Acknowledgements The Editors would like to acknowledge the invaluable assistance of Sue Snyder of Cornell University as the administrative anchor of the project.
Preface Ghana will celebrate 60 years of independence in 2017. As one of the ﬁrst countries to receive independence in sub-Saharan Africa, Ghana’s development has been followed with great interest by the development community. After a period of high growth in the ﬁrst two decades of independence the economy fell into a deep slump through the 1980s. Economic recovery gathered pace through the 1990s, alongside a restoration of democracy after a long period of intermittent military rule. At the 50th anniversary of Ghana’s independence in 2007, political stability and economic growth gave some cause for optimism, even though it was noted by many observers that Ghana’s economy had not achieved the structural transformation to a more diversiﬁed production base that was desired by policymakers. At the same time, oil and gas discoveries held out the prospect for an oil boom which could underpin further economic development, although there were worries about the natural resource curse witnessed in many resource rich countries. As Ghana approaches its 60th birthday, it would be fair to say that optimism and worries for the future continue to be present in equal measure. Economic growth in the last decade has been high by historical standards. Indeed, recent rebasing of gross domestic product (GDP) ﬁgures has put Ghana over the per capita income threshold into middle-income country status. However, structural transformation has lagged behind. Further, ﬁscal discipline has eroded signiﬁcantly and heavy borrowing especially on the commercial market is being engaged in, while elements of the natural resource curse have already manifested themselves. The question most observers ask is whether the gains from two decades of reforms are being reversed. Given this background, this volume brings together leading established and young economists, from within and outside Ghana, to analyse and assess the challenges facing Ghana’s economy as it enters its seventh decade and the nation heads towards three-quarters of a century of independence. The chapters in the volume cover the major macroeconomic and sectoral issues, including ﬁscal and monetary policy, trade and industrialization, agriculture, and infrastructure. The volume also covers the full range of social issues including poverty and inequality, education, health, gender, and social protection. Our hope is that this volume will take its place as a contribution to the ongoing debate and discussion on the future and the promise of Ghana’s economy to fashion a better life for its citizens. Ernest Aryeetey Ravi Kanbur
Contents List of Figures List of Tables List of Contributors
xi xv xix
PART I. THEMATIC ISSUES 1. Ghana at Sixty: Learning from a Developing African Nation’s Past Ernest Aryeetey and Ravi Kanbur
2. W. Arthur Lewis and the Roots of Ghanaian Economic Policy Ravi Kanbur
3. Property and Freedom Franklin Obeng-Odoom
PART II. MACROECONOMY AND FINANCE 4. Economic Growth in Ghana: Trends and Structure, 1960–2014 Ernest Aryeetey and Ama Pokuaa Fenny
5. Sixty Years of Fiscal Policy in Ghana: Outcomes and Lessons Robert Darko Osei and Henry Telli
6. Monetary Policy and Inﬂation Management in Ghana: Inﬂation Targeting and Outcomes Peter Quartey, Bernice Owusu-Brown, and Festus Ebo Turkson
7. Trade and Exchange Rate Policies since Independence and Prospects for the Future A. D. Amarquaye Laryea and Bernardin Senadza
8. Banking and Capital Markets: The Evolution of Ghana’s Financial Sector and Future Prospects Sam Mensah
9. Oil and Ghana’s Economy Augustin Kwasi Fosu
PART III. SECTORAL PERSPECTIVES 10. Flickering Decades of Agriculture and Agricultural Policy Fred Mawunyo Dzanku and Christopher Udry 11. Industrial Policy in Ghana: From a Dominant State to Resource Abundance Nkechi S. Owoo and John Page
12. Formal and Informal Enterprises as Drivers and Absorbers of Employment William F. Steel 13. Urbanization in Ghana: Retrospect and Prospects George Owusu and Paul W. K. Yankson 14. State of Ghana’s Infrastructure and its Implications for Economic Development Edward Nketiah-Amponsah and Patricia Woedem Aidam 15. Managing the Environment for Development Daniel K. Twerefou and K. A. Tutu 16. Mining in Ghana: Critical Reﬂections on a Turbulent Past and Uncertain Future Gavin Hilson and Abigail Hilson
PART IV. HUMAN DEVELOPMENT 17. Inequality and Poverty in Ghana Andy McKay and Eric Osei-Assibey
18. Employment and Labour Market William Baah-Boateng
19. Closing the Gender Gaps in Ghana Abena D. Oduro and Charles G. Ackah
20. The Prospects and Challenges of a Youthful Population in Achieving Economic and Social Transformation in Ghana Emmanuel A. Codjoe
21. Education in Ghana: Access, Quality, and Prospects for Reforms Kwabena Gyimah-Brempong
22. Health and Healthcare in Ghana, 1957–2017 Ama de-Graft Aikins and Kwadwo Koram
23. Social Health Insurance in Ghana: The Politics, Economics, and the Future Isaac Osei-Akoto and Clement Adamba
List of Figures 4.1. GDP growth rate, 1960–2014 4.2. GDP growth, 1960–1983
4.3. 4.4. 4.5. 4.6.
Capital investment, 1960–1983 Savings; value and share of GDP, 1975–1983 Money supply growth, 1960–1983 Trade balance as per cent of GDP
49 50 51 52
4.7. 4.8. 4.9. 4.10.
GDP growth, 1983–1995 GDP growth, 1995–2010 Sectoral contributions to GDP, 1996–2009 Budget deﬁcit, 1996–2008
53 56 57 58
4.11. 5.1. 5.2. 5.3. 5.4.
Trends in exports and imports, 1993–2010 Trends in overall ﬁscal deﬁcits for Ghana, 1950–2014 Trends in broad government expenditures for Ghana, 1950–2014 Trends in broad government ﬁscals for Ghana, 1950–2014 Trends in tax and non-tax revenue for Ghana, 1950–2014
59 69 69 70 71
Trends in the extent of slippages for Ghana, 2005–2014 Scatter plot of deﬁcits and government expenditures for Ghana, 1970–2014 Scatter plot of deﬁcits and government expenditures for Ghana, 1970–2014 Scatter plot of deﬁcits and government revenues for Ghana, 1970–2014
75 76 76 77
5.5. 5.6. 5.7. 5.8.
5.9. Fiscal deﬁcits and GDPPC growth for selected years, Ghana and comparator countries 5.10. Expenditure and GDPPC growth for selected years, Ghana and comparator countries 5.11. Government revenue and GDPPC growth for selected years, Ghana and comparator countries 5.12. Correlates of growth and ﬁscal indicators for Ghana, 1957–2014 6.1. Transmission mechanism 6.2. Interest rates, 2003–2014
79 80 81 82 91 95
6.3. 7.1. 7.2. 7.3.
Monetary policy regimes, money growth, and inﬂation rates, 1970–2014 Growth of per capita real GDP (%), 1961–2013 Total trade as per cent of GDP, 1961–2013 Trade deﬁcit as per cent of GDP, 1961–2013
97 112 112 113
7.4. 8.1. 8.2. 8.3.
External debt as per cent of GNI, 1961–2012 The dialectic of ﬁnancial sector change in Ghana Nominal and real interest rates, 1971–1983 Market capitalization/GDP
115 118 123 128
8.4. Number of listed companies, 1991–2014
List of Figures
8.5. Interest rate spread, 2014 9.1. Share of petroleum output in GDP (%)
9.2. 9.3. 9.4. 9.5. 9.6.
139 139 140 140 142
Share of petroleum output in industry (%) Sectoral patterns of the Ghanaian economy, 2000–2014 Share of petroleum output in mining and quarrying (%) Share of petroleum exports in total exports (%) Share of petroleum revenue in domestic revenue (%)
9.7. Ghana’s petroleum revenue allocation 10.1. A negative relationship is observed between agricultural GDP share and economic growth, 1960–2014
10.2. Relationship between agricultural productivity and labour shift from agriculture to nonagriculture, 1960–2014 10.3. Agricultural value added growth has been much more erratic than overall GDP growth 10.4. There is a positive association between cocoa producer price and output, 1957–2014 11.1. Sectoral contributions to GDP, 1970–1984 11.2. Share of sub-sector in total industrial GDP 11.3. Sub-sectoral contributions to industrial GDP, 2006–2012
166 178 179 181
12.1. 12.2. 12.3. 12.4.
195 197 198 199
Sectoral composition of GDP, 1957–2013 Male and female active employment participation rates, 1960–2013 Shares in total employment (ages 15–64), 1960–2013 Shares of employment absorption by period, 1960–2013 (%)
12.5. Detailed shares of employment absorption, 1992–2006 and 2006–2013 12.6. Sectoral distribution of informal self-employment, 1991–1992 and 2005–2006 13.1. Ghana: urbanization growth rate and real GDP growth rate 14.1. Ghana’s air transport freight in relation to her comparator countries 14.2. Ghana’s internet users (per 100 people) in relation to her comparator countries 14.3. Ghana’s telephone lines (per 100 people) in relation to her comparator countries 14.4. Ghana’s paved road (% of total roads) in relation to her comparator countries 15.1. Trends in emissions by type of gas (TgCO2e)
200 203 208 232 233 233 234 246
15.2. Annual freshwater withdrawals by sector as a percentage of total freshwater withdrawal 15.3. Trends in resource rent as a percentage of GDP
16.1. 17.1. 17.2. 17.3. 17.4.
268 292 293 294 295
Mineral revenue in Ghana, 2013 (US$ millions) Highest educational level: secondary or higher by wealth quintile, 1988–2008 Under-ﬁve mortality per 1000 live births, 1993–2008 Vaccinations by background characteristics, 1993 and 2008 Trends in stunting, underweight and wasting, 1988–2008
List of Figures 18.1. Educational attainment of Ghanaian workforce, 1960–2013 (%) 18.2. Growth of employment and GDP, 1960–2013 18.3a. 18.3b. 18.4. 18.5. 20.1.
Employment distribution by economic sector, 1960–2013 (%) Sectoral composition of GDP, 1960–2014 (%) Real national daily minimum wage and earnings Unemployment by level of education Trends in population size, 1921–2015
xiii 302 303 304 304 307 310 334
20.2. Ghana population pyramid, 2010 22.1. The WHO health systems building blocks (concepts and strategies for strengthening health systems)
23.1. Change in total revenue of the NHIF and claims paid to service providers (%)
List of Tables 3.1. Private land purchases in Ghana 3.2. Corporate land investment-driven displacements, 2002–2012
4.1. 4.2. 4.3. 4.4.
Average annual real growth of GDP and agriculture Industrial sector performance, 1971–1983 Fiscal deﬁcit, 1970–1983 Contribution from oil to GDP, 2010–2014
48 48 50 60
4.5. 4.6. 5.1. 6.1.
Growth by sector, 2010–2014 Actual oil revenue relative to selected ﬁscal indicators Pairwise Granger causality tests for GDP and other ﬁscal variables Monetary policy and target
61 61 84 89
6.2. 8.1. 8.2. 8.3. 8.4.
Selected macroeconomic indicators, 2003–2014 Financial Sector Indicators, 1970–1983 Size and concentration of banks, 1989–1996 Stock market indicators for selected African markets, 2012 Selected banking indicators
96 122 126 129 131
8.5. 9.1. 9.2. 9.3.
Growth of capital market institutions in Ghana Real GDP growth rates: overall and non-oil (%) Oil and developments in balance of payments (USD mil.) Sources of petroleum revenue, 2011–2014
132 138 141 141
9.4. Terms of trade, and Ghana’s economic growth and export performance (%) 9.5. Distributed-lag regression results: terms of trade and Ghana’s GDP growth, 1960–2007 (dependent variable = GGDP) 9.6. Distribution of petroleum receipts, 2011–2014 (US$ millions, unless indicated) 9.7. Measures of institutional quality (IQ)—Ghana vs. SSA, 2011–2014 10.1. Both agricultural employment share and agricultural GDP share has been declining over time 10.2. There is a strong link from agricultural growth to non-agricultural growth, the reverse is not so strong 10.3. Growth in overall and agricultural performance since independence (%) 10.4. Growth performance of some agriculture sub-sector indicators (%) 10.5. Proportion of household involved in agricultural production 10.6. In most cases farm sizes have either increased marginally or remained largely unchanged 10.7. Yields have generally been erratic and much lower than that provided by the macro data 10.8. The share of households using chemical fertilizer and quantity of fertilizer use is increasing over time
143 144 149 151 158 161 163 164 168 168 169 170
List of Tables
10.9. Combining non-exports with non-farm work is not welfare reducing, particularly in rural areas 10.10. Average partial effects and elasticities of poverty with respect to agricultural productivity
12.1. Public and private shares of formal wage employment (ages 15–64), 1992–2013 12.2. Summary of strategy, sectors, and employment trends by period
13.1. Proportion of urban population and annual growth rate, national and region, 1960–2010 13.2. Selected list of urban development and related policies
14.1. 14.2. 14.3. 14.4. 14.5.
225 227 228 229 230
Progress on some of the projects from 2012–2014 Overview of aircraft, passenger, and freight movement (international) Main sources of water supply for drinking per locality Proportion of population using improved drinking water sources (total) Transmission losses since 2008
14.6. Pearson correlation analysis of the relationship between economic growth and infrastructural development variables 15.1. Some environmental related policies and legislation
16.1. 16.2. 16.3. 16.4.
Contribution of GDP by economic activity, Ghana Royalties from mining Trends in manufacturing in Ghana, 1970–1990 Oil production in sub-Saharan Africa, thousand barrels of oil per day
266 267 267 274
17.1. 17.2. 17.3. 17.4.
Some socio-economic indices by administrative region, 1970s Some socio-economic indices by administrative region, 2000s Stock of houses and annual rate of increase, 1960–2010 Consumption poverty in Ghana from the ﬁrst three GLSS surveys
282 282 283 286
17.5. Consumption poverty in Ghana, 1991–1992 to 2005–2006 17.6. Poverty in Ghana, 2005–2006 to 2012–2013 17.7. Trends in consumption-based inequality in Ghana, 1987–1988 to 2012–2013 17.8. Highest educational level: Secondary or higher by region, 1988–2008 17.9. Under-ﬁve mortality by region, 1998–2008 17.10. Regional distribution of doctors (population per doctor) 18.1. Trend and distribution of employment, 1960–2013 18.2. 18.3. 18.4. 19.1.
Female–male ratio of sex representation (incidence) in employment Unemployment rates, by age, sex, and location (%) Underemployment rates by sex and location for aged 15+ (%) Performance in the Basic Education Certiﬁcate Examination, 2012 (%)
19.2. Composition of employment by industry, persons aged 15 years and above (%) 19.3. Employment status of women and men aged 15 years and above (%)
List of Tables 19.4. Average time spent on activities by persons aged 18 years and above (in minutes) 19.5. Women’s share of gross household wealth and incidence of ownership of agricultural land and businesses (%) 20.1. Youth school attendance rates by age category and gender, 2000 and 2010 (in percentages) 20.2. Employment status of persons aged 15 years and older by locality and gender, 2012–2013 (in percentages) 20.3. Activity rates by age categories and gender, 1960–2010 (in percentages) 20.4. Type of work engaged in by currently employed population aged 15 years and older by locality and gender, 2012–2013 (in percentages) 20.5. Economically active population 15+ years by employment sector and sex 20.6. Employment status of economically active population by gender, 2010 21.1. 21.2. 21.3. 21.4. 22.1.
Educational attainment in Ghana, 2010 Enrolment rates over time Enrolment rate by gender in Ghana Other educational statistics, 2005, 2010, and 2014 Ranks for top 25 causes of premature deaths in Ghana, 1990, 2010
22.2. Health facilities by type and (public/private) ownership, 2007 22.3. Health professionals: population ratio, 2006–2012 22.4. Ghana—National expenditure on health, 2000–2013
List of Contributors Charles G. Ackah, University of Ghana Clement Adamba, University of Ghana Patricia Woedem Aidam, University of Ghana A. D. Amarquaye Laryea, University of Ghana* Ernest Aryeetey, University of Ghana William Baah-Boateng, University of Ghana Emmanuel A. Codjoe, University of Ghana Robert Darko Osei, University of Ghana Ama de-Graft Aikins, University of Ghana Fred Mawunyo Dzanku, University of Ghana Ama Pokuaa Fenny, University of Ghana Augustin Kwasi Fosu, University of Ghana Kwabena Gyimah-Brempong, University of South Florida Abigail Hilson, Royal Holloway University of London Gavin Hilson, University of Surrey Ravi Kanbur, Cornell University Kwadwo Koram, University of Ghana Andy McKay, University of Sussex Sam Mensah, University of Ghana Edward Nketiah-Amponsah, University of Ghana Franklin Obeng-Odoom, University of Technology Sydney Abena D. Oduro, University of Ghana Isaac Osei-Akoto, University of Ghana Eric Osei-Assibey, University of Ghana Nkechi S. Owoo, University of Ghana George Owusu, University of Ghana Bernice Owusu-Brown, University of Ghana John Page, Brookings Institution Peter Quartey, University of Ghana Bernardin Senadza, University of Ghana William F. Steel, University of Ghana Henry Telli, International Growth Centre * We are sad to record that A. D. Amarquaye Laryea passed away during the ﬁnal stages of the preparation of this volume.
List of Contributors
Festus Ebo Turkson, University of Ghana K. A. Tutu, University of Ghana Daniel K. Twerefou, University of Ghana Christopher Udry, Yale University Paul W. K. Yankson, University of Ghana
Part I Thematic Issues
1 Ghana at Sixty Learning from a Developing African Nation’s Past Ernest Aryeetey and Ravi Kanbur
1. 1 IN TR O D U C T I O N Many Ghanaians like to remind themselves and the world that Ghana was the ﬁrst country in sub-Saharan Africa to be returned to independent status following agitations to break away from colonial rule in many parts of Africa in the 1950s. For many Ghanaians, that achievement signalled tenacity of purpose and a strong desire to lead the rest of Africa into a new era of transformation and a better life for all. They took the ﬁght for independence seriously considering that the Gold Coast, as it then was, had a relatively large number of educated persons and educational institutions compared to many other places in the region (Wallerstein, 1964). As Ghanaians celebrated ﬁfty-nine years of independence in March 2016, many newspaper articles expressed doubts about the extent to which expectations at independence had been met. Most conveyed the perception that the high expectations that accompanied the independence celebrations had not materialized.1 The people of Ghana had expected rapid industrialization, employment for all, higher incomes, a more democratic system of governance, greater access to education and healthcare, and general improvements in welfare. The idea that these had not been realized to the extent that many had thought was coming, was quite pervasive as reported by most newspapers covering the ﬁfty-ninth independence celebrations. The view that expectations had not been met was presented against a backdrop of economic uncertainty and weakened economic performance. By the end of 2015 gross domestic product (GDP) growth was at 3.5 per cent for the year. By the end of March 2016, inﬂation stood at 19.2 per cent and unemployment was estimated to be more than 6 per cent. A year of very poor power supply had left
1 In the editorial of the Daily Graphic of Monday 8 March 2016, it was noted that ‘the ﬂame of national passion has died, and even though the President lighted the symbolic ﬂame on 6 March to symbolize (the) passion that spearheaded national development, that symbolic gesture was probably a futile attempt to reignite a passion that no longer exists’.
Ernest Aryeetey and Ravi Kanbur
many manufacturing enterprises struggling. It had been estimated that erratic power supply had cost the small and medium enterprise sector in Ghana an average of $2.2 million daily or 2 per cent of GDP in 2015 (ISSER, 2015). The recent economic challenges of Ghana saw it return to the adoption of an International Monetary Fund (IMF) programme in April 2015 after almost a decade, when a $900 million ﬁnancing arrangement was put in place. The IMF noted that ‘Ghana, considered one of West Africa’s most stable democracies, until recently was a model for economic growth. However, the economy has taken a turn for the worse, with growth down from 8 per cent in 2012 to 3.5 per cent in 2015’ (IMF Survey, 2016). At the time the programme was agreed the ﬁscal deﬁcit had been as high as 10.6 per cent of GDP and went down to 6.7 per cent in 2015. In effect the state of the economy has been quite shaky in the years leading up to the sixtieth anniversary celebrations of independence, thus feeding into the widespread perceptions that expectations had not been met. There is obviously a lot more to consider in determining how the Ghanaian economy has performed over the post-independence period compared with what has been seen in the last few years. The irony, however, is that the period of poor performance in the last few years is not peculiar. The various reviews in this book will show that there have been several periods of similar poor economic performance since independence, interspersed with some periods of good performance and very high expectations. What is also clear is that the periods of poor performance have almost always been associated with poor economic policies and weak economic management. By poor economic policies, we mean policies and actions associated with ﬁscal indiscipline and poor budgetary policies often associated with strong political inﬂuences and considerations. This is in addition to various structural and institutional bottlenecks that make poor policymaking and implementation possible. In this overview chapter, we ﬁrst provide a pre-independence account of the state of the economy and how that economy was managed in section 1.2. It is followed by a short presentation in section 1.3 of economic policymaking in the ﬁrst two and a half decades after independence which we call the pre-reform years. The same process in the reform and post-reform years beginning in 1983 are discussed in section 1.4. Beginning from section 1.5 we introduce the stories of each chapter in this volume in relation to how they reﬂect the general theme of understanding the relationship between economic policymaking and economic performance.
1 . 2 F R O M G U G G I S B E R G T O IN D E P E N D E N C E ( 1 9 1 9 –1 9 5 7 ) In 1919, when Sir Gordon Guggisberg took ofﬁce as Governor of the Gold Coast, the colony had experienced twenty years of very high growth due to predominantly high returns from cocoa exports, and this was despite the occurrence of the First World War. Guggisberg’s ambition was to sustain this growth and prosperity by channelling the newly-obtained resources into important sections of the economy such as health, education and other human capital development. His plan to further develop the infrastructural state of the colony would facilitate