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Ghana’s Economic Transformation
Remarks by K. Y. Amoako
At the launch of Economic History of Ghana:
Reflections on a Half-Century of Challenges and Progress
October 30, 2008
© African Center for Economic Transformation
ACET is a non-profit policy research and advisory institution created to assist African governments
in developing and implementing economic policies geared towards sustainable growth and economic
transformation.
Speech
October 30 2008
His Excellency Mr. President, Honorable Ministers of State, Distinguished guests, ladies and
gentlemen, I am very honored to be here with you all to help Ivor Agyeman-Duah launch this
interesting and exciting compilation of ideas on Ghana’s economic history.
Thank you for that warm introduction, Madame Chairperson. This is the third time this year that I
have had the pleasure of being introduced by you and in such a graceful manner. And again, happy
birthday from yesterday.
His Excellency Mr. President, I am particularly honored you have found time from your busy
schedule to be part of us this evening. The challenge for me of having you here is that I have to say
something profound and insightful and do so in a way that does not get me into trouble!
In my remarks today I will first talk about the book, specifically about some lessons that it offers
from the past. Then I will talk about our present economic situation and about the components of
an economic transformation in Ghana in the longer term.
Finally, given that we are about to pick a new government, I will suggest some social and economic
indicators by which we might judge the success of the next administration.
Lessons from Ghana’s Economic History
Let’s start with Ivor Agyeman-Duah who is a talented, young man. In his new book, eminent
participants and observers of Ghana’s development paint a picture of a dynamic history, full of
attempts, successes and failures to develop Ghana’s economy. We are lucky to have some of the
contributors to the book with us here today.
The book is about the progress that we have made and about the opportunities that we have missed.
And more over, it is a book of lessons from the past, which we should examine and learn from as
we create a better future.
What are some of the lessons that the book offers?
The first lesson is that leadership is central to economic development.
From the first page of Wole Soyinka’s forward we are struck by his suggestion that during Africa’s
postcolonial attempts to develop, “leadership has been the problem.”
The second lesson is that structures and institutions matter as do good policies. I agree with this
lesson. That is why I created the African Center for Economic Transformation to assist African
governments with developing and implementing policies geared toward growth. And I’m thankful to
President Kufour and his government for the extraordinary support I have received from them in
establishing this institution.
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October 30 2008
The third and last lesson from the book that I want to mention here is the importance of stability in
economic management and the continuity of good economic policies across administrations.
In line with this lesson, I do hope that whoever might be elected in December does maintain the
good policies and ideas of the present government, including the National Development Plan. The
plan is being prepared by the National Development Planning Commission under the leadership of
our esteemed J.H. Mensah and will present valuable, progressive ideas for our future.
Ghana’s Economic Future: A Transformation is Needed
I think that our economic future can be very bright, because over the last ten years we have built a
strong foundation. We have had a number of years of sustained, positive growth. I say this because
there was a time just decades ago between 1966 and 1983 when Ghana’s economic growth was
unpredictable and at times negative and inflation was skyrocketing—some of you may be too young
to remember the “kalabule days”.
Since the early 1990s we have cut the poverty rate by almost 50% and have improved access to
primary education considerably. We have one of the highest teledensity rates in Africa and despite
the unpredictability of our energy supply, we are one of the best covered nations in Africa when it
comes to energy.
Although still comparatively high, our interest rates have declined, with the banking sector becoming
more dynamic and lending more willingly over the last few years. These accomplishments have been
possible in large part because of the good governance and strong, visionary leadership of his
Excellency President John Kufuor. Set against the record of the recent past and compared to some
of our neighbors on the continent, our economic performance has been impressive.
But as we think about our future, we must imagine an economy that is not only stable with steady
improvements, but also transforming. Many of you are familiar with the text book comparisons of
the economies of Ghana and South Korea; it has been used so often that many of you must be tired
of it by now, but it remains a striking comparison.
It is often mentioned, how Ghana and Korea had similar per capita incomes in the 1960s, but how
now the average South Korean has 27 times the income of the average Ghanaian!
How in the 1960s both countries had more than 60% of the labor force engaged in agriculture, and
how today South Korea is a major industrialized nation while 60% of Ghana’s labor force continues
to be engaged in agriculture.
How Korea became the 13th wealthiest nation in the world and Ghana remains among the poorest.
Less than 50 years and what a difference. South Korea has had a complete economic
transformation.
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October 30 2008
We have to continue to remind ourselves of this divergence so that we can set ambitious targets.
Why don’t we aim for a similar transformation?
There are many good reasons why we have to transform our economy.
First, we are growing quickly now, but we depend on 2 or 3 commodities to fuel our growth.
Moreover, because of our over-reliance on commodities and raw materials, even if we are growing
well we are experiencing trade and fiscal deficits.
Second, and a related point, is that although we are growing reasonably fast, we are finding it
difficult to create more jobs partly because our manufacturing and services sectors are small.
Third, although considerable improvements have been made in our road network, our infrastructure
across the board is still weak and is undermining the prospects for further growth and poverty
reduction—in a global competitiveness report produced by the World Economic Forum, we were
ranked 88th out of a hundred or so countries on the strength of our infrastructure.
Fourth, on a related point, our domestic market is small, but because of weak regional infrastructure
and regulations we have not created a larger West African market for our goods and services.
Fifth, as I have said already, our financial sector has become more dynamic, but access to affordable
credit for formal, semi-formal and informal enterprises is still a considerable challenge.
Sixth, although the ICT sector is growing in Ghana, we have a challenge of catching up with the rest
of the world in applying technology across our economy.
There are other reasons, but I hope that these have persuaded you that we need structural change
and sustainable growth.
It is encouraging that from the presidential debate last night and from the manifestos and previous
pronouncements of political parties, it is clear that all of them understand the need for a dramatic
shift in our economy.
Transforming Ghana’s Economy: “Midfield” Approach
What is the result of transformation and what does the process of transformation look like?
When we talk about transformation we are referring to changes in the structure of the economy, its
organization, technology, management and institutions to achieve high, inclusive and sustainable
growth and development.
So how do we get there? In Ghana we take our football seriously, so a few months ago, during a
lecture presented by my good friend and Nobel Laureate Joseph Stiglitz, I used the word “midfield”
as a basis for outlining my ideas for what Africa’s and Ghana’s economic transformation requires.
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October 30 2008
The midfielder is the hardest working player on a football pitch. He supports the attacker and while
he may sometimes be a star, the midfielder most often leaves the limelight to the strikers.
But the midfielder is the linchpin of the team—he must play offense and defense and is the
foundation of strength.
Likewise, our government must become the nerve center of the economy facilitating its
transformation.
What does the process of transformation look like? Using the letters of the word midfield, I define
economic transformation as a process of “m”, modernizing our agriculture; “i”, investing in
infrastructure; “d”, diversifying exports and increasing trade competitiveness; “f” fundamentally
reforming our financial system; “i”, increasing regional integration; “e” enhancing employment; “L”
leveraging technology; and “d”, delivering the transformation through a developmental state.
I am constrained by time so I will touch only on some interesting elements of these components of
transformation since I believe that they are already generally well-known. Let’s begin with the “m”,
modernizing agriculture.
M for Modernizing Agriculture
Our first priority is to modernize agriculture: more than 6 out of 10 Ghanaians work primarily in
agriculture and the sector contributes approximately 36% to the GDP.
It is a fact that no state has ever made considerable progress in economic transformation while
neglecting its agriculture—we also know from the example of China that the impact of agricultural
growth on poverty reduction is four-times that of other sectors.
For Ghana, the primary challenges in agriculture are to improve the productivity of labor, find
institutional solutions to the challenges that small-holder farmers face in an increasingly
commercialized and globalized agricultural economy, and to shift the composition of exports to high
value added products, such as horticulture and livestock.
Assisting small scale farmers in increasing domestic food production is critical. This can be done
through extension services, financial intermediation and innovative ideas such as inventory credit
programs intended to smooth farmers’ consumption by allowing them to ride out low prices during
the immediate post- harvest period.
We also have to address the land reform issue, particularly strengthening individual property rights
to develop land markets and create incentives for individuals to optimize value from land use. I
don’t want to get into trouble with our traditional leaders, but addressing our land management issue
will require a fundamental change to the way that land is owned in Ghana.
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Finally, we have to improve market access by strengthening rural road infrastructure and irrigation.
We also have to apply technology to improve market information and the productivity of farmers.
Second in the “mid-field approach” is “I” for Improving Infrastructure
As I mentioned earlier, our infrastructure is among the weakest in the world: we are all too familiar
with water and energy shortages, challenging urban and rural road networks and one of the worst
sanitation situations on the continent.
It has been projected that our per capita income would have doubled for the period 1996-2000 had
we developed infrastructure of the stock and quality of South Korea.
We also know that we would have to spend 10% of our GDP on infrastructure between 2005 and
2015 in order to meet the MDGs and a much higher level to reach middle-income status.
The challenge for us is that we have to balance cost-recovery and affordability. China, probably the
most successful developing country in the era of globalization, offers valuable lessons in how
infrastructure projects can be financed.
China has built a first-class infrastructure by encouraging public and private, foreign and domestic
project financing and by allowing prices for infrastructure services to be set high enough to recover
investments and to yield profits.
As a result of this cost recovery policy, China’s power network, for example, is extensive and
reliable. Industrial power is expensive, but the government has found that firms are willing to pay
high prices to have a reliable supply. China has done the same in roads and railways, which pay for
themselves through tolls and tariffs.
There is a catch. While this cost recovery approach used in China does not require ongoing
infusions from the budget to continue the expansion of the investment program, the use of
infrastructure is comparatively expensive. In the case of Ghana, individual use of infrastructure,
especially in water and energy, among the poor may have to be subsidized if a cost recovery policy is
adopted.
Comparisons to China have their limitations because the geographical and population size of the
country allows remarkable economies of scale for infrastructure projects.
Because of its small size, Ghana has a considerable stake in thinking regionally in developing a more
robust infrastructure. I will discuss this further when I get to my point about “increasing regional
integration”.
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Third in the “midfield approach” is “D” for Diversifying exports and increasing trade
competitiveness
While most of the high-growth economies have developed a mixed-economy, releasing excess labor
from agriculture to the services and manufacturing sectors, we are still stuck on agriculture and
mining.
We have been exporting cocoa, gold, metals, and wood for 50 years and our per capita income has
barely changed.
Only in the last 8 years, have we seen some shift in economic growth towards manufacturing and
services. But there is also evidence that the growth of the manufacturing sector has been restricted
over the same period because of the influx of cheaper imported goods, shortages in electricity,
access to credit and skilled workers and the high costs of starting and maintaining a business.
What should we do?
We have to develop a strong trade and industrial policy that will provide a framework for generating
growth through strategic exports and increased expansion of industry. In Ghana’s context, strategic
exports can be found in high-value industries such as horticulture and fisheries and in agroprocessing which would help add value to agriculture.
But we know from the examples of other low income countries that manufacturing and certain
segments of the services sector are “engines of growth”.
We also know from research on 45 African countries between the years 1980-1996 that the GDP
growth rate is strongly and positively related to the degree to which manufacturing grew faster than
agriculture and services.
Although it is difficult to pick winners, in the case of Ghana, developing local industries around
foreign direct investment is a good starting point to expanding the manufacturing and services
sectors.
Taiwan presents a good case study for how successful industrial policy can be implemented. Lessons
from Taiwan suggest that government leadership and involvement was critical to supporting the
development of Taiwan’s firms.
For example, in 1980s, when the population of Taiwan was 20m, around what Ghana’s population is
today, the Taiwanese government set up the Industrial Development Bureau (IDB). The IDB
comprised 139 industrial engineers, 50 experts in corporate accounting, marketing and other services
and 3 reluctant economists that all supported the operations of Taiwanese firms in strategic sectors.
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October 30 2008
The IDB’s job was to keep a close eye on the productive capabilities of Taiwan’s firms and to find
ways to help them grow.
One of its specific tasks was to accelerate the development of supply linkages between the big
multinational companies operating in the country and domestic suppliers. They did this in part by
upgrading the technological capacities of domestic firms and by creating incentives for international
investors to work with Taiwanese firms.
For example, in the electronics industry, to “nudge” companies like Phillips to source glass from
Taiwanese firms, the government subtly arranged delays in import applications for glass from Japan.
Eventually Phillips got the picture and began working with Taiwanese contractors.
I site this example to illustrate the sort of leadership from government that is critical to diversifying
our economy and increasing trade competitiveness.
Fourth in the “midfield approach is “F” for Fundamentally Reforming Our Financial
System
As I already mentioned, our financial sector is becoming more dynamic and innovative due to
liberalization and increased competition in the sector.
Rural and urban banks and microfinance institutions are all competing for the business of small scale
farmers and entrepreneurs in the formal and informal sectors.
There are examples of interesting partnerships, such as that of Barclays bank with susu collectors to
offer enhanced savings and loans products to clients.
I think that it’s also interesting that insurance firms are expanding their range of product and
offering funeral finance, for example. But risks for lenders are still very high and access to credit,
therefore, for most people limited.
There are some things that can we do to improve our challenges in this area:
1. First, Ghana can boost credit flows by strengthening registries—land, claims on movable
assets, credit records.
2. Second, legislation is needed to underpin leasing and an expansion of the mortgage
market.
3.
Third, the design of regulations for microfinance should not slow their innovation or
results. It needs to recognize that banks moving down-market and microfinance
institutions moving up-market will meet in the middle, and regulations should maximize
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Speech
October 30 2008
fair competition and efficiency. To continue progress, Ghana must enable strengthening
links between informal financial systems and formal ones.
Fifth in the “midfield approach” is “I” for Increasing Regional Integration
In many ways cooperation with our West African neighbors is an essential component of our
economic transformation. This presents an opportunity for us to create larger markets and improve
the mobility of goods and services across borders.
Already, our third largest export partners after the Netherlands and Asia are in Africa and our
second largest import partner after China is Nigeria.
However, any of you who have traveled or tried to do business within West Africa know that the
costs of moving individuals, good and services across our boarders are high.
As I have already mentioned, regional integration is particularly significant for infrastructure
development, where scale and size are important. The West African Gas Pipeline is a good effort to
work across our economies on access to energy. Imagine how much easier it would be to get from
Accra to Bamako if we had a regional airline.
The ideas for regional integration have been floating around for a while—now what is needed is the
political will to execute.
Sixth in the “midfield approach” is “E” for Enhancing Employment
In addition to impressive poverty reduction over the last 15 years, we also have had relatively good
overall employment outcomes—nearly 3m jobs were created in Ghana between 1991 and 2006 for
the age group 24-64.
Also, there was a large shift in employment from the public sector to the private sector. But serious
challenges remain.
While employment in urban areas has slightly increased, rural areas have seen a large decline.
Equally worrisome is the rising unemployment among the youth 15-24 and the currently high
unemployment rate in Accra.
Strikingly, we know that between 1992 and 2003, the proportion of the working population aged 15
years and above who were employed in the manufacturing sector declined from 8.2 to 6.4%.
Additionally, we know that across both urban and rural areas the majority of individuals are
employed in the informal sectors.
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October 30 2008
What are some of the steps that we can take to create jobs and reduce unemployment?
I have a key answer- We must focus on small and medium enterprises.
We know that across economies, SMEs are responsible for a disproportionate amount of
innovation, growth and employment compared to the resources they consume. They can have a
multiplier effect on economic growth.
In high-income countries, the SME sector has been estimated to contribute more than 50% of gross
GDP and it is the engine of new job creation and source of as much as half of the innovation of
these economies. In Africa, the contribution to GDP of SMEs has been estimated at 10%.
While the SME sector is the bedrock of job creation, it is the most challenging sector for policymakers to understand and for financiers to serve.
In order to help facilitate the development of SMEs and to create more jobs in Ghana, the
government must reform its business environment, easing regulation and stemming corruption. It
must also support the expansion of credit to SMEs and help to increase the access they have to skills
gleaned from practical experience and international best practice.
Also, private equity funds, international organization and philanthropic institutions must be
encouraged to invest more money and expertise into our SMEs.
Seventh in the “midfield approach” is “L” for Leveraging Technology
Across high- growth countries technology is a bedrock of economic transformation. We now know
well that technological change and adaptations can contribute to faster growth and employment
creation.
We have to put science and technology at the centre of economic development and develop
institutional structures for innovations.
We have to spend more than the current 1% of our GDP on research and development of ideas and
must support public research. In a typical rich country, there are about 2,000 scientists and
engineers in research and development per 100,000 people. Most countries in Africa, Ghana
included, have less than 20 scientists and engineers in R&D per 100,000 people. We have a lot of
catching up to do.
We also have to encourage innovative adaptations of technologies produced elsewhere. In that
regard, we are fortunate the ICT is already one of the most vibrant sectors in Ghana.
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October 30 2008
Innovations in ICT are already transforming our economy in innovative ways. Mobile phones are
leading these innovations. For one, they have unleashed a wave of small-scale entrepreneurs in
retails kiosks in Ghana and across Africa.
Mobile phones can also have a particularly effective impact on poor, agricultural producers. For
example, BusyLab, through agricultural market software called TradeNet, provides farmers with
accurate and up-to-date crop market information via SMS alerts.
If we can infuse technology into our overall development strategy, we will see a transformation
across all sectors.
Finally, eighth in the “midfield approach” is “D” for Delivering Transformation through the
Developmental State
We will not transform our economy without a committed, credible and capable state that can
envision and execute a transformation agenda in Ghana.
Evidence from countries that have transformed impressively, such as South Korea, which I have
already mentioned, suggest that we need a involved, active government—not a large and inefficient
one—but lean strategic leadership and efficient institutions to devise and implement good policies
for transformation.
There are 4 areas that a developmental state must focus on:
1. First, the state has to focus on demonstrating good leadership and governance by setting a
clear vision and executing the development strategy effectively.
One way for Ghana to become such a state is to strengthen the role of local governments.
There are powerful examples from China and Botswana, for example, that decentralized
governance increases efficiency in delivering services and managing government business.
In Ghana, the capacity and capabilities of districts to play the full functions of government
are still highly limited. ICT and e-governance can support many such efforts both at the local
level and nationally.
2. Second, the state has to focus on ensuring macroeconomic stability: over the last ten years,
our government has demonstrated that capacity, but moving forward we will have to tackle
double digit inflation and both a growing fiscal deficit and a large, increasing current
account deficit.
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October 30 2008
3. Third, the state has to focus on understanding our endowments, growth engines and
comparative advantages: our government will have to think strategically about what makes
sense for our economy in the context of global trends, focusing especially on those sectors
that can drive growth at the lowest costs.
4. Finally, developmental states must allow markets to allocate resources while protecting
vulnerable individuals and groups.
One way that our government leaders and our institutions will be tested against the qualities of a
developmental state will be in the emerging oil and gas industry.
If managed well, oil revenues will help to diversify the government’s revenue base, ease our chronic
fiscal deficit and offset our widening current account deficit.
The sector may also present opportunities for private sector growth in the industries that support
the oil and gas sector.
But although oil is likely to generate growth, we are going to have to work at ensuring that oil
revenues have a longer term positive impact.
We need only look at Nigeria in the 1970s and 1980s, where output from agriculture and
manufacturing rapidly declined as a result of a shift to the oil sector. In managing oil, our leaders in
Ghana have to guard against “dutch disease” to protect other sectors.
The government must also think strategically about how oil revenues should be invested to produce
long-term benefits—investments in infrastructure and education and in future generation funds are a
good starting point.
Excellencies, ladies and gentlemen,
I hope that you will remember the components of our economic transformation by recalling the
“midfield approach” —modernizing agriculture, investing in infrastructure, diversifying exports and
increasing trade competitiveness, fundamentally reforming our financial system, increasing regional
integration, enhancing employment, leveraging technology and delivering the transformation
through a developmental state.
In the game of transformation, our government will consistently have to play at their very best, as
well as Michael Essien and our other midfielders are capable of.
Indicators of Strong Economic Development in the Future
To conclude, I have spoken about components of long term economic transformation in Ghana.
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October 30 2008
But we are in political season and will be picking our new government in just over one month. There
was an exciting debate last night and the political parties have set out their ideas in very interesting
manifestos which I enjoyed reading.
Like you, I am looking forward to seeing how the next government will build on the strong
foundation that the outgoing government has set to accelerate the process of our economic
transformation.
Let me end my remarks today with some proposed indicators in just three areas by which we can
judge the success of next administration.
First, the next administration has to make real progress on the MDGs.
Although we have made progress on some of the MDGs, notably on poverty and primary
education, we are struggling with health indicators—in Ghana we are sadly off-track in decreasing
the maternal and infant mortality rates and infection rates for HIV, malaria and other diseases.
It is also a fact that our sanitation system is in crisis—we are among the three worst countries in
Africa for sanitation.
If 4 years from now, 50% fewer women and infants die in childbirth, if our HIV and malaria
infection rates are near zero and if our cities and villages are considerably cleaner—the next
administration can count itself a success and I will donate $1m to their next presidential campaign.
I might have to borrow the money from Ivor who will surely become a millionaire after the sales of
An Economic History of Ghana!
Second, we have to create more jobs, especially for the young.
If we don’t do this, our economy will slow down and we will experience great political disaffection
which may destabilize the country and undermine the advancements of the recent past.
So when we generate at least 30% more jobs in agro-processing, manufacturing and the services
sector—that’s when the next administration can count itself a success and I will donate $2m to their
next campaign. Surely, after the acclaimed success of this book, Ivor would have written another
book and could easily finance my commitment!
Third, we have to make more progress on education at all levels, not just in primary enrollment
rates.
Education and human capital formation are critical determinants of long-run growth because they
complement other factors of production and counteract their diminishing returns.
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October 30 2008
So the next administration can judge itself as success if 25% more young people who so desire have
the opportunity to sit in a university classroom and discuss Ivor’s An Economic History of Ghana
with their peers.
That’s when I will contribute $3 million to their next campaign. And yes, again, Ivor would bankroll
my contribution. I think he has great financial prospects!
So I hope that the next administration helps me get into debt!...hopefully, if they do their job right,
at lower interest rates!
I have shared many ideas with you today. Some of them are complex and require a lot more strategic
analysis and political will and capacity for implementation.
I look forward to working with you through the African Center for Economic Transformation to
support the efforts of the next government towards our economic transformation.
Let me end by congratulating Ivor and the participants in An Economic History of Ghana on a
job well done. I am happy to have had the opportunity to launch the book with you.
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