National Competitiveness and Oil

Introduction

As first years we will not go into details on these subjects but it is important to appreciate that
- Ghana has one of the lowest levels of productivity in the world and in the bottom third off nations in Africa. This is a fact that most Ghanaians are not aware of
- There are several reasons for that which we will look at including in particular low application of modern technology
- As such we are not competitive among the community of nations ranking low on national competitiveness index. In other words Ghana is generally not able to produce quality goods and services at costs that make it possible to sell them on the international market, except where we have resource advantages which is geographically specific – cocoa, minerals, timber (no longer a player in the world) and now oil. All of which we add no value to in the main locally.
- It is one of the reasons why the oil find may not help us much unless specific measures are taken. In fact it could end up making us worse by diverting attention away from sectors that impact most Ghanaians.

We shall look briefly at each of these starting from how Ghana fares in competitiveness among the nations of the world. We start there because the studies to arrive at national competitiveness index do three things for us;
1) It gives us a summary of 12 factors that go into measuring a nations competitiveness
2) Where Ghana stands viz-a-viz the nations of the world and in Africa
3) The reasons why we score low

We will look into the main reason is that Ghana is a low productivity economy and we will look into the factors that together make the Ghanaian worker less productive than the average worker in even afric, one of which is low application of technology.

We will conclude with the difference what the oil find will make positively in terms of accelerating growth, boosting foreign exchange earnings and reserves and our ability to import vital goods, the opportunity to develop our social and economic infrastructure and non-oil sectors. In relation to the current economy the oil find is most significant (statistics to be supplied later).

However the oil has not proven very beneficial to many African countries; Nigeria, Equatorial Guinea, Angola being examples. In fact the impact has been such that many talk about the “oil curse”. We will look at the factors to that end including;
- The “Dutch Disease” whereby large inflows of foreign exchange and resulting appreciation of the weak currency hurts other traditional sectors, raise the cost of doing business and not only constraining but killing local manufacturing and internationally tradable industries partly as a result of resources (labor, capital etc.) being diverted to serve the oil sector.
- The likelihood of it disturbing fiscal discipline, causing inflation and leading to mismanagement of the resources
- Fueling corruption
- In worse cases resulting in conflict, a first sign being chiefs in the Western Region asking for legislation to earmark 10% for them as if Ghana is a federal state.
The oil gives us our best chance but in its management we need to be careful

National Competitiveness

Since 2005, the world economic forum has been measuring the competitiveness of economies based on a comprehensive analysis on the Global Competitive Index (GCI). Competitiveness is defined in terms of “the set of institutions, policies and factors that determine the level of productivity of a country”.
The use of 12 sets of indicators called the pillars of competitiveness evaluates the countries. Each pillar itself if a composite of several other indicators (see appendix 1).

The 12 pillars are clustered into 4-6-2 as:
- 4 basic factors for an economy to be productive
- 6 factors which enhance the efficiency
- 2 factors that promote innovation (see appendix 2)

What the competitiveness index shows are;
- Factors that define how productive an economy is
- The index itself compares the countries to others (appendix 3)
- The score on technological readiness (one of the efficiency enhancers) and business innovation point to the level of application of technologies in the economy
Let us see how Ghana fares on the productivity and technology applications
Appendix 3 tells us where Ghana stands: in 2010 Ghana ranked 114 among 139 countries studied. Note that only 16 countries in sub-Saharan Africa came below us. Not the positions:
- South Africa 54
- Mauritius 55
- Namibia 74
- Botswana 76
- Rwanda 80*

Our index was 3.56 compared to Switzerland’s 5.63 and Singapore’s 5.48.
Interestingly we ranked a bit better on efficiency enhancers (96) and even innovation (100) but performed woefully on basic requirements of institutions (Judiciary, CEPS, Police, etc.), infrastructure (electricity, water), macroeconomic environment (inflation, deficit, interest rate, etc.), and health and primary education where we rank 122 compared to our overall 114 rank (see page 2 of appendix 3)

The report has this to say about Ghana:
Ghana is ranked 114th this year, the same as last year although gaining four positions in a constant sample. Ghana continues to display strong public institutions and governance indicators with relatively high government efficiency, particularly by regional standards.
Some aspects of the country’s infrastructure are also good by regional standards, particularly ports (ranked 59th”. Financial markets are also relatively well developed (ranked 60th). On the other hand (and these explain our low productivity and lack of competitiveness);
- Education level continue to lag behind international standards at all levels
- Labor markets continue to be characterized by inefficiencies (i.e. job markets are not good, no transparent wage systems, poor industrial relations etc.)
- The country is not harnessing new technologies for productivity enhancements (ICT adoption rates are very low)
- Finally the country is characterized by macroeconomic instability (inflation can rise by heart, interest rates are too high, the cedi can fall, etc.)
- With the government running high fiscal deficits (i.e. they spend more than they collect in revenues)
- And building up significant debt and
- With high interest rates spreads pointing to inefficiencies in the financial system

Causes of Unproductivity in Ghana:
- Weaker institutions
- Poor infrastructure and utilities
- Bad management of the economy
- Poor health system
- Inefficient primary education producing illiterates beyond the few specially prepared to go to secondary school
- Poor quality of high level education and training
- Goods market inefficiencies (such as lack of information)
- Labor market challenges
- Banks and the financial sector not developed and inefficient s they can charge high interest rates even when inflation is down and Bank of Ghana prime rates
- Our industries and labor less ready to adopt new technologies etc.

Underlying causes of our low productivity are
1) Poor education at all levels
2) Bad work ethics
3) Basic infrastructural constraints
4) Weaknesses in managerial leadership worsened by political interference
5) Bureaucratic (public services) inefficiencies
6) Corruption
7) High cost of capital (borrowing) itself an evidence of economic inefficiencies
8) Low levels of adoption and application of technology in all sectors from agriculture to services
Most of these can be improved with policy action and modeling by the state.

Week 13
Ghana as an Oil Exporting Country

Why oil may not be as lucrative as we might hope;
- A non-renewable resource
- Oil is a difficult resource to manage due to rapidly fluctuating prices
- Much of the equity is held by foreigners (90%)
- High polluting industry

What benefits can we derive from oil as a country (Ghana)
Direct Impacts
- Economy will grow
- GDP increases
- Increases foreign direct investment
- Revenue to the state increases, through royalties, 10& equity on oil profits and taxation
- Can generate other industries, economic activities, to service the oil industry and process some of its by products, etc. gas
Indirect Impacts
- Improve utilities (water, electricity, sewage etc.)
- Improve the health and education systems

Will the oil make a difference in the lives of the ordinary Ghanaian? In between the oil and its benefits is the management of the Government. For the effect to reach the ordinary citizen would require;
- Infrastructural improvements
- Institutional framework
- Policies

Is the Oil a curse? What disadvantages are there with the new emerging Oil Sector
- There is always the possibility of the oil destroying other sectors of the economy. It can divert the attention and resources especially skilled labor from traditional sectors.
- In Africa it has the tendency of fueling corruption, the state becomes “big” and fuel corruption in the country increases.
- Can lead to conflicts if not married well.
- It has the possibility of undermining the building and infrastructure not directly serving the industry and not solving the problem
- Dutch disease. It is easier to import goods, killing our import substitution industries. Exports become more expensive to people outside the country, causing people stop top buying our goods
We can look at other countries such as Sweden. In proper management we can reverse negative consequences.

Prospects and challenges of Ghana’s economy;
- Eradication of extreme poverty
- Achieve universal primary school education
- Promote gender equality and empowerment
- Eradication of HIV, and other preventable diseases
- Improving public health and reducing child mortality
- Promoting global partnerships
Are these realistic goals? They are but they are basic goals that all nations should have as a base.

What Ghana needs to move forward;
- The need for development leaders
- There is the need for a clear cut vision and development agenda
- There is the need for commitment to deliver certain outcomes for which the millennium development goals are just a bare minimum

Challenges to our economic development
- Political instability
- Ideological switch
- Lack of long term national development vision and growth agenda
- Policy failure
- Weak think tank capacity
- Poor visionary and development leadership
- Developmentally weak culture and value ethics
- Corruption
- Weak social infrastructure: education and health
- Weak economic infrastructure: roads electricity and water

What made the “newly industrialized countries” work? (Ishmael Yamson)
- Transformational leaders: it matters what the leader says and does and what is in him mind
- Clear long term vision
- Definition of focused strategies and commitment to (strategies into action)
- Creation of a competitive economy driven by public private partnership
- A balancing of political social and economic goals focused on poverty eradication
- A paradigm shift to behaviors and values that build

Ofori Atta: the agenda for change
- A righteous way
- Building the political space
- Creating social space
- Removing disempowerment (through a national consensus to pay for growth so that a majority of people are free from poverty and to free ourselves from the pervasive psychology of free goods)
- Economy (efficient economic management, involving transforming Ghana into a financial service center; modernizing agriculture; placing emphasis on the services sector- tourism health care, education, ICT and data processing; creating a diaspora ministry to better capture the resources of the billions of remittances and talents of 2-33 million Ghanaians; promoting policies to grow savings and investments by Ghanaians and establishing the best educational and health care system in Africa)

Elements of Ken Ofori-atta dream: contract of hope
- A godly country
- A country of peace and prosperity
- A solidly middle income country
- International financial service center
- A service oriented economy
- Quality education for all
- Law abiding citizenry with a world class police force
- A resected and thriving entrepreneurial society
- The business headquarters of the sub-region
- The first sub-Saharan African country to exit the Worldbank/IMF programme