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Beyond the transition: Ghana's economy at century's beginning

By B&FT

Ghana may be struggling to promote a market economy that it has for better or worse, intentionally or unintentionally adopted thoroughly; but it is also a scramble to dismantle an entrenched rent-seeking system.

In the dying weeks of President Agyekum Kufuor's Administration, the Ghana Investors' Advisory Council (GIAC) concluded at their eighth meeting at Akosombo from October 31 to November 1 - that they are "encouraged by the firm foundation laid and the great prospects unleashed in Ghana in recent times."

Since May 2002, when the GAIC - consisting of selected corporate leaders from the international and local private sector was inaugurated, it has steadfastly sought to advise the President of Ghana on the strategies to be taken to attract investment into the country's economy and improve the business climate.

Obviously, GIAC's mandate was a concrete expression of longer-term visions of Ghana's internal development and external relations. For Ghanaians, integration of its economy into the global economy was the surest way of ensuring growth and prosperity.

The country's change of mood, and consequent retreat from a controlled economy in favour of market mechanisms actually began in the early 1980s.

But, clearly, it was not until 2003 that the country enjoyed its longest stretch of macro-economic stability characterised by a relatively stable currency and average, GDP growth rate of about six percent, as well as consistently declining inflation and interest rates (albeit with intermittent periods of fluctuations, which were more of adjustments to external shocks rather than a weakening economy).

Ghana is currently regarded by the World Bank as one of top-ten reforming countries in the world and the best place to do business in West Africa.

Cost of reforms

The benefits of adopting a market economy are increasingly becoming clear, but so also is the cost at which stability and growth is being obtained.

On one hand, local firms are complaining of debilitating competition from foreign sources, especially in the form of the cheap products dumped onto the Ghanaian market. On the other hand, the concerns perhaps the most serious are that foreign multinationals are taking over all sectors of the Ghanaian economy; in the gold-mining industry, the telecommunications sector, the financial sector.

And recently, with the hint that government is seeking to offload some shares in VALCO to foreign concerns, the complaints have reached a crescendo.

Their point is that sooner than later the country's economy will be completely out of Ghanaian hands, thus exposing the country to uncertain risks while stifling local entrepreneurial drive.

Inarguably, increasing injection of foreign capital and technology facilitates the rapid growth of the economy, but - if truth be told - when a nation accepts foreign investment it necessarily loses some control over its resources - as Ghana is beginning to discover with its mining sector.

Despite sustained high commodity prices over the past couple of years - especially for gold, of which Ghana produces approximately two million ounces annually the total contribution of the mining sector to GDP is less than five percent, as the country earns minimal foreign exchange realized only from royalties, which are a pittance.

Ghana is now forced to borrow more from abroad to invest in more power generation, of which the mining industry is a major consumer. And worse, power is supplied to the sector at subsidized rates while the indigenous small-scale mining sector is impoverished.

In this situation, rather than using market mechanisms to promote the growth of indigenous business, the indigenous sector itself is ' being sacrificed to promote the market economy. Instead of reform serving to sustain the core, the core itself will be destroyed to save reform - along with the stability, growth, and prosperity that reform has brought Ghana.

Rent-seeking syndrome

An unbridled adoption of market mechanism, this may seem. But undergirding this behaviour may be a subconscious rejection of some cultural and historical experiences, which though disqualifying the government-controlled system 'as a development option for Ghana, yet intrudes into the market mechanism with negative effect.

Rent seeking individuals masquerading as business people have been an integral part of Ghana's 51-year history. This is compounded by a political system - as political scientists have concluded - that is largely driven by patronage. It is a model in which the resources of the state are used to maintain the ruling group or party in power: especially through jobs, the power to allocate rents, provide services, and to determine policies and their beneficiaries. Also, every government in Ghana, without exception, has suppressed private sector companies because they were perceived as being allied to an opposing political interest. A sort of patronage in reverse.

Under the First Republic, there were allegations of some crude form of cronyism at least against some ministers of state.

It flourished under the various military regimes, but was worst under the Acheampong regime when the 'kalabule' economy developed. Income and wealth came to be determined largely by whether one had access to licences and goods at official prices, which could then be sold on in the unregulated market at hugely inflated prices.

With the adoption of the ERP, in the 1980s through the 1990s, it would seem that most privatized state-owned enterprises that found their way into local hands went into hands that were politically well-connected rather than business savvy.

Even during the era of great progress in reforms, as proclaimed by the GIAC, rent-seeking and political patronage is alleged to be rife. Analysts ask how, for instance, importers of food items could be subsidized to the detriment of local producers.

So it would seem that the politicians, much as they may like to, do not know how to engage the genuine local private sector positively to develop a strong indigenous sector, but are rather quick to consider foreigners.

Indigenous businesses, it seems, will have to desist from seeking political favours while they push and shove for every bit of space they, need on the local business scene - if they are to survive in a free-market environment.

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