Osafo Marfo Lecture At Rutgers University

HON. YAW OSAFO MARFO, GAVE HIS LECTURE AT RUTGERS UNIVERSITY PLEASE POST.

THE IMPACT OF GLOBALIZATION ON DEVELOPINGCOUNTRIES: LEARNING LESSONS FROM GHANA AT HE RUTGERS BUSINESS SCHOOL AND RUTGERS SCHOOL OF GLOBAL AFFAIRS, THE STATE UNIVERSITY OF NEW JERSEY, U.S.A

INTRODUCTION

Mr. Chairman, invited distinguished guests, students, ladies and gentlemen; many thanks for the invitation and the opportunity offered me to address this important topic and to be able to share on Ghana experience on globalization.

I thank the organizers for the choice of the topic which is a very relevant one within the context of the struggle by developing countries to be fully engaged and integrated into the world economy.

I will proceed along the following lines:

I will attempt to define what "Globalization" is, as well as give a brief historical sketch, provide some statistics on globalization and developing countries particularly Africa, examine the impact of globalization on developing countries including Ghana, and end on what lessons can be learned from Ghana's experience.

I will be dwelling mainly on economic globalization.

What is Globalization

Globalization, according to Chandrasekaran Balakrishnan, is involved with expanding the frontiers of the state with increased reliance on the market economy and renewed faith in the private capital and resources, a process of structural adjustment spurred by the studies and influences of the World Bank, the IMF and other International organizations.

Charles W.L. Hill of the University of Washington, USA defines globalization as the "shift towards a more integrated and interdependent world economy". He goes on to add that "globalization has two main components; the globalization of markets and the globalization of production."

He also identifies two macro factors which seem to underlie the trend towards greater globalization as the consistent decline in barriers to the free flow of goods, services and capital since the end of World War II and technological change, particularly in recent years with respect to communication, information processing and transportation technologies.

Average Tariff Rates on manufactured Products as Percent of Value

1913 1950 1990 2000

France 21% 18% 5.9% 3.9%

Germany 20 26 5.9 3.9

Italy 18 25 5.9 3.9

Japan 30 - 5.3 3.9

Holland 5 11 5.9 3.9

Sweden 20 9 4.4 3.9

Britain - 23 5.9 3.9

United States 44 14 4.8 3.9 Source: 1913-1990 data from "Who Wants to Be a Giant?" The Economist: A Survey of the Multinationals, June 24, 1995

Stephen Gill defines globalization as the reduction of transaction cost of transborder movements of capital and goods thus of factors of production and goods.

Guy Brainbant says that the process of globalization includes among others, opening up of world trade, development of advanced means of communication, internationalization of financial markets, growing importance of MNC's, population migrations and more.

According to Stanley Fischer of the IMF, globalization is multi-faceted, with many important dimensions - economic and social, political and environmental, cultural and religious - which affect everyone in some way. Its implications range from the trade and investment flows that interest economists, to changes that we see in our everyday lives: the ease with which we can talk to people all over the world; the ease and speed with which data can be transmitted around the world; the ease of travel; the ease with which we can see and hear news and cultural events around the world; and most extraordinarily, the internet, which gives us the ability to access the stores of knowledge in virtually all the world's computers. It is human capital intensive. Globalization is not new. Economic globalization is as old as history and it is borne out of the human drive to seek new horizons. The pace of globalization seems to have picked up in recent decades, thanks to three driving forces: improvements in technology, the lowering of barriers to trade and capital flows. This is the way to greater prosperity. The past half century has seen not only intensifying globalization, but also spectacular growth. There is no point in asking whether we should be for or against globalization. Globalization is here to stay: the reality is that we already live in a global economy - where flows of trade, capital and knowledge across national borders are not only large, but also are increasing every year – It is important for countries to reflect on how best to take advantage of the opportunities presented by the growth and growing openness of the world economy; how best to live with the unavoidable difficulties that globalization may bring; and how to modify the system to make it operate better.

Developing Countries in a Globalized World A paper on Globalization and liberalization, a Developing Countries View, by Barbara Stallings of the UN Economic Commission gives very interesting insights on this issue.

Developing countries have become more integrated into the world economy in the past twenty years as a result of the parallel processes of globalization and liberalization.

Developing countries themselves had to take some important steps before the full impact of globalization could be felt.

Specifically, they had to open their own economies, to lower the barriers to trade and capital flows that had been an important component of the import-substitution industrialization model that almost all followed for some period. Without these policy shifts, globalization would be much less relevant than it is today.

Table 1. The Role of Developing countries in Trade and Capital Flows 1980-82 1987-90 1996-97 Exports (%) 32.7 27.2 34.0 Imports (%) 30.4 25.4 34.3 Totala (billions of $) 1,856 2,864 5,459 2,864 5,459 Direct Investment (%) 32.7 14.3 43.2 Portfolio Investment (%) 7.7 3.1 13.3 Totala (billions of $) 107 355 1,319 Source: IMF, Direction of Trade Statistics Yearbook and Balance of Payments Statistics Yearbook. Total for developing and industrial countries

Table 2 Global and Regional Financial Flows (US$ million) Net Private Flows Foreign Direct Invest. Flows Portfolio Invest. Flows

1990 1999 1990 1999 1990 1999 World US$ million % Growth 47,715 242,202 404 200,113 894,623 347 8,977 69,859 678 East Asia & Pacific US$' million % Growth 19,405 51,062 168 11,135 56,041 409 3,092 22,205 633 South Asia US$' million % Growth 2,173 2,054 (5) 464 3,070 562 252 2,513 897 Latin America & Carribean US$ million % Growth

12,626

111,367 754

8,188

90,352 103

212

22,960 10,730 Sub-Sahara Africa US$ million % Growth

1,374

10,449 660

923

33

4,057 12193 High Income US$ million % Growth 176,213 699,045 297 Europe EMU US$ million % Growth 59,535 207,501 249 Source: www.worldbank.org/data/wdi2001

The developing country share of foreign direct investment (FDI) plummeted from 33 percent in 1980-82, before the debt crisis hit, to only 14 percent by the end of the decade. It then more than recovered to 43 percent by 1996-97. Financial flows rose much faster than trade, a nominal increase of more than 11 times in this period.

Closely related to the shift in the composition of capital flows was the change in borrowers within the developing countries. In the 1970s and the 1980s, borrowers had mainly been central governments and state-owned enterprises. In the 1990s, by contrast, reflecting the liberalization process, borrowers were increasingly large private-sector firms. FDI was, (almost) by definition, an element of the private sector.

In addition, the share of private non-guaranteed debt flows increased from 15 percent in 1980 to 22 percent in 1990 to 60 percent in 1997.

Regional Patterns of Global Integration

By far the fastest growing region with respect to trade was Asia, whose share nearly doubled in the 1980s and continued at the same high level in the 1990s.

Africa's participation in international trade also fell sharply throughout. Proponents of greater globalization would clearly point to the Asian countries as examples of increasing trade leading to strong growth performance, in contrast with other regions that both grew more slowly and traded less.

Table 3. Regional Differences among Developing Countries in Trade and Capital Flows 1980 1990 1997 Trade flows

Asiaa 28.3 51.4 52.3 Europea 16.0 11.1 16.8 Latin America 2 21.8 15.4 16. Middle East 20.5 13.0 8.7 Africa 13.3 8.7 6.1 Total 100.0 100.0 100.0 Capital flows

East Asia Pacific 15.8 27.6 36.3 Eastern Europe 16.1 13.3 17.5

Latin America

36.1 21.6 34.3 Middle East 10.3 10.2 2.0 South Asia 7.8 9.1 4.3 Sub-Saharan Africa 13.9 18.2 5.6 Total 100.0 100.0 100.0 Source: IMF, Direction of Trade Statistics Yearbook and World Bank, Global Development Finance, 1999. Developing countries only.

Asian developing countries mainly traded among themselves, and with Japan, and a growing share of their investment also came from within the region. In Latin America, in contrast, trade and investment were heavily weighted toward the United States. In Africa and Eastern Europe, there was a focus on Western Europe. Economic Policies for Sub-Saharan Africa in a Globalized World What should policymakers, especially those in developing countries such as in sub Saharan Africa do to reap the benefits of economic globalization? These include: 1. Sound macroeconomic policies, 2. Better governance, 3. Legal and financial reform, 4. Privatization, 5. Price liberalization and 6. Infrastructure investment Trade liberalization and effective social spending are singled out for mention as important in globalization. Trade liberalization helps open economies up to competition and deepens their integration into the world economy. Sub-Saharan Africa is less open to international trade than other developing regions. Sub-saharan African countries began to open their economies towards the end of 1980s. Prior to this period, these countries were: 1. Shackled by wars, 2. Militant socialism, 3. Economic mismanagement and 4. Natural disasters Since the end of 1980, deregulation, floating exchange rates and the setting up of money and capital markets became mandatory requirements for World Bank and IMF-sponsored Economic Structural Adjustment and Financial Sector Reforms. These were intended to turn around poor economic performance and create conducive investment climate. For example, Ghana pioneered the adoption of these reforms starting from the 1980s and was followed by Nigeria, Benin and other countries. The implementation of the reforms were reinforced by the sudden replacement of communism and public capital by capitalism and private enterprise in the early 1990s as many of these countries were compelled to adopt market oriented policies. These events also radically reshaped the structure of liquidity flows around the world. As a direct result of these global developments, are the on-going attempts by many of Sub-saharan African countries to deepen the economic restructuring process.

After decades of pursuing reforms, it can be noted that in many of these countries, exchange rates have been liberalized, several restrictions on imports and foreign investment have been eliminated, tariffs have been reduced and price controls on domestic production have been dismantled. In addition, the legal regulatory frameworks improving incentives to produce have been enforced. Against this background, it is appropriate to say that a solid foundation has been laid for further deepening of the reform process in these countries. In deed, most of the countries have generally achieved modest gains. However, progress made so far by these countries lag far behind those of South-East Asian countries which are able to achieve real GDP growth of about 8.0% per annum compared to less than 5% in most Sub-saharan African countries.

In the financial sector, generally the reforms have yielded some useful results in most of the Sub-saharan African countries. To a large extent, the financial sectors have been strengthened and liberalized. New intermediation institutions set up as a result of the reforms are functioning and contributing to the enhancement of savings mobilization and credit allocation to the private sector.

Significantly, the money markets, dealing in short-term financial instruments are now performing useful roles in liquidity management among financial institutions and non-financial public under the control of the central banks of these countries. Deserving mention are large inflows from Africans (Ghanaians) in the Diaspora

A characteristic feature of bourses in Sub-saharan Africa is the consistent introduction of policy initiatives that have the potential to deepen the capital market so as to enhance the investment climate. These included privatization of state-owned enterprises and other market oriented policies, conclusion of bilateral investment and tax agreements and subscription to multilateral accords pertaining to external capital flows. For instance, in La Cote D' Voire, in 1995, measures were taken to reduce listing fees, widen the activities of the exchange and gave autonomy to the bourse. In addition, in 1997 the bourse was transformed into regional stock exchange with significant effect on market size and capitalization.

In Ghana, old regulatory laws were amended and new laws enacted to strengthen the legal foundation of the exchange to bolster the development of efficient capital markets. For example, Securities Industry Law (SIL) of 1993 was replaced by Securities Industry Act (SIA) of 2000. The act made full provision and regulation of unit trusts and mutual funds. The Securities and Regulatory Commission (SRC) of 1990 was altered to Securities and Exchange Commission in 2000. In addition, restriction on foreign participation in business in the exchanges was removed in most of the exchanges. In respect of international treaties, close to 230 bilateral investment treaties (BIT) and over 36 multilateral agreement had been signed by most of Sub-Saharan African countries. The BITs included waiver on double taxation of income and capital with some developed countries. Some of these multilateral agreements included MIGA, International Centre for Settlement of Investment disputes (ICSID) and the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards.

The performance of the stock exchanges in Sub-saharan Africa countries excluding South Africa has been generally impressive. Total market capitalization of 14 exchanges (excluding Uganda and South Africa) stood at US$319.0 billion at the end of 1997. The number of companies listed on the African stock exchanges increased by about 9% from 1,686 in 1990 to 1,841 at the end of 1997. For the ECOWAS sub-region, the total market capitalization for its three exchanges increased from about US$2.0 billion in 1991 to US$5.4 billion in 1999, representing an upturn of 170% (Table 4).The number of companies listed increased by 52% from 167 in 1991 to 254 in 1999. Among the three bourses, Ghana's is the smallest in terms of market capitalization but has achieved the fastest growth of 1,105% (market capitalization), 1,041% (Local index) and 69% (number listed companies) during the review period. Some of the achievements of the Ghana Stock Exchange (GSE) since its inception are: q Facilitated equity funding of US$125.8 million in favour of corporations from 1991 to December 1998. q GSE was adjudged the best performing stock exchange among emerging capital markets in 1994 q Sterling performance of the GSE resulted in attracting the Wall Street and other foreign institutions and individual to the market. Ashanti Goldfields Group, Anglogold- Ashanti net capitalization – US$112.2 billion. q Successfully listed its first ever cross border company, AGC in New York, London, Toronto, South Africa and other international bourses. q Successfully listed its first ever cross border company, the Trust Bank Ltd (the Gambia) in 2002. q Listing of Government of Ghana Medium Term Debt.

However, compared to bourses in S.E Asia, stock exchanges in Sub-Saharan African lag far behind in several key financial indicators. For example, the Market Capitalization Ratio of Ghana of 0.18 and 0.07 respectively are several times lower those of Indonesia of 2.35, Malaysia of 1.36 and S.Korea of 0.31 at the end of 2001. In addition, whilst S.E. Asia countries have between 300-800 Companies Ghana and Nigeria have only 31 and 194 respectively at the end of 2001.

In addition, the markets of Sub-Saharan African countries are typically small. For example, in 2000, the GDP (purchasing power parity) in constant term for Ghana, Cote d'Ivoire and Cameroun were US$37.4 billion, US$26.2 billion and US$26 billion respectively as compared to Malaysia and South Korea of US$764.6 billion and US$223.7 billion respectively. Regionalization of their economies would the good solution to overcome this weakness. Apart from this, real GDP growth of these countries is lower at average of less than 5% per annum relative to 7-10% for S.E. Asian countries. These are too low to assure GDP per capita growth.

Sub-Saharan African countries, in their development efforts, have taken bold steps to lay solid foundations to deepen the restructuring process based on market oriented policies to fundamentally improve the investment climate. According to IMF's Index of Aggregate Trade Restrictiveness, currently, 43% of Sub-Saharan African countries including Ghana are now classified as "open" as against 7.5% in 1990. As a result, some have been able to attract private capital in amounts reflecting the depth of the enabling environment. Sub-Saharan African countries also recognize the fierce competition for scarce private capital in a global world and realize that it is only by stabilizing their economies and sufficiently developing their stock exchanges to world standards would they be able to attract more. Sub-saharan African members of the Commonwealth have signed the NEPAD accord which obligates them to implement policies aimed at: 1. Macro-economic stability 2. Growth and poverty alleviation, 3. Democracy, 4. Good governance, 5. Transparency in Public Management.

In addition, they have committed themselves to other bilateral and multilateral treaties all aimed at promoting economic growth through trade and investment.

The 15 individual ECOWAS countries are conscientiously implementing the economic and monetary programme and are determined to achieve the policy convergence criteria for various economic performance indicators targeted for specific dates. The successful implementation of the community similar to the EU will create common market with expected GDP valued at US$106 billion for about 240 million people.

THE NEED FOR SOCIAL SPENDING UNDER GLOBALIZATION It is also important to invest in social spending particularly in human capital for the poor by increasing their access to health, education and economic opportunity. Provide a cushion during the process of adjustment, in the form of efficient social safety nets. Poverty Reduction and Growth Facility in partnership with the World Bank and the IMF is one means used to address this issue. Poor countries need to get their budgetary house in order to ensure the sustainability of the growth on which long-term poverty reduction depends. There is the need to protect productive social spending from budget cuts. Among the low-income countries that have received IMF assistance, per capita spending on both health and education has risen by more than 4 per cent a year on average. The I.M.F ensures through its Lending Conditionalities that per capital spending on Education and Health continues to rise. Ghana's relationship with the World Bank and the I.M.F was not exempted from this conditionalty. Investment in education takes on special significance. The new technologies are knowledge and skill intensive. There is a need to train people to work with those technologies. The generation gap in dealing with computers is obvious to every parent. HIV/AIDS pandemic is exacting a heavy toll in human lives - a potentially massive economic disaster for the African continent. In Ghana, the prevalent rate has fallen from 3.1% in 2002 to 2.7% in 2005 and we seek to reduce the incidence of HIV/AIDS through public health policies that have worked in several African countries, such as Uganda.

The Role of Advanced Countries in Facilitating Africa's Participation in Globalization To make globalization work better and to have a human face, the international community has a responsibility to provide an external environment that will allow Africa to fulfill its full potential within the shortest possible time: • Firstly, by guaranteeing African exporters unfettered and tariff-free access to their markets, especially for agricultural products. The African Growth and Opportunity Act (AGOA) which allows free access of Africa's exports to the USA is a good example of such international support for the deepening to globalization. • Secondly, to support countries those are trying to boost growth and tackle poverty by increasing aid flows and guaranteeing them over longer periods. The USA's MCA (Millennium Challenge Account) is another example. • Third, by doing more to help Africa bring peace to its war-torn regions. In addition to direct efforts to resolve and prevent conflict, this means restraining arms sales and countering the smuggling of raw materials and natural resources to finance wars. • Fourth, by helping the continent fight the spread of the HIV/AIDS epidemic. • Fifth, to maintain steady, low-inflation, growth in the industrialized countries and thus in the world economy.

WHAT GHANA HAS DONE AND WHAT LESSONS LEARNED 1. REGIONAL INTEGRATION ECOWAS (ECONOMIC COMMUNITY OF WEST AFRICAN STATES)

Ghana has been a founding member of ECOWAS, a regional economic grouping of 15 West African states. It is generally agreed by both politicians and economist that one of the most effective ways of fighting globalization or benefiting from the inevitable globalization is through regional integration. The regional integration efforts of ECOWAS have been impeded by civil strikes and wars within some member countries.

The ECOWAS, born in 1975 has provided a process for the economic integration of the countries in the sub-region. Since its inception, ECOWAS has not been able to implement key programmes of trade promotion, trade liberalization, and provision of better road network and telecommunications infrastructures and the development of the agriculture, industry and energy sectors. However, two compelling factors have called for the irrevocable need to establish, as early as possible, a single regional market anchored on free trade, a common external tariff and uniform economic and financial policies.

Firstly, the recognition that regional integration will catalyze accelerated mutually beneficial economic growth and prosperity in the sub-region and integrate these economies into the world economy to derive synergistic benefits. Secondly, the need to adapt to new world economic and geopolitical paradigm. The countries of the European Union have adopted a policy to sign regional partnership agreements only with regional economic groupings in developing countries such as ECOWAS. Thus, the ECOWAS has been recognized as the appropriate enabling framework to give these countries the economic muscle to establish strong partnership between West African economies and the European Union. To achieve the above, the Lome Convention of December 1999 and subsequent meetings of the heads of state of West African economies have adopted the following strategies and decisions:

§ Resolution to muster political will to implement all the integration programmes; § Coordinate the activities of ECOWAS and UEMOA in order to avoid overlapping and duplication of community programmes; § Establishment second monetary zone (WAMZ) consisting of 6 countries to run parallel within the ECOWAS which is targeted for 1st December, 2009. § The appointment of Minister of NEPAD and Regional Integration to coordinate macro-economic policies at regional levels and accelerate the implementation of the various protocols of the union. § The restructuring of the ECOWAS Bank for Investment and Development in order to provide medium and long-term funds to finance regional projects and to support the private sector. Currently, US$10 million Guarantee Fund has been created to promote private sector growth in the sub-region. § Establishment of West African Monetary Institute (WAMI) located in Accra to implement the introduction of the ECO within .WAMZ. § Location of the West African Central Bank in Ghana when it is set up in December, 2009.

Though much has been accomplished since 1999, the macro-economic performance of the various economies of WAMZ has not achieved consistent desirable results to maintain momentum of the integration process. The Convergence Report for 2003 revealed that the members achieved only 35% of the primary criteria, a deterioration from 50% in 2001 and 40% in 2002.

In 2003, only Ghana achieved 3 of the primary criteria, a marked improvement from none in 2000. Nigeria has maintained a consistent achievement in two criteria since 2001. The Gambia, Sierra Leone and Guinea were the losers in 2003. Inadequate structural reforms in these economies are basically accountable for their deteriorating performance since 2001.

2. NEPAD Initiative

Another opportunity for Ghana to be integrated into Africa has been the adoption together with other sub-Saharan African states of the New Africa's Partnership for Economic Development (NEPAD) accord. NEPAD enjoins these countries to implement policies aimed at macro-economic growth and poverty alleviation, democracy, good governance, transparency and others. In addition, they have committed themselves to other bilateral and multilateral treaties all aimed at promoting economic growth through trade and investments, thereby enhancing globalization in the sub- region.

3. AGOA (AFRICAN GROWTH AND OPPORTUNITY ACT)

The U.S Government intends that the largest possible number Sub-Saharan African countries are able to take advantage of AGOA. President Clinton on October 2nd, 2002 designated 34 countries in Sub-Saharan Africa as eligible for the trade benefits of AGOA. These countries included Ghana.

The Act authorizes the President to designate countries as eligible to receive the benefits of AGOA if they are determined to have established, or are making continual progress toward:

1. Establishing market-based economies 2. The rule of law and political pluralism 3. Elimination of barriers to U.S. trade and investment 4. Protection of intellectual property 5. Efforts to combat corruption 6. Policies to reduce poverty 7. Increasing availability of health care 8. Educational opportunities 9. Protection of human rights and worker rights 10. Elimination of certain child labour practices

These criteria have been embraced overwhelmingly by the vast majority of African nations, which are striving to achieve the objectives although none is expected to have fully implemented the entire list.

Ghana is one of the 34 countries eligible for AGOA benefits. It was declared AGOA eligible on October 2nd, 2000. Ghana has been receiving applause from both multilateral institutions and OECD countries for her leadership role in undertaking reforms of not just institutions but markets and the economy. 4. Poverty Reduction Strategies

Ghana also adopted Growth and Poverty Reduction Strategies (GPRS) with assistance from the World Bank and the IMF as the cornerstone of its development and growth model. It is an agenda for growth and prosperity crafted by and agreed on by all stakeholders. The aim of the GPRS was to ensure sustainable equitable growth and accelerated poverty reduction and protection of the vulnerable. The thrust of the strategy is to stabilize the economy through the deepening of market oriented reforms, fundamentally improving the investment climate and laying of strong foundation for sustainable, accelerated growth propelled by rapid agro-based industrial growth. The GPRS is aimed at achieving overall targeted GDP growth of at least 5% per annum and reversing of economic imbalances.

Ghana is currently implementing the phase II of the programme with emphasis on growth. The strategy is being implemented with funding from the development partners and from HIPC (Heavily indebted poor countries) relief (where the country has opted for HIPC). The implementation for the past few years has tremendously improved the economy especially the basic infrastructure, health and sanitation facilities, increased support for HIV/AIDS and the education, provision of schools for the poor. The economy currently has been growing at 6% per annum compared to the Sub-Saharan African Countries at an average of 5.4%. Commenting on the performance of developing countries, the World Bank Group former president, James D. Wolfensohn, said "…aid is being used more effectively today than ever before.. , because of improvements in many developing countries and in the improvements in the allocation of development assistance". Notwithstanding, Ghana needs to do more in order to grow at over 8% per annum to put it on the path to realize the Millenium Development Goals in 2015.

5. Using HIPC Initiative to deepen Globalisation

On the 7th of January 2001, Mr J.A Kufour was sworn into office as the president of Ghana, the first time that an elected Government, civilian government has taken one power from an elected Government in the History of Ghana, the New Patriotic took over the Administration of the Country. I was honoured to be appointed the 1st Finance Minister of the NPP Administration of President Kuffour.

Mr Chairman, may I quote from the 1st paragraph of the budget in 2001 "the crux of economic difficulties is that our expenditure are more than our revenue with debt service being our single largest expenditure item. Personnel expenditures and debt service alone eat up about 75% of our revenue. Huge foreign and domestic debts stare us in the face. This means we have very limited financial wiggle room. But we have to cut our coat according to the size of our cloth. The medicine that will restore health to our ailing economy requires that we reduce expenditures and increase revenues. We have introduced various measures in this budget to achieve these. This we must do."

"We need to raise as much as cash as we can, so as to be able to satisfy the aspirations of the people but always on condition that the terms are right for Ghana. Last year, the servicing of Government's external debt took as much as 9 % of all the economic resources available in the GDP. In addition, 5.3 per cent of Ghana's resources were spent on domestic interest payments. In cedi terms 3.9 trillion out of 9.9trillion, that is one- third of all the government expenditure, was spent on servicing debt. Under the appropriation bill just presented we would have to spend another 4.4trillion cedis this year in servicing external debt, and 2.1trillion on domestic interest payments. Those sums represent 11.7 % and 5.5% respectively of the economic resources that are forecast to be available in the GDP this year to meet all the public and private needs of our people. In view of the Debt trap in which we find ourselves, debt sustainability analysis carried out in Ghana and our inability otherwise to raise enough revenue from our own resources or attract external inflow beyond the presently committed levels, his Excellency, the president of the Republic of Ghana, has decided that Ghana should take advantage of the HIPC initiative immediately.

His Excellency, the president has further instructed the Minister of Finance to take all steps necessary to ensure that Ghana gets the full benefit under the HIPC initiative."

ELIGIBILTY THRESHOLDS FOR HIPC RATIOS ENHANCED GHANA DSA % GHANA DSA % GHANA DSA % SOLVENCY RATIOS HIPC % DECISION POINT COMPLETION POINT END 2004 PV/XGS ?150 157 84 91.1 PV/DBR ?250 571 130.2 147.7 LIQUIDITY RATIOS TDS/XGS ?13 23 4.8 5.17 TDS/DBR ?12 20 8.3 8.4 Source: ADMU- MFEP

PV- Present Value XGS- Export of Goods & Services DBR- Domestic Budget Revenue TDS- Total Debt Service

The World Bank and the IMF have all manner of initiatives for developing countries aimed at enhancing their chances to play the global economic game reasonably well. Ghana, along with other countries are implementing Highly Indebted Poor Countries (HIPC) programmes. The Highly Indebted Poor Countries Initiative (HIPC) obligates countries to undertake reforms in several areas to reach its completion point to benefit from irrevocable debt relief under the enhanced framework as follows:

§ Completion of a full Poverty Reduction Strategy Paper (PRSP) through an extensive participatory process, and satisfactory assessment by the World Bank and IMF; § Maintenance of a stable macroeconomic environment; § Implementation of key structural reforms in governance, education and health.

The HIPC relief frees up huge financial resources that could have been used by these countries to service debt to invest in pro-poor expenditure programmes outlined in their Poverty Reduction Programmes and to reduce domestic debt service. For example, Ghana announced her intentions in March 2001 in the maiden budget of the current government (New Patriotic Party) N.P.P. to sign up for the HIPC in 2001.

Ghana had to appear before the Paris Club – The club of her creditors through her Finance Minister to justify why creditors should forgive Ghana part or the whole of her debt outstanding as at the time. Negotiating with about 25 different countries on such a matter is not an easy issue.

The HIPC relief as a result entitled Ghana to suspend debt service payment to creditors to raise savings to finance pre-agreed domestic expenditures. The relief was in two parts; relief received after decision point and that after the completion point. $650 million was earmarked for the first relief for 2002-2004. Ghana became the 14th country to reach its completion point in July 2004, after only a record time of about 2.5 years period after signing for HIPC at the Paris Club meeting in February 2002, i.e after reaching the Decision point. As a result, Ghana has been rewarded with debt forgiveness amounting to US$3.7 billion.

About 20% of the HIPC relief was utilized to pay interest on domestic debt while remaining 80% to finance basic human development services-primary health care, basic education and safe drinking water. Between 2004-2013, Ghana would save approximately US$230 million annually in debt service costs. Debt relief plus expected bilateral assistance beyond HIPC owered Ghana debt-to-export ratio from about 277% to 84% and its debt-to-government revenue ratio reduced from 250% to 130% in 2004.

It is important to note that after the G8 meeting in Gleaneagle, Scotland last year, all the 18 countries including Ghana which had reached the completion part under the HIPC initiative enjoyed total debt cancellation of all outstanding bi-lateral and multi-lateral debts.

6. The Private Sector

In the new development model of Ghana, the private sector has been identified as the main engine of growth and economic transformation. Greater emphasis is now being placed on small and medium scale enterprises (SME) as they have the high potential to generate significant employment with attendant poverty alleviation through appropriate technology about 65 - 70% of the productive economy is in SME's. This recognition has resulted in the incorporation of the strategy of Public Private Partnership (PPP) in the economic policy framework of Ghana's PPP involves joint undertaking of tasks and projects by the state and the private entrepreneurs resulting in effective social dialogue for the establishment of a more hospitable economic climate to entice foreign investment. It also supports the promotion of economic development through support for small and medium scale enterprises.

The wars in Liberia, Sierra Leone and La Cote D' voire have had some serious repercussions on efforts to integrate West African States. With the international support we have overcome some of these 'war' problems.

In Ghana for example, government established a specific Ministry called the Ministry of the Private Sector Development (MPSD) as an instrument to achieve PPP and to initiate appropriate policies and facilitate conducive environment for nurturing growth and prosperity of the private sector. Recently, the MPSD launched the National Medium-term Private Sector Development Strategy to provide framework for the sustainable development of the private sector and to achieve the vision of "The Golden Age of Business". The philosophy of the Golden Age for Business was declared when the Government was voted to power in 2001. In addition, the Export Development and Investment Fund (EDIF) and other funding schemes have been created to provide medium and long-term loans at concessionary interest rates to support the growth of the private sector. Since its inception, EDIF has disbursed more than 300 billion cedis (US$33m) to the private sector.

The Ghana Government recently launched a US$50 million small business and microfinancing scheme to address the needs of small and micro enterprises to enable them grow, compete and bolster exports.

7. Ghana's Sovereign Credit Rating

Writing in Ghana's Ministry of Finance and economic planning (MOFEP) Newsletter Vol. 1 No.1 January – April 2006 Edition, Messrs Alex Tetteh and Tom Campbell recount the significance of Ghana's credit ratings, in the following excerpts. "In September 2003, Ghana received its first credit rating from Standard and Poor's). Two months later it received a second rating from Fitch Ratings. The ratings assigned by S&P and Fitch are B+ and B with 'positive outlook' respectively.

Ghana's decision to open its books to the rating agencies is, in part, a policy statement in favour of financial transparency. It is also the beginning of a set of relationships with the rating agencies that will bear fruit when Ghana begins to access international bond markets in later years. Ghana's policy makers agree that accessing international bond is one of the necessary steps to be taken on the road toward financial independence. In order to access sufficient funds for her infrastructure development, Ghana should have to come off the direct I.M.F programme, to enable her access the bond market and other private sources for funding. Ghana will go under the Policy Support Instrument of the IMF.

The sovereign credit ratings may have their greatest impact on Ghana-based companies that participate in cross-border transactions with banks and other companies that entail either credit lines or the actual extension of credit. It is in these private sector transactions that one would expect to the clearest and earliest evidence of the mobilization of capital for the benefit of Ghanaian and other African companies as a result of the rating initiatives." The Credit rating naturally prepares Ghana better to benefit from the economic globalization.

8. Millennium Challenge Account

On March 14, 2002 President Bush announced that the United States will increase its core assistance to developing countries by 50% over the next 3 years, resulting in a $5 billion annual increase over current levels by FY 2006. This increased assistance will go to a new Millennium Challenge Account (MCA) that funds initiatives to improve the economies and standards of living in qualified developing countries. The goal of the MCA is to reward sound policy decisions that support economic growth and reduce poverty.

The MCA recognizes that economic development assistance can be successful only if it linked to sound policies in developing countries. In sound policy environments, every dollar of aid attracts two dollars of private capital. In countries where poor public policy dominates, aid can harm the very citizens it is meant to help – crowding out private investment and perpetuating failed policies.

The funds in the Millennium Challenge Account will be distributed to developing countries that demonstrate a strong commitment toward:

• Good governance. Rooting out corruption, upholding human rights, and adherence to the rule of law are essential conditions for successful development. • The health and education of their people. Investment in education, health care, and immunization provide for healthy and educated citizens who become agents of development.

• Sound economic policies that foster enterprise and entrepreneurship. More open markets, sustainable budget policies, and strong support for individual entrepreneurship unleash the enterprise and creativity for lasting growth and prosperity.

In order to ensure that Millennium Challenge Account funds promote growth and reduce poverty in developing nation, funds will be distributed according to the following guiding principles:

• Country selection will be keyed to potential for economic growth and poverty reduction. All countries selected will have demonstrated their commitment to sound policies in the areas listed above.

• Funds will be distributed in the form of grants. Where appropriate, programs funded by this account will coordinated with ongoing programs and leverage other funding streams, both from within the recipient country and from other private, bilateral and multilateral donors.

Major development partners have provided needed framework for support exemplified by the launching by the USA government of the AGOA and the Millennium Challenge Accounts to promote bilateral trade and reward eligible countries respectively. Five West African economies, namely, Benin, Cape Verde, Ghana and Mali have been selected among others by the US government to receive the first tranche of US$1.0 billion in 2004. That is Ghana qualified in May 2004 to benefit from the M.C.A and carried out the necessary preparatory works to enable Ghana sign the MCA compact in June 2006 for US$ 547 million in MCA grants over 5 years. Ghana also has access to the USA market for some of its exports under the AGOA since 2002. The problem has been the lack of sufficient production capacity to enable Ghana fully benefit from the Act.

This is a demonstration of the US Government confidence in the Government of Ghana. It is a show of confidence in the Ghanaian government's pragmatic handling of the economy and the many market friendly policies it has pursued within the last 5 years.

CHALLENGES OF GLOBALIZATION

A. The Proliferation of Small Arms, Conflicts & Civil Strife

One of the challenges of globalization in Sub-Saharan Africa has been conflicts and proliferation of small arms. Conflicts and civil strife resulting in political instability has been a characteristic feature of the Sub-Saharan Africa over the past few years even in hitherto stable countries. Conflicts in the region have a tendency of spilling over into neighboring states with their attendant civil upheavals. A recent case in point is Cote d'Ivoire where political violence during democratic elections in 2002 fueled social tensions and provoked confrontations resulting in casualties as well as potentially marring the relationship between governments and people of Cote d'Ivoire and Burkina Faso. Currently tension is also brewing along the borders between Guinea, Liberia and Sierra Leone, as a result of the fallout from the civil unrest in the Manor River Union area.

The conflicts have been exacerbated by globalization of violence, as evidenced by advances in telecommunications and the internet which allows anarchists to gain easy access to the international media such as the CNN while e-commerce also fuels the ease with which arms can be purchased.

Globalization may also provide fertile ground for manipulation by international companies. The net result of the globalized, deregulated world is the emergence of huge corporations and banks. Their numbers will not be too big as all the small companies and banks would have been acquired in one way or the other. This will give them much economic power to the extent that they may be in the position to manipulate our governments to their advantage.

The shocking event of September 11, 2001 in the U.S. that led to the collapse of the World Trade Centre is a classic example that globalization facilitates the operations of terrorists. The very networks and connections that make globalization move speedily are the very networks and connections that make terrorism thrive well. Some of these networks are finance, telecommunication and the media. Fighting high-tech terrorism has cost implication for our governments.

Dr. Mahathir Mohammed, former President of Malaysia hit the nail right on the head when he remarked, "Through unchecked market forces, developing counties invariably come under the yoke of neo-liberal dominance and control, resulting in continual under-development and greater global inequality". Wages and income levels continue to rise in industrialized countries but the same cannot be said of less endowed nations. Economic globalization is driven and powered by the free interplay of market forces that are more profit-oriented than the protection of the environment. Employing and dismissing workers according to the current needs and requirements of the market makes sense for companies that are profit- oriented. This however, jeopardizes job security. Unexpected pull-out of huge sums of money invested in countries when the economic terrain worsens plunges one country after another into economic crises. These are but a few examples of the dark side of globalization.

LACK OF COMPETITIVE PRODUCTION & EXPORT CAPACITY

Sub-Saharan countries suffer from the lack of production and competitive export supply capacity to enable them take advantage of the many initiatives like AGOA, EU convention on access to markets of advanced countries. Trade can only take place when there is market access and also there is the supply capacity.

Africa therefore is not playing on a level playing field with its other competitors from other regions of the world.

Conclusion

Globalization is an inevitable phenomenon. A country either joins and prospers or insulates itself and denies its citizens greater prosperity. As has been demonstrated, Ghana has its feet firmly planted in the economic global arena.

Ghana has and continues to play by the rules of globalization and the world is beginning to take notice as can be verified by the several commendations from multilateral agencies (World Bank, IMF, UN) as well as bilateral and individual countries, MNCs and rating agencies.

Ghana began the new millennium with renewed hope and commitment to reduce abject poverty, overcome marginalization of its economy and integrate into global trade. Ghana has adopted multi-party democracy and market-oriented economic model as anchors for their economic development strategies. This has yielded better economic performance with current average GDP growth of 6% as compared to an average of 4% in the 90s. The practice of good governance has also tremendously improved political stability and restored investor confidence. Government of Ghana is resolved and committed to taking bolder steps to firmly establish good governance, and to deliver turnaround economic reforms capable of achieving average GDP growth of more than 8% to assure the attainment of the Millennium Goals and prosperity for their people. Ghana has adopted prudent, market-based economic policies since mid 1980s while seeking integration into the world economy. To conclude, I will say that The conditions for full participation in the global market require the following: 1. Redefinition of the role of the state with the state being a facilitator of business. 2. Reformation of the civil/public service so as to improve the business climate. 3. Introduction of a transparent legal and regulatory framework that encourages private investment. 4. Government focusing on social development in the areas of education and health, in particular. 5. Reform of the financial sector (both the banking and capital markets) in the form of consolidation, restructuring and modernization, to enable it catalyse development. 6. Maintenance of macroeconomic stability, discipline and liberalization. 7. Promotion of good governance, rule of law, and rules of the market. 8. Regional integration and increased economic cooperation as a requirement for integration in the global market. Quoting from the newsletter of the Ministry of Finance and Economic Planning MOFEP in Ghana, "Economic & Finance news, Vol. 1 No.1 Jan. – April 2006 Edition"' on the state of Ghana's economy. "Today the economy is more open and we are beginning to witness significant net capital inflows allowing the exchange rate of the cedi to remain relatively stable. The appropriate conditions are in place in Ghana to promote private capital inflows. These conditions include: a credible monetary and fiscal policy framework, a strong external liquidity position and a solid domestic financial system. The improved economic conditions today should serve to underpin a positive outlook moving forward; to accelerated growth based on the investment strategy and reforms underlying the GPRS 2. It is expected that with the efficient use of the fiscal space created by debt relief, and policies firmly anchored on prudent domestic and external debt management, a scaled-up donor support and private capital flows would raise GDP growth into the range of 7-8 percent per annum that is needed to achieve the Millennium Development Goals (MDGs). Monetary policy will continue to be geared towards lowering inflation to single digit by end-2006. Financial sector policy will focus on the exchange and payments system to give clarity to the existing rules on foreign exchange transactions and provide assurance that the economy is open for capital flows.

In conclusion, the fiscal and monetary policy framework initiated in 2001 has so far brought about significant progress in stabilizing the economy with improved fundamentals and outlook. The economy is poised to make the transition from stability to high growth." The Government of Ghana has since the mid 1980s progressively taken several initiatives to address all these issues on an on-going basis. This has been noticed by the World Bank. To signal the stability of our local currency, the cedi, the African Development Bank has decided to raise resources (money) from the bond market using the cedi as the currency. Mr. Michael Klein, World Bank & IFC Vice President for Financial and Private Sector Development, early this week, ranked Ghana as the first in Africa and 9th in the world among economies that have implemented massive reforms to improve the ease of doing business (source: Doing Business 2007 World Bank Report) based on examination of regulations affecting 10 areas of business activity compared across 175 economies around the world. The areas of everyday business the study examined include starting a business, dealing with licenses, employing workers, corporate tax rates and getting credit. What is left is for Ghana to receive significant FDI inflows and portfolio investments to drive the economy to enable it generate faster economic growth, increase exports, and significantly improve the living standards of Ghanaians.

The impact of globalization on Ghana has so far been positive using the window of the Bretton Wood Institutions.

THANK YOU.