GHANA IN PERSPECTIVE

1. economic systems enhancement in ghanaPaper Presented at the Seminar on Economic System Enhancement for Developing Countries held from September 7-27, 2010 in Beijing, China ByGrace Ofori-Abebreseand Anthony Kofi Osei-FosuDepartment of Economics, KNUST, Kumasi, Ghana

2. GHANA IN PERSPECTIVE World Map Map of West Africa Africa Map of Ghana LocationWestern Africa, bordering the North Atlantic Ocean Between Cote d'Ivoire and TogoLatitude: 5 degrees, 36 minutes north Longitude: 0 degrees, 10 minutes east Land boundaries: Total 2,093 km, Burkina Faso 548 km, Cote d'Ivoire 668 km, Togo 877 km Coastline: 539 km

3. Population and People • Total population (2009) 23.5 million • 43 main ethnic groups, speaking 187 dialects • British Colony; Independent in March 6, 1957 • Official Language: English • Currency: Cedis and Pesewas Macroeconomic Situation (2009) • Nominal GDP: $14,761.59 million • Real GDP growth: 5.9 • Real Per Capita GDP $628 • Inflation Rate (CPI): 13.5 • Average interest rate (Lending): 32.75 • Average Exchange rate: $1 : GH¢1.45 • Total Investment: $2.65 million • Trade Intensity Index: 0.82

4. POST INDEPENDENCE ECONOMIC SYSTEM ENHANCEMENT • Background • Prior to 1961, Ghana was mainly an agrarian economy with exports mainly of cocoa (production accounted for 1/3 of world supply). • Per Capita Income was $573 and it was the most developed country in the Sub-Sahara Africa. • However, there was no clear policy on development of agriculture, industry, education nor infrastructure. • The private sector did not have capital for investment. • So immediately after independence policies were adopted to rapidly develop social and economic infrastructure. • These led to major reforms in the economy

5. Policy Reforms (1957-1966) • Government adopted Socialist approach. • The productive and distributive sectors shifted to the public sector making it the engine of economic growth. • Full scale infrastructural development. • Introduction of mechanised agriculture (state farms). • Large scale industrialisation (manufacturing). • Expansion of education; enrolment & infrastructure • Financial reforms; demonetisation and change of currency (from pound - cedi and cedi - new cedi). • These resulted in a quick draw down of the country’s foreign exchange reserves. • Imposition of foreign exchange transaction and import controls. • A change in government in 1966 resulted in liberalization of the economy.

6. Policy Reforms (1966-1982) • They currency was devalued by about 43% in July, 1967 to enable the country earn more foreign exchange • Public expenditure was curtailed to eliminate the persistent budget deficits • Foreign debt payments were rescheduled • The civilian government was overthrown and the new military government re-introduced stringent import controls, more domestic price controls & temporary suspended foreign debt servicing • The Cedi was overvalued. • Interest rate was lowered to encourage investment • In all these periods there was no clear-cut economic policies .

7. Consequently the economy deteriorated and went to the brink of total collapse by the end of 1982. • GDP growth was -7%, PCY was $360 and Inflation was 123%, • Real interest rate was negative due the high level of inflation and the low interest rate. Savings were discouraged and this deprived the private sector from getting access to credit. • The banks were repressed because they could not get funds to grant loans to earn interest. • The overvaluation of the cedi encouraged imports and worsened the balance of payment problems • physical infrastructure deteriorated affecting the level of economic activities.

8. Policy Reforms (1983-1999) • In 1983 an Economic Recovery Program (ERP) and the Structural Adjustment Program (SAP) in 1986, were adopted to; • revive the economy from its deplorable state at that time, • To restore incentives for food production, industrial raw materials, export commodities and to develop human resource to increase output. • to increase the overall availability of foreign exchange • Lower the rate of inflation by pursuing prudent fiscal, monetary and trade policies • To rehabilitate the physical infrastructure of the country in support of direct productive activities.

9. Policies adopted include; • 1. Macroeconomic reforms; • Deregulation of Foreign exchange rate. Liberalisation of foreign exchange rate led to the operation of flexible exchange rate and the creation of forex bereaux to reduce the over valuation of the cedi to encourage exports. • Fiscal policy discipline, tax reforms to broaden the tax base to increase government revenue. • Monetary policies to reduce inflation, liberalise interest rate and limit government borrowing • 2. Sectoral reforms; • Trade liberalisation was adopted and export promotion measures were introduced to enhance benefits from trade • Labour retrenchment policies were adopted to reduce public sector wage bill • Subsidies were removed from agricultural inputs.

10. 3. Institutional reforms; • State owned enterprises were privatised, subsidies were also removed to reduce government budget deficit • Civil service reforms was adopted to improve the performance and efficiency in the provision of public goods. • 4. Financial system reforms • Liberalisation of financial system, • Strengthening of the Bank of Ghana • Banks’ regulation and supervision was increased • Recapitalisation of repressed banks • Money and capital markets were developed.

11. Systems enhancement since 2000 • The main policy framework was the Coordinated Programme for Economic and Social Development of Ghana outlined in the Ghana Poverty Reduction Strategy (GPRS) framework. • The enhancement of private sector participation. The government aimed at establishing a new Golden Age for the private sector. Government reduced its borrowing from the public sector to make funds available for the private sector. • Conscious efforts have been made to stabilise the macroeconomy-inflation targeting policies, prime rate adjustment among others to enhance bank growth to make funds available to the private sector. • Enhancing Ghana’s Transport Sector • Enhancing land Use system in Ghana by land reform policies to release land for commercial farming and foreign development partners. • Legal reforms has let to the establishment of ‘fast track court’ to trial commercial cases to enhance business activities. • The establishment of an investment centre to facilitate the documentation of FDI , partnerships, registration and others to enhance the inflow of FDIs. • New industrial code were formulated and free zone areas created to attract Foreign Direct Investment. • Development of infrastructure (rural electrification, transport facilities)

12. The ERP and the SAP turned the economy towards the path of recovery. • The financial reforms have led to the establishment of 24 banks with many branches, 123 rural banks. • Capital markets are developing, and the Ghana stock exchange, is one the finest in Africa with over 30 listed companies as at 2008. • Most state enterprises have been privatised to enhance efficiency.

13. Social reforms • New educational reforms have been adopted to reduce the illiteracy rate (emphasis on practical) • A national health insurance policy has been introduced to make health services available to majority of Ghanaians. • Enhancing rural development and fighting poverty , decentralisation policy has been adopted to bring government and the needed facilities to the door step of the people to enhance rural development.

14. CHALLENGES • Dependence on primary export with low prices • Over liberalisation of trade leading to high trade imbalances • Unnecessary interference from international institutions • Value and social systems • Structural and production bottlenecks and rigidities • Lack of FDI in productive sectors (apart from construction)

15. Thank you Xie xie