The first things that come to mind when I hear Ghana are: the famous Azonto dance move which gets me lost for a minute having a serious mental dance-off while reminiscing on that hit song in 2012 and the dancing pallbearers who went viral for their flamboyant dance routines. Beyond that, Ghana is on the verge of a major economic leap. Others may say taking the ‘Singapore approach’ to industrialization, trailblazing in economic development compared to other countries in West Africa.
The President of the Republic of Ghana, Nana Addo Dankwa Akufo-Addo, says investor confidence in Ghana’s economy is growing following the competent management of the economy exhibited since 2017. In three years inflation reduced to its lowest level (7.8% in January 2020) since 1992. For the first time in over 40 years, the fiscal deficit is below five percent (5%) of GDP for three years in a row. Additionally, the balance of trade has been in surplus for three consecutive years, a scenario saw over 20 years ago. The current account deficit is shrinking, interest rates are declining, and the average annual rate of depreciation of the cedi(Ghanaian currency) is at its lowest.
Ghana has been under the spotlight on leading business news such as Bloomberg and Financial Times for the strides in strong institutionalization, political stability, good education, and literacy. While Africa might have to wait a while to follow in Southeast Asia’s footsteps, that has not prevented individual African countries from doing so.
The Republic of Ghana is big on commodities exports, shipping an estimated US $13.9 billion worth of goods around the globe in 2019. That dollar amount reflects a 30.3% increase from 2016. The top exports included: Gold (including gold plated with platinum) unwrought or in semi-manufactured forms, or in powder form at 36% US $6.19 billion, Petroleum oils and oils obtained from bituminous minerals, crude at 31% US $5.25 billion, and Cocoa beans, whole or broken, raw or roasted at 11% US $1.85 billion. According to the Observatory of Economic Complexity (OEC), the export market has been on an upward trend since 1995 promising to soar higher as shown below.
The challenge comes in at industrialization, it has proved to be a much more reliable path to national wealth. Manufacturing is less subject to the whims of global price movements than commodities, allowing for a more diversified and complex economy and most importantly it encourages learning and rapid productivity growth.
But when a country is strong in natural resource industries, it can be hard to ignite the kind of manufacturing boom that countries such as South Korea rode from rags to riches. Strong commodity exports raise the value of a country’s exchange rate, making manufactured exports more expensive. The lack of production capacity and sustainable supply sources i.e adequate land for large-scale farming, and expensive machinery helps explain why Ghana’s laudable efforts to switch to manufacturing haven’t yet borne fruit. The country tried establishing export-oriented special economic zones similar to those of China. But these ended up specializing in commodities rather than manufacturing.
Ghana needs to keep trying. One idea is to provide subsidies specifically to manufactured exports, Rwanda is a great example. If the government subsidies were stable, reliable, large, and long-lasting, they might tilt the balance of comparative advantage. This could include subsidizing wages for workers in export-oriented manufacturing; that would allow workers to earn a decent living while factory investors save on costs. It could also mean providing export-oriented factories with cheap dedicated sources of electric power since generation has been a problem in Ghana. That would help make the country more attractive to investors from China, as well as a place where domestic entrepreneurs can flourish. Taking in skilled immigrants, especially from nearby Nigeria or the African diaspora, could also help build a pool of expertise that makes the country an attractive destination for investment.
In summary, the key policy issues is not whether to export, but how to do so in a way that provides for sustainable income growth and increase foreign exchange earnings. Access to inputs of materials, capital, technology, and a range of services is critical for international competitiveness. Thus, export success depends both on achieving economic production and being able to deliver goods and services to the world market at competitive prices. Also critical for a successful export strategy is a comprehensive and articulated approach to active trade policy and regulatory practices, with buy-in by all stakeholders, including the government, its export agencies, private export associations, think tanks, and civil societies.