Country Brief

Introduction                                                                                 Country Brief last updated March 2008

Ghana was the “shining star” of Africa at independence fifty one years ago. The years 1960-1964 saw relatively high growth, spurred on by favorable export performance and rapid industrialization linked to import-substitution policies. This encouraging beginning gave way to macroeconomic instability, and uneven and volatile growth from 1965-1983. This uncertain foundation, hit by economic shocks, brought the economy close to collapse in the early 1980s.

Recognizing the need for change, the government launched the Economic Recovery Program in the early 1980’s, which succeeded in renewing growth and contributing to significant poverty reduction. A process of political liberalization was initiated in the 1990s which has culminated in an environment where political rights, civil liberties and freedom of press indicators are as positive as those achieved by some middle-income countries. Country assessments put Ghana at the top of the rankings in Africa, and the country’s leadership seeks to achieve the Millennium Development Goals (MDGs) and reach middle-income status by 2015.

Political Development

The democratic process has made impressive gains in Ghana. As a result, Ghana’s political rights, civil liberties and freedom of press rankings are not only amongst the best in Africa but are comparable to those recorded by countries at much higher levels of income. Democracy has become a strong competitive advantage. Presidential and Parliamentary elections are scheduled for December 2008, when President Kufuor’s second term will expire. His National Patriotic Party (NPP) has selected. Nana Akuffo-Addo, a former Minister of Foreign Affairs, as the flag-bearer. He will run against Prof. John Evans Atta-Mills from the opposition National Democratic Congress (NDC), Dr Paa Kwesi Ndoum of the Convetion Peoples Party (CPP) and Dr Edward Mahama of the Peoples National Convention (PNC). The upcoming elections are expected to be highly competitive and are already dominating the political environment.

The government understands the need to consolidate political achievements, and it is actively participating in the African Peer Review Mechanism (APRM), a governance initiative of the African Union. Ghana was the first country to be reviewed under this initiative and to prepare a programme of action, thanks to the strong support of President Kufuor and the engaged participation of all stakeholders, including civil society.

Governance reviews have identified some democratic deficits such as weak accountability and oversight of the executive and patron-client relations in the civil service and in government-business interactions. This situation has made reform of the civil service a lengthy process.

Ghana international ranking on corruption and press freedom is the best among low-income African countries Surveys by the Afrobarometer indicate that there has been a de cline in corruption in the publi c service, underscoring the results of the Transparen cy International Per ception of Corruption Indi cator (with Ghana’s ranking rising from 70 th out of 169 countries to 69 th out of 180). The Serious Fraud Office, the Commission on Human Rights and Justice (CHRAJ) and civil society “watchdogs” are in place to fight corruption, but are not yet robust. Meanwhile, Ghana continues to improve its ranking in the World Press Freedom Index, rising to the 29 th position in 2007, ahead of South Africa (43) and Cape Verde (45), and not far behind Mauritius and Namibia (both tied in 25 th position).

Civil society is active and potentially a key driver for political governance reforms. Farmers’ movements, Trades Unions and Professional Associations have traditionally been involved in the nation’s political process. More recently, other civil society organizations such as “home town” development associations, women’s rights groups, welfare clubs, parent-teacher associations, faith based organizations and groups providing social services are providing renewed vibrancy to civil society engagement. The Diaspora is also increasing its involvement and has formed Ghanaian Home Town Associations overseas. Some advocacy groups and think tanks are well rooted in society, though often over-centralized in Accra. Civil society groups offer great potential to strengthen the demand for good governance and social accountability in government processes.

The government recognizes that participation by different social groups in national development is limited and needs to increase in order to reinforce national consensus and reduce social polarization. The government has made some progress to date but there is much more that can be done to increase the voice of citizens in the development process - as proposed both by the GPRS and the APRM. The media is active and citizens are able to express their views on development issues. However, citizens are often unaware of their rights vis-à-vis government, and mechanisms for government/citizen engagement remain underdeveloped.

Progress in achieving gender equality goals has been limited. Gender equality is not broadly accepted as a critical development issue, and women’s exclusion from national processes, under-representation in public life and decision making, and weak entitlements to economic assets appear at odds with Ghana’s performance in the economic and political spheres. The government has introduced legislation and policies to protect the rights of women and children; however, implementation has been weak. The African Peer Review Mechanism found strong cultural impediments to the promotion and protection of women’s rights. A number of protocols for the protection of the rights of children and women have not been ratified.

Decentralization is essential to promote citizens’ participation and to achieve better service delivery, but progress has been slow. Part of the delay in decentralizing staff and fiscal resources is due to concerns about local capacity, combined with the normal reluctance of ‘the center’ to lose resources and influence; and part of the delay is due to the complexity of managing such a process. The 2007 budget authorized a significant transfer of civil servants from Ministries, Departments, and Agencies (Midas) to district authorities, for implement­a­tion in 2008. Political reforms at the local level are still under discussion, as one-third of members of the District Assemblies and the District Chief Executives are not elected but are appointed by the President. Citizen Surveys report dissatisfaction with the performance of District Assemblies.

Ghana has not suffered significant internal conflicts and traditional authorities have a recognized role in local conflict management. However, Chieftaincy-related disputes about land, inheritance and succession sometimes lead to local conflicts. There is also a risk that multi-party electoral contests may fuel local conflicts. The military is subordinated to democratic institutions.

Ghana plays a key role in the sub-region and at the regional level. Ghana provides an example of successful political and economic performance in West Africa, a region that includes a number of countries that have experienced violent conflicts. Ghana is also a strong supporter of regional integration and conflict prevention initiatives of the Economic Community of West African States (ECOWAS) as well as an active participant in UN peacekeeping activities (including the Kofi Annan International Peace Keeping Training Centre). Recognizing Ghana’s policy of “good neighborliness” and strong engagement with the APR mechanism, President Kufuor was elected Chairman of the African Union in January 2007, which he served till January 2008.

Economic Development

Ghana’s economy has registered robust economic growth rates since the year 2000, despite sharp increases in international crude prices. Growth of real gross domestic product (GDP) increased progressively from 3.7% to 6.4% between 2000 and 2007, driven by the strong performance of cocoa and gold exports. The outlook for 2008 is for real GDP growth to reach 6.7 percent, with economic growth driven by the good performance in the mining sector, high public sector expenditure, and strong public and private sector investment activity (including new power generation investments). Rising inflation has recently become a concern. The 2007 end-year consumer price index (CPI) rose to 12.7, up from an average 10.5 percent in 2006, and maintained the upward momentum in January and February 2008, reaching 12.8 and 13.2 percent, respectively.These price changes are the result of external developments (e.g., higher crude oil prices, imported food price inflation), and domestic sources (e.g., higher food prices following the drought and flood in Northern Ghana, adjustments in utility tariffs), as well a buoyant domestic demand. In response, on March 17 the Bank of Ghana raised its prime rate by 75 basis points to 14.25 percent, up from 13.75 percent previously. An average 10.5 percent in 2006, and maintained the upward momentum in January and February 2008, reaching 12.8 and 13.2 percent, respectively.

Bank of Ghana, World Banke Calculations, and IMF

Macroeconomic and financial sector stability have steadily improved, removing two key constraints to private sector growth. Prudent macroeconomic management during the implementation of GPRS I, yielded an increased availability of credit to the private sector, with the share of private sector in total domestic credit projected to reach 67 percent by end-2007, up from around 44 percent at end-2002. There was also a decline in the time required for business registration, falling to 45 days in 2007, down from 129 days reported in 2002. While this is a reduction of almost 85 days, the average time to register new business in Ghana is still among the highest in the region, underscoring the importance of continuing to make progress on this front. This positive business climate has translated in turn in the strong performance of exports and in the country’s ability to draw on foreign savings, by taping the international capital market, attracting external investors to its domestic bond market, and continuing to receive large remittance inflows from Ghanaians living abroad.

Financial sector reform is progressing and the potential for competition is well above most countries in the region. The financial sector is healthy and relatively open with banks generally liquid and meeting prudential standards. The role of Government in the banking sector is limited, and new entrants from overseas have enhanced innovation in products and services. However, despite increased competition and a reduction in the prime rate, the spread between deposit rates and commercial lending rates remains high. The sector has benefited from a modern payment and clearing architecture with real-time gross settlement system since 2002, a more recent automation of cheque clearing and integration of rural banks into the electronic payments platform, and the establishment of a Central Securities Depository System for government and stock exchange listed securities Measures have been taken in recent years to improve banking supervision (Banking Act 2004), promote financial deepening (Credit Rating Agency bill, Foreign Exchange bill), and provide safeguards against money laundering (Anti-Money Laundering bill). It will however, be important to continue enhancing regulation and move over time toward risk-based supervision, particularly in the context of continued rapid credit growth to enterprises.

The overall fiscal deficit is estimated at about 7.5 percent of GDP in 2007, compared to the authorities’ target of 4 percent of GDP and a deficit of 7.8 percent of GDP a year earlier. The deficit reflected expenditures to address the energy crisis, including capital spending, as well as utility subsidies/transfers (despite substantial increases in electricity and water tariffs in November); the wage bill was also somewhat above target. Fiscal revenues were strong, thanks to improved revenue collection. Total gross public debt rose to an estimated 48 percent of GDP.

Remittances and tourism are increasingly important sources of foreign exchange. Private transfers were estimated at about US $1.5 billion in 2005 and are projected to increase in the coming years. They result from Ghana’s high rates of emigration of skilled workers, with estimates indicating that private remittances originate mostly in the USA and Canada (50%) and the United Kingdom (25%). Tourism receipts have also grown steadily over the past five years and are projected to reach US$ 1 billion in 2006. As in other regions, the human and financial resources of the Diaspora have an enormous potential to contribute to the develop­ment of the country through direct engagement with families and community groups.

Source: Bank of Ghana, World Bank, IMF, Tourism Board ^e Estimate

Current growth rates put Ghana on track to meet the MDG on halving poverty levels by 2015.

Sustained efforts by the Government of Ghana, with the support of its development partners to reduce poverty and improve the standard of living of Ghanaians are showing very good results. According to a recent Ghana Living Standard Survey (GLSS) report released by the Ghana Statistical Service, poverty indicators are showing a remarkable improvement, down to 28.5% in 2005 on average, from 39.5% in 1998.

The survey also indicates that most of the poverty reduction was concentrated in the forest region (both urban and rural), while the Northern Savannah region, which was already by far the poorest of the ecological zones, appears to have been left behind in the national poverty reduction trend. Even though the poverty headcount index in the Northern Savannah region was smaller in 2006 than in 1998, the national trends in poverty resulted in an increasing share of the poor living in the rural savannah areas. While the rural savannah areas accounted for only one-fourth of the population in 2006, it accounted for just over fifty percent of the poor.

Ghana: Facts and Figures

• Poverty levels have dropped from 52 percent in 1992 to 28.5 percent in 2005.
• Economic growth has averaged 4.5 percent from 1983 through 2000, but accelerated to 5.6 percent in 2004 and 6.2 percent in 2006.
• Ghanaians’ access to electricity (55 percent) is the highest in Sub-Saharan Africa outside South Africa.
• Some 750,000 people in 2,014 communities have gained access to new or improved water supplies and sanitation systems — with coverage reaching 55 percent of the population and exceeding the original target by 36 percent.
• After Ghana upped its education budget support in 53 deprived districts, the gross enrollment rate in those districts increased to 84.3 percent in 2006 from 70.7 percent in 2002.
• Girls’ access to school also improved from 65.5 percent to 72 percent in the same timeframe.
• Student scores in English and math have improved over the past 10 years across all income levels.
• Over 8,000 classroom blocks (consisting of up to six classrooms or more per block) have been constructed, reaching about one-third of schools across the country.
• 35 million textbooks have been published, raising the number of English and math textbooks to one per child.
• Fifteen years ago, nearly two-thirds of primary school graduates were functionally illiterate. In 2004, the figure was one in five.
• The road network has increased from 25,000 kilometers in 2000 to over 60,000 kilometers in 2005.

While the above facts and figures give reason to celebrate, there is ample reason to be cautious as well. First and foremost, the current energy situation is of great concern, and is a major risk to the sustainability of the positive trends in poverty reduction. The Government needs to move quickly to minimize this risk, by dealing decisively with the energy problem in a sustainable manner.

Despite the recent economic expansion, the structure of the economy has not changed substantially. The economy continues to be largely dependent on agricul­ture (40% of GDP and 50% of employment). It is constrained by low-productivity farming practices, poor infrastructure (e.g. roads, irrigation, and ICT), land tenure uncertainties, gender inequities, and uncertain access to inputs. Traditional exports – cocoa, gold and other natural resources – still account for almost half of GDP. The industrial sector remains relatively small and dominated by firms with low productivity. Foreign direct investment is relatively low for an economy of Ghana’s potential.

Although overall poverty levels are declining, socio-economic and regional disparities remain, and are linked to the lack of structural change in the economy. Weaknesses in human and social development(in terms of investment in children and young people’s health and education) are reflected in the gap between Ghana’s Human Development Index (HDI) rank (138 in 2003) and its gradually increasing GDP per capita rank (121 in the same year). There is a strong urban-rural differential in poverty indicators, with deprivation levels substantially higher in some rural areas. The severity and depth of poverty is highest in three northern regions (Northern, Upper West and Upper East) and parts of the rural coastal zones. There is potential for growth-driven poverty reduction in these regions, but it will need targeted investments by Government and policy reforms aimed at encouraging private sector development in these areas. Recent growth trends have fuelled the movement of people from rural to urban areas, where they are concentrated in sectors with limited employment prospects for those living in poverty. What appears to matter most in determining inequality and poverty in urban areas is the level of education of household heads.

Ghana’s trade regime is open and Ghana is a strong advocate of regional coop­eration and integration. Exports to the EC and the USA account for 53% and 7%, respectively, of total Ghanaian exports, while Africa accounts for 11% of total exports (2002). Ghana is an important trading partner with its three neighbors and it is committed to the ECOWAS regional framework. In order to meet its objective of becoming a middle-income country by 2015, Ghana’s non-traditional exports must expand also into growing regional markets.

Energy problems could derail growth even though Ghana has achieved the highest electrification rate in Sub-Saharan Africa (54%), and is the anchor country for the West-African Power Pool. However, fast economic growth combined with under-investment, poor planning, and reliance on seasonally variable hydropower have led to a situation where power supply is now unreliable and becoming a binding constraint to growth. Annual growth in electricity consumption is estimated to be 12%, and government’s strategy is to increase access to grid electricity for domestic users from 54% to 75% by 2015. This would require substantial investment and improvement in managing the existing network and its regulation.

The recent discovery of oil is likely to improve Ghana’s outlook for poverty reduction and debt sustainability (oil has yet to be declared commercially viable). The authorities’ with support from of its development partners are designing a transparent petroleum revenue management system that suits Ghana’s development needs, as well as a fiscal responsibility law that would incorporate key elements of petroleum management.

Transport and communications infrastructure are in a poor state to cope with recent economic growth and expansion of basic service delivery, due to insufficient maintenance and weak strategies Transport is key to facilitating both improved productivity in agriculture and agro-industry (by linking rural production to processing centers and trading points) and development of Ghana’s human resources (by ensuring rural communities’ access to schools, clinics and water points). Road density in Ghana is 248 km per 1,000 sq km, compared to 368 in lower middle-income countries and 1,015 in high-income countries. The Government has invested in expansion of the network; however, this expansion has not been accompanied by sufficient emphasis on network maintenance, with the result that only 34% of roads are in good condition. Currently, port capacity is under pressure from increased traffic: between 2004 and 2005, the volume in tonnes (import/export average) increased by 10%, container traffic increased by 15%, and the number of vessels increased 27%. Air traffic growth lags behind growth of other regional hubs. T he growth in information and communications technol­ogy (ICT) has been rapid, with current phone penetration at 20% (from 4% in 2000). The price of communications remains high, however, and quality remains relatively low.

Natural resources and environment need careful management to assure long-term growth. Minerals, fisheries, forestry and wildlife represent 15% of GDP, 25% of government revenues and a substantial source of livelihood through artisanal activities. Inadequate potable water supply, sanitation and hygiene and air pollution (urban and indoor) seriously affect the burden of disease and quality of growth in the rapidly growing economy. Poor manage­ment of these resources, with related health effects, is costing Ghana approximately 10% of GDP, with 4% due to forestry and wildlife depletion and 4% due to water and air pollution. The sustainability of these key productive sectors and the prospects for community development and economic growth are put at risk by the absence of effective regulatory institutions and by indecisive leadership on issues related to sustaining the natural resource base and managing the environment.

Challenges and Strategic Priorities

The main challenges facing Ghana are to accelerate the current economic growth and to share the fruits of growth more equitably – both objectives can only be achieved by more broad-based, private sector-led jobs creation and by ensuring value for money in all aspects of economic Endeavour. 

The GPRS II places emphasis on expanding services to meet the MDGs and developing a healthy and skilled labor force to support higher growth and structural change. While progress has been made in expanding services in health, education, and water and sanitation, quality improvements lag behind. Attention to quality is vital to achieving and sustaining outcome improvements in learning, life expectancy, and child and maternal mortality.

Addressing gender inequalities in school enrolment and access to health services is also essential to meet MDG targets and encourage stronger participation by women in the growth and development process. A commitment to social protection is likewise an essential part of delivering on a high and sustainable growth path.

• Maintaining sound macroeconomic management and budget governance and improved management of domestic and external resources are essential for sustainable growth and poverty reduction. Without a strong domestic revenue base and effective management of official and private resource flows, achieving an accelerated growth target will be significantly more difficult.
• Tackling poverty disparities will require targeted interventions to address growing inequities between and within regions, gender disparities in access to resources, services and infrastructure amenities, and the effects of long term natural resource depletion. Such action will be necessary if Ghana’s human development indicators are to improve significantly and contribute to economic performance.
• Sharing the benefits of growth is important because growing inequality and unsustainable growth paths have the potential to lead to political strife and conflict, as has been demonstrated in neighboring countries. Shared growth can happen in two ways. One is through ensuring that everyone has the same economic opportunities so that they can make a decent living and, thereby contribute to growth over time. The second is to put in place redistributive measures so that people who will not be able to work are ensured a minimum standard of living.
• Improving the quality and productivity of all public expenditure is an urgent cross-sectoral priority, particularly in view of the need for enhanced financing of infrastructure investments to underpin growth. With current considerable domestic resource mobilization and more DP resources flowing directly into the government budget, it is essential that Government tests for efficiency and value for money in public expenditure and insists on accountability for all public monies.
• Absorbing large external inflows without compromising the competitive­ness of the export sector will require a strong drive to enhance the productiv­ity of private sector investments and improve the productivity of public sector spending overall. On the latter point, Ghana’s need to finance large infrastruc­ture investments to provide a platform for growth could lead to an expansion of non-concessional borrowing and a weakening in the country’s debt sustainabil­ity position, if concessional funds are not available to respond to needs.
• Accelerating decentralization is key to improving citizens’ participation in development. If service delivery is to be improved and become more respon­sive to local priorities, the Government needs to step up the implementa­tion of its National Decentralization Action Plan, adopt a comprehensive decentralization policy and strategy, make progress regarding the political decentralization process, and ensure that functions and resources are transferred from MDAs to districts.
• Managing the effects of rapid urbanization in a way that is equitable and has positive poverty reduction impacts will require a well-functioning infrastructure network, a transparent regulatory environment with increased emphasis on coordinated urban planning, and a sound municipal governance/finance system. Bringing these factors together will create an enabling environment for private sector development.
• Reinforcing high-level coordination and dialogue to mainstream environment is critical. The implication of environmental and climatic factors for economic growth and the trade-offs that may be required across sectors need to be assessed systematically and routinely. Policy, regulatory, and incentive frameworks relating to environmental management are complex, and overlapping institutional mandates and outdated legislative measures can lead to conflicts in interpretation and program implementation.
• Strengthening the oversight capacity of non-executive bodies (Parliament and other bodies) and the capacity of citizens and non-state actors to engage in national development and to fight against corruption.
• Enhancing the representation and participation by women with clearer accountability for gender equality outcomes across government departments and local authorities.

World Bank Group Role

The Bank Group strategy in support of Ghana’s Growth and Poverty Reduction Strategy II rests on three overarching objectives: increasing growth, reducing poverty and reducing inequality. To achieve these objectives, the Bank also seeks to deepen its collaboration with other development partners through the Multi Donor Budgetary Support framework, as well as other partnership programs, such as those existing in sector programs for Health, Education, Energy, Environmental Governance and Natural Resource Management, Private Sector Development, Public Sector Reform, Public Financial Management and Water and Sanitation.

As of February 15, 2008, the World Bank has approved 133 loans, credits and grants for a total of $5.617 billion. The current portfolio of the Bank consists of 24 operations in the areas of infrastructure, health and education, and government services totaling about $1.178 billion with an undisbursed amount of $754 million.

For the period covering the Bank’s Fiscal Years (FY) 2008 and 2009, the proposed lending program supports the objectives laid out in the Country Assistance Strategy through of three development policy operations in (i) agriculture, (ii) environmental governance; (iii) decentralization; (iv) social protection, and (v) the ongoing PRSC series, as well as investment operations in the transport sector, ICT, and results-based management. These operations are subject to discussions with the Government and the availability of IDA resources.

IFC

IFC’s strategy in Ghana includes supporting private provision of infrastructure, building and deepening the domestic financial sector; expanding financing and technical assistance support to micro, small and medium enterprises (MSMEs); promoting the development of non-traditional exports; and enhancing the business enabling environment. In addition to the already established the SME Enterprise Development Initiative, the Ghana Leasing Program, the Ghana Housing Finance Program and the Ghana Private Schools Support Program; in September 2007, the Lighting Africa Initiative was launched to provide modern lighting to the 250 million people in Sub-Saharan Africa who have no access to electricity.

IFC’s portfolio in Ghana totaled approximately US$155 million (IFC’s own account), as of June 30, 2007. In August 2007, as part of the Ghana Primary Mortgage Market Initiative, IFC signed a US$25 million mortgage facility with three banks, Ecobank Ghana, Merchant Bank GhanaandFidelity Bank. This loan, coupled with advisory services, will support the development of a residential mortgage industry by providing long-term local currency funding and technical assistance to local banks. In June 2007, IFC approved its first mainstream agribusiness investment in Ghana in the Ghana Oil Palm Development Company (GOPDC). The investment constitutes a US$12.5 million long-term loan to assist the company’s expansion and refinancing efforts. In addition to its Ghana activities, the IFC Ghana office also oversees activities in Benin, Burkina Faso, Cote d’Ivoire, Guinea, Liberia, Niger, Sierra Leone, and Togo.

MIGA

Exposure. Ghana represents MIGA’s third largest exposure in sub-Saharan Africa. The Agency has insured three investments in support of projects in the country’s financial, infrastructure and oil and gas sectors. These projects, sponsored by investors from Bermuda, France and Luxembourg have a combined gross exposure of $132.9 million.

Pipeline. In fourth quarter of FY08, MIGA expects to underwrite an investment, financed by Norwegian investors, in the agribusiness sector in Ghana. The anticipated gross exposure from this investment is $25.0 million.

Conclusion

Ghana faces a crucial opportunity to step-up its national development effort to achieve the MDGs and make progress towards middle-income status. But there are major challenges along the way requiring concerted efforts across the Government and strengthened partnerships with private sector institutions and civil society organizations. This backdrop increases the importance of development partners working together effectively, both to support Government’s efforts at increased coordination and to increase the overall impact of assistance on GPRS II goals.

Contacts

Ishac Diwan, Country Director
World Bank
Address: 69 Dr. Isert Road
North Ridge Residential Area
Accra, Ghana
(postal address: P.O. Box M. 27)
Tel.: (233-21) 21 41 00
fax.: (233-21) 227887
Email: Idiwan@worldbank.org
Web: http://www.wordlbank.org/gh

Pilar Maisterra, Country Program Coordinator for Ghana
World Bank
1818 H Street, N.W., MSN J 8-806
Washington, DC 20433
Tel: 202 473-9629
Fax: 202 473 5139
E-mail: Pmaisterra@worldbank.org

Katherine Bain, Country Program Manager
World Bank
Address: 69 Dr. Isert Road
North Ridge Residential Area
Accra, Ghana
(Postal address: P.O. Box M. 27)
Tel.: (233-21) 21 41 01
fax.: (233-21) 227887

Carlos Calvacanti, Sr. Country Economist
World Bank
1818 H Street, N.W. MSN:J 9-903
Washington, DC 20433
Tel: 202 458-9076
Fax: 202 614 1302
Email: Ccavalcanti@worldbank.org

Asmaou Diallo-Bah, Sr. Country Program Assistant for Ghana
World Bank
1818 H Street, N.W., MSN J 8-806
Washington, DC 20433
Tel: 202 473-6046
Fax: 202 473 5139
Email: Adiallobah@worldbank.org
Web: http://www.wordlbank.org/gh