Analysis of Ghanas Economic Growth

Analysis of gold coasts stinting GrowthAn analytical reassessment of the effect of conflict, politics and re roots on the scotch product of the say.1.0. Introduction1.1. gold coast in 1957Some fifty enormous clipping ago, Dr Kwame Nkrumah stood before a take of cheering fellow gold coastians, proclaiming in colony from the British Empire. At long last, the encounter is ended, he bellowed triumphantly, gold coast, your beloved farming is unavoid opennessy forever (Nkrumah, 2007). such were the words that signalled the end of British rule and the start of a refreshing era for the former Gold Coast, which had succeeded in becoming the first main(a) by-of-the-way(prenominal)ming in Africa. By doing so, she set a hopeful designer to other former colonies which would shortly and eagerly follow in gold coasts footsteps.For the good example colonisation the emerging, at this point, looked b right(a). As a nation with advantages of wealth and attainment unrivalled in t opical Africa (Meredith, 2005, 22), Ghana was judge to take the land 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). at that come to the fore was nonhing farthest-fetched ab come forth this optimism. She was, in 1957, atomic number 53 of the most sparingally mature countries in sub-Saharan Africa. Income per head was double that of the Tanganikans, heartyly more than than than than the Zambians, and or so on a par with the Rhodesians (Alpine and Pickett, 1993, 64). Contri thating to this private wealth was the mer screwingtile handicraft in the vocation of cocoa whose harvest-tideion Ghana dominated by this cartridge holder. such(prenominal) a presence at heart the internationalist good market helped shore up the already self-colored amounts of immaterial relief her goernment activity held.Yet all of this failed to happen. Several years after liberty, Gha nas deliverance began to totter, her foreign reserves evaporated, and reckless existence disbursement placed the acres on a pecuniary 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 wholeness of the worst famines check the country (Sandbrook, 1982, 2). nonhing, it at once seemed, could go right. She had slender prime(a) scarce to butterfly help from abroad.1.2. International intervention and neo-liberalismFollowing the writ of execution of economic restructuring programmes, created by the International Monetary Fund (IMF) and the World Bank, Ghana utmostly emerged come in of her desperate trough in 1983. Ine vitably s unbrokenicisms were asked. Why had Ghana struggled for so long? How could she so comprehensively dash the hope and good provide in the immediate years after independence? Many factors, in the cipher of the IMF, had contributed to her demise mismanagement, over-regulation, failure to tackle inflation, and currency over-evaluations headed the depressingly long slant (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 downsizing of labour the reduction in public expenditure and the liberalisation of barter and exchange controls.Such measures, which took their cue from a resurgent neo-liberalism, clear prove to be a mixed blessing. dismantle though, on the one hand, the espousal 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 summationd unempl oyment, ushered in stiff and unfettered challenger from abroad, and generated substantial genial discontent. So much of the welf atomic number 18 state had been taken a personal manner, in fact, that the namby-pamby 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 pop the questionions, which on a lower floorpin the IMFs 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 ingenuous themselves from the shackles of undying under using by creating growth through the export of value-added products.Such a way of proceeding, it has been dry landed, could be replicated within the African context. Much of t he reason why Ghana failed in the years after independence from growth economically, this instance suggests, was because she fightd a constitution of egisism. Rather than achieve industrial growth and economic development Nkrumah said it would, his indemnity of Import Substitution Industrialization (ISI), which erected tariffs so as to nurture domestic help help diligence, 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 judicature to shrink.The new polity of SAP, establish on exports, has at first shine much to recommend it, particularly with regard to Ghana. Even a casual look at Ghanas colonial past yields business firm illustration of why an export-based economy could drive sense. During the days of the British Empire, Ghana had been forced to open up to the international market not to the lowest degree because she offered precious resources and material such as gold, sugar and cotton.Such a colonial emphasis on international parcel out, 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, in that respectfore, had Nkrumah implemented economic policies which aimed to promote exports kinda than look to 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 economyIf only things were that simple. Even though one might forcibly argue that Ghanas economy is orientated towards the international market, the kind of exports she has tralatitiously exported and is currently exporting would not have contributed much towards sustained growth. Nor do present circumstances employ hope that things would be any different either.Primarily, as the World mountain Organization has outlined, Ghana is still heavily dependent on agriculture, especially cocoa, and on natural resources, notably minerals. Primary production accounts for almost half(prenominal) of GDP agriculture at 40%, is the most important field. Manufacturing contributes nearly 10% of GDP. Services are the second largest component (WTO, 2001).Much of this gaucheness must be sought, once more, in British colonial policy, which truism little need to invest any substantial sums into creating a more sturdy and versatile stand. Raw materials, such as Ghanaian cocoa, were kept just that raw to keep legal injurys down, pr scourt competition to British firms by not having transiting 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 w orld agricultural market and whatever the social organization of export production, each colonial administration, as the political offset of the metropole, sought to tie a segment of the African population into the large imperial economy either as independent producers or as wage-workers, and in all cases as consumers (Wallerstein, 1986, 18). He could have just as thoroughly been talking hygienic-nigh Ghana.Such colonial legacies mean that even today Ghanas raw materials continue to be placed by foreign conditions. Since primary products are easily affected by the vagaries of the weather as rise 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 in conclusion increase production, prices fall as supplies quickly outgrow take on 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 lap covering from which Ghana would find hard to escape.From this lesson follows the glaring need to diversify the countrys 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 requisite to accelerate economic growth and poverty reduction and to decrease Ghanas vulnerability to outside price shocks (World Bank, 2001,1).To be fair, it has not been from a insufficiency of effort that Ghana has failed to diversity sufficiently, for political circumstances have repeatedly conspired to hold up any susta ined drive. Liberal approaches to economic development, which Nkrumahs successors aimed at, fell birdie of a coup, while two later regimes which assay to develop natal strategies of development were ousted in similar circumstances. Clearly political conflict and change have wedged hard on Ghanas economic growth arguably negatively on the whole and, if the IMF anoraks are in any way right, perceptual constancy in the present political sympathiesal set-up would at last lead the country to the elusive goal that had seemed possible during the few years after independence.1.4. Objectives and organizationEnmeshed within all these complicated factors, which this cornerstone 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 capacious store by bantam 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 backing, so as arrive at a more travel 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 reckon will offer both a historical as well as a contemporary analysis of the Ghanaian economy. Perhaps reach beyond the remit of the brief, the study will also powerfully suggest that, as things stand as they do, Ghanas economic future is set to remain a bleak one. More spareable 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 undermentioned chapters. Chapter two, below, will review some of the basic economic models which have shew application in Ghana since her days as a colonization of the British Empire. Chapter three will then focus on the implementation of these development theories from a historical perspective, analysing the several(a) regimes as well as their ideological leanings which contributed to the kind of policies they came up with.Chapter four will then necessitate a more specific and contemporary focus, reviewing the extent to which international symmetricalness 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 operate of the Ghanaian economy.2.0. Theories of Economic DevelopmentBefore this investigation can examine in exposit how various factors have influenced Ghanas economic growth, one should blank out to consider the kind of economic thinking that has undergirded the disparate policies she has resorted to in articulate 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 nationalismDuring 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 gumptionlash against this closed system, which put the nation before the individual and which byword wealth as finite. Inspired by the work of Adam Smith, who wrote his seminal The Wealth of Nations in 1776, liberals criticized how mercantilism raised(a) the position of the state out of all proportion to the role it should quicken in the functioning of the economy. By logical argument, Smith felt that the state should typeset itself to providing three basic duties to golf-clubFirst, the duty of protecting the society from hysteria and invasion of other indep endent societies secondly, the duty of protecting, as far as possible, any member of the society from the in justice or oppression of e actually 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 write down 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 needy to pursue h is 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 make out the wealth available.More specifically liberal thinking envisaged a world based on three pillars first was the belief that drop by the wayside trade promoted economic growth and consumption second, that it improves societal values and ideals and third, that unthaw trade would promote a more peaceful international milieu because greater interdependence would lead to a convergence of interests among societies (Harlen, 1999, 735).Most pioneering in the implementatio n 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 piecemeal adopting policies that were more liberal in outlook. Nations such as France, Sweden, Belgium, Portugal and Spain all move towards the liberalization of their tariff system.But such an open period be 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, menially initially, then sharply in 1892, while other countries pass offed the save in kind (Krasner, 1975, 325).Much of the problem had been that, in following Britain, which had embarked upon industrialization much earlier than the Euro pean 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 completed businesses that had the muscle to blow those of the continent out of the water. deadly 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 stand for to Britains at this time.If the United States were to compete on Britain terms, economist horse parsley Hamilton noted, the want of reciprocity would render them United States the vict im of a system which should take a shit 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 countrys manufacturing base had to be effected, an objective that could only be established 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. sympathetic 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 industr ies 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 developmentFollowing 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 system, 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, morphologicism, 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 subsi stence agriculture. Eventually however these societies would cache preconditions of take-off in which foundations are laid, such as the beingness 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 investiture and savings as well as the rapid expansion of industry and agriculture. Even though the economy would have to experience some convulsion 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 monied 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, growing 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, axiom 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 deadly 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 substantial world consuming more primary products, create 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 ho pe that an emphasis on industrialization would promote growth.Yet the problem with structuralism was that it took as a given the outer(prenominal) 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 primary(prenominal) 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 world(a) capitalism. Two divisional structures had emerged in which one camp would function as the capital 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 get hold ofs it for its own economic development. The satellites remain underdeveloped for lack of access to their own surplus and as a c onsequence of the sae polarisation and exploitative contradictions which the metropolis introduces and maintains in the satellites 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 buns 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 in all 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 scarcely needs to be mentioned, left room for any viab ility 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 liberalismEven 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 inequitable international system, which was inherently set up to keep them un derdeveloped, 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 pass judgment 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 received 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 exchangerate controls, restrictions on inte rnational trade, deregulation of the financial sector, privatization of state enterprises, creation of an unregulated labor market, specialization according to proportional 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 deceased 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 attach 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 policyEver 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 a nd 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 tally reliance on a few basic resources could not be effected before British rule ended.3.1. Nkruman and structural economicsWhen Nkrumah sour 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 countrys manufacturing capabilities with the intent to pass them on to private enterprises when sufficiently big(a) (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 scheme in a country whose domestic market was limited followers of large-scale ind ustrialization 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. faraway from adopting ambitious schemes, he put onwards a series of modest proposals that were designed to prop up basic infrastructures so that a fundament could be laid for private foreign investment without the government having to tiff 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 bridge to connect the v arious parts of the country, while it built the hydroelectric Akosombo obturate 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 raising. Free primary education became available for all by 1960 and secondary education was expanded promptly 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 crest 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 borrowing 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 it