WEST AFRICA REVIEW ISSN: 1525-4488

Benjamin Asare and Alan Wong

Ghana and Malaysia had much in common four decades ago. They are both former colonies of the British Empire and they attained independence from Britain in the same year, 1957. Both independent countries began with a rich mix of resources, significant gold and foreign-currency reserves, strong British legal and political institutions, and similar educational systems. Malaysia had a GNP per capita of about US$200 and Ghana had a GNP per capita of US$170 in 1958.

Today, these two member-countries of the Commonwealth have very little in common. In 2000, Malaysia had a GNP per capita of $3,884, about 13 times that of Ghana's GNP per capita of $285. In recent years, Malaysia has an average adult illiteracy rate of 13 percent while Ghana, with about 30 percent adult illiteracy rate, has more than twice Malaysia’s [World Bank, WDR, 2002, 232]. Ghana has an infant mortality rate 65 per 1,000 live births, while Malaysia's rate is 8 per 1,000 live births. Ghana has remained largely an agricultural country, with the agricultural sector contributing about 36 percent to its gross domestic output. Malaysia has become highly industrialized, with the agricultural sector contributing only 14 percent to its gross domestic output. [For more comparisons, please see Table 1 below.]

Ghana is among the poorest nations while Malaysia is a fast developing country, joining the rank of middle-income group of nations. Why has Ghana's development experience been so different from that of Malaysia since their independence? This essay examines several issues that might explain the divergence in development. We hope that the description of Ghana’s and Malaysia's development from an issue and historical perspective might offer some useful lessons for other developing countries in Africa. Since 1983, Ghana has embarked on an economic reform program and consistently followed an orthodox set of development policies under the guidance of the International Monetary Fund and the World Bank. However, it is puzzling to many as to why economic progress has been painfully slow in Ghana? This paper is meant to contribute to the discussion of these questions and provide some insight into them. Although some studies have tried to offer explanations for Ghana's slow economic development from a theoretical perspective, this paper seeks to examine these questions from a different perspective, that of comparative analysis. By analyzing some of the natural and artificial differences that exist between Ghana and Malaysia, this comparative study focuses on several factors that might help to explain the divergence in development.

TABLE 1: Comparison Statistics

Sources: World Bank, World Development Report 2000/2001 & 2002 issues; Statistics Dept., Malaysia.

Factors Contributing to Economic Development Differences

The pace and level of economic developments in any country may be influenced by many factors. Usually there is no single factor that can solely determine a country’s economic outcome. However, in the case of Malaysia and Ghana, we believe that one of the main factors contributing to the development difference is political stability. This factor is treated at length from a historical perspective. The other factors that we identify are investment in human development, notably education, product diversification in the economy, the local population’s entrepreneurship, and the economic impact of regional countries.

1. Political Stability

Malaysia and Ghana inherited British political institutions as former British colonies but the political direction and environment differed greatly soon after independence. Although Malaysia looked less promising initially due to the internal threat of communism and the tension between two racial groups, Malaysia has enjoyed political stability since 1957. Whether it was by design or sheer luck, the initial and unique Malaysian political structure that the British were forced to put together under unique circumstances then, was able to withstand some challenges over time and brought much political stability to Malaysia. In the case of Ghana, it has been plagued by coups and counter-coups since independence.

Malaysian Political History: Malaysia is a multiracial country made up of three main races. The Malays, who are considered the indigenous people, make up about 55 percent of the population. The Chinese and Indians comprise about 35 percent and 10 percent, respectively. The Chinese came to trade in Malaysia (Malay States then) for many centuries in the past. They did not only come to trade but also to mine tin. Many settled in Malaysia but it was not until the middle of the 19th century that a great influx of Chinese from China took place. They were escaping from extreme poverty in China and were determined to make it in Malaysia. A great number turned to commerce and became successful entrepreneurs. Unable to find laborers for the rubber industry, the British turned to the Tamils in south India who were eager to migrate to Malaysia. The Indians also were active in Malaysian public works and railroad projects. The Malays remained in agriculture such as rice growing and fishing. The Malays who were educated and wanted to advance generally became government employees. Although a multiracial country, Malaysia then and now is far from becoming a melting pot. Each ethnic group clings to its traditions, religion, and language without much interaction. Inequalities in income distribution are also closely identified with ethnic groups. The Chinese have dominated the country's economy since independence.

Political parties are organized along racial lines and thus, Malaysia has three major communal parties. Under British supervision, the three parties formed a coalition called the Alliance Party (later called the National Front). They developed a working relationship that has become the hallmark of Malaysian politics since independence. The unique working relationship was based on the "Bargain of 1957" in which it was agreed that the Malays would be given political supremacy in exchange for the economic prominence of the non-Malays [Bruton, 1992, 232]. An example of the special political rights enjoyed by the Malays is that the prime minister position would be reserved for the Malays only. The agreement helped to minimize conflicts that could easily derail Malaysia's development programs after independence. The agreement reached by the three components of the Alliance Party was subsequently written into the Constitution. The Alliance Party won the first national election and every election thereafter.

Twelve years after independence, this delicate balance was upset by a communal riot in 1969. The Alliance Party lost a significant number of seats in the 1969 election to the Chinese-based opposition parties. The opposition parties questioned the political rights of the Malays as agreed in the "Bargain" and called for a "Malaysian Malaysia" instead of a "Malay Malaysia". The Malays, who were relegated to the status of economic inferiority, began to feel that they were now in danger of being reduced to political inferiority. Their frustration led to the May 1969 riot that turned ugly and violent for four days. It threw the country into a state of national emergency.

The riot indicated that for the country to be united, the economic position of the Malays had to be greatly improved. Not long after the riot, the first prime minister and leader of the Alliance Party, Tunku Abdul Rahman, withdrew from the premiership in favor of Tun Abdul Razak. To alleviate the economic conditions of the Malays, Razak and his government formulated the New Economic Policy (NEP) to bring about economic restructuring of the nation. The NEP marked a fundamental change in government policy and was a major turning point in the history of the country. The government began to assume a more active role in the economy. The government would act as a "trustee" for Malay economic interests until the individual Malays could take over [Bruton, 1992, 298]. The communal riot in 1969 turned out to be a "blessing in disguise" because it forced Malaysia to embark on a long-term strategy of closing the economic gap between ethnic groups. The government's affirmative action programs have slowly narrowed the gap and have probably contributed much to the political stability in Malaysia. A failure to reduce economic inequality in a plural society like Malaysia can lead to conditions that can easily and frequently derail any economic progress achieved. A case in point is Indonesia, Malaysia’s neighbor, where other ethnic groups have frequently vented their frustrations on the economically well-off Chinese minority during times of economic difficulties.

The NEP had a two-pronged objective of eradicating poverty and restructuring Malaysian society to reduce the identification of race with economic functions. Later on, under the leadership of Dr. Mahathir Mohammad, the fourth prime minister, the economic development plans were quite different from earlier ones in that the government sought to push the country into a higher growth path via the export-led industrialization route of the type adopted by other Asian countries. Dr. Mahathir believed that growth must come first before restructuring objectives could be effectively achieved. The government wanted the private sector to be the driving force of economic progress that would lead Malaysia to be a significant industrial economy in 2020. Dr. Mahathir wished to create a united "Malaysian Race" that will overcome the current ethnic strains [Mahathir, 1991].

Malaysia holds democratic elections every five years and the Alliance coalition has been able to hang on to power since independence. The political strength of the Alliance Party coalition has been able to provide consistent policies, continuity, and much political stability that Malaysia needed to achieve a high rate of economic growth as a developing country. Except for the first prime minister who led Malaysia into independence, all subsequent Malaysian prime ministers had served as vice premiers and other ministerial posts before being given the opportunity to serve the country as premiers, thus providing them with invaluable political acumen and insight. All of Malaysia's past premiers had also served as civil servants before joining politics and this provided them with good administrative experience and skills. The unique Malaysian political system has created a stable political environment that has produced a friendly economic atmosphere that attracts foreign investment and also sustains economic growth. Direct foreign investments (FDI) in Malaysia have played a key role in facilitating the transfer of technology and skills to domestic businesses, access to international markets by local firms, and capital formation in the country.

Ghanaian Political History: Ghana became independent on March 6, 1957, with Kwame Nkrumah as the first prime minister. It was the first nation in black Africa to come out of colonial rule. On July 1, 1960, Ghana became a republic with Nkrumah winning the presidential election that year. Shortly after, he was proclaimed president for life and Nkrumah's Convention People's Party (CPP) became the sole party in the country. He was influenced by socialist ideologies while he was a student in England. By 1961, Nkrumah started to lean more toward socialism by calling for greater state participation in the economy and a move towards socialism [Asare & Staten, 1993]. We would argue that the government’s greater control of the economy led to corruption.

Nkrumah wanted Ghana to play a leading role in Africa’s liberation from colonial domination. He was an advocate of revolutionary movements that, he thought, would lead to the creation of a United States of Africa, that is, a continental government. On the domestic front, massive government expenditures on road building, mass education, and health services were adjudged important if Ghana were to play its leading role in Africa’s liberation from colonial domination. When foreign currency reserves were exhausted, Nkrumah resorted to deficit financing and foreign borrowing. He was criticized for paying little attention to Ghana or for wasting national resources in supporting his pan-African adventures. By the mid-1960s Ghana had a huge debt with rising inflation (26 percent in 1965) and economic mismanagement [IMF, International Financial Statistics, 1969, 138].

The heavy financial burdens set off increasing opposition to Nkrumah from within the CP When Nkrumah visited China in 1966, the military, led by General Ankrah, staged a coup d’état and overthrew the CPP government. It was the beginning of a number of coups that would plague Ghana for years to come. Once the military intervened in 1966, it created a culture that made it easier for subsequent military coups to occur. Nkrumah and the military charted a course for Ghana that would make it hard for future leaders to change direction and help the country to develop economically. Since Nkrumah’s fall from power, no subsequent government has been able to deal successfully with the host of problems bequeathed by his administration.

The leaders of the 1966 coup took steps to restore democratic government. Elections were held in 1969 and Kofi Busia and the Progress Party (PP) formed the government. The new government was concerned about the overwhelming influence of foreign nationals (Asians, Lebanese, Syrians, and Europeans) in the retail-trading sector dating back to colonial times. It made a drastic move by requiring all retail trading concerns, whose capital outlay did not exceed half a million cedis, to be reserved for Ghanaians. This move was followed by an "alien compliance order" which forced all aliens without proper documentation to leave the country within two weeks. This led to an exodus of African laborers from neighboring countries, leading to a near collapse of the cocoa industry due to labor shortages.

Busia also introduced a loan program for university students (ending free education), devaluated the currency and encouraged foreign investment in the industrial sector. The PP stressed the need for rural development to slow population migration. Austerity measures imposed by Busia to put the country back on a sounder financial base alienated many. The military was not patient enough to allow the government a chance to prove that its austerity policies would turn the country around. A coup in 1972 ended Busia's government that existed for only 27 months. A critical cause of the coup was the country’s continuing economic difficulties, stemming from high foreign debts incurred by Nkrumah.

The new military government, headed by Col. Ignatius K. Acheampong, reversed the fiscal policies of the PP government. It repudiated Nkrumah’s debts to British firms and unilaterally rescheduled the rest of the country’s debts for payment over 50 years. It nationalized all large foreign-owned companies. These moves aggravated the problem of capital flow. In July 1978, other military officers forced Acheampong to resign, and replaced him with another military man, Gen. Akuffo. Akuffo promised to hand over political power to a new government in 1979. Less than five weeks before constitutional elections were to be held, a group of junior officers led by Flt. Lt. Jerry Rawlings attempted a coup but was unsuccessful. Rawlings was jailed. Later on, other military officers organized another coup and overthrew Akuffo in 1979. Despite the coup, planned elections took place and power was transferred to the elected government of Hilla Limann.

Two years later, Rawlings led another coup and the civilian government fell. Again, the civilian government was not given sufficient time to prove itself. When Rawlings took power, it was the eighth government in the fifteen years since the fall of Nkrumah. The frequent changes of governments in Ghana and the short duration of many of them led to frequent changes in policies and reversal of others. Blaming other previous leaders for the condition and corruption, he executed them [Berry, 1995, 51].

To put the country back on the road to economic recovery, Rawlings initiated the Economic Recovery Program (ERP) in 1983 with the hope of stabilizing and implementing needed structural adjustments to grow the economy. The ERP was intended first to stabilize the economy by reducing financial disequilibrium in the fiscal and external factors. For example, they needed to overhaul the foreign exchange system where the currency was greatly overvalued and sharply reduce the fiscal deficit and high inflation rate [Aryeetey, Harrigan, & Nissanke, 2000, 349]. Next, the ERP called for restructuring of Ghana's productive activities to decrease inefficiency and restore growth, with emphasis on agricultural pricing policies so as to provide incentives for farmers to increase food production and also to produce export commodities [Ewusi, 1987, 17]. The economy began to bounce back and seemed to be headed in the right direction. Still, it would be difficult to conclude that the Economic Recovery Program improved much the lives of many Ghanaians in its aftermath. In 2000, Ghana's GNP per capita was $350, barely more than its GNP in 1983 of $320. More than a third of the country's population continues to live below the poverty line today (little effort was made to monitor poverty in the 1980s and so no comparison can be made).[1]

The Rawlings military government lasted for eleven turbulent years and it returned the country to democracy in 1992. Rawlings made a peaceful transition from military ruler to elected president. The new democratic constitution guarantees fundamental human rights, independence of the media, civil liberties, and the rule of law. The constitution was drawn up with the intent of preventing future coups, dictatorial government, and one-party states. Political parties must have a national character and membership and are not to be based on ethnic, religious, regional, or other sectional divisions.

In spite of the progress made by the Rawlings government in restructuring the country’s political and economic institutions, that government survived numerous coup attempts. Although unsuccessful, these attempts tended to project an image of Ghana as a country wracked by political instability. The coup mentality and frequent interventions by the military in Ghana's politics did not generate an environment of political certainty and policy continuity needed to attract and retain private foreign capital and skills. Since Ghana has low domestic savings rate, it needs private direct foreign investments to help sustain the growth of its economy. A history of instability has not helped in attracting the type of direct investments by foreign investors that require heavy initial outlays, such as in manufacturing. Compounding the image problem is the tendency of investors to lump all African countries together as a conflict zone. The Secretary-General of the United Nations, Kofi Annan, who is a Ghanaian, expressed this concern [UNCTAD, 1999, 1] when he said that conflicts exist only in some African countries, but not across the whole continent. However, there is growing optimism respecting political stability in Ghana, especially with the election of John A. Kufuor, an opposition leader, to the presidency in 2000. There is also hope that the current leadership of the Ghanaian military is more patient.

2. Human Development

One of the crucial contributors to the economic development of a country is human capital. Education and health play a vital role in the development of human capital and investments in human capital cannot be put off until economic conditions are more favorable. There are mutually reinforcing positive effects between human and physical capitals. The education component in a developing nation, especially primary education, must be laid early for it to play an important role in a country’s industrial growth. Education not only provides skilled manpower but also the basis to train unskilled or low-skilled workers to become more productive in a more complex and more technological world economy. Furthermore, education is a wealth-distribution vehicle because it should enable the poor to seize the opportunities provided by economic growth. Education also leads to a variety of indirect benefits, such as better attitudes toward work, greater ability to learn new skills, and fertility reduction. Right after independence, Malaysia made a concerted effort to provide primary education to as many children as possible. Table 2 shows that generally between 90 to 100 percent of the primary-school age group have enrolled in schools since independence. As a result, the functional literacy rate has been relatively high. In 1998, the percentages of adults (15 years and older) who were functionally illiterate were 9 percent for males and 18 percent for females.

TABLE 2: Percentage of Primary School Age Group Enrolled

Source: World Bank, WDR, various issues.

Ghana did even better. Ghana started with free and compulsory universal primary education to try to combat a situation where more than 60 percent of the primary school age group did not go to school in 1960. Free education, including the cost of books and materials, was later extended to the secondary and university levels. Particular attention was paid to the northern parts of the country which were neglected during the colonial era. Primary and secondary schools were built all over the country. Table 2 shows that Ghana has made great strides in the primary education area and that should show up in more favorable adult literacy statistics in later years. However, the statistics on adult functional literacy could have been better. About 40 percent of adult females (15 years and older) and 22 percent of adult males were functionally illiterate as recently as in 1998 [World Bank, WDR, 2000/2001, 276]. The frequent changes of government in Ghana, the lack of continuity in education policies, and the steep decline in the economy during the period from 1973 to 1982, took a toll on primary education in the country. It was hard for the Ghanaian government to sustain spending on education during times of economic stagnation. The percentage of GDP allocated to education had dropped from 6.4 percent in 1976 to 1.0 percent in 1983 [Avotri, Owusu-Darko, Eghan, & Ocansey, 1999, 10].

In the 1990s, the share of education spending was partially crowded out by public sector interest payments. In real per capita spending (constant 1987 US$), the annual average percentage of total government spending devoted to education was 12.2 percent in the 1975-84 period. It slipped to 11.9 percent during the period of 1985-91 [Aryeetey, Harrigan, & Nissanke, 2000, 316]. Moreover, Ghana did not rely more on private sources to finance its secondary and tertiary education programs so that it could focus more on primary education and literacy programs [Chhibber & Leechor, 1993, p 24-27]. Students in public primary schools do not pay school fees and are supplied with free textbooks. However, the cost of other school expenses such as school uniforms, exercise books, stationery, transport fares to school, and lunch are beyond the financial means of many rural parents. The opportunity cost of schooling is very high during hard economic times when children, especially girls, are needed to help in supplementing family income in farming communities [Avotri, Owusu-Darko, Eghan, & Ocansey, 1999, xix].

The other aspect of human capital that helps to sustain the economic development of a country is the health of its workforce and general population. A healthy workforce is more productive and can also contribute for a longer period to a country’s economic development efforts. Ghana and Malaysia have made significant progress in the public health area since independence. In 1999, the life expectancy in Ghana was 58 years and it was 72 years in Malaysia. The longer Malaysian life expectancy was probably due more to a head start made by Malaysia rather than to greater progress achieved by Malaysia. In 1960, the life expectancies in Ghana and Malaysia were 37 and 52 years, respectively. In 1960, the infant mortality rate in Ghana was 143 per 1,000 infants and the Malaysian rate was about half of that in Ghana. By 1998, Ghana was able to cut the infant mortality rate significantly to 65 deaths and Malaysia managed to reduce it to 8 deaths per 1,000 infants. In spite of the progress Ghana has made in health, it still has a lot of work to do in improving the health of its population. In 1996, only about 42 percent of its population had access to sanitation whereas Malaysia’s percentage was 94 percent [World Bank, WDR, 2000/2001, 286]. In the early 1990s, Ghana’s annual public expenditure on health was about 1.3 percent of its GD. The Malaysian government spent about the same percentage but its per capita GDP was many times larger.

3. Diversification in the Economy

Another condition for sustained economic progress is diversification of the economy. Both Malaysia and Ghana started off as primary goods producers with few products. In 1958, Malaysia’s main export items were rubber, contributing almost 60 percent to the total export value, and tin, contributing about 12 percent. The main Ghanaian economic activity was in cocoa production, contributing about 66 percent to the total export value. It was followed by wood (12 percent of export value), with diamonds and manganese each contributing 9 percent to the total export value. After independence, the Malaysian government made a strong effort to diversify not only the agricultural sector but it branched out and made great inroads into manufacturing (see Table 3). Rubber’s dominance at independence has been reduced to about one percent of Malaysia’s total export value. The main agricultural export item now is palm oil, which contributes about five percent to its export value. Furthermore, Malaysia has reduced its dependence on agricultural exports to obtain foreign earnings. Manufacturing products seem to have overtaken agricultural products as the main foreign exchange earner. For example, Malaysia has become one of the largest producers of semiconductor devices in the world [Creffield, 1990, 51].

The first government in Ghana also tried to diversify the economy but the policies were reversed after its overthrow. Ghana has made little progress in economic diversification, and there is still heavy dependence on one agricultural commodity (cocoa). Cocoa exports contribute about 35 percent to Ghana’s export value. There is a lot wrong with dependence on one commodity as the main export especially when that commodity is agricultural. Fluctuations in the world price of that commodity can adversely affect the economy of the country and its development efforts. Moreover, weather and crop diseases can also play havoc in the production of an agricultural commodity such as cocoa. For sustained economic development, it is necessary to have multiple sources of export revenue so that a temporary disruption in one product or service does not jeopardize the funding of the country's development efforts. Manufacturing, a more efficient vehicle for rapid and sustained economic progress, has yet to attain a large scale in Ghana. As of 1999, the agricultural sector generated about 36 percent of Ghana’s GDP, with the industrial and service sectors generating 25 percent and 39 percent, respectively. In Malaysia, the percentages were 14 percent for agriculture, 44 percent for industry, and 43 percent for services [World Bank, WDR, 2000/2001, 296].

TABLE 3: Comparing Merchandise Export Sectors

Source: World Bank, WDR, various issues.

4. Domestic Entrepreneurial Group

One cannot overemphasize the role of local entrepreneurs in economic development. A society that begins its development with a sizable group of local entrepreneurs is way ahead of the game. Malaysia, at independence, had a thriving local entrepreneurial group actively engaged in commerce. These were the Chinese who made up about 35 percent of the population at that time. Because of centuries of trading history and the traditional Chinese cultural trait of entrepreneurship, many of them turned to commerce when they settled in Malaysia. Chinese businesses had easy access to significant amount of capital in the Chinese community due to its impressive rate of saving. The Chinese attitude to saving emphasized low rates of individual consumption and generated high rates of saving and many self-financed investments. The attitude to saving can be explained by tradition but also by the pressures affecting immigrants who wish to climb higher on the economic ladder [Kasper, 1974, 14].

Furthermore, the Malaysian Chinese were part of a larger network of overseas Chinese known as the "bamboo network" that provided the Malaysian Chinese with additional sources of capital, business, and trading opportunities through a common background of language, culture, and ethnicity. The "bamboo network" is made up of overseas Chinese who or whose parents were forced to flee from the take-over of China by the communists in the 1940s and who chose to resettle in countries like Taiwan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia, and the Philippines [Weidenbaum & Hughes, 1996, 4]. By 1957, by southeast Asian standards, Malaysia was already a thriving commercial and trading nation. And since independence, the Chinese have controlled Malaysian economic activities, although foreign investors own for the most part the big business establishments [Malaysia, Fifth Malaysia Plan, 1986, 114]. The breakdown of share capital ownership in 1970 is provided in Table 4.

TABLE 4: Breakdown of Share Capital Ownership

Source: Snodgrass, 1980, 99.

The reverse is true for Ghana. Liberal immigration policies until 1969 had led to large numbers of foreign nationals residing in Ghana. In 1960, it was estimated that about one-eighth of the population was of foreign origin, with the largest numbers coming from African nations like Togo, Burkina, and Nigeria [Kurian, 1987, 729]. At independence, it was not surprising to find that the business class in Ghana was composed largely of foreign nationals, especially from India, England, Lebanon, and Syria. As non-citizens, it was not unusual for them to repatriate much of their profits to their countries of origin. Concerned about the dominant role played by non-nationals in commerce, the Ghanaian government passed the Ghanaian Business Promotion Act that excluded non-Ghanaians from certain categories of business and restricted the conditions under which non-Ghanaians could carry on business.

Although some indigenous groups in Ghana were involved in gold trading, Ghanaians generally did not have much experience in modern commerce. Africans maintained their control of the gold industry until the 1890s when the development of modern techniques turned gold mining into an almost exclusively foreign-run enterprise dominated by Europeans many of whom had originally gone to Ghana in search of the metal. After independence, Ghanaians not only lacked a distinct and sizable business class, they also lacked domestic capital. Ghana had to turn to and depend more on external capital and technical know-how to help develop its economy. Much of the external capital came in the form of borrowing. However, there is a limit to how far foreign capital can help in the development of an economy. The presence of significant local entrepreneurial talents and capital can greatly expedite and help sustain the development process, and Malaysia was fortunate to have such a group when it acquired its independence from Great Britain. Thus, the local Chinese entrepreneurs provided Malaysia with an advantage that Ghana did not have.

In Ghana, cocoa producers were a sizable non-ethnic group that could have supplied local capital and entrepreneurial talents to make a difference. African cocoa farmers used kinship networks to spread cocoa cultivation throughout large areas of southern Ghana. However, the volatility of cocoa prices and the gross mismanagement by both colonial and post-colonial governments had reduced the potential of this indigenous group to contribute to local economic development. The British colonial government created the Cocoa Marketing Board to buy cocoa from farmers and then market the produce in the world market. Over time, both the colonial and post-independence Ghanaian governments began to use the Board to siphon some of the money for cocoa production and marketing for other unrelated purposes. The cocoa farmers were consistently paid prices that were significantly lower than the market price. For example, in 1952, the farmers were paid an average of 61 percent of the cocoa sales value. In 1960, they were paid about 51 percent of the sales value [Asare, 1986, 201]. This situation did not motivate farmers to increase investment and improvement in technique of cocoa cultivation. It also hampered the ability of the indigenous cocoa farmers, who produced about half of the world’s cocoa, to accumulate sizable capital that could be used to fund other local business opportunities.

5. Impact of Regional Economy

The second natural advantage that Malaysia has over Ghana is Malaysia's geographical location. The performance of the Malaysian economy is inextricably linked to surrounding nations in the East Asia region. For more than three decades, the economic growth in East Asia has been generally faster than that of any other region in the world, averaging 8 percent except during the Asian crisis that began in 1997. Current conditions indicate that the affected economies in the region are beginning to bounce back from that crisis. The real GDP growth rates in the region in recent years are as follows:

Malaysia, strategically located as it is in the vibrant economic region, has benefited from close association with regional economic powers such as Japan, Taiwan, South Korea, Singapore, and Hong Kong [Creffield, 1990, 194]. A large amount of trades and direct investments among these regional countries led to very rapid economic developments in countries that were willing to participate in the economic vibrancy of the region. With the help of more industrialized countries, e.g., Japan, Malaysia built a strong industrial and manufacturing sector. Like most other regional countries, Malaysia turned itself into an export-based economy. Moreover, creating an export-based economy also made it easier for Malaysia to attract foreign investors from outside the region because no one wanted to be left out of the region's growing economy with a huge and expanding market potential.

On the other hand, Ghana is surrounded by the former French colonies of Cote d’Ivoire (Ivory Coast) to the west, Togo to the east, and Burkina Faso to the north. To the south is the Gulf of Guinea. The lack of cooperation and the sometimes antagonistic relations between the former British and French colonies during the early years after independence did not generate a conducive investment and commercial environment for all the countries concerned in West Africa. Moreover, there is no regional economic power in West Africa that could act as an economic catalyst to surrounding nations in the region. Nigeria, the dominant economy in West Africa, has not fared well in economic development. The real GDP grow rates in West Africa in selected years are given as follows [African Development Bank, 1998, 8]:

The Economic Community of West African States [ECOWAS}, comprised of 16 West African countries, has done very little to break down barriers to free trade and mutual economic developments. Issues such as lack of currency convertibility outside the French franc zone, generally protective and import-substituting trade regimes, and significantly different levels of economic developments have to be resolved. Such issues are a stumbling block to attracting foreign capital to that part of the world, given the choice that foreign investors have in some other regions. The difficulty in attracting foreign investments continues in spite of the fact that existing foreign direct investments in Africa as a whole have higher rate of profitability than those in other regions [UNCTAD, 1999, iv].

Ghana's geographical association or close proximity to neighboring countries with high political risks can heighten investors' concerns. Recent conflicts in the Ivory Coast, Sierra Leone, and Liberia have undermined economic performance in the region. Investors tend to not only look at the political risks of a target country but also those of the region in which the target country is located. Unfortunately, this sometimes leads to investors' redlining of the whole region and, by extension, the African continent. The continent receives less foreign direct investments than Singapore [Bjorvatn, 2000, 1]. Thus, it is helpful to provide a forum for regional conflicts to be settled peacefully without resort to prolonged armed conflicts, which might undermine the attractiveness for investors of the whole region. It is in the best interests of regional countries to effectively cooperate with one another to foster the economic development of the region and create a unified market.

6. Conclusion

For Ghana, the period 1973-82 can be considered one of unmitigated economic disaster. The economic and social infrastructure was near collapse. Given the cumulative effects of past economic mismanagement and corruption, and inconsistent public policies due to frequent government changes in the past, the weakened economy could not withstand a series of exogenous shocks—second oil price hike of 1979 and an extremely severe drought in 1983— during that period. Moreover, the forced repatriation of one million Ghanaian workers from Nigeria in 1983 complicated and set back any human development progress that might have been achieved up till that time in the areas of education and health. It was in that state of economic crisis that Ghana began its first phase of Economic Recovery Program in 1983.

The Recovery Program has brought some economic stability, but due to the depth to which the economy had sunk, it has been estimated that it might take 10 to 40 years (depending on the economic growth rate) for the very poor to escape poverty in Ghana [Aryeetey, Harrigan, & Nissanke, 2000, 304]. A factor that might have contributed to the slow recovery of the economy has been the declining international price of cocoa that afflicted Ghana throughout much of the Economic Recovery Program period. It points to the risk of over-dependence on one or two main products to sustain the economy. Moreover, Ghana does not enjoy some of the natural advantages that Malaysia has. Ghana is not located in a region of vibrant growth and it is not endowed with a strong domestic entrepreneurial group that can inject significant capital into the economy.

However, Ghana's economy seems to be headed in the right direction even if sustained economic recovery is not yet a reality. It has regained its international credit standing and has arrested the declines of the past. The deepening of its economic reforms and the stabilizing of its socio-political framework provide considerable grounds for optimism about Ghana's prospects for achieving sustainable development. If Ghana remains patient, persistent, and committed to its path of reforms, it still can become the “Black Star of Africa” as Nkrumah, the first prime minister, envisioned it. Ghana has enormous untapped and growth potential. Developed countries can help Ghana reach its potential by offering more relief from external debt accumulated in the past so that resources for debt servicing can be diverted to investing in the country to create a more attractive business environment. Developed countries can further help by providing incentives and encouraging their home-based multinational corporations to invest more in the agricultural and manufacturing sectors in Ghana.

Moreover, Ghana needs the opportunity to trade its goods in rich-country markets. Development aid provided by the West is important but it cannot be the only solution to tackle the economic difficulties facing Ghana. Providing only development aid promotes dependency. The West can help Ghana trade its way out of poverty by cutting or eliminating tariffs and quotas on Ghanaian goods. In turn, this should promote direct foreign investments in Ghana, especially in the manufacturing sector. If Malaysia could trade its way out of poverty and into sustained economic growth, Ghana should be able to do so. Furthermore, the United States and Europe have been heavily subsidizing their own farming sectors and setting agricultural trade barriers, making it very difficult for developing nations like Ghana to get their share of the export market. The West can provide an economic lift to the developing world by cutting import tariffs, export subsidies, and domestic farm supports. A step in the right direction is the African Growth and Opportunity Act passed by the US Congress and signed by President Bill Clinton not too long ago. The legislation grants duty-free and quota-free access to the U.S. market to essentially all goods produced in Africa, including those from Ghana.

Bibliography

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References

[1] In this study, poverty line is defined as living below US$1 a day.

Copyright © 2004 Africa Resource Center, Inc.

Citation Format

West Africa Review: Issue 5, 2004