Ghana and Africa’s Very Hot Economic Growth

Yesterday, Ghana’s statistical service officially recorded 14.4% GDP growth in 2011, which is effectively one of the highest in the world.  This compares to around 8.5% GDP growth rate for China in 2011.  Ghana’s 14.4% is much higher than the 5-6% long term average (ever since the early 80s when the IMF restructured the country’s finances) – the easy explanation is that the country started producing oil in 2011. But the rate is still higher than all the pundits’ predictions. Not only did at least $440 million flow into the coffers of the government from oil revenues, the mining sector grew by 206% – buoyed by record high gold prices, as well as the prices of bauxite, manganese etc. Despite bitter complaints from the press and some local industries, the government kept favorable tax agreements/treatments for a few big gold mining companies, which prompted them to increase their investments dramatically (also as a market response to record high gold prices).

But the unbelievable thing is, despite a 14.4% GDP growth rate, Ghana’s electricity consumption in 2011 actually fell by 0.8% – due to all the load-shedding, brownouts emanating from very outdated, poorly maintained transmission and distribution systems. In fact, rolling brownouts and blackouts affect industries, factories almost on a daily basis. It’s hard to fathom how much more the economy would’ve grown if power supply was not a constraint!!

At the same time, Ghana’s agricultural sector output only grew by 1%. Everybody on the streets can tell you that all this new wealth of the population is being consumed – by purchasing tons of imported rice from Asia, poultry from Brazil and beef from South Africa.

The moral of the story is that on the surface, it seems like Ghana is going down the path of other resource-cursed/dependent countries. But times have changed since the old colonial days. Ghana’s growth miracle is repeated to a lesser extent in a few other African countries that have found a wealth of natural resources (gold, diamond, oil, copper) in recent past – including Botswana, Zambia, Angola, Equatorial Guinea, Namibia, Gabon, Mozambique and Nigeria.  But it’s interesting to see how unlike the resource dependent ruthless dictatorship of Congo (especially Belgian Congo) 100 years ago and the contemporary slow growing but resource rich Zimbabwe, the recent fast growing groups of countries are mainly democracies or at least ruled by stable, competent rulers – Botswana, Zambia, Namibia, Mozambique, Nigeria. These countries at least have quasi checks and balances to ensure that most of the wealth generated from the exports of commodities is channeled into the society for the benefit of citizens (like constructing roads, schools, power lines, social safety net, lower taxes etc). This is very unlike Belgian Congo, or Charles Taylor Liberia, or Mugabe Zimbabwe.

So I continue to believe that as long as there are adequate political institutions to manage the revenue of commodities, African countries can grow and prosper for a long time to come – without the need to develop whole new manufacturing or other industries which take up a lot of unnecessary resources that can be channeled into more effective, basic infrastructure and institutional building. So with strong institutions, good investment/trade/monetary policies, African countries don’t have to follow the Asian or European economic growth model (a question I often get asked). Africa has to fully leverage its comparative advantages on the world stage.

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