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Ken Ofori-Atta, finance minister of Ghana, is contemplating this vibrant hub of commerce. When it is gently put to him that, at independence in 1957, Ghana’s economic prospects were considered brighter than South Korea’s, he shakes his head: “What a waste.” But, he argues, Ghana can, and must, catch up.
These ideas are driving the current administration in Accra – a vision of “Ghana beyond aid” set out by President Nana Akufo-Addo.
The government has launched ambitious plans: multibillion-dollar investments in people, infrastructure and industrial policy. If they succeed, they will propel Ghana up the list of rich countries, just as South Korea was catapulted before. If they fail, Ghana risks repeating the mistakes of the past.
Standing next to France’s President Emmanuel Macron during the latter’s tour of Africa in 2017, Akufo-Addo said: “Our concern should be what do we need to do in this 21st century to move Africa away from being cap in hand and begging for aid, for charity, for handouts. The African continent, when you look at its resources, should be giving monies to other places […]. We need to have a mindset that says we can do it […], and once we have that mindset, we will see there is a liberating factor for ourselves.”
Ghana has heard this before. In fact, the present moment is evocative of Ghana’s past under independence president Kwame Nkrumah. In 1957, Nkrumah railed against the inherited colonial structure of Ghana’s economy and made the Volta River Project the centrepiece of his tenure. He planned to “add value” to Ghana’s bauxite reserves by building a dam to generate power for an aluminium smelter.
“The only thing is that the templates this time are a bit different,” says veteran lawyer Gabby Otchere-Darko, a senior adviser to President Akufo-Addo and the ruling National Patriotic Party. “Nkrumah did not have confidence in the capacity of the Ghanaian entrepreneur. Industrialisation was not just state-sponsored but state-owned.”
Adding value is still the goal
Over the past five years, Otchere-Darko says, businesses have set up some 160 factories on the government’s ‘One District One Factory’ model (1D1F).
The plan uses soft funding from the state to help entrepreneurs identify opportunities to add value to local raw materials – for instance, the Nano pineapple juice factory in the Eastern Region.
The 1D1F project is part of a wider web of industrial policy designed to lift up Ghanaian domestic capital formation. A commodity exchange, for example – the first in West Africa – recorded its first transaction in 2018.
The Development Bank Ghana was launched officially in 2021, to help get finance at single-digit interest rates to entrepreneurs in transformative sectors, who are currently only able to obtain commercial bank credit at around 20%.
Nicholas Adjei, who runs a commercial printing company in Accra, says he only ever finances new equipment purchases out of current revenues, which limits growth: “Bank interest rates would take everything I make.”
The government is also reviving plans for Nkrumah’s darling, an integrated bauxite sector. Currently, all aluminium is exported and all alumina feedstock for the Volta Aluminium Company (Valco)refinery is imported. The Ghana Integrated Aluminium Development Corporation (GIADEC), created in 2018, is now the parent company of the Ghana Bauxite Company. It will be developing mines and is seeking a new investor for Valco to help create 300,000tn a year of aluminium that can help Ghana to develop its own aluminium-product manufacturing industries.
Beyond large state-catalysed industrial projects, the administration has taken a holistic view of how to transform Ghana’s human capital. The flagship education programme makes public senior secondary schooling free, offering both boarding and meals. The impact on enrolment rates has been dramatic, doubling in many rural areas. Added to that, there is a new hospital-building programme called Agenda 111.
The ambition is clear. But financial constraints are starting to bite. The education programme alone is estimated to cost more than $7bn. Total debt levels are at around 80% of GDP. Ghana’s debt service to revenue ratio is more than 100%.
Markets don’t want the risk
Some of this is conjunctural. Inflation caused by the conflict in Ukraine is hitting economies worldwide. But some of it reflects the market consensus on Ghana’s trajectory. Ghana’s $27bn of external debt has been performing badly on secondary markets, which suggests that the borrowing window is not about to open soon. That has made the cedi suffer against the US dollar, raising the cost of importing fuel and bolstering inflation. The government also had to pay to clean up a banking-sector collapse from the time of the previous administration. The bill: around $4bn-5bn.
A sizeable chunk of the debt is Covid-19-related. “There is no country in Africa that did what Ghana did in terms of counter-cyclical spending,” says Albert Touna Mama, resident representative of the International Monetary Fund.
But, he notes, the deficit is now 17% of GDP. The government has pushed through a new tax on digital payments to help raise the effective tax take-up from 12% of GDP, which is low for its peer group. The policy has divided the country – but many suspect that the opposition would continue it if it were to win the 2024 elections.
It is telling that the IMF has now been invited in by Ghana’s government, with a $1.5bn package appearing likely according to the most recent reports.
“An IMF program would help Ghana meet its gross financing needs via the IMF’s balance of payments support and improved access to external financing”, says Yvonne Mhango, Head of Africa Research at Renaissance Capital, who believes the IMF intervention will put the government’s debt on a sustainable path.
Beyond the short-term financial crunch, others criticise the substance of the administration’s actions, mostly for flaws in the process rather than in the vision. While no one suggests Ghana is heading more towards North Korea than South, a developmental-state project requires both policy consistency and rigour, they argue.
Brilliant, at times
Humphrey Ayim-Darke, who serves on the GIADEC board and is also president of the Association of Ghana Industries, points to the early success of the interlocked interventions in agriculture, many of which “are quite brilliant” – helping farmers create cooperatives, giving them subsidised fertiliser, creating demand for produce from the feeding schemes in schools, opening a commodity exchange and then layering on off-takers such as food-processing factories in the 1D1F scheme.
However, in 2019, the government introduced a policy to get more revenue from the ports that flooded the market with cheap agricultural goods.
“Policy inconsistency is the killer of the entrepreneurial spirit,” says Ayim-Darke. “Throw open your doors to the international market, and you kill infant industries.”
Beyond policy consistency, there is execution ability. South Korea had a strong, politically insulated civil service, with the presidency, the planning bureau and the finance ministry forming a triumvirate that came out with blueprints and organised other ministries to execute the plan. One Washington-based official claims this is not the case in Ghana.
“You never find an impact study. There is never a well-communicated plan. Never a spreadsheet or dashboard,” they say, raising concerns over waste and corruption.
Another comparison point: the South Korean government handed out subsidies on a Darwinian basis. The more companies exported, the more subsidies they would receive, creating a ratchet effect that helped birth successful domestic champions. For Ayim-Darke: “We have the blueprint, but we need the monitoring.”
Is this just teething troubles? Or perhaps the necessary pain a country goes through when pushing through a developmental-state model in a democracy, rather than the enlightened military dictatorships of post-Second World War Japan and South Korea? African peers like Ethiopia have also attempted a similar development path and struggled to contain national political fault lines – in Ethiopia’s case, the region of Tigray competing against Oromia.
Might Ghana have a head start here? Presidential adviser Otchere-Darko waves aside critics of the education plan, pointing to the opportunity cost of not having an engaged and peaceful youth. He argues that the 1884 colonial boundaries made it hard to create nations out of disparate peoples.
“I was privileged enough to go to boarding school. You meet people from different places. Your best friend may come from the north. You speak different languages,” he says. “It is one of the things that has helped us to mix.”
In the deepening of that system, he thinks that Ghana can rise above the traditional damaging swings that happen when power changes hands in the country, where an incoming administration immediately abandons all the plans of its predecessor.
Is he right? For African countries who inspired by Nkrumah shaking off its colonial shackles, Ghana’s current race for sovereignty is being keenly watched.
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