Home Sci-Tech & Business Economic Trends Economic Development and Reform Issues in Africa: Lessons for Ghana

Economic Trends

Economic Development and Reform Issues in Africa: Lessons for Ghana

There are three keys to a successful industrialization and economic diversification strategy. One is to have a clear government strategy - not to be confused with direct state involvement in running industries, which we all acknowledge to be a thing of the past. It is a well-known fact that in South East Asia, governments took an active role in promoting industrialization, intervening at strategic points through regulation and incentives and mobilizing resources where appropriate. The second factor in promoting industrialization and diversification is regional integration. The third is a robust private sector response. I will elaborate briefly on the latter two issues.

By K. Y. Amoako

What Do We Need To Do?

To begin with, we have to identify the structural problems that limit Africa's economic growth and seek to redress these. Traditionally, the pattern is that as an economy grows, the share of agriculture declines, while that of manufacturing increases. ECA studies show that there have indeed been structural shifts in African economies since independence with agriculture declining from 40 percent of GDP in the 1960s to 21 percent at the end of the century. However, this decline in the share of agriculture has not been accompanied by a commensurate increase in manufacturing, which rose from 9 to 15 percent of GDP over the same period. Instead, the service sector grew from 34 percent to 50 percent of GDP and may be larger, since the true extent of the informal sector is not known. If Africa is to achieve rapid growth there needs to be both a strengthening and diversification of agriculture - which constitutes the backbone of our economies - as well as a substantial growth in manufacturing output relative to agriculture.

Agriculture

Let us look first at the agricultural sector, taking Ghana as a case study. As in other African countries, agriculture's contribution to GDP has been declining in Ghana - from 55 percent of GDP in the first half of the 1980's to 41 percent in 1995. But this has not been accompanied by a similar increase in manufacturing output. Agriculture is also a classic example of the fact that getting the prices right is not enough. Agriculture in Ghana continues to grow at a sluggish pace. Traditional land tenure systems, including shifting cultivation, continue to be widespread and continue to take a heavy toll on the soil. Fertilizer usage is low and further constrained by the removal of subsidies. Sudden privatization of input procurement, supply and distribution led to bottlenecks when the private sector failed to respond immediately to these moves. The credit squeeze has curtailed agricultural investment.

This raises complex questions. Is some form of subsidization for agriculture, as is common in developed countries, desirable? What role should the government be playing in the provision of inputs, and know-how to farmers and in agricultural marketing? What do we plan to do about irrigation? Where is the line best drawn between the government and the private sector when it comes to agricultural production? Ghanaians must discuss these issues and decide on a strategy that ensures that agricultural output is doubled in a relatively short period of time. What is certain is that traditional approaches to production will not do the trick. Fortunately, new technologies make transformation feasible - if only we can find ways to tap them.

Industrialization and Export Diversification

Turning to industrialization, some analyses suggest that Sub-Saharan African countries have suffered from "sustained de-industrialization during the past decade and a half. Africa, the least industrialized region, suffered the most serious loss in manufacturing capacity in the developing world."

In Ghana, manufacturing growth rates declined by about one-third between 1988 and 1995. Despite the stated aims of the Economic Recovery Programme (ERP), there has not been significant export diversification. While the relative share of cocoa, gold and timber have changed, with the share of mining increasing, the total share of these three primary product exports remains the same. Although non-traditional exports have increased, and tourism holds great promise given Ghana's rich history and traditions, as well as its pristine beaches and awesome tropical forests, these areas of the economy remain under developed.

There are three keys to a successful industrialization and economic diversification strategy. One is to have a clear government strategy - not to be confused with direct state involvement in running industries, which we all acknowledge to be a thing of the past. It is a well-known fact that in South East Asia, governments took an active role in promoting industrialization, intervening at strategic points through regulation and incentives and mobilizing resources where appropriate. The second factor in promoting industrialization and diversification is regional integration. The third is a robust private sector response. I will elaborate briefly on the latter two issues.

Regional Integration

First, regional integration. In my statement to the Summit Meeting of the Organization of African Unity earlier this year, I had occasion to revisit Kwame Nkrumah's statement at the founding of the OAU in Addis Ababa in 1963. He said, and I quote:

"Here is a challenge which destiny has thrown out to the leaders of Africa. It is for us to grasp that golden opportunity to prove that the genius of African people can surmount the separatist tendencies in sovereign nationhood by coming together speedily, for the sake of Africa's greater glory and infinite well being, into a Union of African States."

Dear colleagues, what an opportunity lost, that today, we should be conjuring the spirit of Nkrumah to do what we should have started doing 37 years ago! All around us, in Europe, Asia, North America and Latin America we see the emergence of strong regional blocs with common interest that negotiate with one another. For Sub-Saharan Africa, with a total income of not much more than Belgium's, divided among 48 countries with median GDP of just over billion - about the output of a town of 60,000 in a rich country - regional integration is not just a matter of choice. It is a matter of survival in that jungle I just talked about. Yet, despite the myriad of experiments with regional integration and the multiplicity of deadlines and extensions, we are still nowhere near achieving a United States of Africa.

The Bible says that a prophet is seldom recognized in his or her home. As the home of Osagyefo, what have we Ghanaians done to advance the cause of regional integration, in Africa, or in our own Economic Community of West African States (ECOWAS), where trade between us remains at a paltry 6 percent of the total? Admittedly, the various conflicts in West Africa have had a negative effect on ECOWAS, and Ghana has played an important role in helping to diffuse many of these conflicts through its contribution to the ECOMOG peacekeeping efforts and at the level of political negotiation. But looking ahead, and especially now that Nigeria - the "sleeping giant" - has awoken from its slumber, are we prepared to seize the moment and play the honest broker role that could be ours between francophone West Africa, with which we have close geographical and economic ties, and the anglophone regional giant? These are important questions not just for strengthening regional integration in West Africa, but also for our ability to create the necessary economies of scale for the structural diversification of our economies.

The Private Sector and Expatriate Capital

The other critical issue is the private sector response: a recurrent theme in this lecture. It is shocking that seventeen years after adjustment began, we should still largely be looking solely to foreign aid to plug Africa's financing gap rather than to internally generated domestic savings or indigenous private entrepreneurs. This is not just because of the debt overhang, though that is a contributory factor. The accumulated loss of faith by Africans in the regimes that govern them is so profound that Africans either prefer immediate consumption to savings; or are exporting their savings through capital flight.

Africans have transferred a staggering 37 percent of their wealth abroad, as compared to 29 percent in the Middle East, 17 percent in Latin America, 4 percent in South Asia and 3 percent in East Asia. Africa is also a net exporter of its most talented human capital: several hundred thousands highly educated Africans live and work abroad, while over 100,000 experts from developed countries are currently employed in Africa.

Foreign direct investment (FDI) is another measure of confidence. The rate of return on FDI to Africa is 29 percent per year, higher than in any other region of the world. Yet only 4 percent of the total investment pouring into developing countries is going to Africa. It is no good bemoaning the fact that investors aren't coming to Africa. If Africans don't have the confidence to come back, and if African entrepreneurs don't have the confidence to invest, why should foreign investors, who have the whole globe to choose from, act any differently?

These issues strike a deep chord in Ghana. By some estimates, up to two million Ghanaians are living outside the country. One theory is that it is the less adventurous who traveled while the more adventurous and talented remained behind because only these "magicians" - as the majority of Ghanaians were once called - could work out how to survive! Being one of the less adventurous, I have some respect for that view! But I think we can agree that the loss of so many people, adventurous or unadventurous, has been a major drain on Ghana's resources.

Of course, expatriate Ghanaians repatriate a significant amount of money - by some estimates, 0 million per annum. There has been a significant increase in investment by expatriate Ghanaians in housing. But very little of this has yet to be channeled into the manufacturing sectors or new areas such as tourism.

Various reasons are cited for the poor, domestic private sector response ranging from tight monetary policy and public sector crowding out of the private sector to political uncertainty. Aryeetey and the other economists suggest in their book that perhaps the government should run a tighter fiscal policy and looser monetary policy. But qualitative research suggests that the reasons for the reticence of the private sector run much deeper; that they are imbedded in a continued lack of trust between the government and entrepreneurs. Two decades since traders were chased out of Makola Market by the then military government, rebuilding confidence between government and the private sector remains a matter of absolute priority.

Given the pervasive involvement by the state in almost every area of African economic life in the past, privatization is potentially an important means of boosting the domestic private sector and indeed of helping to repair relations between the government and local entrepreneurs. Typically, it is the "dogs" that get sold off first - the kind of enterprises that would be cheaper for the government to give away because they are actually a liability to the fiscus. The resolve to privatize tends to wane as the list gets to those items regarded as the "family silver". Yet there is seldom really a good reason for governments to hang onto even these items.

A good case in point is infrastructure - traditionally an area of government monopoly and one whose perilous state in Africa needs no further elaboration by me! Why should infrastructure be the sole preserve of government when its provision and management are potentially profitable, and when it is a cornerstone for business development? Of particular concern is the telecommunications sector - an area crying out for reform if Africa is to take advantage of information technology: one of the most exciting developments this century.

Ghana has shown foresight by opening telecommunications to private investors. Plans are well advanced for private-public sector partnerships in the provision of clean water and electricity as well as rebuilding the country's road network. It is estimated that the cost of redressing backlogs in the energy, water and road sectors in Ghana is between .55 billion and .55 billion. This compares with an average aid budget of a bit less than one billion dollars per annum. Clearly neither donor funds nor government revenue would be sufficient to address infrastructure needs.

However, privatization more broadly has not been without its upsets in Ghana as in the rest of Africa. The pace has slackened, and at times there have been allegations of a lack of transparency. An important means both of increasing transparency and facilitating local participation in privatization is through the development of capital markets. Capital market-based privatization provides an improved chance of fair pricing of the enterprises, and hence serves as an important means of de-politicizing the privatization process. In addition, privatization, through local capital markets, allows for local investor participation and hence enhanced diversity of ownership of the country's assets.

Turning specifically to foreign direct investment, the interest in the gold mining sector (estimated at upwards of .5 billion) is, unfortunately, still not reflected in other areas of the Ghanaian economy. Some smart targeting has taken place in the recent wooing of foreign investors from South East Asia. But there is so much more potential to be exploited: we don't have to beat paths only to the west - or to Obuasi! From north to south, from the coast to the desert, from the chop bars to the five star beach resorts, Ghana is a country resplendent with investment opportunities!

Human Capital

Growth, development and innovation are ultimately by people, for people. A feature of African economic performance even during the good years is that rapid growth was achieved through expanded use of resources both in agriculture and industry rather than gains in productivity. Addressing productivity is now a matter of urgency. That means investing in people. In the recent growth literature on Africa, low levels of investment in human capital have been identified as major impediments to growth.

Education

Ghana is no exception. Nearly half of all Ghanaian adults are illiterate - the majority of these women. According to UNDP, one in four children are out of school. How can we ensure a basic education for all? How do we plan to eradicate the scourge of illiteracy? Our universities are overcrowded, and under-equipped. I need not expound on the state of education today: we all know that the Legon that we come to pay tribute to today is a skeleton of its former self, even if its indomitable spirit lives on. This is a point that Alex Kwapong, a former Vice Chancellor of this University, together with his colleagues in a study on capacity building in Ghana, has confirmed. If I could digress for one minute: it was indeed this very Vice Chancellor, who chaired the interview panel that decided on my getting a scholarship to go to Berkeley. I shall never forget how the learned professor, who specialized in the classics, looked at me quizzically and asked how I thought studying econometrics would do us any good! I dare not ask him what made him change his mind then - or if he has changed it now! Well, given that I indeed became an economist, I must again put before us the tough economic choices to be made in the field of education. It is generally now accepted in development circles that the dis-investment in education that took place in the rush to contain budget deficits in the earlier phases of economic reform was misguided. But, when 50 percent of Ghanaian doctors leave the country within their first two years of graduation and 80 percent within the first five years of graduation, should we be investing such a high proportion of our resources in tertiary education? Should those who benefit from these subsidies be shouldering more of the costs? Should there be more private sector involvement in tertiary education - a sector currently dominated almost entirely by the public sector?

How can civil society and individuals contribute to the financing of higher education? Here I am delighted to learn that in the last few years, the alumni of the University of Ghana have been making significant contributions to the expansion of the physical facilities at Legon. But those of us who benefitted so much from past subsidies should and can do more. I therefore want to invite my colleagues in Economics of the Class of '68 to join me in endowing a Chair for an initial period of three years in the Department of Economics.

The Informal Sector

Another critical area for Ghana and Africa is how we plan to harness the energies of the so-called informal sector. Here in Accra, you can buy anything from Wrigleys chewing gum to dog collars to fly swats at the traffic lights. But is this really the most productive use of these young people's time? Sixty per cent of our people are engaged in fringe activities from which, because of a lack of support and training, they eke out a living. How can we improve their productivity? How can we boost their enterprises? How can we introduce them to new knowledge and technology, which in revolutionizing their lives, would lift the rest of Africa?

Science and Technology

This links to the critical need not just to develop science and technology curriculums in our schools, but to develop S and T cultures in our societies. A tiny 0.4 percent of government resources are devoted to research and development in Africa - most of this to agriculture. This is far lower than the investments made by the Newly Industrialized Countries. Comparative experience tells us that, in a world increasingly driven by knowledge rather than physical resources, there is no way we can hope to become globally competitive with such low investments in technological advancement. Harking back to Nkrumah, we will all recall how much emphasis he placed on S and T, including the establishment of institutions like GSTS in Takoradi and UST in Kumasi. In future, when upstarts like the young Amoako insist on going to Legon to study economics rather than to Kumasi to study science and technology, maybe their parents need to be tougher on them!

Information technology, in particular, offers a means for African countries to leapfrog into the 21st century. At ECA, which houses the African Information Society Initiative, we have identified several reasons why this is so. Apart from the intrinsic importance of information and knowledge to any development effort, IT reduces the costs of doing business, cuts across the huge geographical barriers that have been such impediments to development in Africa, offers numerous economic opportunities in and of themselves for small-scale entrepreneurs, and opens huge possibilities in the social sectors such as distance education and telemedicine.

In this area of information technology, ECA is carrying out activities in partnership with several organizations including UNESCO, the World Bank and the Carnegie Corporation to develop training centres of excellence at national and subregional levels, using existing infrastructure, largely at universities and schools of technology and communication.

Having learned more from the Vice Chancellor today about the considerable progress in leveraging information technology for education here at Legon, I would like to offer all the support of the Economic Commission for Africa in ensuring that within the next three years, Legon becomes a model for African universities.

Let me also mention that driving around Accra, I have been delighted to see the many cybercaf,s and the vibrant IT culture that is developing, including talk of E-Mail addresses at post offices - an area where I believe Ghana is taking a lead in the rest of Africa. I am also informed that "see you at dot com" has become another way of saying good-bye among the youth and that the Internet is becoming a popular venue for courtship. Don't you wish that you and I could turn back the hands of time!

Gender Equality

Back to my lecture, I would be remiss if, in this discussion on human capital, I did not make specific mention of the imperative of gender equality if Africa, and Ghana, are to achieve their development objectives. In simple terms, we cannot hope to progress when more than half of Africa's people are barred from realizing their full human potential. ...

Ghanaian women have traditionally occupied key positions alongside men in the production of goods and services - yet their contributions to the economy are largely absent from national accounts. There is something deeply wrong when 43 years after independence, less than 10 percent of our parliamentarians are women. A recent study on Violence Against Women and Children in Ghana, carried out by the National Council on Women and Development reveals the extent to which the basic human rights of women are daily violated.

Again, we need to ask ourselves tough questions. Why is it that, despite the rhetoric, African countries are not doing anywhere near enough to advance the status of women? How can the energies of civil society - that have arguably been far more visible than those of government in this area - be better harnessed? How can we move beyond conferencing and advocacy to implementation and monitoring? Why are women still only talking to women at gender conferences? What can be done concretely to bring African men on board?

Health

Turning to health, despite gains made in life expectancy and infant mortality in Ghana, the weak state of the health sector is underscored by the fact that 60-70 percent of the country's health problems are communicable and preventable diseases that also include epidemics. The most frightening of these is the HIV/AIDS epidemic.

It is estimated that in no fewer than 13 African countries, between one-tenth and one-quarter of the entire adult population is living with HIV or AIDS. Infection rates this high are not seen anywhere else in the world.

As Callisto Madavo, the World Bank Vice President for Africa told a recent conference on HIV/ AIDS in Lusaka, "HIV is now the single greatest threat to future economic development in Africa." AIDS is taking away Africa's present and taking away its future.

Consider that, as a result of HIV/AIDS:

  1. Economic output in Kenya will fall by 14.5 per cent in the 1995-2005 period.

  2. 11 per cent of all children in Uganda and 9 per cent in Zambia have been orphaned as of today.

  3. AIDS treatment costs may account for more than one-third of total government health spending in Ethiopia, more than half in Kenya and almost two-thirds in Zimbabwe by the year 2005.

  4. Almost 15,000 teachers by the year 2010, and 27,000 teachers by the year 2020 will die in Tanzania. With an infection rate of just over 4 percent (compared with Botswana, which, with a rate of 36 percent is the highest in Africa and in the world) Ghana has been spared the worst of this scourge. But I hesitate to even make this comparison because there is no room for complacency!

Indeed, it has been said that 4 percent is the "turning point" figure for HIV AIDS - where either a country is going to roll back the tide or watch it cascade. In December this year, ECA will devote its annual African Development Forum to the theme: "AIDS: Africa's Greatest Leadership Challenge". If there is one plea that I will unapologetically take advantage of this forum to make it is that Ghana rise to this challenge. Any more time wasted could be the difference between victory and defeat. Defeat in this case could wipe out the flicker of hope that we have for achieving VISION 2020.

Governance

This leads me to my final point - the common thread that runs through all the themes I have mentioned so far; the absolute pre-requisite for Ghana and Africa claiming the 21st century: the need for strong and capable states. The list I have given you is daunting. It calls for stronger and better, not weaker and ineffective states. The hallmarks of a capable state are strong institutions of governance; a sharp focus on the needs of the poor; powerful watchdogs; the rule of law; intolerance of corruption; transparency and accountability in the management of public affairs; respect for human rights; participation by all citizens in the decisions that affect their lives; as well as the creation of an enabling environment for the private sector and civil society. Capable states nurture all of these. Confident governments welcome the views of academics, civil society, the media, even of opposition parties.

Ghana is making important progress in these areas. The cornerstone for these is the 1992 constitution that provides for a multiparty, liberal, democratic order that is underpinned by the separation of executive, legislative and administrative powers, and is buttressed by the Commission on Human Rights and Administrative Justice. The form of political authority changed - let us hope decisively and irrevocably - from military to multiparty in 1992. Two elections have taken place and a third is about to be held. In the short term, there may be contradictions between the imperatives of political and economic reform. But one thing we know for certain is that, in the long-term, plurality is the answer to political stability without which there cannot be economic development.

The bodies in our society charged with watchdog functions are increasing in number and maturity. There has been a significant proliferation of mass media organizations in both print and electronic media and a variety of civil society organizations have sprung up.

Corruption is being discussed more openly - but a great deal remains to be done on this matter both in Ghana and the rest of Africa. Here, I would draw your attention to an in depth study that has just been conducted in Kenya entitled "The Link between Corruption and Poverty: Lessons from Kenya Case Studies." The study points out that corruption taxes the poor, increases transaction costs and reduces the level of economic activity. Similarly, a study in Tanzania shows that corruption increases the cost of living by 25 percent.

Corruption is one of the cancers that have preyed on Africa's misfortunes, driving us even further into economic mismanagement and despair. The 2000 Corruption Perception Index, just released by Transparency International, shows five African countries to be among the top ten most corrupt countries in the world with Nigeria reclaiming the number one position from Cameroon. Ridding ourselves of this cancer must be a key priority in the 21st Century. As we would say here at Legon, INTEGRI PROCEDAMUS - let integrity proceed!

Public perceptions are a key barometer of governance. The Ghana Institute of Economic Affairs has conducted two revealing studies - in 1995 and in 1999. There are several positive signals: growing awareness of the constitution; recognition of the system of government; of limitations to the president's power; of the military ceasing to be a source of fear; of freedom of expression taking root.

But there are also worrying signs - such as the declining perception of political representation, the high perception that political parties do not have an equal playing field and perhaps most worrying of all, the fact that two thirds of Ghanaians feel that their quality of life has not improved. If we revert to our earlier figures, this is hardly surprising. For although the trend is upwards, per capita income is lower than at independence and at 0 per annum it is pitifully low.

This brings us back to the crossroads - to the choices for the future.

Can We Make It?

In his book, Which World? Scenarios for the 21st Century, Allen Hammond paints three scenarios for Africa based on the 2050 workshop held in Harare in 1994. These are:

* SCENARIO ONE: High growth, led by Southern Africa with South Africa as the main engine of growth and a strong Southern African common market, but with Nigeria awakening and pulling its weight in West Africa, and a strong African common market emerging.

* SCENARIO TWO: An escalation in ethnic conflict and sporadic government collapse discouraging private investment, beginning in west Africa, spreading to central and east Africa.

* SCENARIO THREE: Episodic crises continue, debts are cancelled but new loans and private investment are scarce and export markets continue to shrink. However, a new generation of pragmatic leaders emerges. There is far greater self-scrutiny and consensus for change among the peoples of Africa. Economic reforms are pursued and deepened with governments making education and other basic social services a high priority.

Call me naive, but looking at these three scenarios, I cannot help but feel that although the third scenario is a safer bet, the first of these scenarios is plausible, especially as we now know for a fact that Nigeria is awakening. This must be a source of hope for West Africa, as South Africa's emergence proved to be for Southern Africa.

K. Y. Amoako is the Executive Secretary of the Economic Commisssion for Africa at University of Ghana, Legon.

Add comment


Security code
Refresh

Last Updated on Friday, 03 January 2014 18:06

Home Sci-Tech & Business Economic Trends Economic Development and Reform Issues in Africa: Lessons for Ghana