Transcript ECONOMIC SYSTEM ENHANCEMENT IN GHANA.ppsx

economic systems enhancement in
ghana
Paper Presented at the Seminar on Economic System Enhancement for
Developing Countries held from September 7-27, 2010 in Beijing, China
By
Grace Ofori-Abebrese
and
Anthony Kofi Osei-Fosu
Department of Economics, KNUST, Kumasi, Ghana
World Map
GHANA IN PERSPECTIVE
Map of West Africa
Africa
Map of Ghana
Location
Western Africa, bordering the North Atlantic Ocean
Between Cote d'Ivoire and Togo
Latitude: 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
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
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
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.
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 .
•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.
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.
Policies adopted include;
1. Macroeconomic reforms;
a) 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.
b) Fiscal policy discipline, tax reforms to broaden the tax base to
increase government revenue.
c) Monetary policies to reduce inflation, liberalise interest rate and
limit government borrowing
2. Sectoral reforms;
a) Trade liberalisation was adopted and export promotion
measures were introduced to enhance benefits from trade
b) Labour retrenchment policies were adopted to reduce public
sector wage bill
c) Subsidies were removed from agricultural inputs.
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.
Systems enhancement since 2000
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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)
•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.
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.
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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)
Thank you
Xie xie