Wednesday, April 02, 2014

More on Development in Ghana

The problem of developing manufacturing in Africa is one that has been discussed for nearly three quarters of a century now. Yet, only South Africa has developed a significant industrial base still. In Ghana the initial obstacle to industrializing has been a lack of capital to build factories. In the late 1950s and 1960s Nkrumah sought to use the state as the source of capital to build an industrial base. "African Socialism" in the Ghanaian case meant the funding of industrialization by state capital due to the lack of alternative sources. This strategy like other similar etatist development strategies in places like the USSR, Turkey, and Japan was initially successful. Indeed had Nkrumah's model for development not been terminated by the 1966 coup, it is quite possible that it could it could have been as successful as these other examples. Unfortunately, after the overthrow of Nkrumah this model was more or less completely abandoned in favor of attracting foreign capital to develop the economy of Ghana. Today the idea of using the state to fund the industrialization of Ghana is an idea that has absolutely no hope of gaining any traction with either of the two major political parties (NDC and NPP). The strategy of relying upon foreign aid, loans, and foreign investment for development has greatly enriched the foreigners involved, but has had very disappointing long term results in establishing any type of manufacturing base in Ghana. Instead foreign capital has continued the colonial emphasis on the extraction of raw materials from Ghana rather than the production and export of value added manufactured goods. A third option which has not been tried yet would be to develop an industrial base using indigenous private capital. This third option has been lacking largely because there has been very little private Ghanaian capital. However, there is considerably more private Ghanaian capital that could be used for development today than there was in 1957. It also would be possible to raise considerable private capital in the form of loans backed by the collateral of real assets such as land and buildings. The use of Ghanaian private capital to industrialize the country in a long term slow growth strategy is still a possibility. The limited amount of liquid capital, the very cautious nature of Ghanaian investors, and the current unwillingness of any Ghanaians to use land and other real assets as collateral to obtain loans for industrial development, however, ensures that such a strategy will be extremely slow in developing.

4 comments:

Walt Richmond said...

Are either of the two parties "dominant," or is there a real competition between them? What are their agendas? Do either of them have true grass roots support?

J. Otto Pohl said...

The NDC is dominant in that it is the current ruling power. The NPP's base of support is limited to the Akan areas so it is unlikely to take the national government any time soon. They are both pretty much post-ideological parties strongly in agreement with the Washington consensus, but the NPP is more overtly pro-free market in its rhetoric. They have grass roots support, but much of it is out of patronage and ethnic ties and little of it has to do with any actual policy platforms.

Clifford Campbell said...

Industrial development in Ghana holds the tantalising prospect of liberating us from prolonged exposure to the unwholesomeness of Logik products. Even so, the "unwillingness of any Ghanaians to use land" as collateral may well lie in the nature of land tenure arrangements that does not generally support individual ownership in the same way a person could own say a car outright.

J. Otto Pohl said...

Clifford you can't own the land itself outright (99 year lease like in the UK instead), but you can own all of the buildings on top of it. There is no willingness to mortgage these completely owned assets as a means of raising capital. But, certainly the current strategy of relying upon foreign capital has not resulted in the creation of an industrial base.

I liberated myself from Logik long ago.