GHANA: THE MIDFIELD ECONOMIC GROWTH MODEL

UNCLAS ACCRA 001604 SIPDIS E.O. 12958: N/A TAGS: ECON PGOV PINR GH SUBJECT: GHANA: THE MIDFIELD ECONOMIC GROWTH MODEL ¶1. SUMMARY: An economic analyst with ties to ruling party NPP candidate Nana Akufo-Addo praised the Kufuor Administration's economic record, noted remaining problems, and laid out key economic policy proposals and benchmarks necessary for the success of the next President of Ghana. END SUMMARY. ¶2. At an economic talk for President Kufuor, his economic advisors, and the diplomatic community, Dr. K.Y. Amoako, a former UN Under Secretary General and head of African Center for Economic Transformation (ACET),an economic think tank with ties to the ruling New Patriotic Party (NPP),praised the Kufuor Administration's economic record, identified a few problem areas, and laid out his economic policy proposals and benchmarks for success by the next President of Ghana. ¶3. K.Y., as Dr. Amoako is known, is rumored to be one of NPP presidential candidate Nana Akufo-Addo's unofficial economic advisors. Although K.Y. did not claim to be speaking for the candidate or the party, his selection as keynote speaker for the event attended fully by President Kufuor underscored the weight of his words. ECONOMIC STRATEGY: PLAY THE MIDFIELD -------------- ¶4. K.Y. proposed what he termed the "MIDFIELD" strategy for transformational economic growth, playing on Ghana's infatuation with soccer, a goal of reaching middle income status in the next seven years, and what the speaker characterized as the country's role playing both offense and defense in the regional and global economies. His points, the acronym for "MIDFIELD," follow. ¶5. M: Modernizing agriculture. K.Y. claimed that no country with the size of Ghana's agricultural sector (36 percent of the economy) could realize economic improvements without agricultural modernization. Ghana's main strategy should be to increase its higher-value agricultural exports, such as livestock and processed agricultural products. He also saw the need for introduction of an inventory control system, a strengthening of property rights, and optimization of land use through changes to land management policies -- which he said traditional regional leaders such as tribal chiefs would oppose, but was necessary nonetheless for Ghana's growth. ¶6. I: Investing in infrastructure. K.Y. told the politicians, economists and policymakers assembled that Ghana had among the poorest quality of infrastructure in the world (88 out of 100 countries),with the GOG currently not meeting the minimum spending threshold to achieve Millennium Development Goals in infrastructure, which he pegged at 10 percent of GDP for a decade, from 2005 to ¶2015. He cited the PRC's cost-recovery policy as one way to create a first-class infrastructure base. ¶7. D: Diversifying exports. Ghana has spent too long focusing on traditional exports of gold, cocoa and lumber. K.Y. called for focus on the service sector, long underdeveloped in Ghana. This tied in to agricultural modernization with a proposed expansion of horticulture and the food processing industry. ¶8. F: Fundamental financial system reforms. The speaker asked the audience to consider both basic reforms such as improving the country's system of land registries, which are a drag on land use, and more innovative measures. In a country where funerals are major expenses and events for families, he proposed funeral lending by banks (NOTE: Ghanaian banks are notoriously conservative in their consumer lending. END NOTE). He also proposed loosening current regulations stifling microfinance in the countryside. ¶9. I: Increasing regional integration. The economist also said it was too difficult to cross borders in West Africa, greatly hindering regional trade in ECOWAS. K.Y. stated the need for the West African Gas Pipeline, which has taken 26 years to near fruition and is still hampered by supply problems in Nigeria. He also called for more regional airlines in West Africa to alleviate chronic road transport obstacles and to facilitate unrealized trade with nearby countries such as Mali. ¶10. E: Enhancing employment. Improvements in private sector growth in urban areas of Ghana have unfortunately led to unemployment in rural areas, K.Y. stated. He bemoaned a decline in manufacturing, now at only 6.4 percent, a two point drop from earlier in the decade. He called for growth in small and medium enterprises in order to encourage innovation and job creation. K.Y. noted that SMEs only contribute 10 percent of GDP, but they could, and should, be as high as 50 percent of Ghana's economy. One reason for the dearth of SMEs was that they can be the hardest element of the economy for government bureaucrats to comprehend and assist. ¶11. L: Leveraging technology. Calling technology the bedrock of transformational economic growth, K.Y. called for more research in scientific and technology fields. He noted that ICT (information and communications technology) was one of the most vibrant sectors of the economy. ¶12. D: Delivering transformation through the developmental state. This requires lean, efficient institutions (NOTE: sorely lacking in Ghana. END NOTE) focused on 1) a vision of how to decentralize governance; 2) macroeconomic stabilization and rightsizing the current account deficit; 3) understanding one's own endowments and competitive advantages; and 4) protecting the vulnerable in society. A SCORECARD FOR THE NEXT ADMINISTRATION -------------- ¶13. K.Y. offered three indicators that he would be closely monitoring in the next government to determine whether its economic policies are successful. They are: o Progress on Millenium Development Goals through 10 percent decreases in a) Ghana's infant mortality rate, b) the rate of deaths from childbirth, and c) HIV/AIDs and malaria infection rates. o 30 percent growth in manufacturing and service sector employment in order to create work for Ghana's youth, avoiding the economic destabilization caused by youth under-employment. o 25 percent growth in the university student population, which K.Y. sees as necessary to increasing human capital in Ghana and complementary to other factors of production. COMMENT -------------- ¶14. Recalling Africa's post-colonial history, Amoako stressed that institutions and ideas matter. Whether the ruling party candidate will pay heed to the MIDFIELD game plan, or if it is even achievable, is unclear. But its common sense approach, grounded in pro-market economic principles and astute observations, is hard to refute. Unfortunately for recent economic performance, politicians in pro-growth Ghana sometimes seek short-term gain at the expense of long-term development. Seasoned economic observers point out that some of the elements of his plan are already contained in the government's Ghana Proverty Reduction Strategy (GPRS) I of 2003-2006 and GPRS II of 2006-2009, but wonder why it is taking so long to achieve progress in these goals. TEITELBAUM