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Opinions of Saturday, 26 January 2008

Columnist: Agyepong, Benjamin Opoku

Services-Led Growth In Ghana? ???.Well, Time Will Tell


The last time, it was the minister of finance and the governor of the bank of Ghana who were awarded with the prestigious honor of the Best African Finance Minister and Banker of the year awards. This time around, it is the country that has been rewarded by an International Financial Review in London for prudent and good financial management by awarding the country the best emerging economy in the world (Ghanaweb, January 24, 2008). By every indication, it seems Ghana is doing well in the financial arena, there is no doubt that the redenomination of the Cedi was marvelously done to the credit of Dr Acquah and his cohorts. By the last count, there were about 25 Banks in Ghana (Commercial, Development and Merchants Banks Inclusive) most of which are foreign owned. These banks and the foreign insurance companies have incorporated in Ghana to help mobilize savings (savings which are virtually nonexistent). At the surface, things look terrific but underneath, there is a huge structural problem that can not be ignored for a long time if we are really serious about our development prospects.

Ghana?s economy is still an agrarian economy, no two ways about that. Agriculture still employs about 60% of the labor force and contributes about 36%-40% to our GDP. Cocoa still is a dominant export earner for the country. However, we have not seen any major foreign direct capital ingestion into our agricultural sector, and government?s own effort in the sector could only be described as abysmal. In the face of mass poverty among our peasant farmers, can government realistically convince the average Ghanaian that, the laisez-faire attitude adopted so far has the potential of revamping and changing the face of agro-business and industries for the better in the long haul? I have my doubts.

Just last Monday January 21, 2008, I watched GBC TV news anchored on Ghanaweb that featured a massive harvest of water melon in the Northern Ghana without market for them. The only words of consolation that the minister who was touring the farms could give the poor farmers were that, they must diversify by planting multiple crops, so that, if one crop faces market glut, the others may fetch them money. Isn?t it stupid for a minister to encourage farmers who have really understood the benefits of specialization to go back to peasant farming, where a farmer divides his fields into small portions and grow many crops? In the same newscast, tomatoes were seen harvested in large quantities also without any meaningful market for them. We still export unprocessed agricultural products in large quantities and receive very little for their worth in terms of earnings and very little has been done to rectify the situation.

Now, what are my concerns here? Economics 101(basic macroeconomics) tells us that, to achieve the full benefits of trade, countries must produce more of the items in which they have comparative advantage, but in Ghana it seems we are doing the opposite. We have allowed unfettered access by foreigners into our financial sector to the detriment and peril of ourselves and the local banks. We are behaving as if our economy is a matured economy that depends on services to grow. Recently, government had to ingest fresh capital to revamp and save Ghana Commercial Bank from collapsing due to stiff competition from the numerous foreign owned Banks that have huge equities compared to GCB. Foreign firms are taking over our young insurance industry. But unfortunately, no foreign capital is being ingested into the agricultural sector and we wonder what government is seriously doing to direct foreign capital (FC) into that sector to help with the processing of our farm produce. It seems the numerous tax holidays outlined in the various budgets to lure FDC into agriculture are not yielding any results. Extra efforts are needed here and that may require government going the extra mile to help local entrepreneurs with long-term loans to import machineries to establish various processing factories to process our agricultural produce for export and pay the loans later on. Do not get me wrong, I am NOT, and will not advocate for direct government participation in industry. Far from that, I am convinced that, due to the structural problems in the agricultural sector, foreigners do not find the sector very attractive to invest in, and locals who would, also do not have the capital it takes to move the sector forward, government must, therefore, play a facilitating role by guaranteeing capital for locals to set up industries to process for export, the various agricultural produce that go waste every year.

Make no mistake about it, all foreign capital flow into Ghana with only one objective; Profit. And if you think foreigners would invest in Ghana for any other reason, then you must be joking. It is therefore, imperative for us to make the most out of these capitals to grow our economy whiles they take their profits away to their capital bases. We must endear them to the sector that create jobs, have as many linkages as possible to our economy, and I doubt whether the present practice of foreigners investing in the banking and insurance as well as retail trade is helping the economy in the long term.

Development literature abounds with many examples of Agriculture-led growth, export-led growth and industry-led growth. Currently, China, India, North Korea, Taiwan and other far South-Asian nations are seriously embarking on the combine efforts of industry and export led growth, but for service-led growth, well, we do not have case studies in the growth literature and maybe, just maybe, Ghana will be the prime example of service-led growth in the 21st century but I still have my doubts. As it stands now, it seems foreign capital is in to rape the country by going into the areas that are easy to invest and quick to make profit and given the fact that we have cut corporate taxes to as low as 28%, these FDCs are having their field days in Ghana. Free market must be balanced with a mixture of government interventions and regulations to achieve the maximum benefit for the local economy. As for those international capitalists, they will praise you when you allow them to milk your country dry and will condemn you when you attempt to protect the interest of your country as they are doing to Hugo Chavez and many others. Politicians would have to choose between an unworthy accolades and achieving something worthy for the country. I would urge them to consider whatever is in the best interest of Ghana and put that above everything else in their negotiations with international capitalists.

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