Ghana warned on growth strategy

The next phase of Ghana’s growth should be productivity-driven – that is, extracting more output from existing resources — instead of continually relying on exploitation of more resources, which is unsustainable, Santiago Herrera, the World Bank’s Lead Economist for Ghana, has said.

Productivity growth has been weak during the past two decades, but high investment — or what economists call capital accumulation — has propped up the country’s economic growth.

However, to sustain a rapid rise in GDP into the future, Ghana must raise productivity faster than in the past, since its ability to mobilise more investment is constrained by low national savings and declining aid, Mr. Herrera said.

His views, which were expressed in a presentation titled Growth, Budget Execution, and Government Effectiveness: Challenges for Ghana at a World Bank-sponsored workshop in Accra, chime with the traditional view of economists that productivity growth is the most important ingredient for raising long-term living standards.

The workshop was convened by the World Bank to discuss the findings of various independent analyses of Ghana’s budget processes, fiscal transparency and accountability.

The findings were from studies commissioned under a grant from the World Bank to Ghana, known as the Governance Partnership Facility.

‘Sustainable growth needs faster productivity growth,’ Mr. Herrera said. ‘It is the strategy that Ghana has to follow.’

He mentioned three main pillars that can support productivity growth within a public-policy context. These include policies to improve public investment management, governance reform of state-owned enterprises, and better monitoring and evaluation of the fiscal budget.

He said there are various indications of public resources being wasted from studies that show government expenditure is not generating commensurate value and impact.

For instance, one study showed that while education expenditure as a share of GDP matches levels in Botswana, Colombia, Thailand, Turkey and Hong Kong, the performance of pupils — measured by learning scores — is between double and six times in these countries compared to Ghana.

Teacher absenteeism is also high in the country, with teachers absent from their class at least one day in five. Worse is that absenteeism is rampant in poor communities: in areas with poverty rates above 60 percent, a teacher can be absent for two days in a week.

‘This is evidence of poor effectiveness of public spending, and shows that resources are not achieving their potential level of impact,’ Mr. Herrera said. It also has implications for the quality of human resources and labour force skills, which affect productivity.

Even though low productivity is not peculiar to the public sector — and has other elements such as technology utilisation — Mr. Herrera said private sector productivity hinges on an efficient public sector.

Thus urgent reforms are required in state-owned companies, as current inefficiencies in public services delivery — seen in weak infrastructure, excessive bureaucracy and poor utilities supplies — are a brake on productivity growth.

Ghana’s ratio of electricity distribution losses, which topped more than 30 percent of the power that was consumed in 2010, is worse than the African average, data provided by Mr. Herrera showed.

‘Governance reform of state-owned enterprises — including the way boards and managements are appointed and the relationship between them — is very important,’ he told the B&FT.

Ghana could potentially boost per-capita income growth by 4-6 percent in the next decade, but macroeconomic instability and lack of progress in institutional reform could jeopardise that healthy outlook, he said, adding that the higher-than-anticipated deficits that characterise the country’s fiscal management reflect poor budget execution and raise questions about policy effectiveness.

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