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24.12.2010 Feature Article

MODERNISING AND RESTRUCTURING GHANA’S ECONOMY: IDEOLOGY OR PRAGMATIC INNOVATION? PART I

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History of state involvement in Ghana's economy
On the eve of Ghana's independence an emotional Kwame Nkrumah, first Prime Minister of Ghana stood before an ecstatic and expectant crowd of compatriots and proclaimed with great passion that “… from now on, there is a new African in the world; that new African is ready to fight his own battle, and to show that after all the Blackman is capable of managing his own affairs”. Nkrumah believed that with political freedom and control all other things were possible for Ghana.

Motivated by his personal orientation of life, and vision of the role of the African race in world affairs, the economic philosophy of Nkrumah's government and subsequently the economic policies they pursued conformed to his African socialistic model for national development, once the agents of internal restraint[1] and external constraints were effectively removed when Ghana became a fully-fledged republic on 1 July 1960.

Cognisant of the structural inertia that had set in the Ghanaian economy after 1911, [2] the early leadership of Ghana, just like all other subsequent leaders, were determined to restructure Ghana's economy away from a few primary commodity products towards a more value-added and diversified economy.

It was therefore the intention of Nkrumah's government to modernise Ghana's economy and promote rapid development. The government of Nkrumah however realised that without a sustainable source of energy supply it could not effectively industrialise Ghana along the scientific lines it envisaged. It therefore reactivated a colonial government-designed Volta River project, and although it went through many domestic and international challenges, it finally secured commitment and finance for the construction and completion of the Akosombo hydro-electric dam by 22 January 1966, which today, together with the related Kpong hydro power plant, supplies 1,180 megawatts of electricity for Ghana. It was the predominant thinking at the time, shaped by theories such as Walt Rostow's take-off model that availability of power to Ghana would lead to industrialisation.

At the same time, the Nkrumah government elaborated a Seven-Year Development Plan, spanning the period July 1963 to June 1970, which instituted a wide variety of socialistic industrial reforms and, as Joyce Meng observes, established, through a big push strategy, several import substitution industries [Meng, 1998] to manufacture import-substitutes such as boats, bricks, jute bags, glass, marble, paint, paper, steel, shoes, mango juice, etc.

Though the new push for state enterprises appeared novel, it was in fact a build-up on the model state-owned public utilities that the colonial government had established[3] for water, electricity, postal and telegraphic services, rail and road networks, and bus services, towards their economic objectives of exploiting the natural resources of the Gold Coast for their metropolitan import needs.

By the mid-1960s, therefore, state-owned enterprises were strewn throughout the country, as the state over-extended its involvement in the economy in an attempt to provide jobs to many, deliver home-made goods, make a contribution to national development, and serve as a model for the wider world and other aspiring African peoples that were still under colonial rule and exploitation that the African was capable, and an African solution possible.

The ambitious and good intentions of the government of Nkrumah however contrasted with the realities of implementation[4]. With low capacity utilisation, a financial regime of unaccountability or moral hazard, a bloated workforce, and a dearth of appropriate managerial expertise, coupled with the rent seeking activities of managers and foreign suppliers, these inefficient state-owned enterprises woefully failed to achieve their intended purposes as the process for their establishment and operations ignored the normal business principles pervasive in the Western world, particularly the United States, but for which there was a dearth in the communist bloc from where most of the support for the establishment of Ghana's state-owned enterprises had come.

As a consequence of the failure of these SOE's in delivering the products they were established to manufacture and breaking even, the Ghanaian economy was confronted with a situation of shortages of essential items and the state was often called upon to bail out these non-efficient[5] loss-making industries, leading to budget deficits, spiralling debts, and a foreign reserve crisis[6] by the time the government of Nkrumah was overthrown on 24 February 1966, in what history has confirmed to be a Central Intelligence Agency (CIA) designed and executed putsch.

The Busia government that came to power in 1969 made a feeble attempt at privatising some of the loss-making SOEs. However, under pressure from an unfavourable international economic environment, including the pre-event pangs of the 1973 oil crisis and the removal of the gold standard of exchange, the government devalued the local Ghanaian currency in 1971 as a measure to cope, which in turn triggered domestic political discontent leading to the overthrown of the government in a military coup led by then Colonel Ignatius Kutu Acheampong.

The Acheampong government, stood in opposition to the liberalist orientation of the Busia government, and on assuming power nationalised most economic entities as they sought to satisfy their power base and put Ghanaians at 'the commanding heights of the economy'. With initial success on many fronts there was great expectation from the policies of the Acheampong government, but all hopes were dashed when corruption pervaded every segment of society and virtually brought the economy to its knees.

By the early 1980s, the economy of Ghana was in dire straits and the Rawlings-led military regime with its socialist touting rhetoric, which had overthrown the brief civilian regime of Hilla Liman, was compelled to pursue an Economic Recovery Programme (ERP) with a neo-liberal agenda dictated by the Structural Adjustment Programme (SAP) of the World Bank and International Monetary Fund.

A changing global economic system
Preceding the fall of communism in the late 1980s, but presciently having that implosion in its sights, the Bretton Woods institutions and other related international organisations emphasised for Ghana and other developing countries the liberalisation of the economy as the only way to development; and amidst domestic political resistance, forced the Ghanaian government which was in need of critical financial assistance, to move towards the privatisation of state-owned enterprise and removal of subsidies, among many other neo-liberal conditionalities that were justified as necessary to remove the crippling constraints on the national budget.

By 1984 there were 235 state-owned enterprises, and except for some 22 sensitive enterprises, including the major public utilities and key enterprises in transportation, cocoa, banking and mining [United States Library of Congress], there was commitment by the government of Ghana to disinvest all public enterprises. That commitment has since enjoyed affirmation by all subsequent governments in Ghana.

National discontent
However, the fundamental concerns that had existed since independence, about the need to modernise the Ghanaian economy and provide development, remained, even as many commentators have also questioned how Ghana, which at the time of independence had US$481 million in foreign reserves, a comparatively high stock of human capital, profitable natural endowments, and a relatively stable regime with good social and health services, and infrastructure could find itself in a continued state of under-development, especially when its historical comparators such as South Korea and Malaysia have significantly moved above their earlier stations in the global community.

Since independence Ghana's economy has not structurally changed as it continues to be dominated by agriculture with only some recent modest gain made by the services sector. Industry has historically underperformed. Also, export revenues are dominated by agriculture (cocoa and timber exports) with industry (mineral exports) playing second. Services are only now beginning to make a showing though tourism receipts. The economy is therefore vulnerable to external shocks and continues to be fragile, just as was the case in 1911.

There are certainly many reasons that account for why Ghana finds itself in the current under-developed situation; ranging from the extended periods of political instability, pervasive corruption within the public sector, ill-advised economic policies, lack of visionary and bold leadership[7] and a pettiness and jealousy by political leaders who see in the success of indigenous businesses a challenge to their power.

As noted by Kofi Annan[8], African governments have a vindictiveness that retards the progress of their societies, as instead of focusing on how to build on the good initiatives of their predecessors, these governments sometimes spent half of their terms trying to dismantle the work of their predecessors with the intention of making them unpopular only to confront the realities mid-way during their tenure that they have a limited time too short for them to work to better the lives of their people. Annan adds that the situation was a disincentive to development efforts and should be discarded, and emphasises that regardless of which party was in power, efforts should be made to continue with viable projects and programmes inherited, to help accelerate the development process.

Beyond Annan's observation are the particular situations where businesses suffer in quiet collateral damage when governing regimes in African countries change, either through elections or coup d'état. In Ghana, as elsewhere on the African continent, when governments change deliberate efforts are made by incumbent governments to ensure that indigenous businesses that successfully thrived under a previous regime are, because of real or imagined political associations, not only denied business opportunities but are actively and adversely pursued until they collapse.

Indigenous private businesses have therefore not achieved organic growth in Ghana over the years and have suffered greatly under the vagaries of different ruling governments. Regrettably, the business chambers which should have served as a bulwark against the immoral desolation activities of state officials in power have been rather ineffective, due, in part, perhaps, to the nature of their leadership structure and their membership which includes many multinational corporations that are not perceived as political rivals by the ruling elites and who themselves are only too happy to avoid political questions that deal with the governments of the day.

Perceptive inward investors have also not been committed to a transformation of the Ghanaian economy, which requires investments of a long term gestation, as the lack of confidence shown by governments in local investors translate in their assessment of the security of the economic environment and their investments. The concentration of inward investments has therefore been in the extractive industries, with only marginal participation in the manufacturing sector, with the basic character of breaking bulk and repackaging for the local market.

With state-owned enterprises also exhibiting inefficiencies, due, inter alia, to political interference in appointments to senior management positions and day to day operations, political leaders have not shied away from cutting their noses to spite their faces as they have targeted indigenous private businesses, which would otherwise have created jobs and ensured revenue from taxes for further development.

In the process the national consensus to modernise the structure of the Ghanaian economy and ensure development have remain unfulfilled and Ghanaians are still way off from ascending 'the commanding heights of the economy'.

Notes:

[1] Before independence government expenditures of the Gold Coast were, for instance, capped at 10 per cent of GDP.

[2] What is sometimes known as the 'Guggisberg economy' still prevails as economic production is mainly centred around a few primary commodities such as cocoa, timber, exploitation and export of unprocessed mineral resources.

[3] The establishment of these public utilities is similar to what occurred in Europe, beginning in the nineteenth century and extending to the early later part of the twentieth century, when in consonance with the public service missions associated with sovereign kings and queens, the state nationalized operations in postal and telegraph service and other utilities along the way because of the public interest associated with their operations.

[4] There is an interesting saying sometimes attributed to Samuel Johnson that “the road to hell is full of good intentions but which appear to have been originally stated by Saint Bernard of Clairvaux (1091-1153) that "Hell is full of good intentions or desires." Equally Philippa Foot, the renowned philosopher has argued that: reason while it can help you recognise the right thing to do, doesn't necessarily guarantee that you would do it.

[5] There were some very productive investments made in infrastructure projects such as the construction of the hydro-electric dam of the Volta River project, the £6 million Accra-Tema motorway, the development of the modern industrial township of Tema among others, even if those projects were at the time criticized by political opponents and Western countries as wasteful expenditure.

[6] Dr. Jonathan Frimpong-Ansah, Deputy Governor of the Bank of Ghana between the period 1965-1968 has confirmed in a BBC documentary, Pandora's Box: Black Power that just before the overthrow of Kwame Nkrumah he sent a memorandum to the President indicating the grave situation of the financial reserves of Ghana which stood at only £500,000. The sharp fall in the prices of cocoa on the world market in 1964 and the heavy non-productive investments made were largely to blame.

[7] In this instance while one can fault Nkrumah's government on many grounds, being visionary and bold was not one of them. Being a rational thinker, Nkrumah proceeded in resolving problems in a logical manner. His awareness of Ghana's tropical condition for instance made him to assert that air-conditioners were required in offices and homes to improve productivity, just as his objectives for industrialisation made him to similarly conclude on a need for affordable electricity supply, ultimately resulting in the reactivation of the Volta Project for hydro-electricity as against the diesel generated electricity.

[8] Mr. Kofi Annan, who was the seventh United Nations Secretary-General and served during the period 1997 -2007, is reported to have made the remarks at a dinner hosted by the Asantehene, Otumfuo Osei Tutu II, in honour of visiting members of the Board of the United Nation Foundation of Directors, including its Founder and Chairman, Mr Ted Turner at the Manhyia Palace on Thursday 21 October 2010.

Harold Agyeman, Antoa

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