Ghana Transformation Profile

Punching below its weight

After a severe collapse in the 1970s, Ghana began a recovery in the late 1980s that accelerated in the 2000s, generating optimism in the country’s capacity to realize its economic potential. Buoyed by high commodity prices and now by oil production, the economy grew from its average of 5.3% in the 2000s to 14% in 2011 and is projected to grow at about 8% in 2013–14, carried largely by extractives and high global commodity prices.

Sustained output growth has not been matched by employment growth. Total employment increased 3.5% a year on average between 2000 and 2010 (with most of the new jobs in the informal sector). With only about 24% of the labor force in the formal sector, informal employment dominates. Youth unemployment doubled from 6.6% in 2006 to 12.9% in 2012. Extreme poverty has come down from 52% in 1992 to 29% in 2005–06 and further to 24% in 2012, according to World Bank simulations, but the Gini index of inequality rose from 36 in 1990 to 43 in 2005. Ghana’s economy remains stuck in extractives and primary products, with the share of manufacturing falling despite the recovery in growth, and agriculture is still based on traditional methods. The new production of oil and gas provides additional fiscal space and opportunities to promote economic transformation; whether the potential is realized will depend on national economic management.

Transformation platform

The technical capacity of Ghana’s once experienced and well trained civil service has diminished, with some ministries having to rely on the services of outside specialists and professionals to execute their mandates. The National Development Planning Commission has not become the focal point for economic transformation because its programs are often driven by shortterm political manifestos. State capacity is notably weak in public financial management and resource mobilization and in enforcing transparency and accountability. Fiscal deficits remain high. Rising public debt (up from 30% of GDP in 2007 to nearly 50% in 2012), energy subsidies, and a high public sector wage bill threaten macroeconomic stability. Inflation has moved into double digits, as have interest rates, pushing up the cost of credit.

But the business climate has improved considerably since 2000. Ghana’s rank of 63rd of 183 countries on the 2012 Doing Business Index places it in the middle among comparator countries, outperforming Indonesia and Brazil but falling short of Malaysia, Thailand, and Korea. Ghana ranked favorably on registering property, getting credit, protecting investor, and enforcing contracts, but unfavorably on starting a business, dealing with permits, trading across borders, and resolving insolvency.

Ghana ranked 114th of 142 countries on the 2011–12 Global Competitiveness Index, 122nd on the basic requirement of doing business, 98th on innovation and business sophistication, and 92nd on efficiency enhancers. Despite recent initiatives to develop private sector development strategies, formal business-government consultations—in developing policy frameworks, identifying growth opportunities, and tackling internal constraints to the private sector—are sporadic.

Transformation prospects

Ghana’s comparative advantage in export products is strongest in cocoa and gold and strong in seeds and fruits, wood products, palm products, aluminum products, fish, crustaceans, mollusks, tourism, and, to some extent, horticulture.

  • Cocoa offers opportunities to increase export earnings by improving yields and moving up the value chain into intermediate processing. But Ghana should first resolve whether to continue to export its raw cocoa beans or encourage domestic processing of its beans, and under what price and nonprice incentives.
  • Other opportunities are in light manufacturing of wood, palm oil, and aluminum products. Both palm oil and wood have the potential for backward linkages and strong value addition prospects for regional and global markets.
  • Ghana’s horticultural exports, led by pineapples, yams, and bananas, can extend to mangoes, citrus fruits, melons, and avocados. If scientifically managed, emerging aquaculture could drive exports of fresh and frozen fish. Increased domestic production of rice, sugar, meat, and poultry is another food processing segment for the domestic and regional markets.
  • Tourism and business travel can be further leveraged with better infrastructure and support services.
  • There are also opportunities for harnessing gas to generate power, for developing ancillary oil and gas services, and for producing petrochemicals.
Source: ACET Research

Source: ACET Research

Ghana’s growth with depth

  • Transformation—16th of 21. Ghana’s recent experience since 2000 shows that rapid growth does not in itself translate into structural transformation. The country ranked 9th on the economic transformation index in 2000 (1999–2001) and dropped to 16th in 2010 (2009–11).
  • Growth. Average GDP growth was barely 1% a year from 1971 to 1990, resulting in falling GDP per capita of around –1.5% a year. Real GDP per capita in 1990 was about 30% less than that in 1971. Growth recovered in the 1990s, with GDP rising at 3.7% a year from 1991 to 2000 and GDP per capita at 1.4% a year. From 2001 to 2010 average growth accelerated to 5.3% a year and per capita growth to 3.1%. (From 1971 to 2010 GDP per capita rose barely 20%—an average annual growth of around 0.45%).
  • Diversification—17th. Ghana fell from 8th in 2000 to 17th in 2010 on economic diversification. The share of manufacturing in GDP in 2010 is low at 7%, well below the world average of 16% and the Sub-Saharan average of around 10%. Merchandise exports became more concentrated as the share of the top five products (cocoa, gold, wood, veneers and plywood, and fruit and nuts) in merchandise exports rose from 70% in 2000 to 85%. Further, the share of manufacturing and services in total exports almost halved between 2000 and 2010.
  • Export competitiveness—7th. Ghana’s rank deteriorated from 2nd in 2000 to 7th in 2010, losing ground to Côte d’Ivoire, Kenya, Malawi, Mozambique, and Tanzania. The export competitiveness ratio (the share of exports in GDP relative to the share for the world) plunged from 1.62 in 2000 to 0.72 in 2010— partly a statistical artifact, given Ghana’s upward revaluation of its GDP by 60% in 2006.
  • Productivity—12th. Ghana’s rank fell from 11th in 2000 to 12th in 2010. Manufacturing value added per worker moved up from $14,910 (in 2005 US$) in 2000 to $20,162 in 2010. Productivity in agriculture, proxied by cereal yields, was at 1,689 kilograms per hectare in 2010 (above the Sub-Saharan average of around 1,500), up from 1,264 in 2000.
  • Technology—20th. The manufacturing sector is small and at a low technological level. Ghana dropped from 11th in 2000 to 20th in 2010. The share of medium- and high-technology exports averaged just 2.3% in the 2000s.
  • Human well-being—8th. GDP per capita (PPP 2005 US$) rose from $1,068 in 2000 (1999–2001) to $1,512 in 2010 (2009–11). Only about 24% of the labor force is in formal employment.

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