Structural Adjustment in Ghana: An Examination of the Effects of Policy Reforms on the Structure and Performance of the Manufacturing Sector

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On becoming the first Sub-Saharan African (SSA) country to gain independence in 1957, Ghana was probably the richest and most educated country in Black Africa (Roemer, 1984). The country appeared to be relatively well endowed with both natural resources and human potentials as it set about the task of social and economic development. Its 1960 per capita income of about $500 (in 1980 U. S. dollars) was comparable to that of Mexico or South Korea, and on the .basis of today’s levels of per capita income classification, Ghana would have been ranked a middle income country (Sowa, 1993), a status the country is presently struggling to attain by the year 2020. Hopes in the early 1960s were that Ghana would prove to be the ‘show piece’ of African economic development. Signs of economic deterioration, however, started to emerge by the mid -1960s and grew worse during the 1970s. By the end of the 1980s the economy was in crisis. Growth had turned negative, basic institutions had virtually ceased to adequately function; and the incentive system badly distorted. In the neo-classical context, Ghana’s economic decline has been blamed on inappropriate internal policies arising from attempts of past governments ‘to replace the functions of the markets with controls. In 1983, the Structural Adjustment Programme (SAP) was introduced by the PNDC government to replace the controls with the market system thereby improving the incentive systems. The market system, however, may not be able to provide important long-term signals for creating the skills required for industrial growth; neither does the free-market automatically give rise to institutions to provide financial, information and standard control services, for example, to support operations in the industrial sector. The Government has to remedy market failures in areas like science, research, and infrastructural development where private investors are unable to appropriate all the benefits of their investment activities. This study is intended to produce an insight into the SAP as applied in Ghana, by examining how the manufacturing sector, for example, has responded to the structural adjustment policies (SAPs) over the past thirteen years. It is widely acknowledged, especially by the World Bank /IMF and the Government of Ghana that the SAP has largely succeeded in Ghana. However, the study observed that the manufacturing sector experienced no significant structural and technological changes under SAPs. The sector could not sustain the initial increases in output growth attributable to SAPs. The sector continues to provide weak linkages in the economy, and a great number (32 percent of total in survey) of the non-local resource- based industries continue to depend heavily on imported material input (not less than 60 percent of their material inputs are imported). It is observed by the study that if what SAP does is only to ‘get prices right’ then it has little to offer in terms of long-term development needs of the manufacturing sector in Ghana where market failures are prevalent. Market institutions are underdeveloped and cannot be expected to give the right signals or respond automatically to meet the needs of producers. A case in point is where an underdeveloped market for securities is unable to meet the investment needs of entrepreneurs which have been choked off by high interest rates in the money market. Shortage of financial, manpower, and technological capabilities limits ability to utilise resources efficiently to increase international competitiveness of manufacturers in Ghana. It is strongly recommended that policies designed to take care of market failures; remove bottlenecks in the supply-side of the manufacturing sector, and address the long - term structural and technological needs of the sector be adopted to complement the present SAPs. The concentration on provision of incentives by SAP at the expense of the development of manpower, technological and institutional capabilities will always lead to inability to sustain any growth in output in the manufacturing sector.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirement for the award of the Degree of Master of Science in National Development Policy and Planning, 1998