Historical background of the Economy of Ghana
The Economy of Ghana, the Historical Perspective
In 2010, there was the rebasing of Ghana’s national income. That is Ghana was undervaluing the assets and income of the country and overnight we moved from 700 per capita income to 1300 and thus became a middle income country. However, despite the rise, Ghana still has the characteristics of a low income and underdeveloped economy
General characteristics of low income and developing countries
- Low income per head (less than 1000 per head)
- High population growth rate (approx. 3%) Ghana’s is about 2.7%, often times the youth population is high. In some countries 45% of the country’s population is under the age of 15. In developed countries they have a large percentage of middle aged people.
- A large population of the country is Illiterate or under skilled. Even among the literate numerous people are not functionally-literate
- As a result developing countries have a low level of productivity. Ghana has one of the lowest productivity per head of any country in the world.
- The position of their GDP is dominated by primary productions, i.e. unprocessed products such as cocoa, bauxite and other raw materials. We tend to be “hewers of stone and drawers of water” and allow foreign countries to add value to the goods and often sell it back to us
- Low level of technology usage
- Usually have a very small manufacturing sector. The rebasing has brought Ghana’s level of manufacturing to less than 10%
- Financial intermediation (sector) tends to be rather small. Approximately less than 1 million Ghanaians have bank accounts. (1/25)%
- Level of integration into the world’s economy is very high. We are highly dependent of foreign goods, and aid. Not only for imports and exports and capital investments but on economic policy adoption. This is usually on an un-equal basis to the disadvantage of Ghana.
- In recent years most developing countries have a high debt to GDP ratio. For example Ghana had to declare HIPC status.
- Migration of skilled labor to find “greener pastures” elsewhere. This is also known as “Brain Drain”
- A characteristic of developing countries is that in Rostows preconditions for takeoff they tend to be low, that is low level of economic infrastructure development (railways, transportation, water, energy, communication)
- Finally all social welfare indicators tend to be low. For example, life expectancy is low, high ratio of infant mortality, low doctor to patient ratio, literacy is also low in developing countries.
Human Development Index. Ghana is consistently in the low HDI countries. We rank 130 of 169 of member countries. http://hdr.undp.org/en/statistics/
The less developed a country is the higher the impact geography of the nation has on the country’s economy. When you are poor and less educated, you tend to rely on the land more.
The history of Ghana that we are looking at is up to 1951 when Ghana became self-governing.
Geography
If you want to discern how dependent Ghana is on geography, think of Ghana without the Volta river, cocoa, gold, imagine Ghana without having access to the sea and recently imagine if Ghana had never found oil.
The size of Ghana is also important; the population density is dependent on land mass. The size of Ghana is approximately 238,540 square meters. So with approximately 25 million people in the country we can find our population density.
Ghana is a tropical country. Ghana is also the center of the world, latitude and longitude 0 pass through Ghana’s land mass and territorial waters. As a tropical country, you can pursue agricultural ventures all year round.
On the negative side our geography helps to breed mosquitoes which contribute majorly to our medical bills.
The geography of Ghana defines the vegetation. Which is a major contributor to our agricultural output.
As a country develops, the impact of geography lessens. Infrastructural and technological advancements help to overcome limitations set by a country’s geography.
Major historic events
There are well defined historical epochs in Ghana’s economic history
- The pre-European economic history. This was preceded by the Ghana, Mali and Sonja empires. The significance of those times is that the Ghanaian economy had its first contact with the Europeans was through the trans-Sahara trade route which started the trade of gold and textiles. During that time there was the beginning of iron extraction in the region (beginning of industry). There was tradition gold mining (shallow and surface mining), there was salt extraction and primitive agriculture.
- The period of the first real physical contact with Europe (approximately 1480) to the slave trade began towards the end of the 15th century. They were initially attracted by the prospect of gold. The trade was extended southwards. Main economic transactions was ivory, gold and pepper
- Period of the slave trade from the 15th century to the 1800’s. This sparked a lot of violence between indigenous people in Ghana, between separate European states and between Ghanaians and the Europeans. The slave trade was driven by the need of manpower. It is estimated that from the whole of Africa 20 million people were exported. This basically arrested all other aspects of the local economy and soon slave trade replaced gold as Ghana’s major export. http://en.wikipedia.org/wiki/Atlantic_slave_trade
- Normal colonial period from 1870-1951. The abolition of the slave trade allowed the commodity trade to begin, there were three commodities that were prominent, palm oil/kernel, rubber, cocoa. In 1881 approximately 73% of Ghana’s export was palm kernel. This collapsed utterly during the world war since the palm kernel export was directed mainly at Germany who stopped purchasing it during the war. Rubber replaced it as the major export; it grew quickly and was well suited to the tropics. At one point Ghana was the 3rd largest producer of rubber. In 1876 cocoa was introduced to the Ghanaian economy. The missionaries took it to Switzerland where chocolate was formed from it and cocoa rose in prominence in the Ghanaian economy. A lot of this took place under the governance of Sir. Gordon Guggisberg. He propelled the trade in Ghana by building the western train route which opened the way for timber and farm produce to be transported across the country. The Ashanti kingdom was added to Ghana’s economy after the Yaa Asantewaa wars around 1901 and later the northern regions were added as a protectorate. Also the Volta region was added to Ghana close to the official independence of Ghana. The Ghanaian economy at that time was largely commodity based. By 1951 the economy of Ghana as we know today had largely been shaped and we had inherited what is called today as the “colonial” economy.
- The post-independence era.
Culture
Ghana, its People and Inherited Culture
Culture is such an important economic variable.
Max Webers “the protestant ethics and the capitalist progression”
What is culture? Culture is not bare chested women dancing on the street. It is;
- Peoples belief system
- Their values
- Their norms
Culture has many economic variables in the Ghanaian context.
- Attitude to hierarchy: we have a “long hierarchical distance” there is a large distance between leaders and followers. We tend to put our leaders on a pedestal, this leads to the inability of the general public to hold their leaders accountable.
- Ascription vs. achievement. The value of “titles” in Ghana is due to our cultural setting. It does not have any direct usage. Therefore authority is ascribed. In other more developed countries position is achieved and not ascribed (given to).
- The path of progression. In primitive cultures it is by “who you know” or “connections” that allow people to achieve certain positions. In the cultural settings people who are related to royalty are given prominent positions in the society. This is still evident today. In more developed countries, advancement (progression) is determined by your productivity.
- African traditional religion.
Main elements of Ghanaian culture that affects our development
- Our dependency syndrome. Because of the colonial and extended family systems it is a common belief that you “need” someone else to succeed. This often times lead to corruption.
- Attitude towards our employers and the government. Traditionally, stealing from the government makes you a hero since the original government was the colonialists. This culture has continued today.
- The slave mentality. When a slave was released they lived very “visibly” to show that they now have the same “freedom” as their former masters. This is still evident today where oftentimes when Ghanaians gain a certain status they tend to “show off” their new found wealth. The result is that we do not save but have a high consumption level.
- An unscientific world view. We do not strive to find out the “why” of situations.
- Short term thinking
- Toleration of high level of bad governance
- Education is seen only as a means to an end: to make money, and not to gain skill and build your capacity

Governance and Politics

It is the responsibility of the political leadership a country to take note of the opportunities that the country’s background present, the challenges to their progress and to craft a long term strategy to deal with them and transform the economy. It is on that basis that post independent leaders are to be judged.


Economy of Ghana
Class notes: Lecture 2
26/01/11
Sir Gordon Guggisbergs saw that a country needed a strategic long term framework for development. He then launched a 10 years development plan which was called “The Gold Coast Development Programme”, to cover the period of the 1920s-1930s.
The plan was divided into 6 year and 4 year blocks. During that time a lot of the current infrastructure today was planned then. He emphasized the construction of railways (actually created over 300 km of rail), construction of major roads in Ghana (over 300 roads were prepared under him). He expanded the electric grid. He emphasized education, e.g. Prince of Wales College (now known as Achimota School). Many of the hospitals, including Korle-Bu teaching hospital were started by him. At that time he had a 24 million pound budget, but in effect all the things he did fell within 9 million pounds, as he was withdrawn before the completion of his 10 year plan. He was withdrawn by the British for “over-civilizing” the black man; my own submission is that they were so angry with him developing Ghana that when he died he was buried in an unmarked grave.
During this time there was a lot of economic trouble in Europe. At that time Hitler rose to power in Germany off the back of great depression occurred at that time. He was a sergeant during the First World War and was disgruntled at the defeat of Germany; he pushed for the genetic supremacy of the Aryan race (Blond haired blue eyed Caucasians). He was the instigator of World War II
The British had to recruit many soldiers from their colonies to join in the war. After the Second World War the British had agreed with the Indians that if they supported them, they would be granted independence from Pakistan. This happened after the war. This gave colonial countries the first feeling of independence. Also after the war, the African soldiers who had fought sided by side with their British counterparts returned to Ghana. Now there was a battle hardened and trained military force, indigenous to the country that could be used for independence-minded instigation.
The main issue was that now the time was ripe for countries to grab for independence. Nkrumah created the CPP and spurred the quest for independence.
Nkrumah broke away from the UGCC, according to my own premise, is that he wanted to become the first prime minister. His own reasons were that he wanted to accelerate the quest for independence.
All these things did not change the fundamental concepts of the Guggisberg economy. Those things by his effort were expanded but not structurally changed. We therefore became an economy of “hewers of stone and drawers of water”, where we export our natural resources and purchase processed good from foreign countries.
From 1910 to 1960, structurally the economy stayed the same but with rapid growth of approximately 6%. At that time the GDP per head was calculated by Birmingham, ------std and Omabo and income per head was growing approximately 3.6% per anum. By 1970 that grown rate fell to an average of 2.8 and that of per-capita income fell to 3.5%. Therefore the real growth rate, due to population growth, for Ghanaians was 0.4%. Interestingly between 1970 and 1980 total GDP per capita per head grew at approximately 0.4% per anum and if population is taken into account the real growth rate was -2.2%. Therefore in real terms every year Ghanaians were getting poorer. 1980-1983 those 3 years under Rawlings we saw a decline in the total GDP of – 5.2% and real GDP per capita reduced by -7-7%
In 1951 Kwame Nkrumah was elected, cpp was voted in with an overwhelming majority.
1951-1960 – Ghana’s Golden Age
This was the first period of internal self-government and independence. These were the golden days of Ghana, and Ghana’s economy boomed with an average of 6% growth rate. I call it the period of liberal economic regime. At that time Ghana was part of the Sterling Zone. Our foreign exchange reserve was over 400,000.00 pounds with a population of just over 4 million. There was rapid economic expansion of Ghana’s infrastructure and economic progress.
By 1961 we stared to get impatient.
1961 – feb-1996
Nkrumah continued his expansion plane
1961-1995 the years of Contoll. First of all ihte
Large budget deficit
Lack of foreign exchange
Estate controls and … department, this was the first avenue for corruption in Ghana
The second source of corruption in Nkrumah’s days was political corruption,, more money was needed in the party (CPP) to fund it
The suppression of aggregate demand
Officially the import controls were to be rational with preference given to …. The setting up of new industries, trade diversification and trade from the east
There was a negative impact on the Ghanaian economy.
- Growing budget deficit
- Economic growth rate which was very high in the 50’s started reducing
- High rate of inflation (in one year almost 100% was reached)
- The unit cost of production in the modern sector increased.
- During that period, internal debt increased 500% (5 times)
- Internal debt increased 3000% (30 times) during that 10 year period
- Commercial and industrial mismanagement
- Out of 32 state enterprises only 2 were making progress.
- Administrative corruption
- High rate of inflation
The industrialization process almost died out. Then there was another deadly ……
Nkrumah overtaxed the cocoa farmer for two industries, to gain more money and the “…. The cocoa farming industry essentially died out…..
The good side
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- The establishment of the Volta River Authority and the construction of the Akosombo dam that came online in 1963
- J.H. Mensah and Nkrumah came up with the 7 year development plan for accelerated development of Ghana. The only problem was that not only did it not see the light but …
Subjective assessment
- I think that Nkrumah overthrew himself … this I because by 1966 Nkrumah had totally lost favor with 85% of Ghanaians and was holding onto power by oppression and fear. At that time Ghana was looking for the opportunity to overthrow him. When he was ousted, the whole Ghana was literally celebrating in the streets. For 2 weeks the whole of Ghana came to a standstill and the soldiers had to beg the people to go back to work.
1966-1971 (technically Feb 1972)
Note: economic periods are separated from political periods. This is because often times when the government changed hands they maintained the same economic policies.
That was largely a period of stabilization. (Nkrumah had overheated the economy, so it was not time to fix the problems associated with it). The situation was such that the controls had to be maintained in order to reduce public expenditure. Our short term external debts had to be renegotiated to reduce payment pressures. The currency had become over-valued during Nkrumah period. In 1967 we had our first major devaluation of our currency. With the devaluation, the liberalization of the economy was started, and the import license system was disbanded. That period saw a significant drop in inflation. It was also a period of emphasis on private sector development/growth.
In 1969, when the new government came, the demand for imports started going up and in 70-71 the liberalization system collapsed. This is because the economy could not support the rapid growth. And to curtail the rapid demand (without imposing import licenses) the currency needs to be devalued. Busia planned 50% devaluation of the Cedi. Unfortunately they stuck to the liberalization and even under the poor advice of the World Bank and IMF they also reduced the import duties of consumer goods. At that point the political leaders were forced to re-introduce the import controls (ideologically impossible), to go to their donors and request for debt relief, which they did but got little relief. They then had to devalue the currency, which they did by 78%. The devaluation caused such a shock to the public that the military intervened in 1972. This ushered Ghana into a new period.
1972-1983 (it was a period of unmitigated disaster)
One author (Rado) describe that period as “acceleration towards the abyss” another author called it the economic “nightmare days of Ghana”.
At that time the military was coming in with the decision to stay. They had a very good minister of agriculture, along with Busia’s agricultural plan, with operation “Feed yourself” and there was rapid growth in that sector. But the military did not have the capacity to rule Ghana. This is likely because the method of order in the military is contrary to methods used for civil control. They reintroduced import controls and licensing.
In 1973 there was the first oil price hike by OPEC, and it caught the military government off guard. In Ghana the price was increased by approximately 300% and from that time the economy plummeted downhill. The real GDP of Ghana fell by approximately 40%. This equates to a consistent worsening of the Ghanaian civil populations position. When there was the big devaluation they revalued the cedi by 2/3’s.
Rawlings came and finished it in 1981. The policy at that time was “crazy”, 80% nationalization of almost all industries (even to the point of saying if you have 2 toilets in your house it means you have “chopped” money). The economy at that time, which was already in a downward spiral, became even worse. In 1983 there was complete disaster. There was a week of bush fires from Accra to Paga and most of Ghana’s agricultural prowess was destroyed. It was a boiling point for Ghana and the military government went to “beg” the IMF and World Bank for assistance.
As a condition for support the World Bank and IMF decided that foreign NGO’s had to personally supply food to the country, not through the government. This essentially stopped the corruption and violence that was rampant in the country at the time. This ushered in a period of economic restructuring. It started with stabilization and then the introduction of World Bank and IMF programmes and after that period we experienced a growth rate of 4-5%. It included reducing the size of civil service, liberalization of the economy ….
1983 - 2011
- It has been a continuation of the liberal theme of the 80’s
- Especially the liberalization of the foreign exchange
- Governance has improved significantly
- Creating room for private sector development
- The introduction of the stock market and the mutual funds
- A massive growth of the financial sector
- The introduction of ICT to the country’s infrastructure
- Continuous reduction in inflation
- There has been a real growth in per capita income
- It has been a period that has improved … especially with the discovery of oil
In a nutshell growth has accelerated. We are currently averaging between 5-6% growth rates.