Analysis of Ghana's Economic Growth
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An analytical review of the effect of conflict, politics and resources on the economic growth of the country.
1.1. Ghana in 1957
Some fifty years ago, Dr Kwame Nkrumah stood before a throng of cheering fellow Ghanaians, proclaiming independence from the British Empire. “At long last, the battle is ended”, he bellowed triumphantly, “Ghana, your beloved country is free forever” (Nkrumah, 2007).
Such were the words that signalled the end of British rule and the start of a new era for the former Gold Coast, which had succeeded in becoming the first independent nation in Africa. By doing so, she set a hopeful precedent to other former colonies which would shortly and eagerly follow in Ghana’s footsteps.
For the “model colony” the future, at this point, looked bright. As a nation with “advantages of wealth and attainment unrivalled in topical Africa” (Meredith, 2005, 22), Ghana was expected to take the world by storm, swiftly join the ranks of the industrial nations, and proudly serve as a shining example to the post-colonial world (Dzorgbo, 2002, 2-3).
There was nothing far-fetched about this optimism. She was, in 1957, one of the most economically advanced countries in sub-Saharan Africa. Income per head was double that of the Tanganikans, substantially more than the Zambians, and almost on a par with the Rhodesians (Alpine and Pickett, 1993, 64). Contributing to this private wealth was the lucrative trade in the export of cocoa whose production Ghana dominated by this time. Such a presence within the international commodity market helped shore up the already substantial amounts of foreign reserve her government held.
Yet all of this failed to happen. Several years after independence, Ghana’s economy began to totter, her foreign reserves evaporated, and reckless public spending placed the country on a financial precipice – all this by the end of the 1960s (Konadu-Agyeman, 2000, 473). There was to be no let-up.
The economic downturn continued into the 1970s where Gross Domestic Product (GDP) fell more than three percent each year. Price inflation averaged at around 50 to 100 percent. Worse was to follow. By the beginning of the 1980s, inflation reached more than 100 percent, GDP levels fell further into the abyss, and one of the worst famines hit the country (Sandbrook, 1982, 2). Nothing, it now seemed, could go right. She had little choice but to solicit help from abroad.
1.2. International intervention and neo-liberalism
Following the implementation of economic restructuring programmes, created by the International Monetary Fund (IMF) and the World Bank, Ghana finally emerged out of her desperate trough in 1983. Inevitably questions were asked. Why had Ghana struggled for so long? How could she so comprehensively dash the hope and goodwill in the immediate years after independence? Many factors, in the view of the IMF, had contributed to her demise: mismanagement, over-regulation, failure to tackle inflation, and currency over-evaluations headed the depressingly long list (Konadu-Agyeman, 2000, 473).
Correspondingly, strings were attached to how IMF funds were to be used: the devaluing of the currency, the Cedi; the withdrawal of subsidies; the retrenchment of labour; the reduction in public expenditure; and the liberalisation of trade and exchange controls.
Such measures, which took their cue from a resurgent neo-liberalism, have proved to be a mixed blessing. Even though, on the one hand, the adoption of these policies helped rein in inflation, created steady currency fluctuations and boosted the production of cocoa, they also led, on the other hand, to increased unemployment, ushered in stiff and unfettered competition from abroad, and generated substantial social discontent. So much of the welfare state had been taken away, in fact, that the weak and the poor were falling through the net. But a final verdict on the effectiveness of these policies is still too early to call.
Even so, it would be true to say that many of these neoliberal suggestions, which underpin the IMF’s Structural Adjustment Programmes (SAP), have not come from an appreciation of the peculiarities of the African predicament in general or the Ghanaian one in particular. Rather they draw from the successes of the East Asian Newly Industrialized Countries (NICs) which, it is argued, managed to free themselves from the shackles of perennial underdevelopment by creating growth through the export of value-added products.
Such a way of proceeding, it has been reasoned, could be replicated within the African context. Much of the reason why Ghana failed in the years after independence from developing economically, this model suggests, was because she promoted a policy of protectionism. Rather than achieve industrial growth and economic development Nkrumah said it would, his policy of Import Substitution Industrialization (ISI), which erected tariffs so as to nurture domestic industry, did the opposite and halted diversification and competitiveness. All of which had now come home to roost, in the opinion of neo-liberalists, who now called on government to shrink.
The new policy of SAP, based on exports, has at first glance much to recommend it, especially with regard to Ghana. Even a cursory look at Ghana’s colonial past yields firm illustration of why an export-based economy could make sense. During the days of the British Empire, Ghana had been forced to open up to the international market not least because she offered precious resources and material such as gold, sugar and cotton.
Such a colonial emphasis on international trade, to be sure, substantially benefited the colonisers and not the colonised. Even though the British emphasis on exports had the effect of neglecting domestic industry, the legacy the Empire left behind was nonetheless one in which the economy thrived on her exports (Frimpong-Ansah, 1991, 67). Counterfactually-speaking, therefore, had Nkrumah implemented economic policies which aimed to promote exports rather than seek to curtail them, then Ghana may have been spared from the title question: what are you doing here?
1.3. Problems and solutions for the Ghanaian economy
If only things were that simple. Even though one might forcibly argue that Ghana’s economy is orientated towards the international market, the kind of exports she has traditionally exported – and is currently exporting – would not have contributed much towards sustained growth. Nor do present circumstances hold hope that things would be any different either.
Primarily, as the World Trade Organization has outlined, Ghana is still “heavily dependent on agriculture, especially cocoa, and on natural resources, notably minerals. Primary production accounts for almost half of GDP; agriculture at 40%, is the most important sector. Manufacturing contributes some 10% of GDP. Services are the second largest component” (WTO, 2001).
Much of this primitiveness must be sought, once more, in British colonial policy, which saw little need to invest any substantial sums into creating a more sturdy and versatile infrastructure. Raw materials, such as Ghanaian cocoa, were kept just that – raw – to keep prices down, prevent competition to British firms by not having processing facilities, and turn Ghanaian subjects into obedient consumers of the finished product that would be shipped in from abroad.
As Immanual Wallerstein put it with reference to Africa generally: “Whatever the motive for entering the world agricultural market and whatever the social organization of export production, each colonial administration, as the political arm of the metropole, sought to tie a segment of the African population into the larger imperial economy either as independent producers or as wage-workers, and in all cases as consumers” (Wallerstein, 1986, 18). He could have just as well been talking about Ghana.
Such colonial legacies mean that even today Ghana’s raw materials continue to be dictated by external conditions. Since primary products are easily affected by the vagaries of the weather as well as by the fluctuating international market, export-led economic development would almost certainly prove to be a bumpy ride.
More specifically, it means that: “When stocks are low and pries high farmers can increase their planting, but they cannot compress the time it takes crops to ripen to harvest... When farmers eventually increase production, prices fall as supplies quickly outgrow demand in importing countries, given that demand does not grow significantly in response to lower prices. The result is a pattern of short-lived booms followed by lingering slumps” (Food and Agriculture Organization, 2004). Such descriptions invoke a viscous circle from which Ghana would find hard to escape.
From this lesson follows the glaring need to diversify the country’s economic base, if it is to avoid the ‘booms’ and ‘slumps’ of an economy ensconced within agriculture. “While traditional exports, such as cocoa and gold, may remain an important source of growth and foreign exchange in the future,” the World Bank contends, “export diversification will be necessary to accelerate economic growth and poverty reduction and to decrease Ghana’s vulnerability to external price shocks” (World Bank, 2001,1).
To be fair, it has not been from a lack of effort that Ghana has failed to diversity sufficiently, for political circumstances have repeatedly conspired to hold up any sustained drive. Liberal approaches to economic development, which Nkrumah’s successors aimed at, fell fowl of a coup, while two later regimes which tried to develop indigenous strategies of development were ousted in similar circumstances. Clearly political conflict and change have impacted hard on Ghana’s economic growth – arguably negatively on the whole – and, if the IMF anoraks are in any way right, stability in the present governmental set-up would finally lead the country to the elusive goal that had seemed possible during the few years after independence.
1.4. Objectives and organization
Enmeshed within all these complicated factors, which this introduction has served to outline, the economic growth of Ghana must, at least for the moment, take place within the neo-liberal strictures imposed by the IMF, which has set great store by small government and export-led growth. Conflict, politics and resources will, in this investigation, be reviewed therefore need to take account of the domestic as well as international setting, so as arrive at a more rounded appreciation of how all these factors have affected economic growth in Ghana.
Looking at past attempts to create economic growth as well as current trade policies designed to do the same, this study will offer both a historical as well as a contemporary analysis of the Ghanaian economy. Perhaps reaching beyond the remit of the brief, the study will also powerfully suggest that, as things stand as they do, Ghana’s economic future is set to remain a bleak one. More favourable rules of trade must be implemented, the thesis recommends, without which she will not be able to continue to diversify her economic base.
To illustrate these points, the investigation is divided into the following chapters. Chapter two, below, will review some of the basic economic models which have found application in Ghana since her days as a colony of the British Empire. Chapter three will then focus on the implementation of these development theories from a historical perspective, analysing the various regimes as well as their ideological leanings which contributed to the kind of policies they came up with.
Chapter four will then assume a more specific and contemporary focus, reviewing the extent to which international agreement on trade has impacted on economic growth in Africa in general and in Ghana in particular. Finally, chapter five will consider how tariff and non-tariff barriers, with reference to the EU, have influenced the shape of the Ghanaian economy.
2.0. Theories of Economic Development
Before this investigation can examine in detail how various factors have influenced Ghana’s economic growth, one should stop to consider the kind of economic thinking that has undergirded the disparate policies she has resorted to in order to achieve prosperity down the years. Such a detour is necessary if we are to fully appreciate the broader economic and political climates in which policies have been conceived.
2.1. Free trade and nationalism
During her time as a colony of the British Empire, Ghana had been forced to adopt a mercantilist system of trade which functioned as the principle form of economic thinking that dictated the way nations engaged with each other, economically-speaking, until the late eighteenth century. Much of modern economic thinking grew out of a backlash against this closed system, which put the nation before the individual and which saw wealth as finite. Inspired by the work of Adam Smith, who wrote his seminal The Wealth of Nations in 1776, liberals criticized how mercantilism elevated the position of the state out of all proportion to the role it should play in the functioning of the economy. By contrast, Smith felt that the state should limit itself to providing three basic duties to society:
First, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing inexact administration of justice; and thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, thought it may frequently do much more than repay it to a great society.(Smith, 1863, 286)
From this basic framework, in which the individual would have access to basic rights and protection from violence, Smith recommended that the government retreat and allow the individual to develop on their own, especially with regard to economics. “Every man, as long as he does not violate the laws of justice”, he proclaimed, “is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.”
Not only did he feel his thinking needed to apply to the domestic sphere but also the international one too, for “commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship” had broken down into a series of international conflicts because homos economicus operated from the assumption that they had to steal from one another rather than share the wealth available.
More specifically liberal thinking envisaged a world based on three pillars: first was the belief that free trade promoted economic growth and consumption; second, that it improves societal values and ideals; and third, that free trade would promote a more peaceful international environment because greater interdependence would lead to a convergence of interests among societies (Harlen, 1999, 735).
Most pioneering in the implementation of these ideals was Britain which threw down the gauntlet to her rivals by tearing down protectionist barriers, such as the Corn Laws, in the middle of the nineteenth century at a time when mercantilism dictated the opposite and discouraged trade between European powers. Soon European countries followed suite in gradually adopting policies that were more liberal in outlook. Nations such as France, Sweden, Belgium, Portugal and Spain all moved towards the liberalization of their tariff system.
But such an open period proved to be short-lived as nationalistic concerns rowed the liberal boat back to shore. By the 1870s, for example, Austria-Hungary increased duties and Germany followed at the end of the decade; France also upped her tariffs in 1881, modestly initially, then sharply in 1892, while other countries returned the favour in kind (Krasner, 1975, 325).
Much of the problem had been that, in following Britain, which had embarked upon industrialization much earlier than the European continent, the benefits which European countries could reap from liberalizing their markets would be far from worthwhile, not least because their own infant industries could not compete with those of Britain, which had far more established businesses that had the muscle to blow those of the continent out of the water.
Bitter about the lessons that had been learnt at the hands of the British, nationalist economists, while seeing the benefits of free trade, came to point out that liberals “did not adequately address the problems of how economically and politically weak countries might ensure their national security in a world where free trade did not exist” (Harlen, 1999, 739). Such a dilemma was not only shared by European countries but also by the United States whose economic power was no match to Britain’s at this time.
If the United States were to compete on Britain’ terms, economist Alexander Hamilton noted, “the want of reciprocity would render them [United States] the victim of a system which should induce them to confine their views of Agriculture, and refrain from Manufactures” (Hamilton, 1964, 138). Such a view implied that open competition would only result in the stronger country dictating terms and keeping the weaker one in almost perpetual underdevelopment.
Consequently, in order to compete, diversification of the country’s manufacturing base had to be effected, an objective that could only be realized if government helped out and, to cite Hamilton once more, “encouraged the introduction of foreign technology, capital, and skilled labor … and adopt protectionist trade policies, including tariffs, quotas and bounties, to bolster its fledgling industries”. Similar conclusions were reached by the German political economist Friedrich List, who laid down in his National System of Political Economy the need to dispense with the ideology of free trade in the short term in favour of empowering the state to protect and boost its infant industries and build up a skilled workforce. Only when this was done, List also argued, could countries move towards a policy of liberalization.
2.2. Theories of development
Following the end of the Second World War, which signalled the end of colonialism, a similar yet different schools of thought emerged, which centred on the issue of how newly-independent former colonies could ‘catch up’ and attain economic prosperity. Such thinking took shape during the Cold War so that development theory, as it was called, took influences from both the right and the left – from capitalism to Marxism – to produce the following ways of thinking about development: modernization, structuralism, dependency theory and neo-liberalism.
Typically, modernists believe development have to be achieved through linear progression, from a ‘traditional’ to a ‘modern’ society’ (Rostow, 1968). During the ‘traditional’ stage the country would be limited by weak government, poor technology and communications and overreliance on subsistence agriculture. Eventually however these societies would accumulate ‘preconditions of take-off’ in which foundations are laid, such as the creation of private business, banks, schools and hospitals; but such a society still lacks the productivity necessary to make the big jump.
To achieve ‘take-off’ the economy would need to show signs of rising investment and savings as well as the rapid expansion of industry and agriculture. Even though the economy would have to experience some turbulence along the way towards maturity, it would do so by stripping itself of the very industries that had helped in the take-off. Finally, countries would, under this theory, enter the age of mass consumption when an affluent society would be born.
Most importantly, in order to achieve the various stages of development and pass through them, the state had to be interventionist. Even though these thinkers insisted on the virtues of private enterprise, they also insisted that the Third World needed a plan or blueprint which governments could follow.
A different take on modernization, which rejected the linear path of development, was Latin American structuralism. Ultimately, it sought the reason for underdevelopment in the unbalance of trade between raw commodity producers and manufacturers. More capital and technology would, it was argued, lead to a turnaround in fortunes. Crucially, developing countries had been apportioned the almost exclusive role of primary product producers within the international division of labour. As Raul Prebisch, a prominent proponent of this analysis, saw it, there were two problems associated with being predominately a primary goods exporter.
First, he saw that technological advancement in the industrial core would lead to the creation of synthetics for natural products. Such a shift away from a dependence on raw materials, such as rubber, would have a detrimental impact on the economies of those who sought to profit. Second, he discerned the tendency that as per capita incomes increase, demand for primary products, such as food, would remain stable, while by contrast demand for manufactured goods would rise (Prebisch, 1964, 7).
All of this meant that, without the prospect of the developed world consuming more primary products, developing countries had to face the prospect of “price volatility in the short term and declining terms of trade over the long run”. Such defects in the international system would be overturned through industrialization, which would decrease dependence on primary products and increase ability to export processed products.
Importantly, however, structuralism shared with modernization theory the need for government to play a major role in supporting and protecting infant industries through tariffs and non-tariff barriers. Only by doing so, it insisted, could developing counties compete at all. Such was part of the reason why the policy of import-substitution industrialization (ISI) was created and propounded in the hope that an emphasis on industrialization would promote growth.
Yet the problem with structuralism was that it took as a given the outer context of the capitalist international economy. Accept this, dependency theorists countered, then there was only the prospect for further dilemmas for developing countries. As a chief proponent of this idea, Andre Gunder Frank showed, in his book Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil, that underdevelopment was caused by the very nature of global capitalism. Two divisional structures had emerged in which one camp would function as the metropolis centre and the other would serve as the peripheral and perennial satellites.
Such a structure was largely exploitative in that “the metropolis expropriates economic surplus from its satellites and appropriates it for its own economic development. The satellites remain underdeveloped for lack of access to their own surplus and as a consequence of the sae polarization and exploitative contradictions which the metropolis introduces and maintains in the satellite’s domestic economic structure”. So he concludes pessimistically that “economic development and underdevelopment are opposite faces of the same coin” (Frank, 1969, 8).
Such thinking formed the basis for the rejection of schemes such as ISI, since they only helped entrench even further a form of “dependent development” in which developing countries would become wholly reliant on the developed world for capital and investment. As long as this state of affairs continued, dependency theorists warned, developing nations could not share in the wealth of a capitalist world economy. Rather, it was argued, nations should move towards a socialist path of development, with the Soviet Union as a model of a country that had managed to industrialize without recourse to capitalism.
Such an interpretation of development, it hardly needs to be mentioned, left room for any viability in the policies of ISI that had emerged under the structuralist banner. As it turned out, ISI failed to deliver on its promises of creating industrial competitiveness. In fact greater inequalities arose due to the way in which certain industries were protected so that they ended up with excess capacity, inefficiency and low quality. More worryingly, the fact that the state controlled licensing and foreign exchange meant that it encouraged “rent-seeking, corruption, smuggling, and black market as well as inefficiency in the allocation of resources” (Cohn, 2005, 378). Problems identified by dependency theorists proved to be prophetic.
2.3 The return of liberalism
Even so, the inadequacies of ISI did not prevent the liberals, emerging out of the shadow of criticisms, from drawing different conclusions. For they sought the root cause of developing countries’ inability to move away from their state not in the unfair international system, which was inherently set up to keep them underdeveloped, but in incompetent government. What needed to be done, in other words, was to keep out the hand of government and allow market forces to operate. Evidence that the neoliberals were correct was provided by the promising growth of East Asian countries which based their economic development on exports.
Examples such as Taiwan and Korea, which both witnessed strong rates of growth, conferred confidence on neoliberal analysts who sought the success of these countries to an “evolutionary process of industrially induced modernization and structural transformation … locating an appropriate development niche within the global economy which may be exploited by implementing sound development policies based on conventional neoclassical economic principles” (Bruton, 1998, 107).
From all these examples neoliberals re-built the edifice to their economic thinking. Clear guidelines this time were issued governments to, for example, “eliminate exchange–rate controls, restrictions on international trade, deregulation of the financial sector, privatization of state enterprises, creation of an unregulated labor market, specialization according to ‘comparative advantage’ and market driven resource allocations, and generally defining a ‘minimalist’ role for the state in development” (Brohman, 1996, 108).
Most developed countries, responding to the debt crisis of the 1980s, gradually appropriated these new policies. Within the developing world, however, the legacy of ISI left a chronic balance of payment problem so that many countries had substantial debts they owed to international financial institutions. Responding to the crisis, in which many developing countries were expressing inability to return the debts, the IMF and World Bank issued guidelines in which it was spelt out that these nations should adhere to structural (or neoliberal) reforms so as to achieve growth and stability.
There was, in fact, little choice. As Walden Bello and Shea Cunningham have acutely noted, “Faced with the threat of a cut-off of external funds needed to service the mounting debts they had incurred from the western private banks that had gone on a lending binge in the 1970s, these countries had no choice but to implement the painful measures demanded by the Bank and Fund” (Bello and Cunnigham, 1994). Such a move proved to be a watershed: it marked a shift away from an era of protection to a time of the free market, and it is within this climate that developing countries presently operate. In what follows one will review how these shifts and turns in economic developmental thinking impacted one particular country, Ghana.
3.0. Politics, ideology and economic policy
Ever since her independence in 1957, Ghana has chopped and changed economic policy to the extent that she has tried pretty much all the development theories on which policy was forged. During the colonial period, she had been subjected to mercantile policies, which rendered Ghana an exporter of raw materials and an importer of finished consumer products.
Tragically, this meant that wider socio-economic developments failed to take place, so that a diversification of her economic and industrial base away from the almost total reliance on a few basic resources could not be effected before British rule ended.
3.1. Nkruman and structural economics
When Nkrumah assumed the mantle of power, he intended to push Ghana out of the underdeveloped into the developed world. Conceiving a Ten Year Development Programme, he established an Industrial Development Board (IDB), which was handed the task to develop the country’s manufacturing capabilities with the intent to pass them on to private enterprises when sufficiently grown (Dzorgbo, 2001, 148).
But more substantive initiatives were carried out following the visit of Professor Arthur Lewis, a development economist, who argued strongly against any shock industrialization strategy in a country whose domestic market was limited; pursuit of large-scale industrialization would counterproductively remove resources away from the rural areas to the modern sector; and where shortage of labour would be aggravated by demand from industry. Far from adopting ambitious schemes, he put forward a series of modest proposals that were designed to prop up basic infrastructures so that a basis could be laid “for private foreign investment without the government having to bother offering special investment favours” (Dzorgbo, 2001, 149).
Such a policy of “industrialization-by-invitation”, which was based on modernization theory, took a dim view of the ability of the government to access funds and take industries under its wing in a way Nkumah had initially intended. Even so, many of these recommendations were both enthusiastically and modestly accepted. Between 1950 and 1962, the Ten Year Plan adjusted to sing the tunes of a need above all for strong infrastructure.
More specifically, it successfully constructed roadways and bridges to connect the various parts of the country, while it built the hydroelectric Akosombo Dam to secure the energy base needed for industrialization. Efforts were also invested in the setting up of transportation systems, while in the realm of social development, the government increased access its population had to water and education. Free primary education became available for all by 1960 and secondary education was expanded rapidly too.
Enrolment in schools almost doubled across the board in the 1960s, with some 36,414 students registering in secondary schools, technical colleges, polytechnics and pre-university schools (Dzorgbo, 2001, 153). Such impressive improvements were capped off by improvements in health care services which saw new hospitals and clinics open.
Despite the fact that Nkrumah government had followed and even bettered the recommendations of Lewis to improve the socio-economic infrastructure of the country, it grew impatient of the gradualist approach to economic development. More specifically, it became disillusioned by the “industrialization-by-invitation” policy because it had not led to the diversification of the economic base necessary for stability in the long run.
Even though substantial amounts of FDI had been expected, following adoption of Lewis’ ideas, little of it had materialised. Those which had were taking the country for a ride. For example, during the construction of the Akosombo Dam, Nkrumah sought financial assistance from the United States. Eventually the firm Kaiser Aluminium Company came forward to underwrite some of the costs of the project. But conditions were attached that it as well as its partner Reynolds Aluminium be allowed to absorb two-thirds of the generated power for use in the smelting of aluminium in the country (Dzorgbo, 2001,142).
Such generosity did not end there, for Kaiser was to receive a tax moratorium for 30 years, which meant that it did not have to pay import duties on materials and no taxes had to be paid on exports for another 10 years. More incredibly, the company managed to exact the concession that it did not have to use locally produced bauxite for smelting. Even the much anticipated employment of indigenous labour failed to appear. In the end, a mere 0.03 percent of Ghana’s workforce came to be employed by Kaiser (Seidman, 1978, 138).
Perhaps it should come as no surprise that Nkrumah, faced with the replacement of an exploitative British colonial administration with an equally exploitative American corporation, would in time jettison the gradualist approach in favour of a more structural path of development as well as veer more towards the left than the right in political thinking. Such a shift accounts for why he suggested the government should play a more hands-on role in stimulating domestic industrial growth.
Only through the implementation of ISI, Nkrumah reasoned, could Ghana create a stable foundation on which a socialist country could be built (Berg, 1971, 189). Following visits to the Soviet Union and China in 1961, he returned to replace the modernization approach with a structural one, which was reflected in the Seven Year Development Plan that pulled no punches about where the country was heading towards – a socialist future.
More specifically, this model pushed forth with the promotion of import-substitution for intermediary goods (ISI) and the eventual production of heavy industrial goods. It was a plan that was radical as it was rapid. Limited to the area of agriculture, the Plan sought to increase output and efficiency by introducing technology; change the framework of commodity production in favour of industrial and export crops as well as livestock; supply towns and cities with low-cost foodstuff; and attract youth to agriculture and reduce unemployment (Dzorgbo, 2001, 156). Some of these measures proved to be effective not least because they contributed to the diversification of the agricultural base away from cocoa to maize, rice, millet, vegetables, fruit, oil, sugar cane, tobacco, yams, bananas, cashew and kenaf – no mean achievement.
Diversification in agriculture was only part of a wider effort to expand the industrial base of Ghana. Emphasis was placed in particular on industries in iron, oil, refinery and petrochemicals. By 1965, structural policy was showing results since around £41 million had been spent on industrial development. Two large cocoa processing plants were constructed in Tema, the German firm Drevicchi built a Food Complex nearby, and the former colonial masters contributed by setting up a steel plant that could roll 30,000 tonnes of steel annually (Dzorgbo, 2001, 157).
More importantly, consistent with the ideological stance of its leader, Ghana moved closer to the European Eastern bloc countries, which assisted the country with the development of fruit and vegetable plants, shoe factories, leather tanneries, cement factories a rubber and tire factory, pharmaceutical firms, meat-packing factories, and a fold refinery. Such coming-together naturally meant Ghana moved away from open trade ties with the Western European countries and expanded agreements with the Soviet Union.
Consequently, the number of state-owned companies mushroomed to over 50 in various sectors, and in manufacturing alone the state employed some 90,000 workers (Dzorgbo, 2001, 158). Yet even before the fruits of structural policy could be reaped, the Nkrumah regime came to an abrupt halt in 1966 when the military and the police conspired to usher him out in a coup d’état. All policies he had implemented were thereafter reversed.
Much of the reason for this move to unseat Nkrumah had to do with the reckless abandon by which he was squandering state finances. Even though some diversification had been achieved, it had been attained at considerable economic cost. Rapid industrialization, which focused almost exclusively on infrastructure and production capability, consumed some 80 percent of planned investment, while the social programme that ran alongside it was burning a sizeable hole in the state budget.
Hopes that were pinned to the socialist agricultural and industrial reforms were also dashed. In fact, state-run farms became a further burden to an economy already on the brink. Despite the introduction of modern farming techniques, which Nkrumah implemented through heavy capital investment, productivity failed to shoot upwards. By 1964, these farms were operating at a loss of £150 million which, only a year later, had catapulted to twice that amount (Seidman, 1978, 178). At the same time, the industrialization programmes exhibited similar downturns. While the aim of Ghana was to increase the production and export of value-added goods, this did not happen.
Blame should not be placed wholly on misfortune or fiscal recklessness, however. External factors, as ever in Ghana’s history, had also been responsible. By the early 1960s favourable conditions that had made the difference previously began to deteriorate, especially in relation to cocoa. During the 1950s, cocoa was valued highly in the international market. But from 1959 onwards its price began to decrease propitiously.
By 1959 and 1961 cocoa could only fetch 80 percent of the value it had boasted some five years ago, and by 1962 and 1962, its value was further slashed to only 63 percent of its highest value (Berg, 1971, 198). Such a turnaround naturally led to problems in the country’s balance of payments. Keen to keep a lid on this emerging crisis the Nkrumah government imposed import quotas and regulated the use of foreign exchange. But all this only helped to set off massive price hikes on imported goods.
Prices for imported goods were, in 1966, some 75 percent higher than in 1960. Consequently, starting with 1961, “there were foreign exchange shortages and exchange controls, with the extent of external imbalance growing larger over the period; by the beginning of 1966 the manufacturing, agricultural and transport sectors of the economy were operating well below capacity because of scarcities of imported inputs” (Berg, 1971, 188). Such a change proved particularly hard to stomach since it followed on from a boom period in which people had grown accustomed to the easy consumption of foreign goods and a relatively high standard of living (Dzorgbo, 2001, 181).
3.2. Swing to liberalism
Following the overthrow of the Nkrumah regime, the Ghanaian military, which had coordinated the coup, installed a new government, the National Liberation Council (NLC). Pointing to heavy government intervention as being responsible for the economic mess, the NLC swiftly moved to assume the opposite camp of thinking, in which the role of the state was severely curtailed and private sector development encouraged.
Such a shift also signalled an about-turn from structuralism to liberalism in economic philosophy. Unsurprisingly, this change brought about the almost complete rejection of Nkrumah’s socialist project. More often than not the NLC seized on the trade and budget deficits, negative investment flows and the backwardness of the private sector as indications where the previous government had gone woefully wrong, and the alternative vision of NLC as well as the successor Progress Party was to right these wrongs by creating a strong economy based on private sector growth.
Both governments, thinking they had learned their lesson, subsequently moved to liberalize trade and implement a stabilization programme that were backed by the IMF and the World Bank (Adedeji et al, 2005, 199-200). No longer would they pursue policies in which, in the case of the Nkrumah government, an estimated £39.8 million would be pumped into state-led industrial schemes only to produce paltry profits of £1.2 million and losses registered at £15.1 million (Hutchful, 1987, 27).
Shifts to move away from the state were predicated on the understanding that the contraction of the state sector would lead to the growth of the private one, especially in areas such as industry, commerce and housing (Dzorgbo, 2001, 196). Consequently, capital expenditure saw dramatic decreases of 54 percent with the involvement of the state drastically cut back and market mechanisms introduced. Much of the control the state exercised over foreign exchanges was also relaxed, import licensing for foreign trade and payment was deregulated and wage increased kept down to 5 percent (Dzorgbo, 2001, 195).
Lavish spending, which characterised the government of Nkrumah, was now replaced by private firms who would be invited to take over state-led enterprises. To entice these companies to Ghana, the NLC government froze wages so that, by 1969, according to Ninsin, “the real minimum wage for workers in Accra foe example was as much as 38.1 % less than its 1960 level” (Ninsin, 1989, 25). Keen to resurrect relationship with western countries, from whom Ghana had distanced herself during her socialist phases, the NLC put a sudden end to several joint Soviet – Ghanaian ventures in an effort to announce its break from the past.
More specifically, this meant work on a concrete panel factory had to be abandoned as well as the Soviet-financed Tarkwa Gold Refinery plant, even though both had been near to completion. Most comical of all, the activities of the State Fishing Corporation were halted, with the result that 28 fishing vessels belonging to the state and to private fishing companies bobbed around in the water doing little, while the new rulers quickly moved to expel the Soviet technicians and crew that had been involved in the project (Dzorgbo, 2001, 197). Conceivably these hastily-botched projects, if they had been allowed to develop, could have provided the kind of diversification which the previous regime had aimed at all along.
All these sacrifices, however, proved worthless. Even though, following the installation of the new government, growth jumped back to record an average of 5 percent between 1967 and 1971, the gamble of cutting ties with the Soviet Union, designed to impress western investors, produced precious little FDI. For the second time in her recent history, Ghana backed the wrong horse and her people paid for it. Privatization of state industries as well as the cancellation of joint-Soviet ventures without anything substantive to replace them, meant mass lay-offs.
Some 66,000 people lost their jobs as a direct consequence of a shift in policy and only a paltry 7,400 were able to secure re-employment elsewhere (Dzorgbo, 2001, 208). Deflationary wage policies added to their hardship: while wages only increased by 4.5 percent in 1971, consumer inflation rocketed to the tune of 90 percent for the same year. More insult was heaped on injury during this anus mirabilis as the price of cocoa slumped from US$ 997 in 1969 to US$ 565 (Adedji, 2005, 120). All of this was capped off by a move to devalue the currency by 44 percent, a decision that set in motion social unrest that eventually culminated in another coup in 1971. Despite pursuing a completely different economic policy, the irony is that the NLC and PP regimes both fell victim to the kind of fate that had ousted Nkrumah – a military coup.
3.3. Nationalist politics and indigenous development
What comes as little surprise, then, is that when the newly-installed government of the National Redemption Council (NRC) – later re-named the Supreme Military Council (SMC) – came to power, it set about doing just the same as its predecessors had done by running, politico-economically-speaking, the other way.
Retracting the policy of attracting investment from abroad, in particular from western nations, the NRC fixated on FDI as a convenient scapegoat to whip up patriotic fervour and proceeded to place emphasis upon the development of ‘indigenous’ approaches to economics in the fervent and misplaced belief that western economic models had little applicability within the Ghanaian context.
Such a nationalist shift led, first of all, to the revaluation of the Cedi and the writing off of bad debt that had accumulated as a result of liberalism. Presuming that these debts had been incurred by previous regimes under dubious circumstances, the SMC believed it had the right to cancel the debt the country owed – some $ 94.4 million – which, unsurprisingly, did not go down too well with her western trading partners and creditors who became as reticent as ever towards the idea of investing in a country that defaulted on her promises (Boafo-Arthur, 1999, 7).
Rather ironically this was what the Eastern bloc countries thought of her too. Memories of broken contracts still fresh in peoples’ memories, the Soviet Union and others were less than hasty in re-establishing business ties with a country that was promiscuous in the courting of her partners (Dzorgbo, 2001, 230).
Neither the West nor the East as firm friends, Ghana had to strike it out alone, doing so based on an indigenous strategy of development. Despite some success in creating a level of self-sufficiency, at least with regard to food, the strategy pursed by the SMC left the economy, in the words of Ninsin, “in shambles with devastating consequences for the living conditions of workers and other members of the lower classes” (Ninsin, 1989, 8-9).
More specifically, the double shock of debt write-off and currency re-evaluation still impacting on her reputation as an international trader, the hope that exports would drive her economy back into the black could only be wishful thinking. When trade was conducted at all with the West, the response was to demand cash payment upfront for imports, an impossible situation which led to “chronic shortages of all the basic commodities (wheat, rice, bread, soap, sugar), spare parts for vehicles and raw materials and other critical components for industries” (Dzorgbo, 2001, 183). Most damaging was the impact on ordinary Ghanaian, but industries, which employed so many of them, could not obtain the capital necessary to operate so that the manufacturing sector, for example, contracted.
Currency re-evaluation paradoxically hit Ghana’s main export too. Despite global increases in the price of cocoa, the fact that the Cedi was valued and traded so highly meant that exports could not possibly compete. More problems emerged from the policy of the SMC which slapped heavy taxation on producers. Many resorted to smuggling as the farmer could receive 900-1,200 Cedis for 30 kg of illegal cocoa in contrast to the paltry domestic offering, post-tax, of 360 Cedis (Dzorgbo, 2001, 240). By 1977 such practices had become so widespread that the estimated 40,000 tonnes which were shipped out of the country in that year represented over 12 percent of total cocoa production.
Even though the SMC could have lifted the tax burden in the hope that the cocoa industry would profit from favourable international prices, it missed this gaping opportunity. Rather than learning from this mistake, the government imposed further restrictions in the form of price and import controls that substantially increased the presence of the state in the domestic economy. During the time the SMC were in power, economically things went from bad to worse. Due to its protectionist policies, growth between 1972 and 1982 recorded an annual rate of -0.95 percent. Per capita income was worse hit as average salaries declined by 3.4 over the same duration. Only another popular insurrection was going to put a stop to this slide. As it happens, a coup broke out in June 1979.
3.4. Return to liberalism
What was perhaps significantly different about this coup from previous ones was that the man who led it, Jerry Rawlings, held back from reacting both ideologically and emotionally to the diabolical failings of past administrations. But there was little to suggest otherwise at the inception of a civilian-led government. At this point it was clear that Rawlings had Marxist leanings and had expressed admiration for revolutionaries such as Fidel Castro as bulwarks who stood firm in the face of imperialist onslaught (Meredith, 2005, 371).
But the realities of the Ghanaian economy soon brought him to his senses. Summing up the state of the country in 1983, Meredith comments that it was close to collapse: “Food supplies were unpredictable; production levels were at an all-time low; expenditure on health in real terms was one quarter what it had been in 1976 … inflation had reached 123 percent; loss-making parasitic organisations devoured 10 percent of government expenditure … and per apital gross domestic product was declining at the rate of 7 percent annually” (Meredith, 2005, 371). No wonder then, faced with this gloomy diagnosis, did Rawlings reconsider his position, so that by 1983 he moved the country into a neoliberal developmental path, a road on which Ghana, in many respects, is still limping along today.
Based on the IMF Economic Recovery Programme (SAP), the return to a neo-liberal policy of economic development has had varying impacts – both positive and negative – on Ghana’s economy and society. More specifically, the reforms were carefully prescribed so that development would be achieved in two gradual phases.
During the first phase, the balance of payments would be stabilized, domestic financial balance rectified, government deficit reduced, international trade deregulated, and price controls taken away. All of these are designed to create a foundation for long-term sustained growth. Following this stage of constructing the necessary structural frameworks, the second phase sees the privatization of state industries, removal of government aid, scaling down of bureaucracy, and the general reduction in the hand of government.
Following the implementation of the first phase, Ghana’s economic fortunes steadily improved. Only a year after Rawlings had changed to a neo-liberal path, the country saw its real GDP rise by 8.6 percent, with per capita income increase by 4.6 percent. Nor was this a one-off event for growth continued at an average rate of 5.1 percent until 1989 (Adedej et al, 2005, 133). More importantly, the inflationary spiral was at last brought back to acceptable levels, so that three digit rates, recorded in 1983, came down to 40 percent in 1990 and was eventually brought down to 10 percent by 1992.
Reforms in the cocoa sector also helped buoy the economy as producer prices rose. Consequently the output of cocoa increased to 220,000 tonnes by 1986. Previously, in 1983, only 155,000 tonnes had been harvested. Such encouraging movements had a beneficial effect on government finances. Tax revenues, which had at one time only composed 5.6 percent of GDP, rose to 14.4 percent in 1983 and then even more to 15.2 percent three years later (Adedej et al, 2005, 131).
But neo-liberal reforms have not been comprehensively positive. Between 1992 and 2000, for example, inflation became unstable once more. Following a modest rise to 25 percent in 1993, it jumped to 60 percent in 1995, dropped to 12.4 percent in 1999 and then rose to 25.2 percent in 2000. Similarly GDP growth rates took a disappointing downturn. Even though growth in the service sector matched those of previous years, the performance in the agricultural and industrial sectors proved sluggish as well as volatile. More specifically, downturn in these various sectors meant numerous redundancies.
Around 300,000 civil servants had to be laid off; 78,700 workers were asked to leave from manufacturing jobs in 1987; and a further 28,000 had to leave their positions in 1993 (Dzorgbo, 2001, 290). Such falls in employment and a concomitant decrease in spending on social services meant that access to health and education was compromised. Devaluating the currency further added to the hardship as the costs of imports, principally machinery, drugs and school supplies had to be raised (Konadu-Agyemang, 2000, 474). Currency account deficits therefore rose, in the opinion of one scholar, due to “the liberalization process, including the gradual elimination of import restrictions as the economy moved towards a more liberal trading regime” (Adedej et al, 2005, 136).
Perhaps inevitably in such a climate of deregulated trade, Ghana has had to cope with trade deficits that have been created due to the rising costs of imports and declining returns for exports. Crucially, the returns on cocoa fell almost 50 percent between 1987 and 1989, despite the fact that export volumes had consistently increased. Some respite did follow when John Kufuyor came to office in 2001. Since then GDP has picked up one more, with the country recording a modest 3.8 percent in 2000 and an even more respectable 42 percent a year later.
More recently figures have been rising even further. But the characteristic of this growth does not seem to have changed since this wealth has been created by rising prices in Ghana’s key exports of gold, cocoa and timber, and her trade deficit is still large. More concretely this fact has received confirmation from GDP statistics which reveal that growth has depended largely on the agricultural sector, which still remains the biggest sector of the economy employing around 60 percent of the total workforce (African Development Bank, 2006).
Such dependence on a single sector, and pretty much on a single commodity, has led to repeated and familiar fears that, due to the inherent volatility in these markets, rapid gains could easily be offset by rapid losses from one year to the next. As ever the fundamental problem that has haunted Ghana – the inability to diversify its economy – holds true to this day.
4.0. Free trade, ACF and the EU
As Ghana’s economy has witnessed a transition from internally focused development strategies towards export-orientated development strategies in recent years, it follows that in this chapter the nature of Ghana’s trade ties with the rest of the world should be analysed. From a historical perspective, these have been the strongest with European countries, specifically with Britain, not least because she belonged to a network the Empire had created. Such a legacy continues to be an influence today, and it is for this reason that the investigation places emphasis on Ghana’s relationship with Europe.
4.1. Former colonies, preferential trade and the EU
Such a state of affairs is not one limited to Ghana alone of course. Former colonies which make up the African Caribbean and Pacific (ACF) nations have all seen previously colonial trade ties transformed into nominally equal ties during the post-war period. Following the recognition of historic links, former colonial nations have been provided with preferential access to European markets which have made them the main targets of trade. Most scholars point to the beginning of preferential trade agreements between Europe and Africa to the Yaoundé Conventions.
Even though these have been regarded less as a break than a continuation of post-colonial power relations, the precedent they set should not be dismissed (Hurt, 2002, 400). Following the preferential trade agreements between former French and Belgian colonies, Ghana too eventually formalized trading associations with the EU in 1973. Much of the reason why she was late to the party was because Britain had also entered the European project late.
Prior to this, Ghana’s trade had been concentrated on Britain along with the Commonwealth which reflected strongly the colonial tradition of trading. Not least because Britain benefited from the import of cheap food and raw materials and the Commonwealth in turn received inexpensive industrial products, this arrangement had been upheld.
Yet the integration into the EU easily transcended the kind of reach former British colonies had enjoyed, and Ghana had potentially an attractive market to tap into. Some 96 percent of ACP’s exports of manufactured goods and agricultural produce could, thanks to the Lomé Convention of February 1975, access the EU market (Twitchett, 1978). More than this access to a large market, ACP states benefited from a fairer negotiating position.
Not only was a degree of equality ensured but also concession was made that the former colonies would not need to open themselves up to products from Europe. Such a favourable situation was not necessarily an expression of benevolence on the part of the Europeans, but a recognition of a wider change in international trade, in which Third World produce were being highly sought after, that Europe felt it in their own interests to make trade concessions (Gibb, 2000, 461).
More preferential treatment was forthcoming. A System for the Stabilisation of Export Earnings (Stabex) meant that former colonies could benefit from finance from the European Development Fund (EDF), which could also protect them from fluctuating revenues within the commodity market if the need arose.
Despite these favourable terms, which were renewed in 1980, 1985 and 1990 under various Lomé Conventions – the last Convention lasted until 2000 – the results were not particularly encouraging. “The effect of the Lomé Convention”, the EU Commission concluded, “has not been sufficiently large to promote export growth and export diversification among ACPs” (quoted in Nilsson, 439).
Such a statement was backed up by data from Eurostat which showed that the total share of exports from ACP to the EU had in fact dropped from 6.7 percent in 1976 to only 3.4 percent in 1994. By contrast EU imports within ACP countries had risen. As Gibb has lamented: “Despite the range, value and longevity of trade preferences, ACP countries have failed to increase or even maintain their market share in Europe, where less preferred exporters have been able to raise their market share at the expense of ACP countries” (Gibb, 2000, 463).
4.2. GATT, WTO and pressures for liberalization
More broadly, the levelling of the playing field in trade, which the Lomé Conventions symbolized, had also created an international trading framework as far back as 1947, namely when the General Agreement on Tariffs and Trade (GATT) came into being. Similar to Lomé, which is more recent, GATT also aimed at non-discrimination within the market.
But unlike Lomé, it was thoroughly liberal in its principle, which “required that any advantage – such as a lowered tariff – granted to another contracting party would be immediately accorded to all other contracting parties”. Emphasizing commitment to the prohibition of trade barriers, it sought to establish the principle of reciprocity that would do away with all barriers to trade.
Exceptions were made, however, which allowed countries, especially developing ones, to opt out of certain agreements (Hockman, 2002, 41). While in theory GATT advocated the reduction in trade-distorting measures between countries, in reality it also provided loopholes which allowed nations to refuse.
With reference to Ghana, the employment of ISI, which slapped tariffs on foreign imports, did just this, and such a move was certainly possible under the circumstances. Crystallized in the special and differential treatment (SDT) doctrine, GATT formally recognized the needs of developing countries, such as Ghana, through “(a) granting to low-income countries more favourable access to the markets of developed countries and (b) giving them substantial policy discretion in their own markets” (Oyejide, 2004, 77).
Yet this lukewarm state of affairs underwent change following the Uruguay Round of negotiations, which took place between 1986 and 1994, out of which the World Trade Organization (WTO) emerged. Pursuing a more rigorously liberal policy not only in theory but also in practice, the WTO was far more explicit than GATT in calling for the abandonment of barriers to fair and free trade. As Hoekman has explained, “the WTO can be seen as a market in the sense that countries come together to exchange market access commitment on a reciprocal basis”; it also made them binding and enforceable (Hoekman, 2002, 42).
More specifically, if a member country felt that a trading partner was denying fair access, the case could be taken to the WTO which would settle the dispute. A panel made up of exports would then deliberate on the case and hand down a ruling that would “normally have compliance deadlines and if these are not met financial compensation or retaliatory trade sanctions can be imposed” (Buckman, 2005, 71). Such a shift from opt-out to binding rules, with reference to international trade, had profound consequences on ACP countries who witnessed the watering-down of their preferential treatment at the hands of their former colonial masters.
Many of the agreements made between the EU and ACP were consequently found out to be wholly incompatible with the new WTO regime, for the preferential schemes “discriminated against other developing countries” (Hinkle et al, 2006, 267). Such a realization led to significant impact. During the early 1970s, the EU’s Common External Tariff had held steady at around 10 to 12 percent, which were applied to products from non-colonial countries, but by the 1980s, when the WTO rules kicked in, these rates were reduced to 3 to 4 percent, wiping out any competitive advantage ACP countries had enjoyed (Gibbs, 245).
By 1994 pressures to change the preferential trade arrangement were exerted. But the Cotonou Agreement, which sought to do the impossible by maintaining preferential access to the EU at the same time as complying with WTO rules, could not reach a conclusion that could satisfy the WTO; nonetheless it did eventually establish reciprocal free trade agreement called the Economic Partnership Agreements (EPAs) which replaced Cotonou.
Not content to establish a framework for greater reciprocity, the EPA went further to place additional emphasis on stimulating regional trade which established a “joint roadmap” with a schedule, an institutional set-up, an agenda of coverage and priority areas (Bormann et al, 2005, 171). One major downside to the new arrangement lay in definition. During the negotiation for the “Everything But Arms” proposals, which took place in September 2000, it was stipulated that “Least Developed Countries have duty- and quota-free access to the EU for all products except arms … for most goods and a three-year phase-in period for bananas, sugar and rise”. (Page and Hewitt, 2002, 91).
Clearly the problem was how one drew the line between a Least Developed Country and a Developing Country. Not least of all this was a problem for countries which straddled the grey area and classification would have a profound impact. Eventually Ghana failed to meet the necessary requirements to be considered a Least Developed Country – this meant that she was not conferred full duty and quota-free access to the European market. Luckily, however, in April 2007a move was made to strip all remaining quotas and tariff l
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