Go Ghana! Happy 50th!

Stuck in poverty after 40 years of aid: if Ghana is stalling, what hope for Africa?
By David White
Half a century ago Ghana carried the hopes of a continent. When it became independent in 1957 it headed a wave of European colonies in Africa breaking away from imperial rule. Forty others were to follow in the next three decades. Endowed with gold, cocoa - at the time it was the world's biggest producer - and some of the region's highest educational standards, Ghana seemed to have everything needed to flourish.

Today there is again good reason to look at Ghana because it poses an uncomfortable question for all the forums where Africa's future is now under discussion. After a disastrous first 25 years of independence Ghana has done more than any other African nation to meet the expectations placed on it by its rich-world benefactors (see above). But after two decades as a favourite pupil of the International Monetary Fund and the World Bank, Ghana remains trapped in poverty and aid dependence. If Ghana cannot narrow the gap with the developed world, what hope is there for the rest of the continent?

Next year is shaping up to be a crunch year for Africa and its relations with the industrialised world. It will see a UN review of the progress, or otherwise, of poor countries in reaching development targets set in 2000, and a British effort to place Africa at the top of the agenda of the Group of Eight industrialised nations (see below).

These forums will bring to the fore the question of what effect four decades of foreign aid - flowing at an average of about $10bn a year - has had on the continent. And to succeed they will also need to look at removing the obstacles that appear to be holding countries such as Ghana back, and recognise the uncomfortable truth that the basket of policies recommended for Africa is not working.

Compared with what it was like in the early 1980s and with most other countries in tropical Africa, Ghana is a success. In 2000, for the first time, power changed hands via the ballot-box rather than at the end of a rifle. The right-of-centre government is seeking a second term in presidential and parliamentary elections on December 7 in a campaign that stands out as one of the most open and orderly seen in Africa. Economic growth over the past two decades has averaged 4 per cent a year and is now over 5 per cent.
Growth in the rest of Africa is not far behind, expected to move above 4 per cent this year.
However the growth rate would need to reach at least 7 per cent to attain the first of the United Nations' Millennium Development Goals - halving the proportion of people living in absolute poverty from the 1990 level by 2015. Only five African countries attained that rate last year, three of them because of rising oil revenues.

Ghana is locked in a vicious circle: low income, shortage of savings, lack of investment, low productivity and therefore low income. Output is about $1 per person per day. At independence, Ghana's economic product per head of population was almost exactly the same as South Korea's, but by the early 1980s it was one-fifth of the South Korean figure. Last year, according to the World Bank, the proportion was one to 37. "Why have African countries that were on the same level as Asian countries 30-40 years ago fallen so behind competitively?" a western ambassador in Accra asks. "If Ghana can't make the leap to being a middle income country, it doesn't look good for Africa."
Just beyond the smart bank headquarters on Accra's central high street are overcrowded shanty towns where, as locals like to say: "Nothing changes so much." In parts of the capital, people spend one-third of their income buying water from vendors.

The New Partnership for Africa's Development, launched three years ago as a "self-help" project by Africans (see below), has already identified much of what is wrong. The widely accepted agenda for helping Africa centres on dealing with conflict, promoting more honest and open government, backing the private sector, providing better market access for African exports, wiping off debt and seeking bigger and more reliable flows of aid.
By these criteria, Ghana should be a model. It has had ethnic clashes but nothing to compare to the conflicts that have ravaged the countries to its west - Ivory Coast, Liberia and Sierra Leone. Its governance is one of the best in Africa; it was the first volunteer for Nepad's innovative "peer review" process, in which a country's political and economic governance is vetted by teams from other countries. It has strong institutions, respect for the rule of law and a free press. Its government is at least nominally committed to private enterprise. Along with most African countries, it makes use of both US and European preferential trade arrangements, although it is not poor enough to get the maximum EU concessions. It has just qualified for $3.5bn of relief on debt service costs, roughly halving its outstanding debt. And it is a favoured destination for official aid, receiving about $30 per person per year - above the African average.

"We seem to have all the right things being done," says Alan Kyerematen, who formerly headed Enterprise Africa, a private sector initiative at the UN Development Programme, then became Ghana's ambassador to the US and is now trade and industry minister.
But while reforms have made for a more open economy, he says, they have failed to transform its basic structure. Gold, cocoa and timber - all prey to volatile prices - still account for more than 80 per cent of exports.
To grow more quickly Ghana needs to move "on to a different curve", says Mr Kyerematen, but where can it find the means to do so? It has neither the domestic savings nor the government resources. Aid might be an answer if there were enough of it, but until now it has been used for other purposes. And direct foreign investment is hard to obtain in today's intensely competitive global economy: "Whether we like it or not," Mr Kyerematen says, "Ghana and the other Africa countries are growing at the wrong time."
The obstacles to faster growth are in part external - unfavourable trade conditions, particularly as a result of subsidies to developed-world farmers and escalating tariffs, which penalise the higher stages of processing and impede industrial growth. But competitiveness is also hampered by gaps in critical infrastructure such as energy, telecommunications and port facilities, and by high financing costs.
Above all, Mr Kyerematen says, Ghana has failed to attract advanced technology, "the single most important element" that the country has missed out on. In emerging Asian countries higher-technology activities have sucked poor people from rural areas into better-paid jobs.

World Bank economists in Accra say the country is operating well below its capacity and that employment in the formal private sector is actually decreasing. Manufacturing is a smaller part of the economy than it was 30 years ago.
Hasty trade liberalisation in the 1980s had a positive impact at first. It allowed manufacturers to import much-needed raw materials and capital goods. But then competition kicked in. Many factories - from textiles to canneries - were forced to close. "Trade liberalisation in itself is not a bad thing as long as you have policy measures that support your own companies to be able to compete. You cannot open up when you have not done the basics," argues Mr Kyerematen. "There is a need for government to play a stronger facilitating role than has so far been allowed under the rules of the donor community."
While Ghana is largely agricultural, the chance to add value from processing raw products is often forfeited. Ghana has good land for growing sugar cane. But in the Koala supermarket in Accra, the refined sugar on the shelves is either from Brazil or the European Union - subsidised beet sugar processed in France or Britain.
The rural economy is held back by an old-fashioned land tenure system under which ultimate ownership rights belong to local chiefs. Lack of title to land is a widespread African problem. Hernando de Soto, a Peruvian economist, has identified this as one of the main impediments to wealth creation in the developing world, perpetuating smallholdings farmed by peasants who have no assets to sell.
Productivity in African agriculture has stagnated in the last 20 years, while the amount of farm aid per agricultural worker has fallen sharply. Average output is about one-sixth of the level in Latin America. "It has not reached the take-off point where peasants have a rising standard of living and are able to save and spend money," says the western ambassador. "You see it in rural areas of South Asia, but you do not see it here yet."
As for foreign investment, the flow into Africa has been rising, but it goes mainly into oil and gas and is still less than 3 per cent of the world total.
Greater market access could be the driver for Asian-style growth, the UN Industrial Development Organisation (Unido) concluded in a recent study, but African countries were not ready to take full advantage of it. Non-labour costs such as transport and insurance were so high, it said, that Africa might not be competitive even if people worked for no pay. id to Africa, meanwhile, has been rising again after a drop In the 1990s. But even if it increases, in its present form it does little to address the problem of low incomes.

Aid is mainly directed at sectors such as health and education, considered in donor countries as the worthiest targets. However Mr Kyerematen argues that, rather than concentrate on the social aspects of poverty, it would be better to provide infrastructure, cheap export finance, technological assistance and venture capital. "If you have donor-led spending that is all targeted at social sectors, then it's not sustainable," he says. "People need to make money."
Michael Hermann, the co-author of a report earlier this year by Unctad, the UN's trade and development think-tank, says aid could be used differently to create a stream of income in the future. Africa needs transport corridors, roads and railways, storage and business support services. "Social sectors are important, but will not pay the bill," he says.
Kwame Pianim, one of Ghana's most respected economists, points to the distorting effects of donor programmes on economic management. "If you spend the money on building hospitals and schools," he says, "it is building up your recurrent expenditure to maintain them." Stories abound in Africa of aid projects that have run aground - a modern clinic that cannot be properly staffed, an irrigation scheme that falls into disuse because there is no money to pay for the electricity it depends on.
Mr Pianim further argues that aid has distracted attention from economic strategy. The country's administrative capacities, he says, are overburdened by the need to fulfil requirements laid down by the IMF and World Bank.
"What aid has done," says the local head of a development agency in Accra, "is to turn ministries into finely-honed instruments for delivering donor-backed projects and undermine the normal functions of government." Aid money, like oil revenue in oil-rich states, may also reduce the incentive to make the most of other potential sources of income.
The flow of aid to Africa built up with decolonisation from the early 1960s. From then to 2002, World Bank figures for official aid to Africa show an accumulated total, in dollars of the day, of $435bn. For Ghana, the total received since it set out on its quest for self-reliance has been $12.4bn, twice its current annual gross domestic product.
Some donor representatives believe the country might have done better without aid. "We couldn't take it away now," one adds. But even Africa's best performers have little to show for it.
If the rich world's approach to Africa is to change, next year is when it is most likely to happen.
Two separate processes, at the United Nations and under Britain's chairmanship of the Group of Eight industrialised nations, aim to focus world leaders' attention on the case for more effective aid, broader debt relief and increased access for African products in developed markets.
In January, the UN's Millennium Project is due to present conclusions on how poor countries can meet the development goals set in 2000 - targets for tackling poverty, hunger, disease, illiteracy, environmental damage and sex discrimination by 2015. Alone among developing regions, Africa is clearly not on course to achieve them.
UN members are due to review progress - or, in the case of many African countries, the lack of it - in New York in September.
The other process is the UK-sponsored Commission for Africa, a group of "politicians and opinion formers" from both Africa and industrialised nations convened this year by Tony Blair, prime minister. Its members include Bob Geldof, the musician-campaigner, three heads of government, three finance ministers and a central bank governor.
In an effort to address concerns that the initiative would be nothing more than a high-level talking shop, the commission's secretariat this month launched a consultation document calling for "at least a doubling" of the rate at which financial assistance flows into Africa, currently more than $20bn a year.
This matches the proposal made in 2002 by Gordon Brown, chancellor of the exchequer, for an international finance facility that would use capital markets to raise an additional $50bn a year for the developing world. The scheme would "frontload" aid through the issue of bonds backed by binding long-term commitments from donors.
The consultation document also calls for a "rapid and timetabled reduction" of European Union and US farm subsidies. The commission is looking for an answer to the question of whether African nations should reciprocate by lowering rich-country trade barriers.
The commission, expected to produce its final report by April, ahead of the July G8 summit in Scotland, is trying to raise its visibility in Africa and overcome widespread scepticism about its usefulness. US support has been lukewarm. Some African politicians complain that it duplicates the work of the New Partnership for Africa's Development (Nepad), the Africa-based initiative launched three years ago for lifting the continent out of poverty. Others believe both these projects err by being excessively ambitious in their continent-wide approach, lumping together countries at very different stages of development, from impoverished nations such as Niger to middle-income economies such as South Africa.
Backers of the Blair commission say it is needed to inject a sense of urgency in the quest not just for aid but also for better governance and peace in Africa. "If more aid was our main achievement," says a senior UK official, "we would have failed."
On the other hand, Jeffrey Sachs, director of the Millennium Project and special adviser to Kofi Annan, the UN secretary general, insists that for development goals to be met "the main change has to be from the rich world's side".