Economic Transformation in Ghana

Ghana has exhibited relatively strong growth since the 1980s, with an average annual growth rate of 5 percent and notably higher growth rates in the 2000s. The proportion of the population living below the poverty line fell to 28.5 percent in 2005-06. However, Ghana’s economy continues to be heavily reliant on primary commodities with insufficient linkages to other sectors, its agricultural sector is characterized by low productivity, and there is a low application of science, technology and innovation throughout production and distribution channels.

Ghanaian governments proclaimed the need for economic transformation since the late 1990s and increasingly in the late 2000s. Yet, these words have not been backed up by many actions and have so far shown few results. What explains why Ghanaian politicians, across different governments, talk about economic transformation, but seemingly do little to achieve it?

Lindsay Whitfield answers this question this series of papers that present the findings from a Ghana country study of the Elites, Production and Poverty collaborative research program (2008-2011) based at the Danish Institute for International Studies. The first three papers are out now:

The nature of the contemporary political settlement in Ghana
The first paper analyzes the nature of the contemporary political settlement in Ghana. In doing so, it argues that ruling elites’ policy choices are shaped by their political survival strategies. In turn, these strategies are shaped by (1) the characteristics of the ruling coalitions, which include a high degree of vulnerability in power, strong lower-level factions of the ruling coalition, and a substantial amount of fragmentation among the higher factions of the ruling coalition; (2) the weak capabilities and political influence of the nascent productive capitalists; and (3) easy access to financing for the state and the ruling coalition from foreign aid, mining and cocoa bean exports.

As a result, ruling elites’ policy actions did not prioritize the development of new productive sectors (or upgrading of old ones), but were geared towards delivering benefits to the higher and lower levels of the ruling coalition, as well as delivering a small amount of visible goods and services to as much of the population as possible in an effort to ‘swing’ voters their way at election time.

Ruling elites ran a haphazard process of privatization, neglecting productive sectors
The second papaer shows that ruling elites in ghana presided over a haphazard process of privatization of state-owned enterprises, focusing more on bridging fiscal deficits and financing their ruling coalition and neglected the potential to use the process to rehabilitate old or build new productive sectors. The second paper shows that ruling elites in ghana presided over a haphazard process of privatization of state-owned enterprises, focusing more on bridging fiscal deficits and financing their ruling coalition and neglected the potential to use the process to rehabilitate old or build new productive sectors. Outside of cocoa and gold sectors, the ruling elite across political parties did not seriously attempt to build up productive sectors, especially in terms of increasing agricultural productivity or facilitating the creation of competitive industries in agro-processing or manufacturing. Gold and cocoa were already economically important, and just supporting them allowed the ruling elite to sustain economic growth, in combination with large foreign aid inflows.

Not enough incentives for ruling elites
The third paper uses the case of horticulture exports, a new export sector in Ghana, to examine the political challenges to changing the productive structure in Ghana. It argues that the characteristics of the ruling coalitions in Ghana do not create incentives for ruling elites to provide sustained political support to new productive sectors that do not yet provide substantial revenues for the state, are not characterized by significant state involvement, and are driven by domestic entrepreneurs who are not dependent on the ruling party. Yet, as an earlier working paper by Lindsay Whitfield showed (2010:28), without sustained political support, the types of public-private coordination of actions and investments needed to help the sector expand and upgrade were not forthcoming in an effective and timely manner.