GHANA'S ECONOMY HAS LEFT an indelible imprint on the country's social
and political structures. Just as the presence of gold gave rise to the
Asante confederacy and empire and attracted European traders and
colonial rulers, so, too, were modern day politicians moved to try to
protect the country's wealth by establishing the first socialist regime
in twentieth-century Africa. As the ambitious plans initiated by Ghana's
first president, Kwame Nkrumah, unraveled, however, military officers
seized control of the country and promised to overturn what they
perceived as a corrupt ruling class enriching itself from the nation's
coffers. In the 1980s, military and civilian officials failed to revive
the economy through stringent anti-corruption measures and embarked
instead upon a restructuring of the economy.
The transformation of Ghana's economy undertaken in the 1980s was
considered a test case for "structural adjustment"
prescriptions advocated by international banking institutions. Faced
with growing impoverishment in Africa as well as in much of the
so-called developing world, the World Bank and the International
Monetary Fund proposed radical programs to revive troubled economies and
to restore their productivity. The government of Jerry John Rawlings
turned to these agencies in 1983 and accepted their recommendations in
exchange for assistance packages to ease Ghana's economic and social
transformation. Foremost among the changes enacted in Ghana were the
disengagement of the government from an active role in the economy and
the encouragement of free-market forces to promote the efficient and
productive development of local resources. The reformers cut government
budgets, privatized state enterprises, devalued the currency, and
rebuilt industrial infrastructure by means of assistance programs. As in
other countries of Africa in the 1980s, government was identified as the
problem, and free-market forces were seen as the solution.
By the 1990s, the effects of structural adjustment in Ghana were
beginning to be assessed. According to the World Bank and other western
financial institutions, the economy had become much more stable, and
production was on a more solid footing than it had been a decade
earlier. Exports were up, government deficits had been reduced, and
inflation was down. Many Ghanaians, however, questioned whether the
structural adjustment benefited all Ghanaians or just a few sectors of
the economy. Critics of the World Bank charged, moreover, that it
concentrated on infrastructure such as airports, roads, and other
macro-economic projects that did little to improve the lives of the
average Ghanaian.
Under the sway of free-market forces, production had increased in
Ghana's traditionally strong sectors, cocoa and gold, thereby reverting
to the pre-independence economic structure; still, a more broadly based
economy had not developed. In addition, substantial loans had been
incurred by the government to promote those sectors- -at the expense of
recurrent budget expenditures such as health and education--without a
compensatory increase in government revenues. Ironically, the tax breaks
prescribed to encourage these sectors worked against increased
government revenues, so that by 1992, tax revenues began to drop. In
addition, jobs not only had been cut from the once bloated public sector
but also had not expanded in the more successful export sectors.
Although the government claimed its finances were much healthier in the
1990s than in the 1980s, the long-term economic and social impact of
structural adjustment was uncertain.
Relying heavily on the exploitation of some non-renewable and even
endangered resources, Ghana's economic recovery will have to expand to
create a broader and better balanced economy. In addition to cocoa,
Ghana's leading export commodities are gold, a nonrenewable resource,
and timber, the harvesting of which has included more than eighteen
endangered species of trees and has led to alarming deforestation.
Furthermore, Ghana's ocean waters are seriously overfished, leading the
government to ban the catching of shellfish.
According to the Ghanaian government, these resources could be used
to develop local manufacturing, the goal Nkrumah tried to reach through
direct state intervention thirty years ago. Local manufacturing could
create jobs, cut the import bill, and provide a more diversified
economic base. The question for Ghana is whether free-market forces will
be more successful in promoting healthy economic expansion than the
failed policies of direct state intervention.
Ghana - The Economy - HISTORICAL BACKGROUND
Endowed with gold and oil palms and situated between the trans-
Saharan trade routes and the African coastline visited by successive
European traders, the area known today as Ghana has been involved in all
phases of Africa's economic development during the last thousand years.
As the economic fortunes of African societies have waxed and waned, so,
too, have Ghana's, leaving that country in the early 1990s in a state of
arrested development, unable to make the "leap" to Africa's
next, as yet uncertain, phase of economic evolution.
As early as the thirteenth century, present-day Ghana was drawn into
long-distance trade, in large part because of its gold reserves. The
trans-Saharan trade, one of the most wide-ranging trading networks of
pre-modern times, involved an exchange of European, North African, and
Saharan commodities southward in exchange for the products of the
African savannas and forests, including gold, kola nuts, and slaves.
Present-day Ghana, named the Gold Coast by European traders, was an
important source of the gold traded across the Sahara. Centralized
states such as Asante controlled prices by regulating production and
marketing of this precious commodity. As European navigational techniques
improved in the fifteenth century, Portuguese and later Dutch and
English traders tried to circumvent the Saharan trade by sailing
directly to its southernmost source on the West African coast. In 1482
the Portuguese built a fortified trading post at Elmina and began
purchasing gold, ivory, and pepper from African coastal merchants.
Although Africans for centuries had exported their raw
materials--ivory, gold, kola nuts--in exchange for imports ranging from
salt to foreign metals, the introduction of the Atlantic slave trade in
the early sixteenth century changed the nature of African export
production in fundamental ways. An increasing number of Ghanaians sought
to enrich themselves by capturing fellow Africans in warfare and selling
them to slave dealers from North America and South America. The slaves
were transported to the coast and sold through African merchants using
the same routes and connections through which gold and ivory had
formerly flowed. In return, Africans often received guns as payment,
which could be used to capture more slaves and, more importantly, to
gain and preserve political power.
An estimated ten million Africans, at least half a million from the
Gold Coast, left the continent in this manner. Some economists have
argued that the slave trade increased African economic resources and
therefore did not necessarily impede development, but others, notably
historian Walter Rodney, have argued that by removing the continent's
most valuable resource--humans--the slave trade robbed Africa of unknown
invention, innovation, and production. Rodney further argues that the
slave trade fueled a process of underdevelopment, whereby African
societies came to rely on the export of resources crucial to their own
economic growth, thereby precluding local development of those
resources. Although some scholars maintain that the subsequent economic
history of this region supports Rodney's interpretation, no consensus
exists on this point. Indeed, in recent years, some historians not only
have rejected Rodney's interpretation but also have advanced the notion
that it is the Africans themselves rather than an array of external
forces that are to blame for the continent's economic plight.
When the slave trade ended in the early years of the nineteenth
century, the local economy became the focus of the so-called legitimate
trade, which the emerging industrial powers of Europe encouraged as a
source of materials and markets to aid their own production and sales.
The British, in particular, gained increasing control over the region
throughout the nineteenth century and promoted the production of palm
oil and timber as well as the continuation of gold production. In
return, Africans were inundated with imports of consumer goods that,
unlike the luxuries or locally unavailable imports of the trans-Saharan
trade, quickly displaced African products, especially textiles.
In 1878 cacao trees were introduced from the Americas. Cocoa quickly
became the colony's major export; Ghana produced more than half the
global yield by the 1920s. African farmers used kinship networks like
business corporations to spread cocoa cultivation throughout large areas
of southern Ghana. Legitimate trade restored the overall productivity of
Ghana's economy; however, the influx of European goods began to displace
indigenous industries, and farmers focused more on cash crops than on
essential food crops for local consumption.
When Ghana gained its independence from Britain in 1957, the economy
appeared stable and prosperous. Ghana was the world's leading producer
of cocoa, boasted a well-developed infrastructure to service trade, and
enjoyed a relatively advanced education system. At independence,
President Kwame Nkrumah sought to use the apparent stability of the
Ghanaian economy as a springboard for economic diversification and
expansion. He began process of moving Ghana from a primarily
agricultural economy to a mixed agricultural-industrial one. Using cocoa
revenues as security, Nkrumah took out loans to establish industries
that would produce import substitutes as well as process many of Ghana's
exports. Nkrumah's plans were ambitious and grounded in the desire to
reduce Ghana's vulnerability to world trade. Unfortunately, the price of
cocoa collapsed in the mid-1960s, destroying the fundamental stability
of the economy and making it nearly impossible for Nkrumah to continue
his plans. Pervasive corruption exacerbated these problems. In 1966 a
group of military officers overthrew Nkrumah and inherited a nearly
bankrupt country.
Since then, Ghana has been caught in a cycle of debt, weak commodity
demand, and currency overvaluation, which has resulted in the decay of
productive capacities and a crippling foreign debt. Once the price of
cocoa fell in the mid-1960s, Ghana obtained less of the foreign currency
necessary to repay loans, the value of which jumped almost ten times
between 1960 and 1966. Some economists recommended that Ghana devalue
its currency--the cedi-- to make its cocoa price more attractive on the
world market, but devaluation of the cedi would also have rendered loan
repayment in United States dollars much more difficult. Moreover, such a
devaluation would have increased the costs of imports, both for
consumers and nascent industries.
Until the early 1980s, successive governments refused to devalue the
currency (with the exception of the government of Kofi A. Busia, which
devalued the cedi in 1971 and was promptly overthrown). Cocoa prices
languished, discouraging cocoa production altogether and leading to
smuggling of existing cocoa crops to neighboring countries, where francs
rather than cedis could be obtained in payment. As production and
official exports collapsed, revenue necessary for the survival of the
economy was obtained through the procurement of further loans, thereby
intensifying a self-destructive cycle driven by debt and reliance on
vulnerable world commodity markets.
By the early 1980s, Ghana's economy was in an advanced state of
collapse. Per capita gross domestic product (
GDP) showed negative growth throughout the 1960s and
fell by 3.2 percent per year from 1970 to 1981. Most important was the
decline in cocoa production, which fell by half between the mid-1960s
and the late 1970s, drastically reducing Ghana's share of the world
market from about one-third in the early 1970s to only one-eighth in
1982-83. At the same time, mineral production fell by 32 percent; gold
production declined by 47 percent, diamonds by 67 percent, manganese by
43 percent, and bauxite by 46 percent. Inflation averaged more than 50
percent a year between 1976 and 1981, hitting 116.5 percent in 1981.
Real minimum wages dropped from an index of 75 in 1975 to one of 15.4 in
1981. Tax revenue fell from 17 percent of GDP in 1973 to only 5 percent
in 1983, and actual imports by volume in 1982 were only 43 percent of
average 1975-76 levels. Productivity, the standard of living, and the
government's resources had plummeted dramatically.
In 1981 a military government under the leadership of Flight
Lieutenant Jerry John Rawlings came to power. Calling itself the
Provisional National Defence Council (PNDC), the Rawlings regime
initially blamed the nation's economic problems on the corruption of
previous governments. Rawlings soon discovered, however, that Ghana's
problems were the result of forces more complicated than economic abuse.
Following a severe drought in 1983, the government accepted stringent
International Monetary Fund ( IMF) and World Bank loan conditions and
instituted the Economic Recovery Program (ERP).
Signaling a dramatic shift in policies, the ERP fundamentally changed
the government's social, political, and economic orientation. Aimed
primarily at enabling Ghana to repay its foreign debts, the ERP
exemplified the structural adjustment policies formulated by
international banking and donor institutions in the 1980s. The program
emphasized the promotion of the export sector and an enforced fiscal
stringency, which together aimed to eradicate budget deficits. The PNDC
followed the ERP faithfully and gained the support of the international
financial community. The effects of the ERP on the domestic economy,
however, led to a lowered standard of living for most Ghanaians.
Ghana - OVERVIEW OF THE CURRENT ECONOMY
In the early 1990s, Ghana's economic recovery still appeared uneven
and was geared primarily to the export rather than domestic market. GDP
had risen by an average of 5 percent per year since 1984, inflation had
been reduced to about 20 percent, and export earnings had reached US$1
billion. Most production came from the export sector, and by the 1992-93
crop year, cocoa production surpassed 300,000 tons, placing Ghana third
in the world. In 1990 exports of minerals--primarily gold but also
diamonds, manganese, and bauxite--brought in US$234 million, an increase
of 23.2 percent from the year before. Nevertheless, salaries were low, and because the cost of public
services continued to rise, Ghana's poor bore the brunt of the negative
effects of the austerity program.
Despite devaluations by the Rawlings regime and rising exports, the
government has been unable to fulfill a key stabilization goal of
reducing the trade and current account deficits. To stimulate production
in various sectors, the government has incurred loans to finance imports
of necessary inputs such as machinery, fertilizer, and petroleum. As a
result, the country's foreign debt exceeded US$4 billion in 1991.
According to World Bank estimates, the country's debt continued to rise
in 1992, and was equivalent to almost 63 percent of Gross National
Product (GNP). In 1992 the debt service ratio (debt service as a
proportion of exports) was 27 percent, an improvement on late 1980s
levels, which averaged as high as 62.5 percent. To cover the deficits
that result from loans and increased imports, the government came to
rely on rising levels of foreign aid, with net aid disbursements
increasing to an estimated US$550 million by 1990. Unfortunately,
foreign investment, compared with aid, was weak except in the mining
sector, and domestic savings were insufficient to finance the country's
ambitious development projects.
Government policies have produced mixed results in terms of
productivity and debt, and they have also incurred significant social
costs through job elimination and reduced public expenditure policies.
The government has addressed this problem by launching a special
initiative to create 40,000 jobs providing services to the poorest
groups. Spending on health and education also has increased as a
proportion of GDP, but the central government believes that major
poverty alleviation can come only with even faster and higher economic
growth.
Ghana - STRUCTURE OF THE ECONOMY
In current prices, Ghana's GDP rose from �511 billion in 1986 to �3
trillion in 1992. In constant 1987 prices, these GDP figures amounted to
�713 billion (US$4.62 billion) in 1986 and �934 billion (US$6.06
billion) in 1992.
During the 1980s, Ghana's economy registered strong growth of
approximately 6 percent per year because of a reversal in the steadily
declining production of the previous decade. Ghana's worst years were
1982 and 1983, when the country was hit with the worst drought in fifty
years, bush fires that destroyed crops, and the lowest cocoa prices of
the postwar period. Growth throughout the remainder of the decade
reflected the pace of the economic recovery, but output remained weak in
comparison with 1970 production levels. The same was true of
consumption, minimum wages, and social services.
Growth fell off considerably in 1990 when another drought caused real
GDP growth to decline by nearly two percentage points. Government
estimates claimed that real GDP growth in 1993 was 6.1 percent, which
reflected a recovery in cocoa output and an increase in gold production.
At the same time, gross domestic fixed investment rose from 3.5 percent
of the total in 1982 to 12.9 percent in 1992. The share of public
consumption in GDP fell from a peak of 11.1 percent in 1986 to 9.9
percent in 1988, but appeared to have risen again to 13.3 percent in
1992.
Significant changes have taken place in the structure of GDP since
the ERP began. Agriculture continues to be the bedrock of Ghana's
economy, accounting for more than 48 percent of GDP in 1991.
Agriculture's long-term importance has declined, however, in favor of
that of industry, the contribution of which to GDP more than doubled
from 1988 to 1991 when it constituted almost 16 percent of GDP, and in
favor of services, the contribution of which was 35.3 percent in 1991.
Notable changes have also occurred within the broader sectors: cocoa's
share rose from 5.6 percent in 1983 to 9.5 percent in 1991;
manufacturing's contribution increased from 3.9 percent to 8.7 percent;
and construction output from 1.5 percent to 3.5 percent.
Ghana - Debt and Inflation
ERP policies during the 1980s resulted in increased external debts as
well as in relatively high inflation rates. Most ERP projects were funded by foreign loans,
notably from the IMF. At the same time, the government repeatedly
devalued the country's currency to raise producer prices for exports and
to encourage production, but devaluation also led to price rises on all
other goods as well. ERP attempts to promote production have, at least
in the short term, resulted in higher debts and inflation.
World Bank figures show that Ghana's total external debt exceeded
US$4 billion by 1991; this figure rose to nearly US$4.3 billion in 1992.
The external deficit and requirements for repayments on principal were
met through additional loans. The debt figures revealed a strong
reliance on official creditors, who accounted for about 92 percent of
public disbursed debt, and on concessional funding, which approached 60
percent of total external debt in 1992. In addition, Ghana began to
borrow on international capital markets in 1991. Nevertheless, the
country's debt service ratio fell at an annual average of 25 percent in
1991 and 1992, reflecting repayment of large IMF obligations and the
ending of the government's use of IMF funding at the end of 1991. An
additional factor was debt cancellation by a number of leading bilateral
creditors totaling US$1.5 billion since 1989.
In the early 1990s, the government was unable to reduce high
inflation significantly. Although down from the staggering levels of the
early 1980s when inflation hit 123 percent because of drought, inflation
in the following six years averaged almost 30 percent. Recovery in
agricultural output in 1984 and 1985 helped shrink inflation rates, but
a marginal decline in food production in 1986 was accompanied by an
upward trend in inflation. For the next four years, ever higher food
prices, driven by devaluation, contributed greatly to high inflation. By
late 1994, the country's inflation rate stood at about 28 percent.
Ghana - Trade
The promotion of Ghana's foreign trade has been central to all
government plans to revive the economy since 1983. Under the ERP,
export-producing industries received the most direct support; they also
received the most indirect support through the improvement of their
proximate infrastructure. By promoting exports, the government sought to
obtain foreign exchange essential to repay debts and to ease the
country's restrictions on imports. Imports, of course, are also
necessary to upgrade many of the export industries hamstrung for lack of
equipment.
Prior to 1983, economic conditions conspired to erode the terms of
trade to such an extent that Ghanaians had reverted to smuggling goods
across the borders as well as to trading on the black market on a
significant scale. Ghanaians who had anything to sell could multiply
their earnings by selling their goods in French-speaking countries,
especially neighboring C�te d'Ivoire, and then changing the resultant
francs into cedis at black market rates. Smuggling cut down the amount
of foreign exchange available for official transactions, leading to a
reduction in imports, which hit manufacturing enterprises dependent upon
imported equipment and raw materials especially hard. As a result, many
consumer goods were no longer available in Ghana, which further boosted
smuggling across borders of those countries where such goods could be
obtained. By 1982 the World Bank estimated that transactions on the
parallel, or black, market constituted 32.4 percent of all domestic
trade.
Since the start of the ERP in 1983, the government has introduced
several policies to adjust the pattern of Ghana's trade structure. These
include devaluing the currency as well as raising producer prices for
crucial exports such as cocoa to offset the advantages of smuggling such
goods across borders. In addition, the government introduced an
interbank foreign exchange market to facilitate currency exchange. To
ease the importation of essential capital goods, but not necessarily
consumer goods, the government revised and reduced numerous import
duties and trade taxes.
By the early 1990s, government efforts had resulted in the
restoration of many of Ghana's historical trade relationships. Exports
were again dominated by cocoa, which earned US$280 million in 1993.
Other significant export commodities in 1993 were gold (US$416 million)
and timber (US$140 million), followed by electricity, diamonds, and
bauxite. Ghana's nontraditional exports, such as furniture, cola nuts,
and pineapples, have also increased significantly. On the import side,
fuel and energy, mainly oil, accounted for 16 percent of 1990 imports;
followed by capital goods, 43 percent; intermediate goods, 28 percent;
and consumer goods, 10 percent, according to the World Bank.
In addition to supporting traditional export industries such as cocoa
and gold, the government also attempted to diversify the content of
Ghana's exports. To encourage nontraditional exports in the fishing and
agriculture sectors, the government offered to refund 95 percent of
import duties on goods destined for reexport and even to cancel sales
taxes on manufactured goods sold abroad. In addition, the government
devised a scale of tax rebates ranging from 20 percent to 50 percent
determined by the volume of total production that was exported. These
incentives generated considerable response. By 1988 more than 700
exporters were dealing in 123 export products, the major items being
pineapples, marine and fish products (especially tuna), wood products,
aluminum products, and salt. By 1990, the last year for which figures
were available, the value of nontraditional exports had risen to US$62
million.
In 1992 the government's Ghana Export Promotion Council announced a
plan to raise nontraditional exports to US$335 million by 1997 through
increased market research, trade missions, trade fairs and exhibitions,
and training. Among its most ambitious specific targets were increases
in tuna and shrimp sales to US$45 million and US$32 million,
respectively, by 1995, and increases in pineapple sales to US$12.5
million. In the manufacturing sector, wood products, aluminum goods, and
processed rubber were targeted to yield US$44 million, US$42 million,
and US$23 million, respectively. Earnings from salt were projected to
rise to US$20 million.
In the early 1990s, Ghana continued to trade primarily with the
European Community, particularly Britain and Germany. Britain continued
to be the principal market for Ghanaian cocoa beans, absorbing
approximately 50 percent of all cocoa beans exported. In 1992, Germany
was the single most important destination of Ghana's exports, accounting
for some 19 percent of all exports. Britain was next, accounting for
about 12 percent; followed by the United States, 9 percent; and Japan, 5
percent. The same year, Britain supplied approximately 20 percent of
Ghana's imports, followed by Nigeria, which provided 11 percent. The
United States and Germany were third and fourth, respectively.
Ghana also belongs to the sixteen-member Economic Community of West
African States (ECOWAS), founded in 1975 with headquarters in Abuja,
Nigeria. ECOWAS is designed to promote the cultural, economic, and
social development of its component states. To achieve these ends,
ECOWAS seeks to foster regional cooperation in several areas, including
removal of barriers to the movement of peoples and trade, harmonization
of agricultural policies, improvements in infrastructure, and, as of
1991, renewed commitment to democratic political processes and
non-aggression against member states.
Ghana also has a number of barter trade agreements with several East
European countries, China, and Cuba. Under the agreements, imports of
goods and services are paid for mainly by cocoa from Ghana. A major
change occurred in 1991 when the German Democratic Republic (GDR, or
East Germany) abrogated its barter trade agreement with Ghana following
the union of the two Germanies. In spite of this, agreement was reached
between the two countries to honor existing commitments. In late 1991,
the Ghanaian government showed renewed interest in trade with the
countries of Eastern Europe following the adoption of free-market
systems in the wake of political upheavals in those countries. Ghanaian
trade officials expect that the barter trade system will give way to
open market operations.
Ghana - Economy - ROLE OF THE GOVERNMENT
In 1983 the government launched the Economic Recovery Program (ERP)
under the guidance of the World Bank and the IMF. The overriding purpose
of the ERP was to reduce Ghana's debts and to improve its trading
position in the global economy. The stated objectives of the program
focused on restoring economic productivity at minimum cost to the
government and included the following policies: lowering inflation
through stringent fiscal, monetary, and trade policies; increasing the
flow of foreign exchange into Ghana and directing it to priority
sectors; restructuring the country's economic institutions; restoring
production incentives; rehabilitating infrastructure to enhance
conditions for the production and export of goods; and, finally,
increasing the availability of essential consumer goods. In short, the
government hoped to create an economic climate conducive to the
generation of capital.
The ERP was carried out in roughly three phases. Beginning in 1983,
the government focused on reducing its expenditures while creating
incentives for private production. Initial expenditure cuts and improved
tax collection brought the budget deficit down from 6.3 percent of GDP
in 1982 to 0.1 percent by 1986, relieving government pressure on the
banking system, while a series of cedi devaluations boosted export
activity. During the second phase, which lasted from 1987 to 1989, the
government moved to divest itself of many assets through privatization
and to institute radical foreign exchange reforms to devalue the cedi
further. Although privatization was sluggish, the hard-currency black
market was nearly eliminated with the introduction of foreign exchange
bureaus in 1988. In the ERP's third phase, the government intensified
monetary reforms and reduced private corporate taxes to boost
private-sector growth.
By the end of 1991, ERP efforts had improved the country's
international financial reputation because of its ability to make loan
repayments (although not wipe out foreign debt) and its first entry onto
the international capital market in almost two decades. Critics
maintained, however, that the ERP had failed to bring about a
fundamental transformation of the economy, which still relied on income
earned from cocoa and other agricultural commodities. Critics also
contended that many Ghanaians had seem few, if any, benefits from the
program.
In addition to its focus on stabilizing the country's financial
structure, the ERP also aimed to promote production, especially in the
export sectors. In 1986 the government began to rebuild infrastructure
through a US$4.2 billion program, more than half of which was provided
by external sources. This amount was divided roughly equally among
infrastructure repair, energy imports (oil for machinery), and export
industries. Increased imports financed by the IMF, the World Bank, and
other sources made possible the rehabilitation and repair of some key
parts of the infrastructure through the supply of spare parts and inputs
for industry, mining, utilities, and agriculture.
Although the ERP was geared primarily toward restoring the country's
international economic standing, it came under popular criticism inside
Ghana for ignoring the plight of those not involved in the export
sector. The overwhelming shift in resources was toward cocoa
rehabilitation and other export sectors, not toward food production.
Government employees, especially those in state enterprises, were
actively targeted, and many lost their jobs. Farmers suffered as the
percentage of the total budget devoted to agriculture fell from 10
percent in 1983 to 4.2 percent in 1986 and to 3.5 percent in 1988,
excluding foreign aid projects. Although cocoa contributed less to
Ghana's GDP than food crops, cocoa nonetheless received 9 percent of
capital expenditures in the late 1980s; at the same time it received
roughly 67 percent of recurrent agricultural expenditures because of its
export value.
In response to criticism of such policies, the government initiated
the US$85 million Program of Action to Mitigate the Social Costs of
Adjustment (PAMSCAD). Beginning in 1988, the program sought to create
40,000 jobs over a two-year period. It was aimed at the poorest
individuals, small-scale miners and artisans in particular, and
communities were to be helped to implement labor intensive self-help
projects.
As part of PAMSCAD, �10 billion was slated in the 1993 budget for
the rehabilitation and development of rural and urban social
infrastructure. The new program, organized through PAMSCAD and the new
district assemblies, was designed to focus on improving water supply,
sanitation, primary education, and health care. An additional �51
billion was set aside for redeployment and end-of- service benefits for
those who had lost their jobs in civil service and parastatal
reorganizations.
In the early 1990s, the government was committed to continuing the
policies of the ERP. New agreements were concluded with the World Bank
to continue credit arrangements on condition that Ghana review and
revise its various economic laws and regulations and support private
sector development. In particular, the government agreed to revise or to
repeal existing laws and regulations affecting private investment that
undermine the spirit of deregulation, economic liberalization, and
exchange rate reforms. The government also agreed to develop and to
strengthen the institutional framework that would facilitate private
investment. Key priorities for 1992 and afterward included giving new
impetus to state enterprise reform, broadening the scope of
banking-sector reforms, liberalizing the administrative framework, and
strengthening public-sector management. Basic education and primary
health-care services were to receive attention over the long term as
well.
Ghana - State Enterprises
State-owned enterprises in Ghana date to the colonial period and
especially to the post-World War II era. For example, the British
organized a number of public utilities, such as water, electricity,
postal and telegraph services, rail and road networks, and bus services.
To foster exports of coffee, palm kernels, and cocoa, the Agricultural
Produce Marketing Board was founded in 1949. In addition, the colonial
government established the Industrial Development Corporation and the
Agricultural Development Corporation to promote industries and
agriculture. In the mid1970s , the National Redemption Council under I.
K. Acheampong also emphasized state enterprises. The Acheampong
government established a number of new enterprises and partly or wholly
nationalized a number of foreign-owned companies, including the Ashanti
Goldfields Corporation and Consolidated African Selection Trust.
Intermittent efforts to improve performance and efficiency often led to
the transferral of duties and functions to alternative state bodies but
not to the wholesale privatization of ownership rights and assets.
By the 1980s, state enterprises were suffering along with most
businesses in Ghana, but they were also held to blame for the economy's
general condition. In particular, many were heavily subsidized and were
draining much of the country's domestic loan capital. Under pressure
from the World Bank and in accordance with the principles of the ERP, in
1984 the government began to sell state enterprises to private
investors, and it initiated the StateOwned Enterprise Reform Program in
1988.
In 1984 there were 235 state enterprises in Ghana. The government
announced that twenty-two sensitive enterprises would not be sold,
including major utilities as well as transport, cocoa, and mining
enterprises. In 1988 thirty-two were put up for sale, followed by a
further forty-four in 1990 under what was termed the Divestiture
Implementation Committee. By December 1990, thirty-four enterprises had
been either partially or totally divested. Four were sold outright, a
further eight were partially sold through share issues, and twenty-two
were liquidated. Divestiture of fifteen additional enterprises was also
underway, and by 1992 plans were afoot to privatize some of the nation's
banks.
Joint ventures were set up for four enterprises, including two state
mining companies, Prestea Goldfields and Ghana Consolidated Diamonds. In
1992 the Divestiture Implementation Committee considered
resource-pooling programs to enable smaller domestic investors to buy up
state enterprises. Such pooling would accelerate the program, but more
importantly, it would enable the Provisional National Defence Council
(PNDC) to deflect charges that it was auctioning off the nation's assets
to foreigners.
The government also introduced a performance monitoring and
evaluation system to improve state enterprise productivity and
efficiency as well as to provide incentives for strong performers and
disincentives for weak performers. By 1989 fifteen enterprises had
responded positively, turning a combined pre-tax loss of �418 million
from the previous year into pre-tax profits of �19 billion, following a
9 percent cut in costs and a 30 percent increase in sales. In early
1992, the chairman of the State Enterprises Commission announced that
the government would pass legislation requiring state-owned enterprises
to register as limited liability companies by 1993 to stimulate
competition and to improve their performances.
Ghana - Budgets
Major policies of the ERP and conditions of IMF funding were that the
budget deficit be reduced and that resources be directed from recurrent
to capital spending. Consequently, the government achieved a budget
surplus each year between 1986 and 1989 and simultaneously boosted the
percentage of spending for development projects. During the mid-1980s,
budget deficits as a percentage of GDP consistently declined, falling
from 4.7 percent in 1982 to 2.7 percent in 1983 to 0.3 percent in 1987.
To accomplish this, the government cut spending and reversed its
budgetary priorities, raising capital investment at the expense of
increased current consumption in order to promote future growth. The
government allocated 62 percent of the budget to physical infrastructure
and about 33 percent to the country's productive sector. At the same
time, spending on social programs, including health, education, and
welfare, declined drastically to between 4.7 and 5 percent. As a
percentage of GDP, expenditures on health care fell from 1.2 percent in
1970 to 0.26 percent in 1980-83; during the same period, spending on
education dropped from 3.9 percent to 0.85 percent.
The 1993 budget, consistent with ERP policies and objectives, aimed
to stimulate private-sector growth through lowering taxes on commerce
and corporations and by internally balancing accounts. The previous
budget reduced the tax rate for commerce, printing, and publishing
businesses from 50 percent to 35 percent, bringing these sectors into
line with agriculture, manufacturing, real estate, construction, and
services, the taxes on which were cut in 1991.
Relief for the financial sector was less generous. The tax rate was
reduced from 50 percent to 45 percent to encourage more lending and
better terms for borrowers and to reduce the 8 percent to 9 percent gap
between deposit and lending rates of interest. The government also
reduced the withholding tax on dividends from 15 percent to 10 percent,
in line with 1991 cuts from 30 percent. The annual standard personal
exemption for individual taxpayers was set at �150,000 (US$380), up
from the previous �126,000. This figure reflected a 19 percent
increase, 1 percent above Ghanaian inflation the previous year. The top
marginal rate of tax was raised from 25 percent to 35 percent, payable
on earnings over �14 million, compared with the previous level of �3
million. Finally, import taxes were reduced or abolished, including
duties and sales taxes on all building materials. The super sales tax on
luxury goods, introduced in 1990, was also abolished. A maximum rate of
10 percent was set on such imports.
Tax evasion and corruption, both of which are rampant throughout
Ghana, severely affected the government's ability to collect taxes in
all categories. In December 1993, the Ghanaian parliament passed the
Serious Fraud Office Bill. This act empowered the fraud office to
investigate fraud and embezzlement crimes against the state. Despite
this action, it is unlikely that the authorities will be able to stop
tax evasion or other white collar crimes anytime soon. (Country Report
1, 92))
Reform of the tax base and prudent fiscal management contributed to
budget surpluses and dramatically reduced government recourse to the
banking sector. By the early 1990s, nonetheless, Ghana still relied
heavily on external grants to achieve its twin goals of running balanced
budgets and increasing necessary capital expenditures. Moreover,
compared with the rest of sub-Saharan Africa, total government revenue
as a proportion of GDP continued to be relatively low. It was less than
16 percent in 1990 (including grants), compared with an average of 19
percent for sub-Saharan Africa as a whole. In 1993, revenue raising
efforts aimed to secure income equivalent to 22.2 percent of GDP. By
1992 the government's financial position had weakened. From 1986 to
1991, government finances were in surplus. In 1992, however, tax
receipts from all sources of revenue were below projected levels, and
with national elections in view, the government relaxed its tight
controls on spending. Despite inclusion of foreign funding as a source
of revenue, the deficit for 1992 was estimated at �177 billion but fell
to �119 billion in 1993. To rectify the situation, the government
proposed to raise taxes on gasoline, kerosene, diesel fuel, and
liquefied petroleum gas by as much as 60 percent.
Ghana - BANKING AND CURRENCY
Ghana has a well-developed banking system that was used extensively
by previous governments to finance attempts to develop the local
economy. By the late 1980s, the banks had suffered substantial losses
from a number of bad loans in their portfolios. In addition, cedi
depreciation had raised the banks' external liabilities. In order to
strengthen the banking sector, the government in 1988 initiated
comprehensive reforms. In particular, the amended banking law of August
1989 required banks to maintain a minimum capital base equivalent to 6
percent of net assets adjusted for risk and to establish uniform
accounting and auditing standards. The law also introduced limits on
risk exposure to single borrowers and sectors. These measures
strengthened central bank supervision, improved the regulatory
framework, and gradually improved resource mobilization and credit
allocation.
Other efforts were made to ease the accumulated burden of bad loans
on the banks in the late 1980s. In 1989 the Bank of Ghana issued
temporary promissory notes to replace non-performing loans and other
government-guaranteed obligations to state-owned enterprises as of the
end of 1988 and on private-sector loans in 1989. The latter were then
replaced by interest-bearing bonds from the Bank of Ghana or were offset
against debts to the bank. Effectively, the government stepped in and
repaid the loans. By late 1989, some �62 billion worth of
non-performing assets had been offset or replaced by central bank bonds
totaling about �47 billion.
In the early 1990s, the banking system included the central bank (the
Bank of Ghana), three large commercial banks (Ghana Commercial Bank,
Barclays Bank of Ghana, and Standard Chartered Bank of Ghana), and seven
secondary banks. Three merchant banks specialized in corporate finance,
advisory services, and money and capital market activities: Merchant
Bank, Ecobank Ghana, and Continental Acceptances; the latter two were
both established in 1990. These and the commercial banks placed
short-term deposits with two discount houses set up to enhance the
development of Ghana's domestic money market: Consolidated Discount
House and Securities Discount House, established in November 1987 and
June 1991, respectively. At the bottom of the tier were 100 rural banks,
which accounted for only 5 percent of the banking system's total assets.
By the end of 1990, banks were able to meet the new capital adequacy
requirements. In addition, the government announced the establishment of
the First Finance Company in 1991 to help distressed but potentially
viable companies to recapitalize. The company was established as part of
the financial sector adjustment program in response to requests for
easier access to credit for companies hit by ERP policies. The company
was a joint venture between the Bank of Ghana and the Social Security
and National Insurance Trust.
Despite offering some of the highest lending rates in West Africa,
Ghana's banks enjoyed increased business in the early 1990s because of
high deposit rates. The Bank of Ghana raised its rediscount rate in
stages to around 35 percent by mid-1991, driving money market and
commercial bank interest rates well above the rate of inflation, thus
making real interest rates substantially positive. As inflation
decelerated over the year, the rediscount rate was lowered in stages to
20 percent, bringing lending rates down accordingly.
At the same time, more money moved into the banking system in 1991
than in 1990; time and savings deposits grew by 45 percent to �94.6
billion and demand deposits rose to �118.7 billion. Loans also rose,
with banks' claims on the private sector up by 24.1 percent, to �117.4
billion. Banks' claims on the central government continued to shrink in
1991, falling to a mere �860 million from �2.95 billion in 1990, a
reflection of continued budget surpluses. Claims on nonfinancial public
enterprises rose by 12.6 percent to �27.1 billion.
Foreign bank accounts, which were frozen shortly after the PNDC came
to power, have been permitted since mid-1985, in a move to increase
local supplies of foreign exchange. Foreign currency accounts may be
held in any of seven authorized banks, with interest exempt from
Ghanaian tax and with transfers abroad free from foreign exchange
control restrictions. Foreign exchange earnings from exports, however,
are specifically excluded from these arrangements.
The Ghana Stock Exchange began operations in November 1990, with
twelve companies considered to be the best performers in the country.
Although there were stringent minimum investment criteria for
registration on the exchange, the government hoped that share ownership
would encourage the formation of new companies and would increase
savings and investment. After only one month in operation, however, the
exchange lost a major French affiliate, which reduced the starting
market capitalization to about US$92.5 million.
By the end of 1990, the aggregate effect of price and volume
movements had resulted in a further 10.8 percent decrease in market
capitalization. Trading steadily increased, however, and by midJuly
1992, 2.8 million shares were being traded with a value of �233
million, up from 1.7 million shares with a value of �145 million in
November 1991. The market continued to be small, listing only thirteen
companies, more than half in retailing and brewing. In June 1993, Accra
removed exchange control restrictions and gave permission to
non-resident Ghanaians and foreigners to invest on the exchange without
prior approval from the Bank of Ghana. In April 1994, the exchange
received a considerable boost after the government sold part of its
holdings in Ashanti Goldfields Corporation.
Ghana - Currency
One of the most pressing economic problems faced by all
postindependence Ghanaian governments was the overvaluation of the
currency. The unit of currency is the cedi, which is divided into 100
pesewas. In 1961 Ghana broke with the British pound sterling and pegged
the value of the cedi to the US dollar. As Ghana's terms of trade
worsened in the 1960s, the real value of the cedi fell; however,
successive governments feared either to float the cedi or to adjust its
value, thereby raising the cost of imports and consumer prices. The
overthrow of the Busia regime in 1971, following the introduction of a
devaluation package, reinforced the unpopularity of such a move. The
Acheampong government reversed course and revalued the cedi. It also
increased the money supply to pay Ghana's debts, leading to a sharp
divergence between the official and the real rates of exchange.
The overvalued cedi, on the one hand, and low, regulated prices for
commodities, on the other, led to a robust smuggling industry and to an
extensive black market in currency. It became common practice for
Ghanaians, especially those living along the country's border, to
smuggle Ghanaian produce such as cocoa and minerals into neighboring
francophone countries. After selling on the local market, Ghanaians
would then return home and trade their hardcurrency Central African
francs for cedis on the black market, making handsome profits. Smuggling
and illegal currency operations had become so extensive by 1981 that the
black market rate for cedis was 9.6 times higher than the official rate,
up from 1.3 in 1972. At the same time, reliable estimates placed
transactions in the parallel economy at fully one-third of Ghana's GDP.
Fifteen months after the PNDC came to power, in April 1983, the
government began efforts to devalue the cedi. Rawlings introduced a
system of surcharges on imports and bonuses on exports that effectively
devalued the currency, because the surcharges on imports amounted to 750
percent of the amount being spent, and the discounts on exports amounted
to 990 percent. Further, an official devaluation began in October 1983
in which the exchange rate reached �90 to US$1 by March 1986. By 1993
�720 equaled US$1, and by late 1994, �1,023 equaled US$1.
In September 1986, the government sought alternative methods for
establishing the value of the cedi. At that time, the government
relinquished its direct role in determining the exchange rate. The rate
was instead determined at regular currency auctions under the pressure
of market forces on the basis of a two-tier exchange-rate system, with
one rate for essentials and another for non-essentials. In April 1987,
the two auctions were unified. In subsequent reforms also designed to
diminish smuggling and illegal currency dealings, private
foreign-exchange bureaus were permitted to trade in foreign currencies
beginning at the end of March 1988. By July 1989, there were 148 such
bureaus operating, ninety-nine in Accra and thirty in Ashanti Region,
with the remainder in other urban centers.
In 1987 US$207 million was allocated through the auction; and in
1988, US$267 million. By comparison, the foreign-exchange bureaus in the
first year of operation, ending in March 1989, traded US$77 million
worth of foreign currency, or about one-fourth the amount of foreign
exchange allocated through the auction. Initially, prices at the auction
and those at the foreign-exchange bureaus differed greatly. Efforts to
reduce the difference, however, brought the gap from 29 percent in March
1988 to approximately 6 percent by February 1991. In early 1992, the
auction was closed, although no official announcement was given.
Purchasers were referred to the Bank of Ghana, which used an exchange
rate determined largely on the basis of market forces.
The government also successfully slowed growth in the money supply.
In the late 1980s, the average annual growth rate reached 61 percent. By
1990 it had dropped to 13.3 percent but then accelerated slightly to
16.7 percent, standing at �317 million the following year. In 1991 the
Bank of Ghana introduced a �1,000 note, the highest denomination issued
since independence in 1957. Previously, the highest denomination had
been �500. A total of �50 billion of the new notes was printed.
Ghana - LABOR
Despite the revival of the export sector, most Ghanaians continued to
find employment with the government or to rely on informal employment
for their livelihood. An increasing number of Ghanaians also turned to
smuggling or to crime to earn a living. Reductions in the number of
government workers had not been absorbed in the export sector by the
early 1990s. At the same time, wages had not kept up with the cost of
living. The government also sought to reform the education system,
because increased education often led to better jobs and higher wages.
However, because students were expected to bear an increasing portion of
the cost of their education, it was unlikely that the poorest Ghanaians
would be able to take full advantage of the school system.
National Requirements
Although the Ghanaian labor force grew throughout the 1980s, the
structure of employment remained relatively stable. Between 1981 and
1988, the official number of workers grew by almost 100,000. Despite
efforts under the ERP to stimulate private production, public-sector
jobs still accounted for more than 80 percent of total employment over
the decade. Employment in the public sector rose every year between 1981
and 1985 (from 175,700 to 397,100), but thereafter fell three years in a
row, standing at 251,500 in 1988. By 1992 the number of public sector
workers had grown to an estimated 595,000, although some 55,000 had been
made redundant.
Considering the relative importance of public-sector employment, ERP
policies to reduce the scope of state enterprises had a profound impact
on patterns of unemployment. In the mid1980s , cutbacks at Ghana Cocoa
Board (20,000 jobs), Ghana National Trading Corporation (2,000 jobs),
and the shipping enterprise, the Black Star Line (1,000 jobs),
contributed to nearly 30,000 job losses in the parastatal sector alone
by the end of 1986. The civil service lost an estimated 15,000 jobs in
the same period. In 1990 fifteen of the remaining state-owned
enterprises reduced their payrolls by about 13,000 employees; no figures
were available for losses resulting from the liquidation of an
additional twenty-two state enterprises that year.
Although ERP policies resulted in the loss of many jobs for
Ghanaians, their implementation met relatively minor resistance from
organized labor. The most serious challenge came in 1986 on the issue of
income rather than that of layoffs. The unions threatened action in
response to the government's decision (under pressure from the IMF) to
abolish leave allowances, a crucial benefit that substantially
supplemented low public-sector wages. In response, the government
reversed its decision and revised the 1986 budget. After that, the
government stepped up taxes on allowances and, in some cases,
consolidated them into wages and salaries. Meanwhile, the unemployed
continued to express concern over the slow materialization of
end-of-service payments. In response, the 1992 budget contained
proposals for packages comprising down payments, shares in profitable
state-owned enterprises, and interest on deferred payments.
Income and Wages
During the 1980s, per capita income rose slightly but was
overshadowed by the increased cost of living. Per capita income climbed
from the decade low of US$340 in 1983 to US$400 by 1988 because of the
devaluation of the cedi and rising producer prices. The same factors,
however, worked to increase consumer prices fourfold from 1985 to 1988.
This trend continued throughout the early 1990s as consumer prices rose
from 393.2 in 1990 to 634.7 in 1993 based on a 1985 price index of 100.
Real wages and salaries are estimated to have fallen by an enormous
83 percent between 1975 and 1983 and to have continued to fall through
1989, forcing many workers to seek additional sources of income. The
level of real wages reached in 1988 was less than half that attained in
the mid-1970s; nevertheless, the government was committed under the ERP
to holding down inflation and hence, wages. In the 1990 budget, the
government linked pay increases to productivity, inflation, and
companies' ability to pay. With some exceptions, notably a one-time
allowance for civil servants to compensate for increased fuel and
transport costs in 1990, publicsector wages increased roughly in line
with projected inflation in 1989, 1990, and 1991; however, in 1992, the
government, which had scheduled elections late in the year, granted a
salary increase to public-sector workers. Although no recent data were
available for the private sector, wage increases under collective
bargaining arrangements appeared to have been relatively modest.
Although increases in the minimum daily wage under the PNDC appear
spectacular, they are linked to the steady devaluation of the cedi and
have not overcome a constant erosion of worker purchasing power.
Beginning in April 1984, the government increased the minimum daily wage
to �35, then to �70 in January 1985, �90 in January 1986, and �122
in 1987. In March 1990, the minimum wage was raised to �218, and by
August 1991, it had risen to �460, an increase of 111 percent as agreed
to by the government, the Trade Union Congress, and the Ghana Employers
Association.
In the face of popular elections and increasing strikes, the
government agreed to massive pay raises at the end of 1992, including a
70 percent increase for nurses. Overall, civil service pay raises added
more than �50 billion to the wage bill, reaching �175 billion in 1992,
or 50 percent of government revenue. At the same time, the government
moved to contain the wage bill by freezing staff recruitment in
public-sector organizations as well as state salaries that exceeded
those in the civil service.
Ghana - AGRICULTURE
Agriculture is Ghana's most important economic sector, employing more
than half the population on a formal and informal basis and accounting
for almost half of GDP and export earnings. The country produces a
variety of crops in various climatic zones which range from dry savanna
to wet forest and which run in eastwest bands across the country.
Agricultural crops, including yams, grains, cocoa, oil palms, kola nuts,
and timber, form the base of Ghana's economy.
Although Nkrumah attempted to use agricultural wealth as a
springboard for the country's overall economic development, Ghanaian
agricultural output has consistently fallen since the 1960s. Beginning
with the drop in commodity prices in the late 1960s, farmers have been
faced with fewer incentives to produce as well as with a general
deterioration of necessary infrastructure and services. Farmers have
also had to deal with increasingly expensive inputs, such as fertilizer,
because of overvaluation of the cedi. Food production has fallen as
well, with a decline in the food self-sufficiency ratio from 83 percent
in 1961-66 to 71 percent in 1978-80, coupled with a four-fold increase
in food imports in the decade prior to 1982. By 1983, when drought hit
the region, food shortages were widespread, and export crop production
reached an all-time low.
When the Rawlings government initiated the first phase of the ERP in
1984, agriculture was identified as the economic sector that could
rescue Ghana from financial ruin. Accordingly, since that time, the
government has invested significant funds in the rehabilitation of
agriculture. Primarily through the use of loans and grants, the
government has directed capital toward repairing and improving the
transportation and distribution infrastructure serving export crops. In
addition, specific projects aimed at increasing cocoa yields and at
developing the timber industry have been initiated. Except for specific
development programs, however, the government has tried to allow the
free market to promote higher producer prices and to increase
efficiency.
Although the government was criticized for focusing on exports rather
than on food crops under the ERP, by the early 1990s the PNDC had begun
to address the need to increase local production of food. In early 1991,
the government announced that one goal of the Medium Term Agricultural
Development Program 1991-2000 was to attain food self-sufficiency and
security by the year 2000. To this end, the government sought to improve
extension services for farmers and to improve crop-disease research.
Despite the statements concerning the importance of food crops, however,
the plan was still heavily oriented toward market production,
improvement of Ghana's balance-of-payments position, and provision of
materials for local industrial production. Furthermore, following World
Bank guidelines, the government planned to rely more heavily on the
private sector for needed services and to reduce the role of the public
sector, a clear disadvantage for subsistence producers. In particular,
industrial tree crops such as cocoa, coffee, and oil palm seedlings were
singled out for assistance. Clearly, agricultural sectors that could not
produce foreign exchange earnings were assigned a lower priority under
the ERP.
The government attempted to reduce its role in marketing and
assistance to farmers in several ways. In particular, the Cocoa
Marketing Board steadily relinquished its powers over pricing and
marketing. The government, furthermore, established a new farmers'
organization, the Ghana National Association of Farmers and Fishermen,
in early 1991 to replace the Ghana Federation of Agricultural
Cooperatives. The new organization was to be funded by the farmers
themselves to operate as a cooperative venture at the district,
regional, and national levels. Although the government argued that it
did not want to be accused of manipulating farmers, the lack of
government financial support again put subsistence producers at a
disadvantage.
<>Cocoa
Cocoa production occurs in the forested areas of the country--
Ashanti Region, Brong-Ahafo Region, Central Region, Eastern Region,
Western Region, and Volta Region--where rainfall is 1,000-1,500
millimeters per year. The crop year begins in October, when purchases of
the main crop begin, while the smaller mid-crop cycle starts in July.
All cocoa, except that which is smuggled out of the country, is sold at
fixed prices to the Cocoa Marketing Board. Although most cocoa
production is carried out by peasant farmers on plots of less than 3
hectares, a small number of farmers appear to dominate the trade.
Indeed, some studies show that about one-fourth of all cocoa farmers
receive just over half of total cocoa income.
In 1979 the government initiated reform of the cocoa sector, focusing
on the government's role in controlling the industry through the Cocoa
Marketing Board. The board was dissolved and reconstituted as the Ghana
Cocoa Board (Cocobod). In 1984 it underwent further institutional reform
aimed at subjecting the cocoa sector to market forces. Cocobod's role
was reduced, and 40 percent of its staff, or at least 35,000 employees,
were dismissed. Furthermore, the government shifted responsibility for
crop transport to the private sector. Subsidies for production inputs
(fertilizers, insecticides, fungicides, and equipment) were removed, and
there was a measure of privatization of the processing sector through at
least one joint venture. In addition, a new payment system known as the
Akuafo Check System was introduced in 1982 at the point of purchase of
dried beans. Formerly, producebuying clerks had often held back cash
payments, abused funds, and paid farmer with false checks. Under the
Akuafo system, a farmer was given a check signed by the produce clerk
and the treasurer that he could cash at a bank of his choice. Plantation
divestiture proceeded slowly, however, with only seven of fifty-two
plantations sold by the end of 1990. Although Ghana was the world's
largest cocoa producer in the early 1960s, by the early 1980s Ghanaian
production had dwindled almost to the point of insignificance. The drop
from an average of more than 450,000 tons per year to a low of 159,000
tons in 1983-84 has been attributed to aging trees, widespread disease,
bad weather, and low producer prices. In addition, bush fires in 1983
destroyed some 60,000 hectares of cocoa farms, so that the 1983-84 crop
was barely 28 percent of the 557,000 tons recorded in 1964-65. Output
then recovered to 228,000 tons in 1986-87. Revised figures show that
production amounted to 301,000 tons in 1988-89, 293,000 tons in 1990-91,
and 305,000 tons in 1992-93. After declining to 255,000 tons in 1993-94,
the crop was projected to return to the 300,000 ton range in 1994-95.
In the early 1990s, Cocobod continued to liberalize and to privatize
cocoa marketing. The board raised prices to producers and introduced a
new system providing greater incentives for private traders. In
particular, Cocobod agreed to pay traders a minimum producer price as
well as an additional fee to cover the buyers' operating and
transportation costs and to provide some profit. Cocobod still handled
overseas shipment and export of cocoa to ensure quality control.
In addition to instituting marketing reforms, the government also
attempted to restructure cocoa production. In 1983 farmers were provided
with seedlings to replace trees lost in the drought and trees more than
thirty years old (about one-fourth of the total number of trees in
1984). Until the early 1990s, an estimated 40 hectares continued to be
added to the total area of 800,000 hectares under cocoa production each
year. In addition, a major program to upgrade existing roads and to
construct 3,000 kilometers of new feeder roads was launched to ease the
transportation and sale of cocoa from some of the more neglected but
very fertile growing areas on the border with C�te d'Ivoire.
Furthermore, the government tried to increase Ghana's productivity from
300 kilograms per hectare to compete with Southeast Asian productivity
of almost 1,000 kilograms per hectare. New emphasis was placed on
extension services, drought and disease research, and the use of
fertilizers and insecticides. The results of these measures were to be
seem in rising cocoa production in the early 1990s.
Ghana - Other Commercial Crops
The main industrial crops are palm oil, cotton, rubber, sugar cane,
tobacco, and kenaf, the latter used in the production of fiber bags.
None is of strategic economic importance, and all, apart from oil palms,
have suffered as a result of the country's economic difficulties.
Despite claims that such crops could assist local industrialization
efforts, the government has not focused the same attention on this
sector as on export crops. For example, sugar cane output has diminished
with the closure of the country's two sugar mills, which produced
237,000 tons per year in 1974-76, but only 110,000 tons in 1989.
The government has actually encouraged the export rather than the
local processing of rubber, rehabilitating more than 3,000 hectares of
plantations specifically for export production rather than revitalizing
the local Bonsa Tire Company, which could produce only 400 tires per day
in 1988 despite its installed capacity for 1,500 per day.
By the 1990s, the tobacco sector was expanding and moving toward
higher export production. Ghana's dark-fired leaf probably grows too
fast and requires too rich a soil to compete effectively with rival
crops, but the potential for flue-cured and Burley varieties is good.
Pricing difficulties had reduced tobacco production from 3,400 tons in
the early 1970s to an estimated 1,433 tons in 1989. Output began to
improve in 1990, however, reaching 2,080 tons.
The Leaf Development Company was established in 1988 to produce
tobacco leaf for the local market and to lay the basis for a future
export industry. In 1991, the company's first commercial crop amounted
to 300 tons of flue-cured, 50 tons of Burley, and 50 tons of dark-fired
tobacco (all green leaf weights), of which 250 tons were exported,
earning US$380,000. In 1991 Rothmans, the British tobacco company,
acquired a 49.5 percent stake in the company and took over management of
the Meridian Tobacco Company in partnership with the state-owned Social
Security and National Insurance Trust. Another firm, the Pioneer Tobacco
Company, announced a 92 percent increase in post-tax profits of more
than �1 billion for 1991. The company declared dividends worth �360
million, double the amount paid out in 1990.
Cotton production expanded rapidly in the early and mid-1970s,
reaching 24,000 tons in 1977, but it fell back to one-third of this
figure in 1989. Since the reorganization of the Ghana Cotton Development
Board into the Ghana Cotton Company, cotton production has steadily
increased from 4 percent of the country's national requirement to 50
percent in 1990. Between 1986 and 1989, Ghana saved US$6 million through
local lint cotton production. The company expected that between 1991 and
1995, about 20,000 hectares of land would be put under cotton
cultivation, enabling Ghana to produce 95 percent of the national
requirement.
Ghana - Food Crops and Livestock
The main food crops are corn, yams, cassava, and other root crops.
Despite government efforts to encourage farmers to switch to production
of staples, total food production fell by an average of 2.7 percent per
year between 1971-73 and 1981-83. By 1983 Ghana was self-sufficient in
only one staple food crop--plantains. Food imports rose from 43,000 tons
in 1973 to 152,000 tons in 1981.
Those were various reasons for this poor performance, including
growing urbanization and a shift in consumer preference from starchy
home-grown staples to rice and corn. However, farmers also suffered from
shortages of production inputs, difficulties in transporting produce to
market, and competition from imported foods that were underpriced
because of the vastly overvalued cedi. Weather also played a major part,
particularly in 1983, when drought cut cereal production from 518,000
tons in 1982 to only 450,000 tons at a time when an extra million people
had to be fed after the expulsion of Ghanaians from Nigeria. Food
imports in 1982-83 amounted to 115,000 tons (40 percent as food aid),
with the 1983-84 shortfall estimated at 370,000 tons (of which food aid
commitments covered 91,000 tons).
There was a spectacular improvement beginning in 1984, mainly because
of recovery from the prior year's drought. By 1988 the agricultural
sector had vastly expanded, with food crops responsible for the bulk of
the increase. Drought conditions returned in 1990, bringing massive
falls in the production of all food crops apart from rice, but better
weather and improved production brought prices down in 1991.
In August 1990, the government moved to liberalize the agricultural
sector, announcing the end of minimum crop prices. The measure's impact
was difficult to gauge because higher production meant more food was
available at better prices anyway. The government's medium-term plan,
outlined in 1990, sought to raise average crop yields and to increase
food security, with special attention to improved producer incentives
and storage facilities.
Livestock production is severely limited by the incidence of tsetse
fly in Ghana's forested regions and by poor grazing vegetation
elsewhere. It is of major importance only in the relatively arid north
and has not been earmarked for special treatment in Ghana's recovery
program. In 1989 there were an estimated 1.2 million cattle, 2.2 million
sheep, 2 million goats, 550,000 pigs, and 8 million chickens in Ghana.
Ghana - Forestry
Forests cover about one-third of Ghana's total area, with commercial
forestry concentrated in the southern parts of the country. This sector
accounted for 4.2 percent of GDP in 1990; timber was the country's third
largest foreign exchange earner. Since 1983 forestry has benefited from
more than US$120 million in aid and commercial credits and has undergone
substantial changes, resulting in doubled earnings between 1985 and
1990. In 1993 timber and wood products earnings totalled US$140 million
against a targeted level of US$130 million. Between January and November
1994, exports amounted to 919,000 tons and earned US$212 million.
Until the 1980s, forestry production suffered because of the
overvalued cedi and deterioration of the transportation infrastructure.
Log production declined by 66 percent during 1970- 81 and sawed timber
by 47 percent. Exports fell from US$130 million in 1973 to US$15 million
in 1983, and four nationalized firms went bankrupt during that period.
The forestry sector was given a large boost in 1986, mainly because
of the World Bank's US$24 million timber rehabilitation credit, which
financed imports of logging equipment. As a consequence, log production
rose 65 percent in 1984-87, and export revenues rose 665 percent in
1983-88. Furthermore, the old Ghana Timber Marketing Board was disbanded
and replaced by two bodies, the Timber Export Development
Board--responsible for marketing and pricing, and the Forest Products
Inspection Bureau--responsible for monitoring contracts, maintaining
quality standards, grading products, and acting as a watchdog for
illegal transactions. Some of the external financing underwrote these
institutional changes, while much of the rest financed forestry
management and research as well as equipment for logging, saw milling,
and manufacturing.
The sector, however, faced several problems. The most important was
severe deforestation. A century ago, Ghana's tropical hardwood forest
extended from about the middle of the country southward to the sea.
Moreover, nearly half the country was covered with forests, which
included 680 species of trees and several varieties of mahoganies. Most
of this wood has been cut. By the early 1990s, only about one-third of
the country was still forested, and not all of this was of commercial
value. This situation has forced the government to make difficult
choices between desperately needed hard currency earnings and
conservation. The Forest Resource Management Project, part of the ERP,
was initiated in 1988, and in 1989 the government banned log exports of
eighteen species. The government later extended the list and imposed
high duties on other species, planning to phase out log and air-dried
timber exports altogether by 1994.
Instead, the government hoped to increase sales of wood products to
replace earnings from logs. Government figures showed that one cubic
meter of lumber and plywood was worth more than twice as much as the
same amount of logs; veneers earned five times as much; and other
products, such as furniture and floorings, earned six times the price of
an equivalent volume of logs. Improvements in the processing sector
caused wood products (excluding lumber) to rise to about 20 percent of
export earnings in 1991, accounting for 6.9 percent of volume exports.
By comparison, wood products represented 11 percent of earnings and 5.5
percent of volume in 1985. The fall in the proportion of volume sales
accounted for by logs was accompanied by a dramatic fall in their share
in earnings, from 50-60 percent in the mid-1980s to 23 percent in 1990.
By the early 1990s, there were approximately 220 lumber processors in
Ghana, but the industry operated under several constraints. Most
overseas demand is for kiln-dried products, and Ghanaian manufacturers
lack sufficient kilns to meet that demand. The cheap air-dried
processing method is not satisfactory because air-dried wood tends to
destabilize over time. Foreign investment incentives are not so
attractive in this sector as in others, for example, mining.
Furthermore, infrastructure in the Western Region where lumber
processing is located continues to be relatively neglected compared with
mining and cocoa production regions. Other difficulties include lack of
expertise at technological and managerial levels. Scandals have been
reported in Ghana's forestry industry since 1986, and they erupted again
in early 1992. The most notable case involved African Timber and
Plywood, once Ghana's largest exporter of round logs. In the mid-1980s,
the government embarked on a US$36 million rehabilitation project to
boost the company's production. In 1992 as much as US$2.3 million was
alleged to have been siphoned off from the project through various
malpractices, and a number of officials were arrested. Furthermore, the
environmental group, Friends of the Earth, alleged that there had been
additional thefts by numerous foreign companies totaling almost US$50
million in hard currency during the 1980s. In 1992 the government began
investigating the activities of hundreds of companies, both foreign and
local, that were alleged to have entered into a range of illegal
dealings including smuggling, fraudulent invoicing, violation of local
currency regulations, corruption, bribery, and nonpayment of royalties.
The corruption is so wide spread, however, that it is unlikely that the
Ghanaian authorities will stop timber-related crimes anytime soon.
Ghana - Fishing
Fishing increased considerably in the late 1960s, from 105,100 tons
of marine fish caught in 1967 to 230,100 tons in 1971. In 1982 the yield
was 234,100 tons, composed of 199,100 tons of marine varieties and
35,000 tons of freshwater fish from Lake Volta. The industry was hit by
fuel shortages, inadequate storage facilities, and the general economic
difficulties of the 1970s and the 1980s. Nevertheless, by 1988 the fish
catch was 302,900 tons; by 1991 it amounted to 289,675 tons, down from
more than 319,000 tons in 1990.
Large-scale poaching by foreign vessels has severely depleted fish
stocks in Ghana's 200-nautical-mile maritime Exclusive Economic Zone,
causing major government concern. The most affected stocks are sea
bottom-feeding fish. Tuna stocks reportedly remain unaffected. A 1992
Ministry of Food and Agriculture report recommended that the government
accelerate mobilization of surveillance and enforcement units and step
up regulation of trawler fleets. That same year, the government passed a
fisheries law to curb overfishing and to help protect the marine
environment. Fishermen were banned from catching specified shellfish,
and all fishing vessel operators were required to obtain licenses. The
law provided for a regulatory body--the Fisheries Monitoring, Control,
Surveillance, and Enforcement Unit--as well as a fisheries advisory
council. These organizations, however, both of which are underfunded and
undermanned, are unlikely to stop illegal fishing activities anytime
soon.
Ghana - MINING AND OIL
Ghana's mineral sector had started to recover by the early 1990s
after its severe decline throughout the 1970s. One indicator of the
scale of decline was that by 1987, only four gold mines were operating
in Ghana, compared with eighty in 1938. Throughout the 1970s, the output
of gold, as well as bauxite, manganese, and diamonds, fell steadily.
Foreign exchange shortages inhibited mine maintenance, new exploration,
and development investment. The overvalued cedi and spiraling inflation
exacerbated mining companies' problems, as did smuggling and the
deteriorating infrastructure. Energy supplies failed to meet the
industry's growing needs; foreign exchange shortages constrained oil
imports, and domestically generated hydroelectricity was unable to make
up the shortfall.
After 1983, however, the government implemented a series of measures
to enhance the sector's appeal. In 1986 new mining legislation for the
gold and diamond sectors replaced the previous complex and obsolete
regulations, and a generous incentives system was established that
allowed for external foreign exchange retention accounts, capital
allowances, and a flexible royalties payment system. Since then the
sector has benefited from a wave of fresh investment totaling US$540
million since 1986, and by the early 1990s mining was the country's
second highest foreign exchange earner.
Under legislation passed after 1983, the government liberalized and
regularized the mining industry. For the first time, the government made
small claim-holding feasible, with the result that individual miners
sold increasing amounts of gold and diamonds to the state-operated
Precious Minerals Marketing Company. In 1990 the company bought 490,000
carats of diamonds and 20,000 ounces of gold and earned a total of
US$20.4 million through sales, 70 percent of it from diamond sales and
30 percent from gold bought from smallscale operators. Diamond output
totaled 688,000 carats in 1991 and 694,000 carats in 1992, while gold
production amounted to 843,000 fine ounces in 1991 and 1,004,000 fine
ounces in 1992. Furthermore, the government succeeded in attracting
significant foreign investment into the sector and, by early 1991, had
signed over sixty mining licenses granting prospecting rights to
international companies. To forestall domestic criticism of large-scale
foreign control of the sector, the government announced in mid-1991 the
establishment of a state-controlled holding company to buy shares in
mines on behalf of private, that is, foreign, investors.
Ghana - Gold
Ghana has produced and exported gold for centuries. In precolonial
times, present-day Ghana was one source of the gold that reached Europe
via trans-Saharan trade routes. In the fifteenth century, Portuguese
sailors tried to locate and to control gold mining from the coast but
soon turned to more easily obtained slaves for the Atlantic slave trade.
Most gold mining before the mid-nineteenth century was alluvial, miners
recovering the gold from streams. Modern gold mining that plumbs the
rich ore deposits below the earth's surface began about 1860, when
European concessionaires imported heavy machinery and began working in
the western areas of present-day Ghana. The richest deposit, the Obuasi
mine, was discovered by a group of Europeans who sold their rights to
E.A. Cade, the founder of Ashanti Goldfields Corporation (AGC). Since
the beginning of the twentieth century, modern mining in the Gold Coast
has been pursued as a large-scale venture, necessitating significant
capital investment from European investors.
Under British colonial rule, the government controlled gold mining to
protect the profits of European companies. The colonial government also
restricted possession of gold as well as of mercury, essential in
recovering gold from the ore in which it is embedded. Following
independence, foreign control of the sector was tempered by increasing
government involvement under the Nkrumah regime; however, production
began to decline in the late 1960s and did not recover for almost twenty
years. In the mid-1960s, many mines began to hit poorer gold reefs.
Despite the floating of the international gold price in the late 1960s,
few investors were willing to invest, and the government failed to
provide the capital necessary to expand production into new reefs. Of
the two major gold mining enterprises, neither the State Gold Mining
Corporation nor AGC (40 percent controlled by the government) expanded
or even maintained production.
Under the ERP, the mining sector was targeted as a potential source
of foreign exchange, and since 1984, the government has successfully
encouraged the rejuvenation of gold mining. To offer incentives to the
mining industry, the Minerals and Mining Law was passed in 1986. Among
its provisions were generous capital allowances and reduced income
taxes. The corporate tax rate was set at 45 percent, and mining
companies could write off 75 percent of capital investment against taxes
in the first year and 50 percent of the remainder thereafter. The
government permitted companies to use offshore bank accounts for service
of loans, dividend payments, and expatriate staff remuneration.
Companies are permitted to retain a minimum of 25 percent of gross
foreign exchange earnings from minerals sales in the accounts, a level
that can be negotiated up to 45 percent. Reconnaissance licenses are
issued for one-year renewable periods, prospecting licenses are valid
for three years, and mining licenses are in force for up to thirty
years. The government has the right to 10 percent participation in all
prospecting and to extend its share if commercial quantities of a
mineral are discovered. In response, between 1985 and 1990 eleven
companies became active with foreign participation, representing
investments totaling US$541 million. Since 1986 there has been a gradual
recovery in overall production.
More than 90 percent of gold production in the early 1990s came from
underground mines in western Ashanti Region, with the remainder coming
from river beds in Ashanti Region and Central Region. AGC, the country's
largest producer, mined 62,100 fine ounces in January 1992, the highest
monthly production ever recorded since the company began operation in
1897. The company also lowered its costs in relation to production
during the last quarter of 1991 from 0.26 percent in October to 0.24
percent in December. Production during the company's fiscal year of
October 1990 to September 1991 was 569,475 fine ounces, 42 percent more
than the previous year's figure of 400,757 fine ounces and the largest
amount ever produced by the mine. The second largest amount produced was
533,000 fine ounces, produced in 1972.
AGC planned major expansions in the early 1990s funded by World Bank
loans. In early 1991, the corporation announced the discovery of new
reserves estimated at more than 8 million ounces, in addition to its
known reserves of 22.3 million ounces. The new reserves include
lower-grade and remnant ores that the corporation had been unwilling to
mine because of high costs. AGC planned to lower costs through
capital-intensive operations and a sharp reduction of labor costs. It
also planned then to raise output from a projected 670,000 fine ounces
for 1992 to more than 1 million fine ounces a year in 1995. The
expansion was to be funded by an International Finance Corporation loan
package totaling US$140 million. AGC was to put up the balance,
estimated to exceed US$200 million.
AGC was not the only company to benefit from an upsurge in
production. Despite its increased production, the company's overall
share of the domestic gold market declined from 80 percent to 60 percent
in the same period that other operators entered the industry.
Provisional figures for 1991 showed that two new mines, Teberebie and
Billiton Bogoso, produced 100,000 fine ounces each, while other
companies, including State Gold Mining Corporation, Southern Cross
Mining Company, Goldenrae, Bonte, and Okumpreko, were stepping up
production.
Several other enterprises were on the drawing board or were about to
open by mid-1992. The British company Cluff Resources had raised US$10.2
million to finance a new mine at Ayanfuri. The company had been involved
in exploration since 1987 and planned to produce as much as 50,000
ounces of gold annually. A CanadianGhanaian joint-venture gold mine and
associated processing facilities was commissioned in mid-1991 in Bogoso,
western Ghana. Finally, in May 1992, a joint-venture company was created
to prospect for gold in the Aowin Suamang district in Western Region.
Shareholders in the new company included the Chinese government (32.68
percent), private investors in Hong Kong (32 percent), the Ghanaian
government (10 percent) and private Ghanaian interests.
In 1992, Ghana's gold production surpassed 1 million fine ounces, up
from 327,000 fine ounces in 1987. In March 1994, the Ghanaian government
announced that it would sell half of its 55 percent stake in AGC for an
estimated US$250 million, which would then be spent on development
projects. The authorities also plan to use some of the capital from the
stock sale to promote local business and to boost national reserves. The
minister of mines and energy dispelled fears that the stock sale would
result in foreign ownership of the country's gold mines by saying that
the government would have final say in all major stock acquisitions.
Ghana - Diamonds
The government also is trying to expand Ghana's diamond mining
industry, which has produced primarily industrial grade gems from
alluvial gravels since the 1920s Diamond Jewelry. More than 11 million carats of proven
and probable reserves are located about seventy miles northwest of
Accra. The main producer is the state-owned Ghana Consolidated Diamonds
(GCD), which operates in the Birim River Basin. In the 1960s, the
company mined 2 million carats of diamonds a year, but annual production
in 1991 amounted to only 146,000 carats. This downturn resulted from
technical problems and GCD's weak financial position. Production from
all mines came to 688,000 carats in 1991 and to 694,000 carats in 1992.
In the early 1990s, the government announced plans to privatize its
diamond-mining operations and to expand production. At Accra's
invitation, De Beers of South Africa agreed to undertake an
eighteen-month feasibility study to determine the extent of the Birim
River Basin diamond reserves. The survey was to cost US$1 million. A De
Beers subsidiary will be the operator and manager of GCD, while Lazare
Kaplan International, a New York-based diamond polishing and trading
company, will produce and market the diamonds.
In 1989 the government established the Precious Minerals Marketing
Corporation (PMMC) to purchase minerals from small producers in an
effort to stem diamond smuggling. Estimates suggested that as much as 70
percent of Ghana's diamonds were being smuggled out of the country in
the mid-1980s. In its first sixteen months of operation, the PMMC bought
382,423 carats of diamonds and 20,365 ounces of gold and sold 230,000
carats of diamonds worth US$8 million. The corporation also earned �130
million in 1991 on its jewelry operations, up 48 percent from the
previous year, and it planned to establish joint marketing ventures with
foreign firms to boost sales abroad. Nevertheless, because of new
complaints over raw gem sales, the government in March 1992 ordered an
investigation into the operations of the state agency and suspended its
managing director.
Ghana - Manganese
Although commercial quantities of offshore oil reserves were
discovered in the 1970s, by 1990 production was still negligible. In
1983 the government established the Ghana National Petroleum Corporation
(GNPC) to promote exploration and production, and the company reached
agreements with a number of foreign firms. The most important of these
permitted US-based Amoco to prospect in ten offshore blocks between Ada
and the western border with Togo. Petro Canada International has
prospected in the Tano River Basin, and Diamond Shamrock in the Keta
Basin. In 1989 three companies, two American and one Dutch, spent US$30
million drilling wells in the Tano basin. On June 21, 1992, an offshore
Tano basin well produced about 6,900 barrels of oil daily.
In the early 1990s, GNPC reviewed all earlier oil and gas discoveries
to determine whether a predominantly local operation might make
exploitation more commercially viable. GNPC wanted to set up a floating
system for production, storage, off-loading, processing, and gas-turbine
electricity generation, hoping to produce 22 billion cubic feet per day,
from which 135 megawatts of power could be generated and fed into the
national and regional grid. GNPC also won a contract in 1992 with
Angola's state oil company, Sonangol, that provides for drilling and,
ultimately, production at two of Sonangol's offshore oilfields. GNPC
will be paid with a share of the oil.
The country's refinery at Tema underwent the first phase of a major
rehabilitation in 1989. The second phase began in April 1990 at an
estimated cost of US$36 million. Once rehabilitation is completed,
distribution of liquified petroleum gas will be improved, and the
quantity supplied will rise from 28,000 to 34,000 barrels a day.
Construction on the new Tema/Akosombo oil products pipeline, designed to
improve the distribution system further, began in January 1992. The
pipeline will carry refined products from Tema to Akosombo Port, where
they will be transported across Lake Volta to northern regions.
Distribution continues to be uneven, however. Other measures to improve
the situation include a US$28 million project to set up a national
network of storage depots in all regions.
The Tema Lube Oil Company commissioned its new oil blending plant,
designed to produce 25,000 tons of oil per year, in 1992. The plant will
satisfy all of Ghana's requirements for motor and gear lubricants and 60
percent of the country's need for industrial lubricants, or, in all, 90
percent of Ghana's demand for lubricant products. Shareholders include
Mobil, Shell, and British Petroleum (together accounting for 48 percent
of equity), Ghana National Petroleum Corporation, and the Social
Security and National Insurance Trust.
Ghana - Manufacturing
At independence in 1957, the Nkrumah government launched an
industrialization drive that increased manufacturing's share of GDP from
10 percent in 1960 to 14 percent in 1970. This expansion resulted in the
creation of a relatively wide range of industrial enterprises, the
largest including the Volta Aluminum Company (Valco) smelter, saw mills
and timber processing plants, cocoa processing plants, breweries, cement
manufacturing, oil refining, textile manufacturing operations, and
vehicle assembly plants. Many of these enterprises, however, survived
only through protection. The overvalued cedi, shortages of hard-currency
for raw materials and spare parts, and poor management in the state
sector led to stagnation from 1970 to 1977 and then to a decline from
1977 to 1982.
Thereafter, the manufacturing sector never fully recovered, and
performance remained weak into the 1990s. Underutilization of industrial
capacity, which had been endemic since the 1960s, increased alarmingly
in the 1970s, with average capacity utilization in large- and
medium-scale factories falling to 21 percent in 1982. Once the ERP
began, the supply of foreign exchange for imported machinery and fuel
substantially improved, and capacity utilization climbed steadily to
about 40 percent in 1989. Nevertheless, by 1987 production from the
manufacturing sector was 35 percent lower than in 1975 and 26 percent
lower than in 1980.
Ghana's record with industrialization projects since independence is
exemplified by its experience with aluminum, the country's most
conspicuous effort to promote capital-intensive industry. This venture
began in the mid-1960s with the construction of a 1,186-megawatt
hydroelectric dam on the lower Volta River at Akosombo. Built with
assistance from Britain, the United States, and the World Bank, the
Akosombo Dam was the centerpiece of the Volta River Project (VRP), which
the Nkrumah government envisioned as the key to developing an integrated
aluminum industry based on the exploitation of Ghana's sizable bauxite
reserves and its hydroelectric potential. Foreign capital for the
construction of an aluminum smelter in Tema was obtained from US-based
Kaiser Aluminum, which acquired a 90 percent share in Valco, and from
USbased Reynolds Aluminum, which held a 10 percent share. Valco became
the principal consumer of VRP hydroelectricity, using 60 percent of
VRP-generated power and producing up to 200,000 tons of aluminum
annually during the 1970s.
Changing global economic conditions and severe drought dramatically
affected the Ghanaian aluminum industry during the 1980s. The discovery
of vast bauxite reserves in Australia and Brazil created a global
oversupply of the mineral and induced a prolonged recession in the
aluminum trade. Under these conditions, Valco found it far more
economical to import semi-processed alumina from Jamaica and South Korea
than to rely on local supplies, despite the discovery in the early 1970s
of sizable new deposits at Kibi. Valco's refusal to build an aluminum
production facility brought Kaiser and Reynolds into bitter conflict
with the government.
Severe drought compounded the effects of unfavorable market
conditions by reducing the electricity generating capacity of the
Akosombo Dam and by forcing a temporary shutdown of the smelter from
1983 to 1985. Aluminum production was slow to recover in the wake of the
shutdown. In the early 1990s, aluminum production and exports continued
to be negligible.
Drastic currency devaluation after 1983 made it exceptionally
expensive to purchase inputs and difficult to obtain bank credit, which
hurt businessmen in the manufacturing sector. Furthermore, the ERP's
tight monetary policies created liquidity crises for manufacturers,
while liberalization of trade meant that some enterprises could not
compete with cheaper imports. These policies hurt industries beset by
long recession, hyperinflation, outmoded equipment, weak demand, and
requirements that they pay 100 percent advances for their own inputs.
Local press reports have estimated the closure of at least 120 factories
since 1988, mainly because of competitive imports. The garment, leather,
electrical, electronics, and pharmaceuticals sectors have been
particularly hard hit. In 1990, even the New Match Company, the only
safety match company in the country, closed.
ERP strategies made it difficult for the government to assist local
enterprises. Committed to privatization and the rule of freemarket
forces, the government was constrained from offering direct assistance
or even from moderating some policies that had an obviously detrimental
impact on local manufacturers. Nevertheless, the Rawlings government
initiated programs to promote local manufacturing.
In 1986 the government established the Ghana Investment Center to
assist in creating new enterprises. Between 1986 and 1990, the vast
majority of projects approved--444 of 621--were in the manufacturing
sector. Projected investment for the approved ventures was estimated at
US$138 million in 1989 and at US$136 million in 1990. In the initial
phase, timber was the leading sector, giving way in 1990 to chemicals.
In 1991 the government established an office to deal with industrial
distress in response to complaints that "unrestrained imports"
of foreign products were undermining local enterprises. The 1992 budget
included assistance for local industrialists; �2 billion was set aside
as financial support for "deserving enterprises."
The dominant trends in manufacturing, nonetheless, were the
involvement of foreign capital and the initiation of joint ventures.
Significant new enterprises included a US$8 million Taiwanese-owned
factory, capable of turning out ten tons of iron and steel products per
hour, which began trials at Tema in 1989. Although approximately 500
projects had been approved since the investment code came into force in
1985, almost half had still not been launched by the end of 1989.
Between 90 and 95 percent of the approved projects were joint ventures
between foreign and local partners, 80 percent of which were in the wood
industry. Restructuring of the sector was proceeding through
divestiture, import liberalization, and promotion of small-scale
industries.
Ghana - Tourism
