September 10, 1984

Ghana: A Case Of How To Be Poor Without Trying

Nothing will concentrate our minds more powerfully than the acceptance of the economic fact that were we to fail to be efficient, there will be no money to satisfy our requirements. A correspondent gives a free-ranging analysis of the Ghanaian political and economic situation

The problems that have afflicted Ghana for almost two decades now can be simply ascribed to the fact that she is poor. We are always being told that Ghana is potentially one of the richest countries in Africa and that given efficient exploitation of her potential, she can become an economic success story. Yet there seems to be a wide gulf between that hope and present realities, as the country sinks further into the quagmire of poverty. Is it a case then of a country without any hope of success, bereft of sound ideas about how to generate wealth? Or is it because our present condition has been brought about by self-inflicted wounds? The cause of the malaise is due to the application of the wrong set of policies and a determined refusal to acknowledge the realities of this world. Else how do you explain the general economic decline in a country with abundant resources when other countries elsewhere in the Third World are doing so much better?

The answer is that while the economically successful countries in the Third World have accepted the advice that exports hold the key to economic growth, we in Ghana seem not to recognise this. Why the emphasis on exports? Apart from acting as an engine of growth, exports have a decisive impact on such key indicators as balance of payments, capital formation, investments, employment, wages, prices, etc. They enable us to import those things that we need with the surpluses we generate to ensure that we enjoy a tolerable standard of life without recourse to excessive borrowing. A singular feature of our economic problem is that while the cedi money supply has grown significantly over two decades, there has been no similar expansion in the accumulation of the convertible reserves we need to finance imports.

The above position has been further weakened by the fact that between 40 and 50 per cent of the limited convertible earnings we make is used to import food we can easily grow. Thus the fall in agricultural output accentuates the crisis in our foreign earnings compell- ing successive governments to perform a conjurer's trick in trying to match earnings with urgent requirements. The result is not successful. Hence the shortages and dislocations that are marked features of the Ghanaian economy.

And yet the fact is that we have not accorded agriculture and exports the priority they deserve to restore a realistic depth and balance to foreign reserves position. Do we wonder then why we are unable to get the things we desire?

Of the 15 countries in the world with the highest ratio of merchandise exports to gross national product, 12 are from the developing world, more than half of these from Asia. Of these countries, let us take Malaysia as an example. With natural assets and a size of population similar to ours, Malaysia is not only able to feed herself, but manages to export $14.1 billion representing about 55% of her gross national product. In our own case, from a peak of $1.5 billion during the commodity prices boom in the seventies, our exports have shrunk to around $600 million. This is based on estimates for 1984. The ready answer we are likely to get is that prices for our export goods have been falling. But then so have the quantities of the goods we export. But Malaysia exports some of the things we send out to the rest of the world such as cocoa and timber. She seems to be doing well in these two product areas, even in the face of falling prices and the worldwide recession. The lessons from the Malaysia example are that (a) a conscious long-term effort has been made to expand the base of her exports; (b) agricultural production aimed at feeding the population has not been allowed to go into the doldrums.

The brutal fact is that as percentages of gross national product, Ghana's agricultural output and exports have shown a markedly negative trend for a long time. The problem is exacerbated by the fact that our gross national product itself has consistently registered negative growth rates for a decade now. And nothing seems to have been done to arrest this slide. The consequence can be seen in the increasingly rapid deterioration of the economy and its debilitating effects on Ghana and Ghanaians.

There are many factors for this decline and they need stating if Ghana is to escape the poverty trap which provides the cause for political instability in our country.

The obstacles to economic growth in Ghana are internally caused.

The first point to note is that there is no coherent national strategy which sees agriculture and exports as the linchpin of economic growth. The thrust of our economic policies appears to place more emphasis on satisfying import demands without a corresponding programme of action which will stimulate the variety and volume of agricultural output and exports. In the absence of such a strategy, food output and exports have declined while imports and import substitution items have grown, fuelling an excessive public and private consumption. This demand-led situation has had a major adverse impact on the utilisation of our foreign currency resource availability.

The environment within which the two potentially growth areas in the economy can be made to expand significantly is not favourable. The instru- ments of economic regulation and bureaucratic control have been used to expand and consolidate a statist economic regime which inhibits free enterprise, minimises and punishes economic success and rewards failure. There is a definite bias in the antipathy and pessimism towards market institutions not only in government but among the urban public, and thus sympathy and optimism for statist ones as answers to our economic malaise. But as we have seen during the two decades of our post-colonial history, these institutions distort economic efficiency and promote decline.

The first dry-dock of West Africa built in Tema, Ghana, has not been put into maximum use.

The nationalisation of the major areas of our agricultural and export sectors is one reason for our poor economic tion. performance. Take two examples. The various state sector agricultural organisations have become notorious for consuming large chunks of inputs without being able to produce and market food for our people. We now have a situation where the taxpayer heavily subsidises the export of cocoa because the Cocoa Marketing Board is woefully inefficient. The surplus values which could have accrued to Ghana, through a maximisation of earnings from cocoa, have been lost in a welter of anti-market decisions.

The first point to note is that there is no coherent national strategy which sees agriculture and exports as the linchpin of economic growth. The thrust of our economic policies appear to place more emphasis on satisfying import demands...

There are other reasons to explain our poor performance relative to countries like Malaysia. They are:

An overmanned, heavily subsidised public sector.
A labyrinth of controls over private enterprise which prevents it from realising its potential.
Forcibly depressed agricultural prices which discourage agricultural production
Import substitution programmes which consume rather than improve our foreign reserves.
Government's monopoly of foreign exchange transactions.
An artificially over-valued cedi.
The lack of a package of realistic incentives to stimulate the long-term growth of exports and agricultural production
A political establishment and civil service which have neither the knowledge, skills and the vision for managing economic success.
The politicisation of labour and the economy.
The corruption which is an INEVITABLE side effect of an economy which depends on the arbitrary decisions of politicians and bureaucrats.
The apathy of a population, resigned to the effects of long-term decline.
The limitations of time, imposed by long periods of political
The abrupt twists and turns of national economic policies whenever there are political changes.

In such a situation, productivity cannot be encouraged. The rate of productivity in the Ghanaian economy is appalling. This is encouraged by the impression that whatever happens, government will bail out the dominant public sector economic institutions. Nothing will concentrate our minds more powerfully than the acceptance of the economic fact that were we to fail to be efficient, there will be no money to satisfy our requirements. Productivity in the economy is also adversely affected by low remuneration. Thus low remuneration-low productivity in the key areas of agriculture and exports helps to increase the cost of production and contributes to their economic non-performance. As it is, agricultural output has declined or stagnated. Our share of export goods from the Third World have shrunk dramatically between 1978 and 1983. These underpin the structural weaknesses of our economy because they cannot provide the stimuli for growth and the generation of national wealth.

Low investment in the key agricultural and export sectors and potentially profitable sources of wealth creation has helped to perpetuate the low productivity-high production cost syndrome. It is interesting to note that for all their contribution to our balance of payments, the investment in agriculture and the export sector for the period 1960-1983 has been low.

About 20 years of weak investment have made large chunks of capital in these areas uneconomic. Replacing these chunks should have produced an investment boom in these sectors and should have led the way to economic growth in Ghana. Instead the volume of investment in these key areas have been very marginal, less than 1% of gross national product. This sluggish investment is partly the child of slow growth, but it has also been caused by the rapidly declining profitability in the things we sell to the outside world and government's monopoly of investment decisions. Invariably these decisions have tended to concentrate on politically attractive but non-wealth generating sectors.

Moreover the rise in real interest rates in Ghana coincided with the decline in agricultural and exporting output, so the difference between the two has slumped even further. This combination of dear money and low returns has to change radically particularly for agriculture and exports before investment will give our economy the vigour it must have for any realistic recovery and growth to take place in Ghana.

All that we have had to show for this situation is stagnation and decline, and the erection of non-economic entities which help to perpetuate our unfortunate obsession with public sector growth at the expense of real, sustainable growth in agriculture and exports and by consequences, the relief of rural poverty. If available investment inputs in Ghana are limited, a realistic recourse for us is to seek outside aid in energising the economy. Outside investment aid has, however, been severely hampered by the crude imposition of senseless and pervasive financial and trade controls. Where it has become available, this has been directed towards imports substitution programmes and socially attractive but non economic sectors.

Our aid experts always maintain that foreign aid is crucial to the process of economic growth. In fact, external finance accounts for only 13% of total investment in developing countries. This includes official capital flow in the form of soft loans and grants as well as private flow. But the capital formation which has raised growth in the Third World success stories has mostly come from domestic sources. External aid should therefore not be the main determinant of our economic prosperity. Rather than lobby for increased aid, the biggest contribution we should press from the industrialised countries is not the expansion of aggregate monetary demand, but the reduction of restrictions on our exports.

Myths And Realities

The effect of the sum total of past and present policies has been to install a dirigiste development economic policies which have helped neither efficiency, equity nor prosperity in Ghana. What they have encouraged is a command economy which does not accept that the laws of supply and demand operate internally as well as externally.

A successful economic programme should be based on:

A long-term strategy that shifts the utilisation of resources away from import substitution to an agricultural and export-orientated growth. Decoupling the state's massive role from key economic areas and encouraging the private sector to feel confident to take part in a successful economic drive.
Long-term currency reform that ties the worth of the cedi to economic per- trade. formance and leads eventually to some form of convertibility.
Tying infrastructural and social development to a vibrant agricultural economy. and export sectors instead of fulfilling political promises and commitments.
Relaxing financial and trade controls to stimulate agricultural and export-led growth.
A high investment and high wage high productivity syndrome in the key economic sectors.
A realistic incentive strategy that entices people away from imports to economic production and rewards success.
External financing tied to wealth-generating projects rather than financing consumption that only add to the extra cost of repayment.
Formulating an agricultural programme to feed the population and generate surpluses for export.
A continuous search, identification and exploitation of new products that add variety and volume to our export base.
The radical reorganisation of the Civil Service geared towards making it efficient and more responsive to the growth requirements of the economy.
An imaginative re-organisation of the education system to encourage the development of vocational skills, management education and training of the new generation of our youth and the retraining and reorientating of the existing labour force to make both alive to the opportunities and challenges of agriculture and the export sector, etc.

No government in Ghana, present of the future, should operate under the illusion that it can bring in economic prosperity without a conscious effort at putting a very high priority on a long-term basis on the wealth-general ing factors inherent in a high agricultural and export profile.

To hope that the future lies in the rigidities of the kind in which there will be "no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of co-operative service" is to live in a fool's paradise and misunderstand the real nature of the Ghanaian. Such hope will only invite a more rapid decline than we have witnessed. For it is competition, imagination and the profit motive basic to private enterprise that will energise the efficiency and performance of our agricultural and export sectors and enable them play a beneficial role in Ghana and the high competitive world of international trade.

Then ensure that we have a stable political environment within which we can attempt a real recovery of our economy.

Let us conclude by accepting that it is the policies of the past and immediate present that have brought us to this impasse. Are we ready to shake off old myths and accept new realities?