Ghana: the challenges of becoming a middle income country


Published on

An interesting look at the challenges facing Ghana as it aims to grow its economy | GG Agriculture

  • Be the first to comment

Ghana: the challenges of becoming a middle income country

  1. 1. Ghana is becoming a middle income economy through years ofsustained economic growth, enhanced by the recent discover-ies and commercialization of oil and gas. The country can becomean example of how to break the “oil curse” through transparentand robust governance of the sector, and by using the windfallsto achieve the MDGs, in particular, those related to sanitation andmalnutrition.ChallengeThe discovery of oil challenges Ghana to create a legal frameworkwhich ensures transparency in the administration of the naturalresource, and on keeping the country competitive in the face ofthe potential Dutch disease. Ghana also needs to maintain macro-economic stability to guarantee its citizens low interest rates, lowinflation and a stable currency so it does not accumulate high fiscaland current account deficits as it did at the end of 2008. It wouldalso need to adapt its economic policy to the needs of a middleincome country, with a more substantive role for the private sector.ApproachThe International Development Association’s (IDA) strategy toassist Ghana’s progress towards becoming a middle incomecountry involves a division of labor with other Development Part-ners that ensures more targeted interventions. It focuses on threemain fronts: first, improvement of private sector competitiveness,including modernization of the agriculture, transport and energysectors, and the enhancement of natural resources management;second, on human development, by improving service delivery inIDA at WorkGhana: The Challenges of Becoming aMiddle-Income Country
  2. 2. 2education, health, water and sanitation, aswell as social protection; and third, the pro-motion of good governance, improved effi-ciency and reach of public services throughICT, and the strengthening of social responsi-bility. IDA will continue to provide Ghana withbudget support for critical reforms.ResultsIDA’s most important contribution in Ghanahas been its support to the country’s sustainedeconomic growth of 5-7 percent over twodecades, and continued poverty reductionfrom 39.5 percent in 1999 to 28.5 percentin 2006. Virtually all indicators in the infra-structure sector, such as water, sanitation,electrification, roads, have improved in thelast two decades: access to improved urban/rural water sources from 89/68 percent cov-erage respectively in 2005 to 90/74 percentcoverage in 2008; mobile phones per 100people increased from 13 to 50 from 2005 to2008; and the electrification rate increasedfrom 54 percent in 2007 to 59 percent in2009. In the education sector, primary schoolcompletion rates and access have improvedsteadily with completion increasing from 86.3percent in 2009 to 87.1 percent in 2010, andaccess increasing from 89.4 to 101.3 percentbetween 2005 and 2010. Improvements inaccess to education across the country havebeen supported under the IDA-financed Edu-cation Sector Project. This is being followedby a Skills and Technology development proj-ect to help with formal and informal trainingsystems and the adoption of new technologiesin economic sectors prioritized in the govern-ment’s development plans.IDA has also supported improvements inhealth. Under-five mortality rates have beenreduced from 111 in 2003 to 80 per 1,000 livebirths in 2008. Antenatal care has improved.Women giving birth with the attendance ofskilled personnel increased from 46 percentin 2003 to 59 percent in 2008. Neonatal mor-tality has declined and immunization cover-age has increased from 69 percent in 2003 to79 percent in 2008.In the water sector, Ghana is on course toachieve the MDG target of 78 percent of thepopulation having access to improved waterby the year 2015. Access has increased con-sistently in rural areas over the last couple ofdecades, while a major effort will be neededin urban areas to keep up with the high urbangrowth. Sanitation, however, remains a bigchallenge and Ghana is among the countrieswith lowest access to improved sanitationfacilities in Africa. IDA’s support to water andsanitation has included a number of projectsthat have benefited both urban and ruralareas.Ghana’s Information Communications Tech-nology (ICT) sector has also registered oneof the most significant growth rates in Africa.The Government’s proactive policy and regu-latory interventions, combined with supportfrom the World Bank Group and other develop-ment partners, has resulted in a competitiveand vibrant industry with significant privatesector investment. This has translated into atelephone penetration rate of over 60 percentin 2010 (from less than 3 percent in 2003),over 50 percent decrease in local and inter-national call rates, and a threefold reductionin internet access prices from US$3 to lessthan US$1/hr. There has also been a declinein the time required for business registrationfrom 129 days in 2002 to 33 days in 2009. Thispositive business climate has translated, inturn, into strong performance of exports andin the country’s ability to draw on foreign
  3. 3. 3savings by tapping the international capitalmarket, attracting foreign direct investors,and continuing to receive large remittanceinflows from Ghanaians living abroad. Ghanais also a leader in the Extractive IndustriesTransparency Initiative (EITI) through whichcivil society monitors payments from miningcompanies to local and central government,and the transparency of the transactions.IDA ContributionIDA is a long term partner of Ghana, and ithas been active in adapting its strategy to thecurrent needs of Ghana’s Shared Growth andDevelopment Agenda. Most recently, when oiland gas were discovered, IDA moved quicklyto support the Government strengthen newinstitutions for oversight and train profession-als of the new hydrocarbon industry. IDA hasalso worked closely with Ghana by supportingit to play a leading role in the West Africaenergy market, by connecting the West AfricaGas Pipeline from Nigeria to Benin, Togo andGhana, including lowering electricity pricesin all these countries and helping intercon-nect the market with power transmissionlines, roads for the north-south and coastalcorridors, and agricultural innovation. IDA’scurrent commitment to Ghana amounts toUS$1.2 billion for a portfolio of 21 projects.Disbursements amounts have been increasingsince FY2009.PartnersGhana is very active in pursuing Paris/Accraharmonization efforts with development part-ners through the Multilateral DevelopmentBudget Support group. The group has a set ofagreed benchmarks used by all partners andthere are working groups in fifteen sectors.Ghana received official development assis-tance (ODA) from 19 development partners—Canada, France, Denmark (DANIDA), Ger-many, Italy, Japan, Netherlands, South Korea,Spain, Switzerland, United Kingdom (DFID),United States (US), IDA, African DevelopmentBank, European Union, United Nations Group,IFAD, GAVI Alliance, and Global Fund—total-ing US$1,489.5 million in disbursements in2010. Ghana continues to enjoy the supportof a whole range of development partners, aswell as the new BRIC partners (Brazil, Russia,India, China and South Africa).Moving ForwardThe Government of Ghana is preparing for anew phase of international relationships as itcontinues on its growth path. IDA is assistingGhana by focusing its support on strengthen-ing Public Private Partnerships to deal withinfrastructure challenges; development oflarge-scale commercial agriculture, withmore added value that allows the countryto produce crops competitively at a largerscale; to address the geographical inequali-ties between the poorer north and the richersouth with a social protection network; andfinally, to have stronger institutions with thepublic accountability to use the country’snatural resources.Recently approved IDA operations are sup-porting fiscal decentralization with a proj-ect in Local Governments ($175 million),vocational training on demand driven basis($70 million) Skills and Technology Develop-ment project, among others. There are alsoimportant projects for FY2012 such as theCommercial Agriculture Project ($100 mil-lion), Fisheries ($40 million) and the PublicPrivate Partnership Project ($45 million).Ghana with IDA support is also connectinggovernment through its electronic network
  4. 4. 4under the e-Ghana project which will allowthe country to have a modern public financialmanagement system. IDA is also contributingto the modernization of land management inGhana, by making sure all stakeholders areincluded.As in many natural resource-endowed coun-tries, the arrival of oil in 2011 provides Ghanawith both important opportunities and sub-stantial risks. The government is fully awareof the need to further pursue economicstabilization over the next several years,while encouraging growth through reforms ininfrastructure, agricultural modernization,private sector development and investmentin social services. IDA will continue to pro-vide support to the Government on all theseefforts, including the use of oil revenues fordevelopment initiatives. This will requiresound legislation and strong institutionalcapacity to ensure a prudent, transparentand accountable use of these new resources.The role of civil society in influencing policyand in shaping well-informed developmentaldebates, as well as tracking actions, hasthus become more crucial, and underlies theimportance of establishing access to timelyand unbiased information on public spendingand developmental results. IDA will supportefforts to strengthen participation of localthink-tanks and civil society organizations,in promoting a demand-driven, sociallyaccountable approach—one that fosters civicengagement—to deepen the government’scommitment to improving the lives of itspeople.Last Updated April 2011.