghana, which at the time of independence had US$481 million in
foreign reserves, a comparatively high stock of human capital,
profitable natural endowments, and a relatively stable regime with good
social and health services, and infrastructure could find itself in a
continued state of under-development, especially when its historical
comparators such as South Korea and Malaysia have significantly moved
above their earlier stations in the global community.
Since independence Ghana’s economy has not structurally changed as it continues to
be dominated by agriculture with only some recent modest gain made by the services
sector. Industry has historically underperformed. Also, export revenues are
dominated by agriculture (cocoa and timber exports) with industry (mineral exports)
playing second. Services are only now beginning to make a showing though tourism
receipts. The economy is therefore vulnerable to external shocks and continues to be
fragile, just as was the case in 1911.

There are certainly many reasons that account for why Ghana finds itself
in the current under-developed situation; ranging from the extended
periods of political instability, pervasive corruption within the public
sector, ill-advised economic policies, lack of visionary and bold
leadership[7] and a pettiness and jealousy by political leaders who see
in the success of indigenous businesses a challenge to their power.

As noted by Kofi Annan[8], African governments have a vindictiveness that retards
the progress of their societies, as instead of focusing on how to build on the good
initiatives of their predecessors, these governments sometimes spent half of their
terms trying to dismantle the work of their predecessors with the intention of
making them unpopular only to confront the realities mid-way during their tenure
that they have a limited time too short for them to work to better the lives of
their people. Annan adds that the situation was a disincentive to development
efforts and should be discarded, and emphasises that regardless of which party was
in power, efforts should be made to continue with viable projects and programmes
inherited, to help accelerate the development process.

Beyond Annan’s observation are the particular situations where businesses suffer in
quiet collateral damage when governing regimes in African countries change, either
through elections or coup d’état. In Ghana, as elsewhere on the African continent,
when governments change deliberate efforts are made by incumbent governments to
ensure that indigenous businesses that successfully thrived under a previous regime
are, because of real or imagined political associations, not only denied business
opportunities but are actively and adversely pursued until they collapse.

Indigenous private businesses have therefore not achieved organic growth in Ghana
over the years and have suffered greatly under the vagaries of different ruling
governments. Regrettably, the business chambers which should have served as a
bulwark against the immoral desolation activities of state officials in power have
been rather ineffective, due, in part, perhaps, to the nature of their leadership
structure and their membership which includes many multinational corporations that
are not perceived as political rivals by the ruling elites and who themselves are
only too happy to avoid political questions that deal with the governments of the
day.

Perceptive inward investors have also not been committed to a transformation of the
Ghanaian economy, which requires investments of a long term gestation, as the lack
of confidence shown by governments in local investors translate in their assessment
of the security of the economic environment and their investments. The concentration
of inward investments has therefore been in the extractive industries, with only
marginal participation in the manufacturing sector, with the basic character of
breaking bulk and repackaging for the local market.

With state-owned enterprises also exhibiting inefficiencies, due, inter alia, to
political interference in appointments to senior management positions and day to
day operations, political leaders have not shied away from cutting their noses to
spite their faces as they have targeted indigenous private businesses, which would
otherwise have created jobs and ensured revenue from taxes for further development.


In the process the national consensus to modernise the structure of the Ghanaian
economy and ensure development have remain unfulfilled and Ghanaians are still way
off from ascending ‘the commanding heights of the economy’.

Notes:

[1] Before independence government expenditures of the Gold Coast were, for
instance, capped at 10 per cent of GDP.


[2] What is sometimes known as the ‘Guggisberg economy’ still prevails as economic
production is mainly centred around a few primary commodities such as cocoa, timber,
exploitation and export of unprocessed mineral resources.


[3] The establishment of these public utilities is similar to what occurred in
Europe, beginning in the nineteenth century and extending to the early later part of
the twentieth century, when in consonance with the public service missions
associated with sovereign kings and queens, the state nationalized operations in
postal and telegraph service and other utilities along the way because of the public
interest associated with their operations.


[4] There is an interesting saying sometimes attributed to Samuel Johnson that “the
road to hell is full of good intentions but which appear to have been originally
stated by Saint Bernard of Clairvaux (1091-1153) that "Hell is full of good
intentions or desires." Equally Philippa Foot, the renowned philosopher has argued
that: reason while it can help you recognise the right thing to do, doesn’t
necessarily guarantee that you would do it.


[5] There were some very productive investments made in infrastructure projects such
as the construction of the hydro-electric dam of the Volta River project, the £6
million Accra-Tema motorway, the development of the modern industrial township of
Tema among others, even if those projects were at the time criticized by political
opponents and Western countries as wasteful expenditure.


[6] Dr. Jonathan Frimpong-Ansah, Deputy Governor of the Bank of Ghana between the
period 1965-1968 has confirmed in a BBC documentary, Pandora’s Box: Black Power that
just before the overthrow of Kwame Nkrumah he sent a memorandum to the President
indicating the grave situation of the financial reserves of Ghana which stood at
only £500,000. The sharp fall in the prices of cocoa on the world market in 1964 and
the heavy non-productive investments made were largely to blame.


[7] In this instance while one can fault Nkrumah’s government on many grounds, being
visionary and bold was not one of them. Being a rational thinker, Nkrumah proceeded
in resolving problems in a logical manner. His awareness of Ghana’s tropical
condition for instance made him to assert that air-conditioners were required in
offices and homes to improve productivity, just as his objectives for
industrialisation made him to similarly conclude on a need for affordable
electricity supply, ultimately resulting in the reactivation of the Volta Project
for hydro-electricity as against the diesel generated electricity.


[8] Mr. Kofi Annan, who wa 2010.s the seventh United Nations Secretary-General and
served during the period 1997 -2007, is reported to have made the remarks at a
dinner hosted by the Asantehene, Otumfuo Osei Tutu II, in honour of visiting members
of the Board of the United Nation Foundation of Directors, including its Founder and
Chairman, Mr Ted Turner at the Manhyia Palace on Thursday 21 October


Harold Agyeman, Antoa