Ghana takes steps to avoid oil curse

The 'model' West African nation of Ghana last week announced a five-year road map to make sure the economy is not overly dependent on oil, but the policy papers are short on details.

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By Clair MacDougall, Correspondent
posted June 7, 2011 at 3:05 pm EDT, The Christian Science Monitor - CSMonitor.com

Accra, Ghana

In December, when the small West African nation of Ghana started pumping oil, President John Atta Mills said oil revenues would be used to transform the country into a "modern industrial nation" and reduce its economic dependence on the export of raw materials.

Months later, the Ministry of Trade and Industry has launched a new industrial policy that has been lauded by some as Ghana's most comprehensive industrialization plan since the 1960s, when the nation's first president, Kwame Nkrumah, sought to transform Ghana into an economically self-sufficient nation that would no longer rely on importing goods produced in other nations.

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The policy - which the minister for trade and industry, Hanna Tetteh, called an "important historical occasion" in the nation's journey toward middle-income status - offers incentives to local and foreign companies to invest in the manufacturing sectors in order to curb Ghana's economic dependence on mining and agriculture.

Five-year road map to balance

The two policy papers, titled "Ghana's Industrial Policy" and the "Industrial Sector Support Program (ISSP)," provide a broad five-year road map for Ghana's development into a modern industrialized economy. The two documents work in tandem: the Industrial Policy provides the road map and the ISSP provides basic guidelines for implementation.

There is a strong emphasis on the development of local technical and scientific training to encourage innovation, self-sufficiency, and local employment, as well as the need to domestically produce machinery. The government has also pledged to make credit reading available to businesses and establish strong regulatory framework to govern industrial relations and the quality of goods.

The government will also focus on the agricultural sector and agroprocessing, establish public-private partnerships in the cultivation of certain crops, and attempt to balance industrial development both within cities and rural areas.

Short on details

However, the policy papers do not specify what incentives will be offered to local and foreign companies for investing in manufacturing, nor does it go into detail as to what the decisionmaking process will be for allocating government funds to specific projects. Ms. Tetteh said the amount of funding that would be allocated toward implementing the policy would depend on the annual budget.

The basic goals of the policy were a positive step forward, as they struck a balance between the focus of state intervention of the Nkrumah years and the economic and trade liberalization, says John Kwakye, senior economist at the Institute of Economic Affairs in Accra. He adds that that liberalization was fostered by the World Bank and the International Monetary Fund after Ghana was deemed a "highly indebted poor country" during the 1980s.

He said that throughout the past 25 years successive governments had not given industry and the manufacturing sector enough attention.

"During the 1960s Ghana was leading industrial development in Africa," says Dr. Kwakye.

"After independence, the government set up a whole host of industries to make the country self-sufficient and less dependent on imports," he says, referring to the more than 50 state owned and operated enterprises that were established during Nkrumah's rule - many of which collapsed due to financial mismanagement and lack of productivity or were closed during the economic liberalization that occurred under the rule of Jerry Rawlings in the 1980s.

But Kwakye was equally critical of the economic liberalization of the past two decades in which he argues that Ghana was encouraged to focus on areas where it was seen to have a competitive advantage - agriculture and mining - at the expense of its fading manufacturing sector.

Service sector now dominates

Ghana's economy has undergone significant changes in recent years with the growth of banking and telecommunications sectors.

According to figures released by the Ghana Statistical Service last year, the services sector now dominates Ghana's economy, generating 51 percent of the nation's gross national income, followed by agriculture with 31 percent and the industrial and mining sectors with 18 percent.

But Kwakye says that the dominance of the services sector was not necessarily a positive step forward for Ghana's development as it could make the national economy more vulnerable for the ups and downs of the financial sector.

"Without a strong industrial or agricultural base, you won't have a strong economy that can withstand major shocks," he says.

If implemented effectively, the new policy could strengthen Ghana's economy, but Kwakye added that it would be many years before the West African nation could catch up to the continent's only industrialized nation, South Africa.

"Ensuring that industries are competitive and giving them the legislative support and encouraging the building of capacity and technology and innovation is a positive step forward," he says. "This all looks very good on paper, but I hope the implementation will be equally strong and effective."