REPORTS & STUDIES

Challenges and Changes: The Political Economy of National Development Banks in Ghana

September 20, 2022
National Development Banks (NDBs) perform an important role as development actors. Compared to regional or international financial institutions, NDBs are deeply rooted in the national context, embedded in national policy frameworks, and connected to both public and private sector actors. They can therefore play an instrumental role in the domestic economy by supporting the growth of domestic firms, playing a counter-cyclical role in addressing economic shocks and crises and contributing to long-term economic transformation to sustain low-carbon and climate-resilient economies. However, in African countries where institutional weakness and governance challenges are endemic, the perception of these institutions as weak in governance and poor in performance means they may be overlooked by international partners, thereby inhibiting their potential developmental impact.

To assess the overall political influence, operational performance and the enabling environment of the national development banks of Ghana, Rwanda, Tunisia and Cote d’Ivoire, ACET and ODI conducted a series of case studies. This study examines Ghana’s Agricultural Development Bank (ADB) and National Investment Bank (NIB) and discusses why and how NDBs in Ghana have evolved in their governance structures and operations; the impact of these on their performance; and the challenges they face. Using a political economy analysis approach, this case study examines how the internal corporate governance arrangements of Ghana’s NDBs have interacted with the external political and institutional environment; how this dynamic – particularly political influence – affects the operations and financial performance of these banks; and how this in turn affects the bank’s impact on wider economic development.

The study finds that the two banks have made significant contributions in financing economic activity. However, they face various challenges, and the most pressing is the government’s ability to sustain the required capitalization and support the banks to function independently. The influence of the government as the appointing authority of top management tends to weigh on decisions in the banks. Though this model has helped the government to execute some of its development projects, the challenge is that when there is a change in government, some of the projects earmarked by the previous government are halted. Political influence mostly affects the lending decisions of these banks and the political economy consideration of credit extension has resulted in high levels of non-performing loans, as observe in the case of the NIB. Also, the prudential regulations and capital requirement are not favorable for development banks and this limits the banks’ ability to operate as NDBs.

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