ECONOMY
By West African standards, Ghana has a relatively diverse and rich natural resource base Minerals--principally gold, diamonds, manganese ore, and bauxite--are produced and exported. Exploration for oil and gas resources is ongoing. Timber and marine resources are important but declining resources.
Agriculture remains a mainstay of the economy, accounting for more than one-third of GDP and about 55% of formal employment. Cash crops consist primarily of cocoa and cocoa products, which typically provide about one-third of export revenue, timber products, coconuts and other palm products, shea nuts (which produce an edible fat), and coffee. Ghana also has established a successful program of nontraditional agricultural products for export including pineapples, cashews, and peppers. Cassava, yams, plantains, corn, rice, peanuts, millet, and sorghum are the basic foodstuffs. Fish, poultry, and meat also are important dietary staples.
Ghana's industrial base is relatively advanced compared to many other African countries. Industries include textiles, apparel, steel (using scrap), tires, oil refining, flour milling, beverages, tobacco, simple consumer goods, and car, truck, and bus assembly. Industry, including mining, manufacturing, construction and electricity, accounts for about 25% of GDP.
Gold shares the top export revenue spot with cocoa, each bringing in about $1 billion in 2006. Tourism has become one of Ghana's largest foreign income earners (ranking third in 2005 at $836 million), and the Ghanaian Government has placed strong emphasis on further development of the sector. The country's largest source of foreign exchange is remittances from abroad, which totaled about $4 billion in 2006.
Ghana's post-independence economic story has been a difficult one, but over the last 20 years, stability and growth have increasingly taken hold. Real GDP growth has averaged 4% since the mid-80s and was about 6% 2004-2006. Inflation and interest rates have declined steadily, particularly over the last decade. Ghana's poverty rate has also come down markedly, from 51.7% in 1991 to 28.5% in 2005/2006. Ghana is on track to meet the Millennium Development goal of halving extreme poverty by 2008, well ahead of the 2015 target.
Economic
Development
At independence, Ghana had a substantial physical and social infrastructure and $481 million in foreign reserves. The Nkrumah government further developed the infrastructure and made important public investments in the industrial sector. With assistance from the United States, the World Bank, and the United Kingdom, construction of the Akosombo Dam was completed on the Volta River in 1966. Two U.S. companies built Valco, Africa's largest aluminum smelter, to use power generated at the dam. Aluminum exports from Valco used to be a major source of foreign exchange for Ghana, but an investment dispute beginning in 2001, followed by sale back to the government, has led to sporadic operation in recent years, and it was closed again in March 2007 due to the country's energy crisis.
Many Nkrumah-era investments were monumental public works projects and poorly conceived, badly managed agricultural and industrial schemes. With cocoa prices falling and the country's foreign exchange reserves fast disappearing, the government resorted to supplier credits to finance many projects. By the mid-1960s, Ghana's reserves were gone, and the country could not meet repayment schedules. The National Liberation Council responded by abandoning unprofitable projects and selling some inefficient state-owned enterprises to private investors. On three occasions, Ghana's creditors agreed to reschedule repayments due on Nkrumah-era supplier credits. Led by the United States, foreign donors provided import loans to enable the foreign exchange-strapped government to import essential commodities.
Prime
Minister Busia's government (1969-72) liberalized controls to
attract foreign investment and to encourage domestic entrepreneurship.
Investors were cautious, however, and cocoa prices declined again
while imports surged, precipitating a serious trade deficit. Despite
considerable foreign assistance and some debt relief, the Busia
regime also was unable to overcome the inherited restraints on
growth posed by the debt burden, balance-of-payments imbalances,
foreign exchange shortages, and mismanagement.
Although
foreign aid helped prevent economic collapse and was responsible
for subsequent improvements in many sectors, the economy stagnated
in the 10-year period preceding the NRC takeover in 1972. Population
growth offset the modest increase in gross domestic product, and
real earnings declined for many Ghanaians.
To
restructure the economy, the NRC, under General Acheampong (1972-78),
undertook an austerity program that emphasized self-reliance,
particularly in food production. These plans were not realized,
however, primarily because of post-1973 oil price increases and
a drought in 1975-77 that particularly affected northern Ghana.
The NRC, which had inherited foreign debts of almost $1 billion,
abrogated existing rescheduling arrangements for some debts and
rejected other repayments. After creditors objected to this unilateral
action, a 1974 agreement rescheduled the medium-term debt on liberal
terms. The NRC also imposed the Investment Policy Decree of 1975--effective
on January 1977--that required 51% Ghanaian equity participation
in most foreign firms, but the government took 40% in specified
industries. Many shares were sold directly to the public.
Continued
mismanagement of the economy, record inflation (more than 100%
in 1977), and increasing corruption, notably at the highest political
levels, led to growing dissatisfaction. The post-July 1978 military
regime led by General Akuffo attempted to deal with Ghana's economic
problems by making small changes in the overvalued cedi and by
restraining government spending and monetary growth. Under a one-year
standby agreement with the International Monetary Fund (IMF) in
January 1979, the government promised to undertake economic reforms,
including a reduction of the budget deficit, in return for a $68
million IMF support program and $27 million in IMF Trust Fund
loans. The agreement became inoperative, however, after the June
4 coup that brought Flight Lieutenant Rawlings and the AFRC to
power for 4 months.
In
September 1979, the civilian government of Hilla Limann inherited
declining per capita income, stagnant industrial and agricultural
production due to inadequate imported supplies, shortages of imported
and locally produced goods, a sizable budget deficit (almost 40%
of expenditures in 1979), high inflation, "moderating"
to 54% in 1979, an increasingly overvalued cedi, flourishing smuggling
and other black-market activities, high unemployment, particularly
among urban youth, deterioration in the transport network, and
continued foreign exchange constraints.
Limann's
PNP government announced yet another (2-year) reconstruction program,
emphasizing increased food production, exports, and transport
improvements. Import austerity was imposed and external payments
arrears cut. However, cocoa production and prices fell, while
oil prices soared. No effective measures were taken to reduce
rampant corruption and black marketing.
When
Rawlings again seized power at the end of 1981, cocoa output had
fallen to half the 1970-71 level and its world price to one-third
the 1975 level. By 1982, oil would constitute half of Ghana's
imports, while overall trade contracted greatly. Internal transport
had slowed to a crawl, and inflation remained high. During Rawlings'
first year, the economy was stagnant. Industry ran at about 10%
of capacity due to the chronic shortage of foreign exchange to
cover the importation of required raw materials and replacement
parts. Economic conditions deteriorated further in early 1983
when Nigeria expelled an estimated 1 million Ghanaians who had
to be absorbed by Ghana.
In
April 1983, in coordination with the IMF, the PNDC launched an
economic recovery program, perhaps the most stringent and consistent
of its day in Africa, aimed at reopening infrastructure bottlenecks
and reviving moribund productive sectors--agriculture, mining,
and timber. The largely distorted exchange rate and prices were
realigned to encourage production and exports. The government
imposed fiscal and monetary discipline to curb inflation. Through
November 1987, the cedi was devalued by more than 6,300%, and
widespread direct price controls were substantially reduced.
The
economy's response to these reforms was initially hampered by
the absorption of 1 million returnees from Nigeria, compounded
by the decline of foreign aid and the onset of the worst drought
since independence, which brought on widespread bushfires and
forced closure of the aluminum smelter and severe power cuts for
industry. In 1985, the country absorbed an additional 100,000
expellees from Nigeria. In 1987, cocoa prices declined again;
however, infrastructure repairs, improved weather, and producer
incentives and support revived output. During 1984-88 the economy
experienced solid growth for the first time since 1978. Renewed
exports, aid inflows, and a foreign exchange auction eased hard
currency constraints.
While the reforms caused substantial shocks in some sectors, particularly agriculture and textiles, the overall effects were positive and helped bring about a measure of economic stabilization and recovery. However, a big drop in world cocoa and gold prices hurt growth and, in the face of pending elections, spurred government spending, leading to an increased deficit, falling currency and high inflation at the time a new government led by John Agyekum Kufuor took office in 2000.
The economy has performed well under the Kufuor administration, but Ghana's fundamental vulnerabilities remain. The new administration continued the economic stabilization begun under the previous administration, and has taken some difficult but necessary steps such as ending subsidies of petroleum prices. Solid macroeconomic management coupled with major debt relief, large inflows of donor resources, and relatively high cocoa and gold prices have been the keys to the steady improvements in real GDP growth, which in 2004 topped 5% for the first time in a decade and reached an estimated 6.2% in 2006. Further debt relief, continued large aid inflows, favorable commodity prices, and $4 billion in gross annual remittances--this figure includes remittances from individuals as well as non-governmental organizations (NGOs) and embassies; individual remittances were estimated at about $1.8 billion in 2006--put Ghana in a stronger balance of payments position.
Ghana was recognized for its economic and democratic achievements in 2006, when it signed a five-year, $547 million anti-poverty compact with the United States' Millennium Challenge Corporation. The compact focuses on accelerating growth and poverty reduction through agricultural and rural development. The compact has three main components: enhancing the profitability of commercial agriculture among small farmers; reducing the transportation costs affecting agricultural commerce through improvements in transportation infrastructure, and expanding basic community services and strengthening rural institutions that support agriculture and agri-business. The compact is expected to contribute to improving the lives of one million Ghanaians.
Ghana's stated goals are to accelerate economic growth, improve the quality of life for all Ghanaians, and reduce poverty through macroeconomic stability, higher private investment, broad-based social and rural development, as well as direct poverty-alleviation efforts. These plans are fully supported by the international donor community.
Key economic challenges include: overcoming infrastructure bottlenecks, especially in energy and water; poor management of natural resources; improving human resource capacity and development; establishing a business and investment climate that encourages and allows private sector-led growth, and privatizing remaining state-owned enterprises, several of which are significant budget liabilities.
GDP (2006): $12.5 billion.
Real GDP growth rate (2006): 6.2%.
Per capita GDP (2006): $540.
Inflation rate (consumer prices) (2006): 11%.
Natural resources: Gold, timber, diamonds, bauxite, manganese, fish.
Agriculture: Products--cocoa, coconuts, coffee, pineapples, cashews, pepper, other food crops, rubber. Land--70% arable and forested.
Business and industry: Types--mining, lumber, light manufacturing, fishing, aluminum, tourism.
Trade (2006): Exports--$3.9 billion: cocoa ($1.26 billion), gold, timber, diamonds, manganese. Imports--$6.8 billion: petroleum ($1.3 billion), food, industrial raw materials, machinery, equipment. Major trade partners--Nigeria, China, U.S., U.K., Germany, Togo, France, Netherlands, Spain.
Fiscal year: Calendar year.
