By Isabella Gyau Orhin
The Head of the Economics Centre and Director of Research of the Institute of Economic Affairs (IEA) Dr. Kwabena A. Anaman has said that , increasing government size in Ghana has led to increase economic growth over the years.
Speaking at a roundtable conference organized by the IEA in Accra last Tuesday Dr. Anaman said “The relationship between economic growth and government size is quadratic with increasing government size leading to increasing economic growth up to a certain point when increasing government size leads to decreased economic growth.”
The topic of his presentation was “Determinants of Economic Growth in Ghana,” which came out of a study to determine the factors influencing the long-run economic growth rate in Ghana using economic growth model based on available data from 1966 to 2000.
The study also included a summary description of economic structure of Ghana as it has evolved since independence to the year 2005.
Relative government size is measured as government spending over Gross Domestic Product (GDP) growth rate by economists.
He said between 1957and 1965 which was the era of Dr Kwame Nkrumah’s Administration, government spent 25.31 percent of GDP as compared to that of the period of political instability which is 17.22 percent (1966-1983) as well as that of the Rawlings era of 1984 to 2000 which is 18.01 percent with the present Kufuor era which is 20.43 spanning the periods 2001 to 2005.
“If you are looking for development, government has to be a bit big,” he said adding, “at some point when government gets too large, you have to scale back.”
He said the difference between President Kufuor’s government spending and that of Nkrumah is not too much but said today, President Kufuor is taking care of a population which is thrice the size of that of Nkrumah.
He also said data from 1966 to 2000 show that long run economic growth in Ghana is influenced by growth of exports and political stability but negatively influenced by world oil market price shocks.
Dr. Anaman further said Ghana’s average annual economic growth since 2001 has been 5.2 percent. Factors influencing this growth rate he said include prudent macro economic management such as relatively low inflation and exchange rate stability.
Again relatively high world commodity prices for major exports have helped but these he said have been bogged down by high world oil prices.
Ghana he said has also enjoyed good weather conditions such as good rains boosting its economic and energy situations.
Energy shocks he said have been a big set back to the country’s economic development.
“If the current power cuts continue, we cannot hit our anticipated six percent GDP growth rate,” he said.
Again he said the nation should be grateful to the eight year continuous high level of investment to GDP ratio from 1993 to 2000.
He said investment to GDP ratio at the time under former President Jerry Rawlings was always above 20 percent and averaged 22.7 percent.
This can be compared to 9.3 percent during the Nkrumah era and the period of instability.
Dr. Anaman also said Ghana has enjoyed a peaceful and orderly transfer of political power and stability and has had a high inflow of donor funds and foreign remittances.
“Both long run and short-run growth functions indicate a strong link between political and economic growth,” he said adding, “Therefore the democratic governance in Ghana should not only be deepened by broadened as well.”
In order to broaden democracy, Dr. Anaman said there should be financing of political parties to allow the emergence of viable third parties to break the duopoly of the ruling New Patriotic Party (NPP) and the main opposition party, the National Democratic Congress (NDC).
“Let’s avoid the Pakistani syndrome in Ghana where the military inserts itself as the third force when the two main parties engage in high level quarreling,” he said.
Dr. Anaman also said there is the need to broaden the export base of Ghana away from the over dependence on Cocoa, timber and gold.
This is because in 2005 alone, non -traditional exports accounted for 17.43 percent of total exports.
Also, there should be government’s investment in labour intensive public works to accelerate economic growth and reduce high unemployment among the youth.
He said although government is currently using agriculture, tourism and Information Communication Technology (ICT) as main drivers of economic growth, there is the need to look at other drivers of economic growth such as the construction industry.
Dr. Anaman also said low labour productivity needs to be tackled through more resources for non-formal education with strong emphasis on basic literacy skills training among others.
The International Monetary Fund (IMF) Country Director in Ghana Mr. Arnold …………..said Ghana also needs to strengthen its investment climate through law enforcement of rules and ensure an independent judiciary.
He said although Ghana is doing very well in attracting investment other challenges such as difficulty in land acquisition remain.
An Economic Consultant Kwamena Essilfie Adjyae was of the view that Ghana needs an economic model with human capital development.
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