As the first African country to achieve independence from its European colonizer in the 20th century, Ghana was in many respects a country that had great expectations riding on it.
Rich in gold, diamonds and agricultural resources, Ghana was wealthier than South Korea and Taiwan in 1957 when it achieved independence and the future seemed very bright.
Unfortunately, poor economic leadership for too long meant a country that should be one of the richest in the world, let alone Africa, has known poverty and missed opportunity for decades.
The responsibility for this ultimately can be found – like in Tanzania – with the country’s post-independence leader – Kwame Nkrumah. A pan-African socialist of the Nyerereian variety, Nkrumah initially won power in free democratic elections. But the failure of many of his economic schemes and increasingly authoritarian rule did little to promote either democracy or prosperity and aligned Ghana, by the early 1960s, increasingly against the capitalist West.
In particular, Nkrumah’s attempt to rapidly industrialize the economy along Soviet lines – with a focus on heavy industry and import-substitution instead of light industry geared for export – failed spectacularly.
With the country soon deep in debt, opposition mounted from within the military and by 1966, Nkrumah – who had by then thoroughly transformed Ghana into a socialist, one-party state — was overthrown in a military coup.
What followed was a quarter century of political infighting marked by elections, short-lived governments, coups, and military rule that undermined any hope for sustained economic growth.
Eventually, under the administration of Jerry Rawlings – a former Air Force lieutenant who seized power in 1979 – economic crisis and the collapse of the Soviet example led to the establishment in Ghana of a multi-party, democratic system in 1992 that Rawlings, now a democratic politician, went on to lead for two terms in office.
With a peaceful, democratic handover of presidential power to his successor in 2001, Rawlings solidified Ghana’s new reputation as a stable, if young, democracy.
This new democracy, importantly, had the political legitimacy necessary to make important economic reforms that might have otherwise caused another coup or rebellion.
Negotiations with the International Monetary Fund on a structural adjustment program, while painful in the short run, allowed for some Western aid to help Ghana weather the shock of transitioning to a more open, market economy. By the mid-2000s economic growth had returned and began to strengthen.
Today, Ghana is a remarkably different place than what it was immediately after independence – a relatively well run, democratic country that is increasingly home to both indigenous entrepreneurs and Western investment.
According to the World Bank, Ghana currently ranks 67th overall out of 183 countries on its Ease of Doing Business Index – a measure created by the bank to gauge the degree to which commercial enterprises encounter regulatory hurdles and legal threats to property. The index also compares the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses. By way of comparison, the U.S. ranks fourth on ease of doing business, right after Singapore, Hong Kong, and New Zealand.
What does this ranking mean? Take, for instance, the bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. The index defines business-creation costs as the time and money involved in the legal steps necessary for an entrepreneur to legally establish an in-country firm. Using this framework, the bank then tasks researchers to go through this process in order to establish in-country averages.
When this metric is applied to Ghana, the bank finds that Ghana ranks 99th out of 183 in ease of starting a business. This means Ghana is a somewhat difficult place to start a commercial enterprise, but not so hard as many other countries. To start a business in Ghana, one has to complete seven bureaucratic procedures that take a total of 12 days at a total cost of $140, with a minimum capital requirement of $77 imposed by the government for the start-up. Overall, these are fairly benign conditions for outsiders seeking to start a business in Ghana. But given that per capita income is $700 a year, it is still steep for most native Ghanaians.
Using similar metrics for other aspects of business operations, the bank ranked Ghana in a number of other areas. To obtain a construction permit, for instance, Ghana is ranked 151st out of 183. It takes the completion of 18 procedures, which take on average 220 days at a cost of $7,119 – a little over 10 times the average national income. Clearly, this is a problem for not only average Ghanaians but for foreigners seeking to start a business as well.
Continuing in its assessment, the World Bank determined that to obtain and register property, Ghana does much better, ranking 36th out of 183 countries. To register property in Ghana requires five bureaucratic procedures that take 34 days and cost 1 percent of the property’s financial value in fees and other costs to complete. This makes Ghana a relatively easy place both in Africa and the world to register property.
Ghana also does well when it comes to obtaining credit. It ranks 46th out of 183. Here, as depicted in Figure 2, the bank examines the legal rights of creditors and borrowers in secured transactions and bankruptcy law as well as the strength of credit information bureaus and exchanges. When lenders have both strong legal rights and easy access to a wide variety of information about the client’s creditworthiness, reasons the bank, the more available credit will be. While information on borrowers is significantly lacking – as is the case in most of Africa – legal protections for creditors are very strong. Creditor rights in Ghana are some of the strongest in the world.
When it comes to protecting investors and minority shareholders, Ghana also does well by ranking 44th out of 183 countries. This is because Ghana is a relatively easy place to bring minority lawsuits, requires significant disclosure of conflicts of interests, and holds many corporate directors liable for performance. There is, therefore, investor protection in Ghana that is often lacking in other countries on the continent.
Ghana does less well in the area of taxation, though still better many other countries. ranking 78th out of 183. The World Bank estimates that pleasing the tax man in Ghana requires a total of 33 payments over the course of a year which, take up to 224 hours to complete and can consume up to 32.7-percent of a company’s profits.
When it comes to ease of cross-border trade, Ghana is middling. To import goods into the country requires seven documents for customs officials to inspect. On average, it takes a total of 29 days to import goods into Ghana with the cost amounting to $1,203 (excluding tariffs) per container shipped into the country.
The cost to export goods is somewhat lower as Ghana requires six documents to be inspected by customs officials, while the total cost (excluding tariffs) is $1,013 per container. Delivery takes up to 19 days from point of origin. Compared to global averages this nets Ghana a ranking of 89 out of 183 on ease of engaging in cross-border trade.
Ghana is generally a good place to do business when it comes to contract enforcement. It ranks 45th out of 183 countries. On average, report World Bank analysts, it takes a total of 36 legal procedures to take a contract from dispute to resolution. Completing them can take 487 days – or about 16 months – including time spent in court or otherwise attending to legal issues. The financial cost of pursing a contract claim typically accounts for 23 percent of the value of the claim.
Finally, in terms of closing or liquidating a business, Ghana does not do as well. It takes nearly two years to close an estate at a cost of 22 percent of the value, for a recovery rate of 23.7 cents on the dollar. This gives Ghana a ranking of 109th out of 183 countries in this area.
Table 1 presents a summary of these rankings as well as Ghana’s overall ease-of-doing business rating. The most difficult areas of doing business in Ghana deal with obtaining and developing property, followed by closing a business. The easiest, by far, is in the area of contract enforcement, obtaining credit, and protecting minority shareholders.
Going forward, Ghana has ambitious plans to industrialize along capitalist, export-orientated lines and become the first truly “developed” economy in Africa by 2030. Indeed, as a mark of its confidence about the future its government recently issued a 10-year, $750-million eurobond sovereign note – serving notice to the world’s debt markets and financiers that Ghana is a stable, responsible place to do business.
At first blush, Ghana’s leaders aren’t far wrong in their assessment. Economic reforms coupled with a functioning, relatively clean democratic government – a rarity in Africa – make the country a good place to do business.
True, it’s currency – the Ghanaian Cedi – has suffered of late, but its relatively light regulatory and bureaucratic burden, as noted above, has been a boon and investment and growth have followed. Over the past 10 years growth rates averaged 7.26-percent per annum and, what’s more, that growth could get even faster.
That’s because Ghana is even richer in natural resources than previously thought, with substantial deposits of oil and natural gas discovered offshore since 2007. At present, oil reserves are estimated at 3 billion barrels of recoverable resources, with exploration operations expected by both the government and oil analysts to eventually turn up an addition 2 billion barrels-worth of offshore petroleum. At present prices, Ghana’s estimated total recoverable oil resources can be conservatively valued at a little over half-trillion dollars, a tidy sum to be sure.
Combined with Ghana’s gold, other valuable minerals, and its extensive agricultural wealth, the future looks very bright for this young democracy.
Problems nonetheless lurk in the background that could upset Ghana’s ambitions to become the continent’s first developed nation.
First, oil wealth of this scale and scope is not easy digest — especially for a small country like Ghana. Unless precautions are taken to secure the riches that come from it for future generations there is a risk that, as in neighboring Nigeria, Ghana’s newfound petroleum riches could be squandered and stolen by its political class. In this, Ghana should look to the example set by similarly oil-rich and democratic Norway, where public oversight of its oil-funded sovereign wealth fund has been seen by many as best practice in the field.
Second, even if competently managed, oil wealth can have enervating effects on its own. Most famously, it can inflate the country’s currency to such an extent that other economic activities – such as manufacturing or agriculture – cannot effectively compete on international markets.
This phenomenon, known as the “Dutch disease,” was identified after its effects were documented on Dutch manufacturing exports following the discovery of offshore natural gas deposits there in the mid-1970s. It means oil wealth can actually lead to a reversal of development and de-industrialization as formerly healthy economic sectors dry up due to lack of competitiveness and lack of investment.
Since agriculture and manufacturing use labor far more intensively than the oil industry, oil wealth could paradoxically lead to an employment crisis unless a significant service economy develops in response.
Finally, third, even though Ghana seems to be a stable, multi-party democracy that is a good place to do business, it is situated in a larger region known for instability, political violence, and corruption. Nearby Nigeria, for instance, has long been known for terrible governance and political conflict in its Muslim-majority north and in its oil-rich Niger Delta region that could potentially spill over into the rest of West Africa. As an example of this, the recent spate of pirate attacks against Nigerian oil workers in the Gulf of Guinea – where Ghana’s oil resources are also located – point out how vulnerable Ghana is to unrest in the wider region.
If the security basket case that is Nigeria isn’t enough to worry about, Ghana also finds that neighboring countries to the west are no great source of comfort, either. Sierra Leone and Liberia are only now recovering from violent civil wars while Cote d’Ivoire, which borders Ghana, has suffered two civil wars and repeated French military intervention. Finally, far to the north, Mali and its chaotic Islamist rebellion offer a reminder that Ghana is not so far away from that conflict, either.
Ghana’s prospects are bright, but optimistic investors looking to cash in on the country’s good fortune need to understand that dangers – both domestic and international – exist that can put Ghana’s current growth path in danger. Still, compared to where Ghana was just a few decades ago the country is in an enviable position: rich in resources, a stable, democratic political system, and now oil, too. The sky seems the limit.
