Economy of Ghana (ECON215)

Group 4

Dr. Kwesi Botchwey

Kwesi Botchwey is a Ghanaian former government official and professor in Development Economics at the Fletcher School of Law and Diplomacy at Tufts University. He was Ghana’s Minister of Finance from 1982 to 1995, during the term of former president Jerry John Rawlings. 74 years of age, Dr. Kwesi Botchwey is the author of the books “Transforming the Periphery” and “A Study for the Struggle of the social forces in Ghana for Democracy and National Sovereignty”.

He holds a bachelor’s degree from the University of Ghana, a master’s degree from Yale Law School and a doctorate from the University of Michigan Law School. He is currently Founder and Executive Chairman of the African Policy Ownership Initiative (ADPOI), and a member of the President’s Economic Advisory Council in Ghana. He is also a member of the UN Committee on Development Policy. He is the current chairman of the National Development Planning Commission (2014 to date).

Ghana Poverty Reduction Strategy (GPRS I)

The GPRS I is a comprehensive development policy framework that was formulated by the Ghanaian government between the years 2003 and 2005. The main objective of the GPRS was poverty reduction. More specifically, to reduce the incidence of poverty from 40 percent to 32 percent, and extreme poverty from 27 percent to 21 percent by the year 2005.

Aims of GPRS I

In the quest for poverty reduction, five main goals or aims were outlined by the GPRS I. They were referred to as the five pillars of the GPRS.

1. Macro-Economic Stability

2. Production and Employment

3. Human Resource Development

4. Protecting the vulnerable and extremely poor

5. Governance and Public Sector Reform

Macro-Economic Stability

The GPRS underscored macroeconomic stability as a necessary condition for accelerated economic growth and overall poverty reduction. This is because macroeconomic stability encourages foreign and domestic investments, preservation of adequate real wage and the maintenance of the real value of government revenues which can be used to provide social services for the poor. A target of a 5% real growth rate (from 4.7% in 2003) was set for 2005. Growth of the agricultural sector, the service sector and the industrial sector was expected a progressive role in achieving this objective.

Government spending was projected to increase in the areas of social services, public safety and infrastructure.

Production and Employment

The GPRS aimed to expand production and employment through various policies and programs. It paid much attention to increasing production in the agricultural and non-traditional export sectors, manufacturing industry and the services sector. The national employment policy framework included in the GPRS aimed at creating an enabling environment for accelerated growth of the employment rate. It also aimed at creating adequate self-employment opportunities for entrants into the labour market, especially women. There were many other schemes aimed at improving production conditions, thus contributing to employment generation.

Human Resource Development

In the area of human resource development, the GPRS focused on five interrelated key areas. They were education, health, HIV/AIDS, population control, and water and sanitation. The GPRS focused on improving the quality and quantity of education through the provision of facilities, teacher education and training. The GPRS also aimed at preventing new HIV infections, promoting safe sex and providing adequate health facilities for people living with HIV/AIDS. The plan also included an increase in total government spending in the area of health. It also included strategies for providing safe water

to rural areas, and also placed emphasis on safe liquid and solid waste management to protect the environment.

Protecting the Vulnerable and Extremely Poor

The GPRS emphasized the need for targeted measures to protect and support the extremely poor and vulnerable segments of the population. The extremely poor refer to the people whose standard of living is insufficient to meet their basic nutritional requirements, even if they devoted their entire budget to food. The government planned to increase spending on social security schemes as well as increasing partnership programmes with NGOs. Another aim was to reduce child malnutrition rates by giving the most disadvantaged groups access to basic services, and also to enforce the rights to private property and land entitlements.

Governance and Public Sector Reform

The GPRS took into consideration that the development of any economy is dependent on both the public and private sectors. There were many policy changes proposed which were meant to restructure the public sector and develop its capacity to perform core functions. Policies such as tax incentives, partnerships between the public and private sector and the creation of new institutions were also proposed to create an enabling environment for effective public sector-led growth. The GPRS also aimed at decentralizing government power to the district level in order to ensure a greater involvement of communities in poverty reduction. Importance was

also placed on the transparency of government, especially in financial matters.

Growth and Poverty Reduction Strategy (GPRS II)

Following the positive results achieved by the GPRS I, The Government launched a successor national development policy framework - the Growth and Poverty Reduction Strategy (GPRS II) - to be implemented over the period 2006-2009.The G in GPRS was changed from Ghana to growth as a symbol of the shift in emphasis from solely poverty reduction to accelerated economic growth. The strategic direction of the GPRS II was to accelerate economic growth and poverty reduction by supporting the private sector to create wealth. It was guided by the over-arching objective of attaining middle-income status by 2015.

Aims of GPRS II

Supporting the Private Sector to Create WealthThe government supported the private sector to be the

main engine that drove growth and prosperity.It did this by facilitating the private sector access to capital, innovation and entrepreneurship and strengthening of firms’ competency and capacity to operate efficiently and effectively.

Diversification of Export BaseIn the GPRS II, the government put up a plan to improve

on our export products by increasing agricultural productivity,

processing and storage, removing technical barriers to key current and potential export products and also providing assistance to exporters to abide by international standards from selected export markets.

Improving the Agricultural SectorAs a challenge the government encountered with the

GPRS I, it formulated a framework in the GPRS II to increase agricultural productivity, processing and storage by accelerating the provision of irrigation infrastructure, access to credit union and inputs for agriculture, access to mechanized agriculture and the use of local raw materials such as maize and sorghum in brewing.

Ghana Shared Growth and Development Agenda (GSGDA I)

The large fiscal imbalance experienced in 2008 and the difficult macroeconomic situation inherited triggered the goal of the medium-term national development policy framework, Ghana Shared Growth and Development Agenda (GSGDA I) from 2010-2013 to achieve and sustain macroeconomic stability while placing the economy on a higher path of shared growth, and poverty reduction.

In the medium-term, the strategic direction is to lay the foundation for the structural transformation of the economy within the decade ending 2020, through industrialization especially manufacturing, based on modernized agriculture and sustainable exploitation of Ghana’s natural resources, particularly minerals, oil and gas. The process will be underpinned by rapid infrastructural and human development as well as the application of science, technology

and innovation. In this regard, expenditure is expected to be prioritized in favor of policies, programs and projects in Agriculture, Infrastructure (including energy, oil and gas), Water and sanitation, Health, and Education (including ICT, Science, Technology and Innovation). This will enhance the creation of employment and income earning opportunities for rapid and sustained economic growth and poverty reduction. Below are the objectives of GSGDA I

• Ensuring and sustaining macroeconomic stability;

• Enhanced competitiveness of Ghana’s private sector;

• Accelerated agricultural modernization and natural resource management;

• Oil and gas development;

• Infrastructure and human settlements development;

• Human development, employment and productivity.

• Transparent and accountable governance.

Ensuring and Sustaining Macroeconomic Stability

Despite the improvements in the performance of the economy in the last two decades, structural challenges still persist, characterized by large fiscal and balance of payment deficits. The medium term economic growth and development will therefore depend very much on the ability to address existing fiscal and balance of payment imbalances. Over the medium term, priority policies to ensure and sustain macroeconomic stability will focus on:

(i) Improving fiscal resource mobilization.

(ii) Improving public expenditure management.

(iii) Promoting effective debt management.

(iv) Ensuring price and exchange rate stability.

(v) Improving export competitiveness.

(vi) Diversifying and increasing exports and markets.

Strengthening economic planning and forecasting to ensure synergetic development of strategic sectors.

Enhanced Competitiveness of Ghana’s Private Sector

Ghana’s private sector remains uncompetitive in spite of several attempts by succeeding Governments to enhance its competitiveness. The private sector under this policy framework is expected to partner Government and other stakeholders in the transformation of the economy through industrialization and modernized agriculture. The overall objective is to ensure that private sector work for Ghana and share the benefits of growth and transformation process.

The focus of medium term priority policies therefore is to:

Improve private sector competitiveness domestically and globally develop micro, small and medium enterprise (MSME).

Ensure rapid industrialization driven by strong linkages to agriculture and other natural resource endowments.

Develop tourism as a major industry.

Develop and strengthen Ghana’s creative arts industry

Accelerated Agricultural Modernization and Natural Resource Management

Ghana’s agriculture is dominated by subsistence production units with weak

linkages to industry and service sector. It is characterized by low productivity, low income and un-competitiveness in production, processing and distribution. Given its central role in generating income and providing subsistence for majority of the people as well as its potential to lead the transformation of the economy, agriculture is expected to drive the new development agenda.

The main focus of agricultural development policy, over the medium-term, will be to accelerate the modernization of agriculture and ensure its linkage with industry through the application of science, technology and innovation. The modernized agriculture sector is expected to underpin the transformation of the economy through job creation, increased export earnings, food security and supply of raw materials for value addition and rural development as well as significant

reduction in the incidence of poverty. This will be complemented by an effective natural resource management and environmental governance regime.

The broad objectives to be achieved under the medium term development strategy include:

1. Improved agricultural productivity.2. Increased agricultural competitiveness and enhanced

integration into domestic and international markets.3. Reduced production and distribution risks/ bottlenecks in

agriculture and industry

Oil and gas development The focus of priority policies in the energy sector is to increase access of households and industry to reliable and adequate energy supply, and diversify the national energy mix to include the use of indigenous sources of energy. To achieve this, energy infrastructure will be rehabilitated and expanded to ensure adequate and reliable supply of energy and increased access to the modern forms of energy to the poor and vulnerable through the extension of the national electricity grid. In addition, national policy will promote energy efficient technologies thatsafeguard the health of domestic users especially women and children.On the other hand, oil and gas resources will be developed to ensure that the industry becomes a major anchor for national growth and development. The oil and gas will provide opportunity for diversification of the economy, as well as capacity development to support the needs of a modern industrial society. Priority policies will focus on increasing access to petroleum products atprices that support the development objectives of the nation, paying attention to protecting the environment and implement a transparent revenue management policy to ensure the oil and gas resources benefit Ghanaians.The key policy interventions to support the achievement of these policy objectives are as follows:

Provide a conducive legal, fiscal and regulatory environment to attract investors into the energy sector.

Encourage Ghanaian investors to use the capital markets, including the Ghana

Stock Exchange, to raise financing for investments in the energy sector.

Establish transparent and non-discriminatory practices in the implementation of rules and regulations And ensure efficient and transparent pricing regimes for energy services.

Infrastructure and human settlements development

The critical role of infrastructure in propelling economic growth and development has become more crucial as Ghana transition into a middle-income country. Policies in this thematic area seek to expand existing social and economic production infrastructure to ensure that services provided are reliable, affordable and efficient. The medium term policies on infrastructure and human settlement development focus on the following key areas:

Transportation (including road, rail, air, maritime and inland transport). Science, Technology and Innovation to Support Productivity and Development.

Information and Communications Technology (ICT).

Water and Sanitation

Human Settlements

National Land Use

Human development, employment and productivity

The acquisition and application of knowledge and skills in solving problems in society have remained essential aspects of national development efforts. The medium term policies on human

development, employment and productivity focus on the following key areas:

o Education

o Skills Training

o Health and Nutrition

o Youth and Sports Development

o Social Protection and Inclusion

o Population Management

o Labor Productivity and Employment

Transparent and accountable governance

Transparency, accountability and participation are the cornerstones for good democratic governance. The overarching goal of this thematic area is to entrench participatory democratic governance by empowering state and non-state actors to participate effectively in the governance and development processes at all levels of the society. Consequently, the medium term priority policies focus on addressing constraints in the following key areas:

Deepen Practice of Democracy and Institutional Reform Agenda

Local Governance and Decentralization

Economic growth and Plan coordination in special development areas to reduce poverty/ inequalities.

Public Policy Management and Public Sector Reforms

Development Communication

Women Empowerment

Corruption and Economic Crimes

Rule of Law and Justice

Public Safety and Security

Access to Rights and Entitlement

National Culture for Development

International Relations (Partnership) for Development

Evidence-Based Decision Making

Deepen Practice of Democracy and Institutional Reforms

Ghana Shared Growth and Development Agenda II

(GSGDA II)

The Ghana Shared Growth and Development Agenda (GSGDA II) like all the others preceding it, is a policy framework that succeeded the GSGDA 1. The framework was formulated and implemented to address and solve the structural challenges such as the misalignment of allocation of resources that emerged from the GSGDA 1. To achieve this, it focused on the following objective key areas: ensuring and sustaining macroeconomic stability, enhancing competitiveness of Ghana’s private sector, accelerating agricultural modernization, developing the oil and gas industry, developing infrastructural and human settlements among others.

1. Ensuring and sustaining macroeconomic stability

In order to achieve the overall goal of macroeconomic stability, policies and strategies to be pursued will focus on the following policy areas:

Improved monetary and financial policy management

Effective and efficient fiscal policy management

Economic Policy Decision-Making and Management

International Trade and Regional Integration.

However, we will focus on the first two.

The priority monetary and financial policies to be implemented will focus on achieving the following broad objectives:

Ensuring Price and Exchange Rate Stability : To ensure price and exchange rate stability, strategies to be implemented include: review monetary policy framework and enhance its implementation to ensure that it is responsive to the needs of the private sector and medium-term job creation objectives; strengthen the effectiveness of payment systems infrastructure; support increased competition in the financial system; enforce the existing regulation regarding Government borrowing; and strengthen the inter-bank foreign exchange market.

Deepen the Capital Markets: the strategies to be pursued to deepen the capital market include: developing the secondary market for bonds and other long-term securities; leveraging the three-tier pension scheme to increase access to long term financing; and consolidating the implementation of BASEL II approach to risk-based supervision.

Improve access to financial services: The strategies to be implemented to improve access to financial services include: developing a more comprehensive insurance market; developing a more affordable and accessible market for mortgage finance; and implementing schemes to improve women’s access to credit.

The medium-term policy interventions to effectively and efficiently manage fiscal policies are expected to focus on achieving the following: improving the fiscal resource mobilization and management; improving public expenditure management; and improving the capacity for effective public sector debt management. Specifically, these will entail: maintaining the wage bill within globally accepted levels; improving revenue mobilization to levels commensurate with Ghana’s middle income status; instituting mechanisms to ensure rapid disbursements of loans and grants; and instituting efficient expenditure control measures.

2. Enhanced competitiveness of Ghana’s private sector

To attain the long-term goal of enhancing private sector competitiveness, priority attention will be given to the implementation of the Private Sector Development Strategy (PSDS) II. Policies and strategies to be implemented in the medium-term will focus on the following:

Private Sector Development: The policy interventions to be implemented in the private sector will aim at achieving the following objectives: improve private sector productivity and competitiveness domestically and globally; increase the

opportunities for private sector participation in socio-economic infrastructure development; develop a financial sector which is more efficient and responsive to private sector needs; expand access to both domestic and international markets; ensure the health, safety and economic interest of consumers; and expand opportunities for accelerated job creation.

Good Corporate Governance: There is a general lack of good corporate governance culture among corporate entities in Ghana. In the medium-term, policy to improve corporate governance will focus on providing appropriate institutional and legal framework to support the enforcement of good corporate governance; as well as promote an effective enabling environment for good corporate governance.

Growth and Development of MSMEs; Ghana’s economy is dominated by MSMEs the majority of which operate in the informal sector. Policy interventions to enhance performance of MSMEs will focus on: improving their operational efficiency and competitiveness; enhancing their access to finance; and improving their technical and entrepreneurial skills. To achieve this the following strategies will be prioritized: identify winners in the agro-business area and promote their growth into competitive industries; facilitate the provision of training and business development services; promote the establishment of business incubators, technology parks and land banks especially at the district level to promote local economic development (LED); and mobilize resources from existing financial and technical institutions to support MSMEs.

Oil and Gas Development

The transformation agenda under the GSGDA II is expected to be aided by the development of the oil and gas industry with effective linkage to the rest of the economy. Implementation of policies will focus on addressing the critical constraints and issues in the following areas:

Oil and Gas Industry Development and its linkage to the rest of the Economy

Local Content Development

Transparency in Revenue Management

Oil and Gas Industry Development and its linkage to the rest of the Economy

The main objectives to be pursued in this focus area are:

Use oil and gas endowment as a catalyst for diversifying the economy especially the agriculture and industrial sectors.

Accelerating development of complementary resources such as salt to trigger development of a petrochemical industry.

Strengthening institutional capacity of national agencies in management of the oil and gas resources.

Promoting the re-development of existing settlements in the oil and gas enclave as part of the growth of the new urban settlements.

Local Content Development

The main objective to be pursued in this focus area is to ensure the promotion of local content and participation in the oil and gas value

chain through the expansion of the capacity of Ghanaians to participate in all segments of the industry, as well as actively promoting the participation of enterprises in exploration, development and production. Priority will be given to following strategies:

effective implementation of the Local Content Law;

develop SME incubation centers for the oil and gas industry; and

facilitate the growth of local companies operating in the industry

Transparency in Revenue Management

The overall objective to be achieved in this focus area is to ensure effective and transparent management of oil and gas revenues. The strategies to be adopted will include:

strengthening the existing revenue management regime; and

Strengthening the monitoring, evaluation and reporting arrangement for the oil and gas industry.

REASONS FOR PLAN FAILURES

Most developmental plans have never lived up to the expectations of their countries. Ghana has had some fairly successful plans such as the Guggisberg Ten Year plan, the Nkrumah Ten Year plan and GPRS I, but there have always been wide gaps between plan targets and actual performance of plans. The following are some reasons for this.

1. Deficiency in plans and their implementation

Some plans and their implementations are full of deficiencies and loop holes making them less successful. Some plans are over-ambitious, for example the 7-year development plan by Nkrumah sought to establish about 600 industries to produce about 100 different products and achieve 10% growth rate by 1970 among others. Some plans are said to be biting more than they can chew, evident in the too many objectives to be achieved simultaneously, thus creating wide disparity between formulation and implementation. Some plans too are merely formulated without being implemented for reasons expedient to politicians and other stakeholders.

2. Insufficient and unreliable data.

The second reason is that of insufficient and unreliable data. The success of plans depends on the availability, quality and reliability of data for plans. Failure has been due the weakness, unreliability or non-existent of data in LCDs, these lead to undermining of the accuracy and internal consistency of the projections. Attempt to formulate and implement detailed plans in most LCDs have been slowed by inadequate supply of qualified economists, statisticians and other planning personnel.

3. Unanticipated economic and political disturbances

Economic and political shocks are other reasons for failures of developmental plans in most LCDs. Most LCDs are open economies with much active external sector where volatility of international trade, foreign aid and direct investment influence financial issues. The uncertainties of such external flows make it difficult to undertake both short term and long term forecasts. For instance, oil

price shocks of 1974,1979 and 1190 undermined most LCDs development plans. On the political side frequent overthrows through coup d’états have interrupted the complete execution of most plans before constitutional rule.

4. Institutional weaknesses faced by some plans

In most LCDs there is no separation of planning bodies from decision making machinery of government and poor dialogue between these two groups leading to weakness in the institutional foundation of economic plans. This has led to the international transfer (carbon copying) of institutional planning practices and organizational arrangements which may not be appropriate local conditions. For instance, the 7-year Nkrumah development plan is observed to have drawn much inspiration from the 7-year Soviet plan without taking cognizance of the distinct features of the Ghanaian local economy. Another is the prevalence of unqualified civil servants, cumbersome bureaucratic procedures and inter-ministerial personal rivalries.eg finance ministries and planning agencies are often conflicting

5. Lack of political will

The final factor here is the issue of lack of political will. The failure of most plans is attributable to the lack of commitment and political will on the part the part of many developing country leaders and other influential makers. Government sometimes fail to implement laudable development plans because they may be challenged by powerful elites and vested interest groups who are often egoistic. The onus lies on the government to convince such groups that such projects when implemented will serve the long-run interest of all,

otherwise they will be met with staunch resistance, frustration and growing internal conflict.

Sources:

Wikipedia www.kwesibotchwey.com www.un.org The Ghana Poverty Reduction Strategy (GPRS I) Paper;

February 2003 The Growth and Poverty Reduction Strategy (GPRS II) Paper;

NDPC, November 2005 Document of the World Bank; Joint Staff Assessment of the

Poverty Reduction Strategy Paper UG Centre for Distance learning; ECON205 Course Book The Ghana Shared Growth and Development Agenda

(GSGDA); NDPC, December 2010.