Ghana’s Prospects for Economic Transformation

Full Text of K.Y. Amoako's speech delivered at the Ghana Economic Forum

Not Just Any Nation: Ghana’s Prospects for Economic Transformation

by Dr. K.Y. Amoako

His Excellency the Vice President of the Republic of Ghana, Mr. Kwesi Bekoe Amissah-Arthur; his Excellency the former President of the Republic of Ghana, Mr. Jerry Rawlings; her Ladyship the Chief Justice of the Republic of Ghana, Mrs. Georgina Woods; honorable Ministers and Parliamentarians; members of the Diplomatic Corps; distinguished guests, ladies and gentlemen; thank you for the invitation to be here today. I am honored to speak before such an esteemed audience and to take part in this National Economic Forum, which comes at a critically important time for the country we are all proud to call home.

As Ghanaians, we are the heirs to a great legacy of African leadership, vision, and action. It is our responsibility to ensure that legacy and carry it forward.

This is what brings us here today.

At the risk of giving away my age—which my youthful exuberance no doubt hides!—I can’t help but recall another situation, more than 30 years ago, when I lived in Zambia as the resident representative of the World Bank. At the time, Zambia faced a serious economic crisis, characterized by severe shortages of foreign exchange, debilitating subsidies, artificial price controls, and huge parastatal losses. The country’s powerful mining union was ready to strike. The private sector was in a state of despair. President Kenneth Kaunda called only the third national convention in his country’s history, an attempt to bring everyone to the table—union heads, party leaders, the private sector, civil society. Their goal was to agree on a framework for reform, a plan to put their country back on track.

I had the opportunity to participate, behind the scenes, in those deliberations. And what I remember was a diverse cross-section of country stakeholders coming together for the greater good. The mining union did not strike. The state agreed to liberalize prices, reduce subsidies, and carry out interest and exchange rate reforms. The private sector became hopeful.

My point is that I witnessed every major player who had a say in that country’s economic future unite in the face of crisis, sacrifice their self-interest, and make the tough decisions. It wasn’t easy, but it was necessary.

Ghana’s Economic Crisis in Context

We all know why we are here. Ghana faces extensive economic difficulties, fueled by major macroeconomic imbalances that pose serious implications for sustained growth. Fiscal deficits remain high. Rising public debt, energy subsidies, and a high public sector wage bill threaten macroeconomic stability. Inflation has jumped into double digits, as have interest rates, pushing up the cost of credit. Some are forecasting economic growth to drop below 4 percent within a few years.

The country’s current fiscal imbalance, if maintained at current trends, is expected to result in an “untenable domestic debt position” in as few as three years.

These numbers and trends are alarming, and they require an aggressive response. On this, we all agree. The government recently announced new measures intended to reduce public sector expenditure and improve revenue generation, such as expanding oil production, boosting investments in agriculture, and increasing the value-added tax while also broadening its coverage base. We should heartily welcome these measures and build upon them.

After all, any nation in economic distress must take the necessary steps to turn things around.

But Ghana is greater than that. We are not just “any nation.”

We are the first country south of the Sahara to reclaim our right to sovereignty. We are the ones others looked to for hope, as an example of independence to come. We are a nation visited by American presidents and English monarchs because, as Barrack Obama said, we show the world “a face of Africa that is too often overlooked.” We are a nation of stable democracy, of peaceful transfers of power, of adherence to the rule of law, of respect for civil society, and of impressive rates of economic growth. This is the legacy that’s on the line.

This is what brings us here today—to not just turn things around, but to also aim higher.

The economic difficulties we face could seriously undermine the achievements Ghana has made by weakening a strong society. But they also threaten to undermine all that Ghana is still capable of achieving.

Undoing past gains is bad enough. Sabotaging future potential is even worse, because Ghana’s outlook remains bright. We are blessed with a youthful and growing labor force, and with abundant land and agricultural resources, many of which, such as raw cocoa beans, provide us with a powerful comparative advantage in exports. We are blessed with natural beauty that drives tourism and the lucrative leisure travel industry. We are blessed with highly sought natural resources: oil, gas, and valuable minerals. We were the Gold Coast for a reason. We are blessed to be Ghana.

We are a nation with a track record of achievement, but also of vast potential. The challenge before us is to get to a place where we are able to more fully realize that vast potential.

This, my Countrywomen and men, is what brings us here today.

The Transformation Story & Ghana

We know that Ghana has been growing. That’s the good news. But we also know that it’s not enough. The economy grew from its average of 5.3 percent in the 2000s to 14 percent in 2011, but extremely favorable commodity prices underwrote much of that growth. During that peak year of 2011, for instance, our manufacturing sector contributed only 7 percent to GDP.

The real long-term challenge for Ghana, as with most resource-rich African nations that have experienced growth of unequal or unstable nature, is to figure out what’s necessary to maximize the value of its resources, stabilize and diversify its growth, and ensure sustainable and equitable development.

I founded the African Center for Economic Transformation, or ACET, in Accra in 2008 to help African governments do just that. Our goal is to become Africa’s unmatched resource for the analysis, advice, and advocacy necessary for countries to transform their economies, not just grow them.

What does that mean, in practical terms? It means that governments, to ensure that growth is sustainable and improves the lives of the many, need to address their structural weaknesses, and deliberately and vigorously promote economic transformation.

We call that “Growth with DEPTH.” D-E-P-T-H.

The D stands for diversification of production and exports; the E for export competitiveness; the P for productivity gains; the T for technological advances; and the H for human wellbeing—all brought about by expanding formal employment and raising incomes. This is ACET’s recipe for the future of sound African economies. This is our blueprint for a country like Ghana to realize its vast potential.

Earlier this year, we released our flagship African Transformation Report. The report is the culmination of a three-year research program that looked systematically at transformation as a broad framework for balanced and sustainable growth. It also puts our blueprint—Growth with DEPTH—in empirical terms via the AfricanTransformation Index, a key feature of the report. The Index provides a comparative baseline to measure the performance and progress of African countries on the five DEPTH attributes.

Let me briefly share where Ghana stands…but first, a warning—the news is not very good.

We studied 21 African countries. According to the overall composite Transformation Index, Ghana ranked 16th. This is further evidence that rapid economic growth, like Ghana has experienced since 2000, does not necessarily translate into structural transformation. Even worse, there’s a notable negative trend.

We calculated scores for every country going all the way back to 2000. That year, Ghana ranked 9th on the overall transformation index. Ghana’s plunge from 9th to 16th was the largest drop since 2000 among all 21 countries in our study.

On the five individual DEPTH attributes, Ghana’s rank among its peers is equally eye-opening. Keep in mind, the rankings for each attribute are among 21 total countries.

On Diversification, we rank 17th, down from 8th in 2000. The current 7 percent share of manufacturing in GDP, which I mentioned earlier, is well below the world average of 16 percent. It’s also below the sub-Saharan average of around 10 percent. Ghana’s economy remains stuck in extractives and primary products.

On Export competitiveness, we rank 7th. On the surface, this number seems strong. But when compared to 2000, when Ghana ranked 2nd overall, we see another troubling sign of decline.

· On Productivity, we rank 12th.

· On Technology, 20th.

· And on Human wellbeing, we rank 8th. This otherwise solid ranking is also tempered by troubling underlying data, however. For instance, less than one-quarter of Ghana’s labor force is in formal employment.

I’m not trying to be an alarmist. This is the reality before us. And let me make a quick point: the Transformation Report, from which these numbers derive, is not “just another report.” It’s the first of its kind. It’s comprehensive. It’s objective, and data-driven. It’s a benchmark for nations to measure their progress. Those are other people’s words, not mine. And many have endorsed it. Jim Wolfensohn, the former president of the World Bank, called it “an extraordinary report.” The Economist praised it for being “grounded in reality.” The New African magazine wrote, “The report could readily be used to shape the strategies of individual African nations.” AfDB head Donald Kaberuka said it is “insightful, useful, and timely.” And President Ellen Johnson Sirleaf said the report is proof that ACET is an institution that gives “new meaning to African ownership of African destiny.”

Of course, I’m proud of it, and I stand behind it, but the point is that its findings are meaningful and have been strongly supported. It’s not just another report. It’s a reflection of economic reality for Africa, and as some have called it, a game changer.

It’s a wake-up call for Ghana.

How We Move Forward

So that brings us to the big question: If it’s this bad, how do we fix it? What do we do? We take it one step at a time. And we follow the signs in front of us.

We know, in general, what it takes to transform. Other countries have done it, most notably in Asia. As part of ACET’s study, we considered those countries but we also looked at the countries in Africa that have already started down the path successfully, such as Mauritius and South Africa. We found many lessons from which to draw, but I want to share the five most important ones for Ghana. This is how we get on the right track.

· First, we must have a plan. A unified national vision—developed through broad consultations with the private sector, civil society, think tanks, and forums like this one—is imperative to guide a transformation strategy.

· Second, we must be consistent. Transformation is a long-term process. It can take 20 or 30 years. Frequent shifts in strategy or abrupt policy changes impede progress. The vision needs to transcend politics.

· Third, we must work together. Active collaboration between the state and the private sector is at the core of economic transformation, and that means regular contact between government and business interests—and shared goals.

· Fourth, we must coordinate closely. Successful transformation strategies cut across ministries, agencies, and organizations. There is a demonstrated need for entrusting coordination oversight to a single individual or agency that can serve as a traffic cop. Working together is one thing. Working together productively is the key.

· Fifth, we must focus on core state functions. Successful transformation demands that the most important state functions be performed well, particularly sound macroeconomic management. In short, the state must manage the economy to enable businesses to flourish. Transformation is not driven just by the state or just by the private sector—it’s the combination of both.

Now, let me back up a moment, because we shouldn’t put the cart before the horse. This fifth lesson leads me to the most important point I’ll make today.

I just described the ways Ghana can get on track for transformation—which is a necessity—but we can’t lose sight of the fundamentals, those core state functions that enable a vision for transformation to take root.

Above all else, that means getting Ghana’s macroeconomic policies back on track, and fostering an environment that is conducive to economic activities and entrepreneurship, particularly by private business. According to the findings of the Transformation Report, this requires policy action on many fronts, specifically:

· Pursuing fiscal and monetary policies ensuring that their impacts on inflation, wages, interest rates, and exchange rates promote across-the-board growth—in GDP, jobs, and exports.

· Planning and managing public spending, so that a healthy balance between short-run consumption and long-run investment is a priority.

· Placing stronger oversight on ports and customs, but with more simplified procedures, to move goods in and out of the country more efficiently.

· Making public procurement deliver value for money by reducing corruption, which not only wastes precious financial resources, but undermines trust and public confidence.

· And finally, streamlining regulation to encourage entrepreneurship, innovation, and investment; the only losers will be corrupt officials.

Given our current situation, let me mention very briefly some of the actions we urgently need. First, we must get government expenditures under control and avoid over reliance on tax increases. Second, we must ensure value for money in procurement through more transparent practices: Third, we must establish or strengthen formal institutions or processes, including improved governance of state-owned enterprises. Fourth, we must have a clear exports strategy that involves identifying “low hanging fruits “and removing the policy, regulatory, and other bottlenecks that impede their expansion. And we must proactively provide government support to such products and sectors, while avoiding cronyism and patronage.

Prospects for Transformation

Once we get the fundamentals in order, then Ghana will have ample pathways to transformation. As I previously noted, we are a country blessed with abundant resources, be they natural, land, or labor. These resources—and our own proud history of achievement—offer us exciting prospects for transformation.

· For example, cocoa offers opportunities to increase export earnings by improving yields and moving up the value chain into intermediate processing. Since Ghana is the world’s second largest producer of raw beans, we should be reaping more of the profits.

· With more than one million hectares of land suitable for oil palm, Ghana has great potential to increase both its manufactures and its exports to regional and global markets.

· Ghana’s horticultural exports, led by pineapples, yams, and bananas, can extend to mangoes, citrus fruits, melons, and avocadoes. Rice, sugar, meat, and poultry all offer increased processing potential for domestic and regional markets.

· Our extractives industry gives us opportunities to harness natural gas to generate power, to develop ancillary oil and gas services, and to produce petrochemicals.

· And perhaps most promising are the prospects for light manufacturing, which has yet to take off in Sub-Sahara Africa. Light manufacturing has been a crucial stepping-stone for most successful developing countries, particularly in Asia, and most notably in China. Now an economic powerhouse, China is looking to Africa to relocate manufacturing jobs. By the end of 2012, China’s investment in Africa’s manufacturing industry had reached $3.4 billion US dollars. Other African countries, such as Ethiopia and Rwanda, are leading the way by targeting specific sectors as a source of foreign investment in light manufacturing industry and jobs. Ghana must get on board this train.

These are just a few of the ways that Ghana can excel. This is just some of the potential that transformation can offer. And this is the opportunity that we have before us, at this forum. To begin to make the vision of transformation a reality. But it takes courage, commitment, and a willingness to work together. It takes compromise, and it takes sacrifice.

I began this discussion by recalling my witness to Zambia’s national economic forum 30 years ago, when the country’s political and economic leadership came together and made the hard choices for the greater good. What I didn’t say, and what many of you probably know, is that within a few years Zambia abandoned the pro-growth strategy that its government, private sector, and labor leaders agreed to. Amid painful inflation and other corrective shocks, the political pressure became too much. The political will for structural change dissipated, and Zambia fell into an economic abyss for two decades.

Zambia’s experience provides us with a cautionary tale, but I am an undying optimist at heart, so let me conclude on a more hopeful note.

In the 1980s and early 1990s, Brazil suffered from crippling stagnation and hyperinflation. As the former head of Brazil’s Central Bank put it, “Imagine that the cost of your food and clothing went up by 40 percent every month.” It seemed outlandish to imagine Brazil was anywhere near economic stability, much less growth. In 1995, Fernando Henrique Cardoso was elected president, and his government, an alliance of his own moderate party and two right-wing parties, embarked on a decade of structural reforms and austerity measures. These moves put Brazil on a new path, and by the mid 2000s, the country was seen as an emerging economic power. Cardoso’s successor, Lula da Silva, chose to maintain the core policies of his predecessor, despite da Silva’s leftist background. As a result of this strategic stability, Brazil continued to increase GDP per capita, grow production for exports, boost employment, and even expand social welfare.

Brazil became one of the new century’s great economic turnarounds. It also shows how a long-term strategy of transformation can benefit a country economically if it’s supported by national leadership across party lines.

Conclusion

A successful transformation strategy is a shared vision, an ongoing commitment to progress that acts as a compact between leaders and the citizens they are elected to look out for. We have many reasons to be proud of our democracy, and of our democratic reforms. But in the multi-party environment that we have today, there is too often a surplus of politics, and a deficit of ideas. Let’s ensure that our conversation to rebuild Ghana’s economic future does not fall victim to that. The stakes are too high.

Because at its core—at its heart—economic transformation is about people—their jobs, their prosperity, their livelihood, their contributions to Ghana’s ongoing legacy.

Successful transformation is a 20- or 30-year process. If we imagine a transformed Ghana in 2040, for example, we imagine a nation in which today’s young people are the adults, many in the prime of their working lives. But among today’s youth, a large majority is either unemployed or eking out a living in the informal sector. They are the reason to fix our fundamentals. They are the reason to transform our economy.

As New York Times columnist Thomas Friedman once wrote, “Countries that don’t plan for the future tend not to do well there.” If we want to do well tomorrow, we have to start planning today.

I hope in the next few days we can use this economic forum to usher in a new era of stable, shared, and sustainable growth.

We are not just any nation. We are Ghana!

/ Ends

Download the full transcript in PDF

About ACET

The African Center for Economic Transformation (ACET) is an Accra-based economic policy institute supporting Africa’s long-term economic growth through transformation. Founded by K.Y. Amoako, former Executive Secretary of the UN’s Economic Commission for Africa, ACET’s team of roughly 30 core staff have come from every sub-region of the continent, including Burkina Faso, DRC, Ghana, Kenya, Morocco, Nigeria, and Uganda. More at www.acetforafrica.org.

Following the March 2014 release of the African Transformation Report, ACET has begun contributing to national dialogues to help individual African nations move their transformation agendas forward.

Erinn Ransom-Ofori

Writer/Editor