Resetting Ghana’s economy
Ghana’s economic dialogue should produce a blueprint for moving from the Guggisberg economy to realise President Mahama’s Vision of a 24-hour economy.
This week (3-4 March 2025), Ghana has been holding an economic dialogueto fulfil President Mahama’s campaign promise ahead of the 2024 general elections. The dialogue, which aims to reset the economy and ensure long-term resilience and transformative growth, has become necessary due to the post-COVID-19 economic crisis that befell the country beginning in 2022.
Ghana’s economy is the second largest in West Africa, after Nigeria, and the ninth largest in Africa. In 2023, its GDP, measured at market exchange rate (MER), was estimated at US$76.1 billion, a significant increase from US$14.4 billion in 1990. Similarly, Ghana’s GDP per capita in Purchasing Power Parity (PPP) rose from US$2 300 in 1990 to US$5 286 in 2023, attaining a lower-middle-income status in 2010. Over this period, the average growth rate of 5.1% outpaced the 3.9% average for lower-middle-income countries in Africa.
Despite these gains, Ghana’s economic transformation remains limited with weak macroeconomic fundamentals. The economic structure is still agrarian revolving around the export of major traditional raw materials such as cocoa and gold while relying heavily on imported finished goods, commonly known as the “Guggisberg economy”. Since the end of colonial rule in 1957, there has only been a lacklustre attempt (except perhaps during the 1960s) to restructure the economy to support diversification through industrialisation. As a result, the manufacturing sector, which has historically been a key driver of growth and essential for economic transformation and job creation in other emerging economies, has made limited contribution in Ghana. In 2023, the manufacturing sector’s contribution to GDP was just 11.2%, unchanged since 1970 and even lower than in the late 1960s. This reflects an economy that is undiversified, deindustrialising and vulnerable to economic shocks.
The implication of this kind of Guggisberg economy is that economic growth is volatile, largely influenced by weather patterns (particularly for cocoa production), fluctuations in international commodity prices and external shocks. For example, the country’s stable growth in the early 2000s was largely driven by the global commodity boom, or "supercycle," fueled by high demand from emerging economies like China. Similarly, the impressive 14% growth recorded in 2011 was largely a result of the discovery and commercial production of oil. This type of growth is typically jobless. Because of Ghana’s structural trading deficit, the Ghanaian cedi steadily weakens against major trading currencies like the dollar, a situation worsened over the years by the large fiscal deficit financed by external borrowing.
The implication of this kind of Guggisberg economy is that economic growth is volatile
The result is high public debt, subdued growth, high inflation, exchange rate volatility and rising interest rates, which undermine the country's development potential. It is thus not surprising that, whenever there is a major global shock, Ghana’s economy suffers significantly. For instance, the 2007-2009 global financial crisis caused a noticeable dip in economic growth. Similarly, between 2014 and 2016, the global commodity crisis exacerbated the already challenging domestic issues, such as the unstable electricity supply (also known as Dumsor), leading to a sharp decline in economic growth, which plummeted to just 2.1% in 2015 from 7.2% in 2013 and worsened the overall economic conditions. More recently, the COVID-19 pandemic, combined with Russia's invasion of Ukraine, further aggravated domestic economic vulnerabilities, causing economic growth to drop to a mere 0.5% in 2020.
Each time a global crisis has exposed Ghana’s economic vulnerabilities, the country has followed a similar approach of seeking external financial support to provide short-term reprieve rather than addressing underlying economic fragilities. In most instances, this involved turning to the International Monetary Fund (IMF) for a bailout to restore macroeconomic stability.
Since independence, Ghana has sought the help of the Fund 17 times with the recent three-year staff-level agreement signed in December 2023. Indeed, in the 35 years since 1990, only in nine did the economy not undergo an IMF program, reflecting its economic challenges and the limited approach that has been adopted to solving them in the past. Under most of these programs, the country has been forced to implement austerity measures mainly by raising tax rates or introducing new taxes to increase revenues. This has been detrimental to the economy in the long run as it discourages local production, investments and household incomes. Rather than resorting to IMF bailouts as a temporary fix, Ghana must build resilient economic systems that reduce dependency on Bretton Woods institutions.
To reset the economy to ensure long-term resilience and transformative growth, Ghana must transition from the Guggisberg economic model. A recent study by the ISS African Futures team shows that Ghana’s economy has the potential to grow at an average rate of 9% from 2025 to 2043. As a result, growth will raise GDP per capita by an additional 42% above a business-as-usual forecast, reaching US$12 720 in 2043 - and reduce income poverty (using the US$3.65 threshold) to only 6.3% of the population, meaning that an extra 5.8 million Ghanaians could be lifted out of poverty by 2043.
Achieving this requires addressing the structural problems that have plagued the economy since independence. The first step is for the country to pursue economic diversification through a national industrialisation strategy. This should focus on producing low-end manufacturing commodities anchored on value addition to its raw materials. To achieve this, the government should promote, support and establish import-substitution and export-promotion industries, particularly for specialised commodities that Ghana has a comparative advantage. However, it must first address its recurring electricity challenges to ensure that businesses have access to reliable and cheap power for production. This includes investing in the national grid and leveraging Ghana's renewable energy potential, particularly solar and hydro, to expand access as well as address the inefficiencies in power distribution.
Achieving transformative growth requires addressing the structural problems that have plagued the economy since independence
Secondly, the activities of the large informal sector which employs about 80% of Ghana’s workforce should be formalised. While the large informal sector provides employment and income opportunities, particularly for the poor and vulnerable, it is often characterised by low productivity which impedes economic growth and also denies the government the needed revenue. As such, the government should offer incentives to informal businesses to formalise their operations through tax education and tax incentives, particularly for micro and small business owners. For instance, the government could allocate a portion of the taxes paid by these businesses to pension schemes or insurance contributions. Additionally, the government should simplify business registration requirements and create a more conducive regulatory environment.
Third, to ensure food security, Ghana needs to modernise its agriculture through the provision of improved seedlings and diversify away from cocoa to explore other sub-sectors like cassava, coconut, palm oil and poultry production, which hold significant promise. To reduce over-reliance on rainfall, it should invest in irrigation by constructing multipurpose dams, especially in the northern part of Ghana, while addressing land tenure and ownership issues. The Agricultural Development Bank should also live up to its mandate and provide access to cheaper credit facilities to farmers.
Finally, associated governance reforms are needed, particularly to promote fiscal discipline and reduce corruption, especially in election years. In this vein, the Fiscal Responsibility Act, requiring government deficits not to exceed 5% of total revenue, which was suspended in 2020 due to COVID-19, should be reinstated. Parliament should also enact legislation to establish a debt limit and cap on government borrowing. Also, the government should abolish single-sourcing procurement contracts, as that has historically been the source of all major corruption scandals.
Surely, only a diversified, transformed economy can achieve President Mahama's Vision of a 24-hour economy. To achieve this vision, Ghana must move beyond rhetoric and commit to concrete policy changes that drive sustainable growth and economic transformation.
Image: Ernest Ankomah/Getty Images
