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Africa: ECA Policy Lecture,1
Africa: ECA Policy Lecture,1
Date distributed (ymd); 001014
Document reposted by APIC
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-Wide
Issue Areas: +economy/development+
Summary Contents:
This posting and the next contain excerpts from the concluding
section of a recent lecture by K. Y. Amoako, Executive Secretary of
the Economic Commission for Africa (ECA). The lecture gives an
overview of ECA perspectives on current economic challenges, with
special reference to Ghana. For the full text of the speech, please
contact [email protected].
+++++++++++++++++end profile++++++++++++++++++++++++++++++
Economic Development and Reform Issues in Africa: Lessons for Ghana
By K. Y. Amoako
Executive Secretary
Economic Commission for Africa
University of Ghana, Legon
September 21, 2000
V. What Do We Need to Do?
To begin with, we have to identify the structural problems that
limit Africa's economic growth and seek to redress these.
Traditionally, the pattern is that as an economy grows, the share
of agriculture declines, while that of manufacturing increases. ECA
studies show that there have indeed been structural shifts in
African economies since independence with agriculture declining
from 40 percent of GDP in the 1960s to 21 percent at the end of the
century. However, this decline in the share of agriculture has not
been accompanied by a commensurate increase in manufacturing, which
rose from 9 to 15 percent of GDP over the same period. Instead, the
service sector grew from 34 percent to 50 percent of GDP and may be
larger, since the true extent of the informal sector is not known.
If Africa is to achieve rapid growth there needs to be both a
strengthening and diversification of agriculture - which
constitutes the backbone of our economies - as well as a
substantial growth in manufacturing output relative to agriculture.
Agriculture
Let us look first at the agricultural sector, taking Ghana as a
case study. As in other African countries, agriculture's
contribution to GDP has been declining in Ghana - from 55 percent
of GDP in the first half of the 1980's to 41 percent in 1995. But
this has not been accompanied by a similar increase in
manufacturing output. Agriculture is also a classic example of the
fact that getting the prices right is not enough. Agriculture in
Ghana continues to grow at a sluggish pace. Traditional land tenure
systems, including shifting cultivation, continue to be widespread
and continue to take a heavy toll on the soil. Fertilizer usage is
low and further constrained by the removal of subsidies. Sudden
privatization of input procurement, supply and distribution led to
bottlenecks when the private sector failed to respond immediately
to these moves. The credit squeeze has curtailed agricultural
investment.
This raises complex questions. Is some form of subsidization for
agriculture, as is common in developed countries, desirable? What
role should the government be playing in the provision of inputs,
and know-how to farmers and in agricultural marketing? What do we
plan to do about irrigation? Where is the line best drawn between
the government and the private sector when it comes to agricultural
production? Ghanaians must discuss these issues and decide on a
strategy that ensures that agricultural output is doubled in a
relatively short period of time. What is certain is that
traditional approaches to production will not do the trick.
Fortunately, new technologies make transformation feasible - if
only we can find ways to tap them.
Industrialization and export diversification
Turning to industrialization, some analyses suggest that
Sub-Saharan African countries have suffered from "sustained
de-industrialization during the past decade and a half. Africa, the
least industrialized region, suffered the most serious loss in
manufacturing capacity in the developing world."
In Ghana, manufacturing growth rates declined by about one-third
between 1988 and 1995. Despite the stated aims of the Economic
Recovery Programme (ERP), there has not been significant export
diversification. While the relative share of cocoa, gold and timber
have changed, with the share of mining increasing, the total share
of these three primary product exports remains the same. Although
non-traditional exports have increased, and tourism holds great
promise given Ghana's rich history and traditions, as well as its
pristine beaches and awesome tropical forests, these areas of the
economy remain under developed.
There are three keys to a successful industrialization and economic
diversification strategy. One is to have a clear government
strategy - not to be confused with direct state involvement in
running industries, which we all acknowledge to be a thing of the
past. It is a well-known fact that in South East Asia, governments
took an active role in promoting industrialization, intervening at
strategic points through regulation and incentives and mobilizing
resources where appropriate. The second factor in promoting
industrialization and diversification is regional integration. The
third is a robust private sector response. I will elaborate briefly
on the latter two issues.
Regional integration
First, regional integration. In my statement to the Summit Meeting
of the Organization of African Unity earlier this year, I had
occasion to revisit Kwame Nkrumah's statement at the founding of
the OAU in Addis Ababa in 1963. He said, and I quote:
"Here is a challenge which destiny has thrown out to the leaders of
Africa. It is for us to grasp that golden opportunity to prove that
the genius of African people can surmount the separatist tendencies
in sovereign nationhood by coming together speedily, for the sake
of Africa's greater glory and infinite well being, into a Union of
African States."
Dear colleagues, what an opportunity lost, that today, we should be
conjuring the spirit of Nkrumah to do what we should have started
doing 37 years ago! All around us, in Europe, Asia, North America
and Latin America we see the emergence of strong regional blocs
with common interest that negotiate with one another. For
Sub-Saharan Africa, with a total income of not much more than
Belgium's, divided among 48 countries with median GDP of just over
$2 billion - about the output of a town of 60,000 in a rich country
- regional integration is not just a matter of choice. It is a
matter of survival in that jungle I just talked about. Yet, despite
the myriad of experiments with regional integration and the
multiplicity of deadlines and extensions, we are still nowhere near
achieving a United States of Africa.
The Bible says that a prophet is seldom recognized in his or her
home. As the home of Osagyefo, what have we Ghanaians done to
advance the cause of regional integration, in Africa, or in our own
Economic Community of West African States (ECOWAS), where trade
between us remains at a paltry 6 percent of the total? Admittedly,
the various conflicts in West Africa have had a negative effect on
ECOWAS, and Ghana has played an important role in helping to
diffuse many of these conflicts through its contribution to the
ECOMOG peacekeeping efforts and at the level of political
negotiation. But looking ahead, and especially now that Nigeria -
the "sleeping giant" - has awoken from its slumber, are we prepared
to seize the moment and play the honest broker role that could be
ours between francophone West Africa, with which we have close
geographical and economic ties, and the anglophone regional giant?
These are important questions not just for strengthening regional
integration in West Africa, but also for our ability to create the
necessary economies of scale for the structural diversification of
our economies.
The private sector and expatriate capital
The other critical issue is the private sector response: a
recurrent theme in this lecture. It is shocking that seventeen
years after adjustment began, we should still largely be looking
solely to foreign aid to plug Africa's financing gap rather than to
internally generated domestic savings or indigenous private
entrepreneurs. This is not just because of the debt overhang,
though that is a contributory factor. The accumulated loss of faith
by Africans in the regimes that govern them is so profound that
Africans either prefer immediate consumption to savings; or are
exporting their savings through capital flight.
Africans have transferred a staggering 37 percent of their wealth
abroad, as compared to 29 percent in the Middle East, 17 percent in
Latin America, 4 percent in South Asia and 3 percent in East Asia.
Africa is also a net exporter of its most talented human capital:
several hundred thousands highly educated Africans live and work
abroad, while over 100,000 experts from developed countries are
currently employed in Africa.
Foreign direct investment (FDI) is another measure of confidence.
The rate of return on FDI to Africa is 29 percent per year, higher
than in any other region of the world. Yet only 4 percent of the
total investment pouring into developing countries is going to
Africa. It is no good bemoaning the fact that investors aren't
coming to Africa. If Africans don't have the confidence to come
back, and if African entrepreneurs don't have the confidence to
invest, why should foreign investors, who have the whole globe to
choose from, act any differently?
These issues strike a deep chord in Ghana. By some estimates, up to
two million Ghanaians are living outside the country. One theory is
that it is the less adventurous who traveled while the more
adventurous and talented remained behind because only these
"magicians" - as the majority of Ghanaians were once called - could
work out how to survive! Being one of the less adventurous, I have
some respect for that view! But I think we can agree that the loss
of so many people, adventurous or unadventurous, has been a major
drain on Ghana's resources.
Of course, expatriate Ghanaians repatriate a significant amount of
money - by some estimates, $300 million per annum. There has been
a significant increase in investment by expatriate Ghanaians in
housing. But very little of this has yet to be channeled into the
manufacturing sectors or new areas such as tourism.
Various reasons are cited for the poor, domestic private sector
response ranging from tight monetary policy and public sector
crowding out of the private sector to political uncertainty.
Aryeetey and the other economists suggest in their book that
perhaps the government should run a tighter fiscal policy and
looser monetary policy. But qualitative research suggests that the
reasons for the reticence of the private sector run much deeper;
that they are imbedded in a continued lack of trust between the
government and entrepreneurs. Two decades since traders were chased
out of Makola Market by the then military government, rebuilding
confidence between government and the private sector remains a
matter of absolute priority.
Given the pervasive involvement by the state in almost every area
of African economic life in the past, privatization is potentially
an important means of boosting the domestic private sector and
indeed of helping to repair relations between the government and
local entrepreneurs. Typically, it is the "dogs" that get sold off
first - the kind of enterprises that would be cheaper for the
government to give away because they are actually a liability to
the fiscus. The resolve to privatize tends to wane as the list gets
to those items regarded as the "family silver". Yet there is seldom
really a good reason for governments to hang onto even these items.
A good case in point is infrastructure - traditionally an area of
government monopoly and one whose perilous state in Africa needs no
further elaboration by me! Why should infrastructure be the sole
preserve of government when its provision and management are
potentially profitable, and when it is a cornerstone for business
development? Of particular concern is the telecommunications sector
- an area crying out for reform if Africa is to take advantage of
information technology: one of the most exciting developments this
century.
Ghana has shown foresight by opening telecommunications to private
investors. Plans are well advanced for private-public sector
partnerships in the provision of clean water and electricity as
well as rebuilding the country's road network. It is estimated that
the cost of redressing backlogs in the energy, water and road
sectors in Ghana is between $4.55 billion and $5.55 billion. This
compares with an average aid budget of a bit less than one billion
dollars per annum. Clearly neither donor funds nor government
revenue would be sufficient to address infrastructure needs.
However, privatization more broadly has not been without its upsets
in Ghana as in the rest of Africa. The pace has slackened, and at
times there have been allegations of a lack of transparency. An
important means both of increasing transparency and facilitating
local participation in privatization is through the development of
capital markets. Capital market-based privatization provides an
improved chance of fair pricing of the enterprises, and hence
serves as an important means of de-politicizing the privatization
process. In addition, privatization, through local capital markets,
allows for local investor participation and hence enhanced
diversity of ownership of the country's assets.
Turning specifically to foreign direct investment, the interest in
the gold mining sector (estimated at upwards of $1.5 billion) is,
unfortunately, still not reflected in other areas of the Ghanaian
economy. Some smart targeting has taken place in the recent wooing
of foreign investors from South East Asia. But there is so much
more potential to be exploited: we don't have to beat paths only to
the west - or to Obuasi! From north to south, from the coast to the
desert, from the chop bars to the five star beach resorts, Ghana is
a country resplendent with investment opportunities!
Human capital
Growth, development and innovation are ultimately by people, for
people. A feature of African economic performance even during the
good years is that rapid growth was achieved through expanded use
of resources both in agriculture and industry rather than gains in
productivity. Addressing productivity is now a matter of urgency.
That means investing in people. In the recent growth literature on
Africa, low levels of investment in human capital have been
identified as major impediments to growth.
Education
Ghana is no exception. Nearly half of all Ghanaian adults are
illiterate - the majority of these women. According to UNDP, one in
four children are out of school. How can we ensure a basic
education for all? How do we plan to eradicate the scourge of
illiteracy? Our universities are overcrowded, and under-equipped.
I need not expound on the state of education today: we all know
that the Legon that we come to pay tribute to today is a skeleton
of its former self, even if its indomitable spirit lives on. This
is a point that Alex Kwapong, a former Vice Chancellor of this
University, together with his colleagues in a study on capacity
building in Ghana, has confirmed. If I could digress for one
minute: it was indeed this very Vice Chancellor, who chaired the
interview panel that decided on my getting a scholarship to go to
Berkeley. I shall never forget how the learned professor, who
specialized in the classics, looked at me quizzically and asked how
I thought studying econometrics would do us any good! I dare not
ask him what made him change his mind then - or if he has changed
it now! Well, given that I indeed became an economist, I must again
put before us the tough economic choices to be made in the field of
education. It is generally now accepted in development circles that
the dis-investment in education that took place in the rush to
contain budget deficits in the earlier phases of economic reform
was misguided. But, when 50 percent of Ghanaian doctors leave the
country within their first two years of graduation and 80 percent
within the first five years of graduation, should we be investing
such a high proportion of our resources in tertiary education?
Should those who benefit from these subsidies be shouldering more
of the costs? Should there be more private sector involvement in
tertiary education - a sector currently dominated almost entirely
by the public sector?
How can civil society and individuals contribute to the financing
of higher education? Here I am delighted to learn that in the last
few years, the alumni of the University of Ghana have been making
significant contributions to the expansion of the physical
facilities at Legon. But those of us who benefitted so much from
past subsidies should and can do more. I therefore want to invite
my colleagues in Economics of the Class of '68 to join me in
endowing a Chair for an initial period of three years in the
Department of Economics.
(continued in part 2)
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC). APIC provides
accessible information and analysis in order to promote U.S.
and international policies toward Africa that advance economic,
political and social justice and the full spectrum of human rights.
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