Large Government size not too bad - IEA

The Head of the Economics Centre and Director of Research of the Institute of Economic Affairs (IEA), Dr. Kwabena Anaman has observed, though controversially, that big cabinets in Ghana led to increased economic growth over the years.

Dr. Anaman explained that the relationship between economic growth and government size is sometimes difficult to determine, since a big government size sometimes leads to increased economic growth up to a certain point when the size eventually leads to decreased growth.

“If you are looking for development, government has to be a bit big,” and was quick to add that at some point when government gets too large, there is need to scale back.

He was speaking at a roundtable conference organized by the IEA in Accra last Tuesday on the topic “Determinants of Economic Growth in Ghana,” which was the result of a study to determine the factors influencing the long-run economic growth rate in Ghana, using a growth model based on available data from 1966 to 2000.

He said between 1957 and 1965 under Dr Kwame Nkrumah’s Administration, government spent 25.31 percent of GDP as compared to the period of political instability (1966-1983), which was 17.22 percent. GDP spending relative to the size of government under the Rawlings eras from1984 to 2000 stood at 18.01 percent compared with the Kufuor era, which is 20.43, spanning 2001 to 2005. He said the difference between President Kufuor’s government spending and that of Dr. Nkrumah is not too much but the only difference is that President Kufuor is taking care of a population which is thrice the size of that of Nkrumah. He also said data from 1966 to 2000 show that long-term economic growth in Ghana has been influenced by the growth of exports and political stability and negatively influenced by world oil market price shocks.

Dr. Anaman further said Ghana’s average annual economic growth since 2001 has been 5.2 percent and factors influencing this growth rate he said include prudent macro economic management such as relatively low inflation and exchange rate stability. Besides, relatively high world commodity prices for major exports have helped, but these have been bogged down by high world oil prices. Energy shocks he said have been a big set back to the country’s economic development.

“If the current power cuts continue, we cannot hit our anticipated six percent GDP growth rate,” he said. Dr. Anaman also said Ghana has enjoyed a peaceful and orderly transfer of political power and stability and has had a high inflow of donor funds and foreign remittances. Dr. Anaman also pointed out that there is the need to broaden the export base of Ghana in order to avoid the over dependence on Cocoa, timber and gold.

“Both long run and short-run growth functions indicate a strong link between political and economic growth,” he said adding, “Therefore the democratic governance in Ghana should not only be deepened but broadened as well.” In order to broaden democracy, Dr. Anaman suggested that the state should finance political parties to allow the emergence of viable third parties to break the duopoly of the ruling New Patriotic Party (NPP) and the main opposition party, the National Democratic Congress (NDC).

“Let’s avoid the Pakistani syndrome in Ghana where the military inserts itself as the third force when the two main parties engage in high level quarreling,” he said.

This is because in 2005 alone, non -traditional exports accounted for 17.43 percent of total exports.

He suggested government’s investment in labour intensive public works to accelerate economic growth and reduce high unemployment among the youth. In his view, low labour productivity can be tackled through more resources for non-formal education with strong emphasis on basic literacy skills training among others

He said although government is currently using agriculture, tourism and Information Communication Technology (ICT) as the main drivers of economic growth, there is the need to look at other drivers of economic growth like the construction industry.

.The International Monetary Fund (IMF) Country Director in Ghana Mr. Arnold McIntyre said Ghana also needs to strengthen its investment climate through law enforcement and ensure an independent judiciary.

He said although Ghana is doing very well in attracting investment other challenges such as difficulty in land acquisition remain.

An Economic Consultant Kwamena Essilfie Adjyae was of the view that Ghana needs an economic model centered around human capital development.