Has Prosperity in Ghana Improved?

By John Asafu-Adjaye

Many people will agree with the proposition that prosperity is much more than material wealth. Prosperity also encompasses safety and security, wellbeing, freedom of association and movement, and opportunity. The concept of Economic Openness, broadly defined as an open and competitive economy, is crucial for creating lasting social and economic wellbeing where individuals, communities, and businesses are empowered to reach their full potential.

The Legatum Institute, a United Kingdom based think tank, has created an index of economic openness referred to as the Global Index of Economic Openness that ranks 157 countries’ level of economic openness.

In the Institute’s report, Ghana’s drive towards prosperity was assessed using four fundamental pillars of open economies; market access and infrastructure; investment environment; enterprise conditions; and governance.

Ghana’s Market Access and Infrastructure has improved but is at its lowest ranking pillar, at 115^th.

The Communications element of this pillar has seen a substantial improvement over the past decade. Many Ghanaians now own more than one mobile phone subscription but the market still suffers from high costs and low capacity.

The Resources element has also improved, with 90 per cent electricity coverage in urban and 70 per cent in rural areas though further investment is needed in thermal energy and water.

The Transport element has deteriorated slightly over the last 10 years. However, the government’s current efforts to rebuild roads throughout the country and extend the railway infrastructure bode well for the future.

The Border Administration element has improved significantly and has consequently moved up the rankings by 45 places over the past decade.

Ghana’s Investment Environment, with a ranking of 106^th, is its next weakest pillar and has seen a decline in the last 10 years.

There has not been much improvement in the Property Rights element due to a complex system of land ownership, compounded by poor land administration and difficulties around clarity of title and ease of transfer.

Investor Protection has been declining over the past decade. In 2017, new laws were passed on financial sector regulation and corporate governance. It remains to be seen whether they have been effective.

Contract Enforcement has also declined. However, the Financing Ecosystems element has improved.  The Restrictions on International Investment element has also deteriorated in Ghana over the past decade due mainly to an increase in capital controls and financial transactions.

Enterprise Conditions have improved but Ghana’s ranking remains unchanged at 72^nd since 2009.

On the Domestic Market Contestability element – Ghana has deteriorated over the last 10 years with domination of some sectors by state-owned enterprises.

Ghana’s Environment for Business Creation has improved the ease of starting a business. However, a major challenge is acquisition of skilled labour.

Governance is Ghana’s highest-ranking pillar at 54^th.

On Governance, Ghana is amongst the leaders in Africa, which reflects the strong democratic traditions developed under the 1992 constitution.

However, while Ghana performs strongly on formal measures of government, the day-to-day operations of government are limited by corruption and poor government effectiveness.

The Executive Constraints element in this pillar deals with separation of powers and the level of external checks and balances on the executive. This element is Ghana’s strongest performing in the Index. However, given that since 1992, the party that has won the presidential election has also won a parliamentary majority, there is some debate on whether Parliament is an effective check on the executive powers of the Presidency.

Ghana’s judiciary is generally considered to be independent – the Rule of Law element is strong. Key legal judgments concerning the conduct and outcome of presidential elections have been widely accepted.

There are also independent bodies such as the Auditor General (AG), the Commission on Human Rights and Administrative Justice (CHRAJ), and the Office of the Special Prosecutor (OSP) have been effective in holding the government to account.

Political Accountability is strong in Ghana – supported by active civil society organizations. Elections are hard-fought at the ballot box and yet have largely been peaceful.

Corruption in government is considered to be widespread, reflecting the decline in Government Integrity over the past decade. The current government came to power on an anti-corruption platform, and has taken steps to address corruption, including setting up the OSP. Yet, there has not been a single successful prosecution of alleged offenders since then. Sustained action will be necessary to root out both the perception and reality of corruption within the system.

What does this all mean, going forward?

Ghana has laid a solid foundation for stability and growth with the promulgation of the 1992 constitution. Prosperity has improved, but not at the pace of its peers. Click & Tweet!  Three key policy actions need to be taken to increase the rate of economic growth and promote sustainable development of Ghana’s economy.

1. Ghana should increase investments in infrastructure to improve the ease with which goods and services are traded, both within Ghana and with other countries. Click & Tweet! The government should implement measures to attract private investment to fund its future infrastructure program.
2. Ghana should improve access to capital for large and small businesses. Click & Tweet! Small and medium-sized enterprises (SMEs) are the backbone of Ghana’s economy. Improving SMEs’ access to finance through capability building and better financial practices. Removing restrictions on international investments would bring a significant inflow of capital and allow foreign-based expertise to enter Ghana.
3. Ghana should further improve the integrity and effectiveness of its government administration. Click & Tweet! The government needs to strengthen its focus on fighting corruption.

John Asafu-Adjaye is Senior Fellow & Head of Research at the African Center for Economic Transformation (ACET)