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Ghana's Budget For 2016 -- Economic Prosperity Forgone Or Postponed?

Ghana’s performance on the WEF competitiveness index has been waning. Here's what is being done wrong, and what can be done to set us on the right path.

06/02/2017 04:56 SAST
Thomas Imo / Photothek / Getty Images
A vegetable retailer sells tomatoes to a customer at the market in Accra on September 08, 2016 in Accra, Ghana.

The global competitiveness index of the World Economic Forum assesses the competitiveness of countries across the world, with the ultimate goal of providing an empirical, and objective assessment of a country's ability to support its socio-economic development. It provides a benchmark for an apples-vs-apples comparison of economies. This year's competitiveness index summarises the global systemic challenges of "...unemployment, low productivity, and subdued economic growth, that could still be derailed by existential uncertainties...".

Ghana's performance on the index for the past 3 years (editions) has been waning. It dropped eight places on the index between the 2014/2015 report, and this year's.

This brief looks at the performance of Ghana on the recent index, analysing the key themes in the index against the country's growth and development objective, highlighting the need for innovation as a key component of the country's development strategy.

Key Indicators

Placing 119 out of 140 countries, Ghana slipped from its previous position of 114 out of 144. The country scored 3.48, 3.76, and 3.60 on basic requirement, efficiency enhancers, and innovation respectively. A performance below the median score of about 3.5 on 0 to 7 scale on basic requirement presumably will affect the country's quest for sustainable development.

Basic requirements for economic growth and development

This indicator is based on four pillars, which one may consider foundational requirements towards the move from subsistence to sophistication for a 21st-century economy.

On a 0 to 7 score scale, the country scores 2.74 and 2.79 on infrastructure and macro-economic environment performance respectively. This is below the median score of about 3.5, which a country like Ghana should not struggle in achieving, given gains made in other areas of the economy cumulatively.

The regression is further compounded by recent dents to investor confidence, causing the yield on the country's Eurobond reaching double digits, bad compared to Côte d'Ivoire, which attained a yield of about 6.25 percent.

Furthermore, the envisaged short term gains under the 'policy credibility and recovery program' of the International Monetary Fund have not delivered as expected. With government further increasing its burden by growing its recurrent expenditure (e.g. increases in wage bill of public sector workers), increasing its debt service cost, and what is considered as the new normal for commodity prices, it is not clear if this trajectory will change in the interim. Fiscal policy needs to be tamed!

The foundations for steady progress and development are arguably wobbly, making the attainment of an efficient and innovation driven economy a mirage rather than a reality in the immediate future!

On health and primary education, the country scores 3.86 and 4.53 respectively. Although these are above the median score of 3.5, they compare unfavourably with the country's peers in Sub-Saharan Africa such as Botswana, Cameroon, and The Gambia. Social investments in primary and education and health could be responsible for Ghana's high score. But a quality assessment conducted by various stakeholders has consistently revealed underwhelming results, for the investment made.

There however has been a consistent improvement in enrolment at the basic education level, thanks to interventions such as the school feeding program. Other initiatives such as national health insurance scheme and LEAP, have also contributed in various ways towards the improvement in health and basic education. With the current fiscal challenges confronting government, and the gross 'mismanagement' coupled with the absence of sustainability strategies, these programs are vulnerable over the long term, which could see gains in this indicator eroded.

The foundations for steady progress and development are arguably wobbly, making the attainment of an efficient and innovation driven economy a mirage rather than a reality in the immediate future!

Efficiency

It is practically impossible for an economy to progress on labour market efficiency, training and skills development, technological innovation, financial market deepening and development, and efficiency in the goods market if it is failing to provide a basic education, healthcare, and macroeconomic environment.

With that in mind, look at Ghana's performance on the basic requirement indicators. It scores 3.76 on the indicator, with virtually all the sub-indicators above the median of 3.5 except technological readiness (efficiency). Compare the results in the table below:

Basic Requirement

(Key for factor driven economies)

Score

Efficiency

(Key for efficiency driven economies)

Score

Health and Primary Education

3.86

Higher education and training

3.57

Labour market efficiency

4.01

Macro-economic environment

2.79

Goods market efficiency

4.19

Financial market development

3.78

Market size

3.74

Infrastructure

2.74

Technological readiness

3.24

Institutions

4.53

[Table 1: Comparison of basic requirement and efficiency scores] [Source: World Economic Forum, global competitiveness report, 2015]

Clearly there is a mistake somewhere in the country's strategy if the scores on macroeconomic environment, goods market efficiency, financial market development and size of the market, which should be predicated on the soundness of the economic environment are high whiles the microenvironment remains in a volatile position. Two conclusions can be drawn from this development;

  1. An existing disconnect between market players and policy decisions to influence the macroeconomic environment;
  2. A quick adjustment of market players to negative effects of the macro-environment.

The country slipped on the technological readiness sub-indicator, which negatively impacts on the ability of the financial, labour and goods market to development the appropriate sophistication required for an economy in today's competitive environment. It is for this reason that most businesses are still dependent on old approaches to delivering services, albeit that the financial services sector is gradually adjusting. However, this is not at the same pace as is seen in other jurisdictions such as Kenya, Nigeria, Cote d'Ivoire, Rwanda, Mauritius, etc, which is a worrying phenomenon.

Francis Kokoroko / Reuters
Traders sell their wares at Makola market in Accra, Ghana, June 15, 2015.

Innovation and sophistication

Business sophistication and economic innovation depends on the development of the basic requirement together with the efficient use of resources, as well as overall commitment by the various players (businesses, research universities, governments) to research and development.

On business sophistication the country scores, 3.90 and is takes the median position out of the 140 countries, and scores 3.31 on the innovation sub-indicator. The country ranks 65 on the overall sub-index, with Kenya (42), Mauritius (51), Rwanda (55), and Senegal (54), all outperforming it. The physical evidence of the technological sophistication of these countries is empirical, as they are home to some of the most innovative technological systems that support the social and economic life in these countries.

A worrying development arises when the country scores 4.1 on the measurement of its capacity to innovate, performs averagely or below average after interrogating the quality of scientific research institutions, company spending on research and development to drive their innovation, procurement of advanced technology products by government, patent applications per the population, and the availability of scientists and engineers, among others.

It is not surprising that of the 26.2 million Ghanaians, more than 70 percent remain unbanked, as financial institutions have generally not met the financial services needs of the population. Public sector institutions still grapple with technological innovation to deliver their public services, such as business registration, filing of tax returns, payment of taxes, and regularisation of social security. Indigenous innovators have not received the necessary level of support from the government.

This has serious implications on the country's ability to develop the right-thinking innovative solution providers to compete with their peers in other jurisdictions.

Ghana's performance has been less than desirable in the 2015/2016 period on all indicators studied under the global competitiveness index.

When the commodity economy appears to be in 'tatters', with commodity prices consistently exposed to vulnerabilities in the global economy, it makes sense for the country to focus on research and development to drive innovation and economic growth. This must filter through the system of education and training, and should complement the structure and cycle of economic development, providing the harmony between the labour, capital, financial, and goods market.

In summary, Ghana's performance has been less than desirable in the 2015/2016 period on all indicators studied under the global competitiveness index.

Gains made in education and health do not appear to filter through the economy. Setbacks in infrastructure and macro-economic instability,negatively affect the economy. Further compounding the problem is the general lack of research and development funding.

This year's index and report on the competitiveness of the country should be considered as a wakeup call, not only to the government but all players in the economy, including businesses, academia, research institutions, individuals etc. The country does not have to re-invent the wheel of progression on these themes for its development. Other countries across the sub-region and the continent appear to be going in the right direction; moving towards innovation driven economies (Kenya, Rwanda, Uganda, Gambia, and Mauritius).

These countries appear to be focusing on the simple and obvious strategies for their socio-economic development. In the current climate of global economic instability, it makes sense for a country to strive for sophistication driven by innovation and diversity. This will provide an insulation, in the case of Africa and Ghana, from shocks in commodity markets, which more often than not, create 'development craters'. If development will be private sector driven, our efforts of development should be geared towards unlocking the creative potentials of innovation, socially and economically, from the individual, business and government levels.

This is a MUST, otherwise we are DONE as a country!