Ghana’s experience with economic transformation

Inclusive Economy27 Aug 2013Alexander Kwame Archine

Ghana needs to focus more on local production and value addition in order to bring its marginalized citizens on board.  

The euphoria that accompanied the discovery and ultimate commercial production of crude oil in Ghana appears to be waning. Oil production in the country officially began in December 2010. Although oil export receipts have enhanced government revenues since 2011, the panacea role assigned to the resource by officialdom has yet to be achieved, despite significant growth in gross domestic product (GDP). The GDP growth rate has averaged 6.5% over the past decade, with 2011 recording a spectacular growth rate of 14.4% on the back of oil revenues. The benefits of that growth, however, have not spread to the majority of the population , because it was not driven by agriculture, the dominant employer in Ghana.

The structure of Ghana’s GDP is skewed in favour of external factor inputs that contribute significantly to local production. Ghana has not developed local capacity to add value to its production. Even more so, we have not developed local demand for our cocoa, limiting the extent to which we can control external influences. Cocoa production has historically been funded by offshore banks in league with international commodity houses that require exports of raw beans in repayment of such loans. Harvested cocoa beans are therefore effectively mortgaged to foreign banks. This practice, when considered against the potential significant contribution that cocoa production and processing could make to Ghana’s GDP, reflects the negative impact that continued reliance on offshore funding for cocoa production is having on the economy.

The structural defect in Ghana’s GDP, caused by heavy reliance on imported factor inputs, has been the bane of achievement of inclusive economic growth. Restructuring the economy is therefore imperative if we are to seriously aim at achieving inclusive growth, which the African Development Bank (AfDB) defines as ‘growth that results in a wider access to sustainable socio-economic opportunities for a broader number of people, countries or regions, while protecting the vulnerable, all being done in an environment of fairness, equal justice, and political plurality’.

The government of Ghana’s response to the need for inclusive growth has been to formulate policies aimed at stimulating economic development with a particular focus on shared growth. The Ghana Shared Growth and Development Agenda (GSGDA) covering the period 2010 through 2013 provides signposts for development targeted at agribusiness involving value addition to natural resources. Agriculture can play its expected catalytic role only when the sector is organically linked to the high performing services sector, which has shown strong growth in recent years. The services sector grew at 10.2% in 2012 with a contribution to GDP of 50%. The industrial sector grew at 7% with a contribution to GDP of 27.3% as compared to agriculture, which recorded the lowest growth rate of 1.3% and a contribution to GDP of 22.7%. It is apparent that the significant growth in the services sector did not impact key sectors of the Ghanaian economy, including agriculture, that have the potential to spread the benefits of growth to a significant proportion of the population.

The disconnect between the services sector and agriculture is particularly disturbing and at the core of challenges that confront the government’s strategy of attaining inclusive economic development. Agriculture, which in 2012 was estimated to have employed an average of 50% of the population, has to be mainstreamed into Ghana’s economic development agenda. Growth in the services sector fuelled by significant contributions from the financial, insurance, and real estate sub-sectors is a needed tonic to stimulate sustainable development in the two most expansive, productive sectors of agriculture and manufacturing.

The government should endeavour to forge a veritable link between agriculture, industry and services through a new approach of shared growth, in order to dramatically revise the structure of the Ghanaian economy with a view to bringing on board the significant number of citizens who are currently marginalized.

Value addition to local raw materials, promotion of local appetite for locally produced goods and increased efforts at expanding sub-regional and indeed continental markets for such goods are key to enhanced production and sustainable economic development for all citizens.