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Ghana - long term growth, atrophy and stunted recovery
The Nordic Africa Institute.
2003 (English)Report (Other academic)
Abstract [en]

Ghana's independence in March 1957 was celebrated with great flourish. "Free at last!" Kwame Nkrumah, the country's leader, proclaimed.

Yes, Ghana was free to follow an independent political course, and free to experiment with an independent economic direction. But the exercise of that freedom proved to be destructive. Gradually removing internal agents of restraint, and unconcerned about external constraints, Nkrumah pursued his grand vision of Ghana. But, that vision became a nightmare. More than a quarter century of increasingly chaotic political and economic turbulence followed.Eventually a major reform program was launched, but after fifteen years its success has been modest. While the downward spiral has been halted, and real growth resumed, real GDP per capita and total factor productivity have barely exceeded the levels achieved at independence.

The long-run economic and political records are both lackluster, each limiting the potential of the other. The question is, why has Ghana not achieved sustained and rapid long-term growth? This study seeks to provide an answer.As we review the experience of the forty plus years of independence, five explanatory themes recur. The first theme is excess demand. Repeatedly, fiscal and monetary policies have been excessively expansionary, generating bouts of inflation, followed by painful adjustment. Ghanaian entrepreneurs have seldom been able to count on a stable macroeconomic environment for more than a few months into the future. Such a short-term horizon has been damaging.

Currency overvaluation is the second theme. Initially the problem was a fixed nominal exchange rate, maintained in the face of domestic inflation. Exchange controls followed, while inflation accelerated. The real price of foreign exchange was depressed to a small fraction of its level at independence, and forced the economy to become virtually autarkic. Recovery of the real exchange rate under the reform program has occurred, but its instability remains a serious source of uncertainty for all - exporters, import competing producers, and foreign investors alike.

Third, closely related to the foregoing, Ghana has frequently failed to realize the potential gains from pursuing and supporting its comparative advantage. Among the traditional exports, cocoa suffered from a variety of devices that suppressed the real producer price and depressed production to well belowits optimum. Minerals, until recently, endured state ownership, and neglect of infrastructure.

The fourth theme is suppression of the financial sector. With the state heavily involved in running financial institutions, and repeated confiscation of assets both directly and via inflation, individuals are reluctant to hold financial assets. The financial sector, consequently, does not yet play its potential roles in bringing savers and investors together.

The fifth theme concerns the role of the state. The state was stretched far beyond its abilities. The overextended reach of government and the administrative complexity of many programs pushed the state well beyond the limits of activities that it could handle efficiently and without corruption. This seriously compromised the effectiveness of nearly everything the state was involved in, ranging from education to health care to state-owned enterprises to administration of economic controls. The outcome was a near collapse of the state. Not only was the state ineffective in its economic activities, but it failed to consistently control predation by its agents. Real assets were confiscated, both by direct seizure and indirectly by economic policies. At various times agents of the state extorted huge rents from society and beat hapless victims. The lingering sense that such experiences might recur, leaves the economy achieving far less than its potential, in spite of significant economic and political reforms achieved over the past fifteen years.

To appreciate why Ghana's modern history unfolded in this way, it is necessary to understand both the political and economic dimensions. We begin in Chapter 1 with an overview of the economic and political record of the various regimes that governed Ghana from independence through to the launch of the economic reform program in 1983. Those reforms and the consequences are the subject of Chapter 2. The major conclusions are presented in Chapter 3.

Place, publisher, year, edition, pages
Uppsala: Nordiska Afrikainstitutet , 2003. , 111 p.
Series
Research report, ISSN 1104-8425 ; 125
Keyword [en]
Ghana, Post-independence, Political development, Economic policy, Economic reform, Economic recession
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:nai:diva-182ISBN: 91-7106-514-8 (print)OAI: oai:DiVA.org:nai-182DiVA: diva2:241401
Available from: 2009-10-02 Created: 2009-10-02 Last updated: 2009-10-02Bibliographically approved

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