INDEX

Sr.No. Particulars Page no.

1.A Geography, Topography & Demograhy 2

1.B Impact Of Capital Flows 2

2 Historical Landmarks 3

3 National Income growth Rates, Sectoral 5

contribution & Cyclical movements of the
economy.

2.A Monetary Measures and Policies 7

2.B Fiscal Measure and Policies 8

2.C Commercial Stratergies and The BOP Status 9

2.D Employment Generation 9

3.A Net Depreciation Process 11

3.B,C Academic Take-aways 11

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Geography, Topography and Demography
The republic of Ghana, a country of western Africa is situated on the coast of the Gulf
Of Guinea. Ghana was the first black African country in the south Sahara to gain
independence in the year 1957.
Ghana is enormously rich in natural resources which has fostered economic prosperity
and growth. The country is also rich with oil reserves which are regulated by Ghana National
Petroleum Corporation (GNPC).
Ghana boasts to be the 3rd largest producer of cocoa. Unsustainable cocoa production
is found to have significant impacts on Ghana’s forests and biodiversity. Other occupations
such as gold, diamond mining have also contributed to the menace of forest depletion.
The Volta river basin, consisting of the rivers such as Oti, Daka, Pru, Sene and Afram
rivers covers 70% of Ghana. The major consumptive uses of the water resources are water
consumption, irrigation and livestock watering. Hydropower generation, inland fisheries and
water navigation dominate the non-consumptive uses.
With a population of around 25 million, English is the official language of the nation,
along with eight other languages sponsored by the government of Ghana. Christianity
dominates the religious belief of the people in Ghana followed by Islam and other traditional
religions.
Ghana also contains lush forests contributing to seven national parks, diverse wildlife,
beaches along a picturesque coast. These natural gifts have contributed to the growth in the
tourism industry of this nation

Impact of Capital Flows

Ghana Investment Promotion Centre (GIPC) monitors all investment activities and
assists domestic and foreign investors. Ghana benefitted from FDI inflows in the period up to
2013 when prices of minerals rose. It has also benefited from rising investment since in the
year 2007 due to the discovery of oil.
This clearly shows growing confidence in Investors globally regarding Ghana’s
potential and its various opportunities to exploit.
Forty-nine newly registered projects initiated in the Q1 of 2017; FDI component of
the estimated value of these projects amounting to US$2,954.61 million. Netherlands topped
the list of countries with the largest value of investments registered during the quarter. The
total jobs expected to be created by these investments are 2,551.
 Source: GIPC official website

Significant amount of syndicated loans have also been obtained in the years 2012;
2013; 2014 and 2015 amounting to US$1.5 billion, US$1.2 billion, US$1.7 billion and
US$1.8 billion respectively. In order to prevent the potential impact of large amounts of
capital inflows on the Cedi; all these funds were sterilized and necessary payments were
made in tranches for the payment of cocoa beans.
Hence along with encouraging these investments, the government has also been
monitoring and regulating the inflow of capital to avoid an inflationary phase similar to the
year 1983 when the government accepted a debt relief from the world bank.

Historical Landmarks

Source : http://www.wikiwand.com

Ghana unlike other nations in the globe, has experienced four different types of
governments. Due to the nature of these political parties and their different ideologies Ghana
has experienced paradigm shifts in terms of nature of governance.
 The various policies introduced by the respective governments will be highlighted in
the given timeline.

Year Political Landmark Economic Policies and Projects

1957 Independence from the british colonial Inherited 200 million pounds from
rule Britian.

1960 Nkrumah is appointed as the president of Introduction of the Import Substitution

the republic. Industry Model (ISI).

1964: Ghana officially becomes a one-party Completion of Aksombo Dam. Important

state and Nkrumah gains the power of a contributor to the hydro electric power
dictator. generation in Ghana.

1966: A military coup National Liberation Privatization of state farms and industries
Council ends the rule of Nkrumah and his
government.

1969: Elections are held, a new civilian Devaluation of the CEDI to solve
government is formed by Dr. Kofi Busia inherited problems
and the Progress Party.

1972 The National Redemption Council takes Operation ‘Feed Yourself’ due to food
control through a military coup. shortages.

1978 "Supreme Military Council II" controlled

by William Akuffo

1981 Jerry Rawlings once again takes power Ghana launched

through a military coup. an economic recovery program (ERP) in
1983 aided by the world bank.
1992 Multi-party elections in Ghana and Establishing a democratic ideology and
Rawlings wins the presidential elections. creating a new phase for the Ghanian
Economy

1996 Rawlings is elected once again with 57% Inflation rate hits at around 70%.
of the votes.

2000 Vice president John Atta Mills is new Ghana accepts an IMF/World Bank plan
presidential candidate for debt relief.

2008 John Atta Mills now wins a second round Offshore oil production begins.
of the presidential election.
National Income Growth Rates, Sectoral contribution &
Cyclical movements of the economy.
Note : GDP for the year 2016 hasn’t been uploaded by the government of Ghana. My study
will focus on data for the year 2015.

GDP figures for 2015 showed a growth of 4.1 percent over the year 2014. With
Industrial sector recording highest growth percentage of 9.1% followed by Service with a
growth rate of 4.7% and agriculture recording no growth change. Ghana’s service sector
remains the largest with a share of GDP at 54.1% in 2015. The industrial sector improved
slightly from 26.6% to 26.9% in 2015 as compared to 2014. Agriculture contributes the least
at 19%.
Hence one can notice a paradox that there has been high growth in low employment
generating sectors of mining and oil extraction but a low growth in high employment
generating sectors of agriculture.

SOURCE : Ghana Statistical Service

Sectoral Growth Rate

60

50

40
Growth Rates

Agriculture
30
Industry
20 Services

10

0
2010 2011 2012 2013 2014 2015

Major contributors to Ghana’s National Income are the exports of three important
commodities; Gold, Cocoa & Oil. Gold contributed around $4.33 billion, Cocoa Beans
$1.98 billion and crude oil $1.7 billion. The top five importers supporting the national
income growth are India $3.21 billion, Switzerland $1.39 billion, China $1.06 billion, the
Netherlands $669 million.
Cyclical Movements in the economy. Few basic examples are :-

A. Flow from Government to Households

The total amount of cash received in the 12-month period was 1,361,678 Ghanaian
Cedi (GHS) (approximately USD 300,000), with each household receiving an average
of GHS 4,663 (approximately USD 1,069)

B. Flow from Households to Government

The personal income tax @ (25%)

C. Flow from government to firms

An example of an initiative taken by the government was the incentive provided to
cocoa firm in terms of fertilizers.

D. Flow from Firms to the government.

The corporate and Sales income tax @ 25. However, the government’s main focus is
on reducing taxes to enhance production.
E. Other flows i.e. F.D.I into the economy as well as inward and outward remittances,
and the various debt relief programmes Ghana has received from the World Bank &
IMF, builds up the cyclical flow of money in the economy.
 Part 2

Monetary Policies in Ghana

The MPC (Monetary Policy Committee) of the Bank of Ghana, uses the policy rate
(the rate at which central bank lends money to the commercial banks) to control credit supply
in the Economy. Ghana’s interest rates remain as one of the highest in Africa. The current
Monetary Policy Rate stands at 21%. The MPC had lowered its monetary policy rate by
150bps from 22.5% to 21 percent on July 24th, 2017, compared to market expectations of a
100bps cut. The MPC has made a fourth consecutive rate cut, bringing down borrowing cost
to the lowest since 2015.
Repetitive cuts in the interest rates shows that the MPC hasn’t been able to achieve a
firm stance on its interest rate and has to regularly notice changes and adapt new rates
accordingly.
However due to the drop, in interest rates and increase in aggregate demand the nation
is prone to inflation. As a result, the government is constantly monitoring capital flows into
the economy.

The fall in rate of interests,

Rate of Interests

n 22.5%
encourages businessmen to invest
21% more in producing or buying of
% capital goods. This increases
investment expenditure a component
of aggregate demand thereby causing
an expansion in national income and
output. (C + I + G).

O Y1 Yf

National Income

The government believes in a favourable economic outlook and a pick up in the

business confidence. Hence its prime focus is to provide a stimulus to the economy by easing
the credit control policy.

Why isn’t there seen a quick translation between the Monetary Policy Rate & Lending Rates?

Governor of the Bank Of Ghana pointed out to a similar trend of disinflation in the period of
2009-2010 i.e. Asymmetric price transmission. Hence when the monetary policy rate is
increased other rates adjust quickly but when the policy rate declines other rates take time to
adjust.

First Issue:-
The average cost of funds; the bonds have long term deposits, for which they are locked in
into higher course, hence one won’t see a quick transmission in the rates until the average
cost of funds goes down.
Second Issue:-
NON-PERFORMING LOANS
Around 20% of loans are not performing hence the remaining 80% portfolio of loans have to
do the required work; hence the ability of the banks to drop the loans would become very
difficult.

This episode clearly highlights a source of monetary mismanagement; Variable Time

Lags. The change in money supply require a variable time to bring about a change in the
national income. If a policy is implemented because economic indicators show a situation of
mild recession, however due to the time lag (6-8months) the situation changes and turns into
mild inflation a certain policy can backfire and intensify the inflationary process.

Fiscal measures undertaken by this economy

The period from 1970-1980’s witnessed an expansionary fiscal policy, particularly by
increasing government expenditure. However, this created a budget deficit as the country
lagged behind on revenues. This highlights that a particular fiscal measure cannot always
generate a desired condition due to certain variables forcing the reverse to happen. The period
from 1969-1985 has witnessed rules of several military regimes. Due to the lack of expertise
and knowledge of good governance; the military rule had brought the economy into shackles.
The privatization policy introduced in the late 1980’s changed the face of the
economic situation in Ghana. This policy raked up a considerable amount of money and it
was the first time Ghana witnessed a surplus budget.
Rapid budget deficits appeared during the pre-elections of 1992 and also re-emerged
in the period of 1996. The burgeoning budget deficits that accompanied the pre-elections of
1992 re-emerged in the run up to the 1996 general elections. This episode is similar to the
term fiscal illusion hypothesis.
By 2001, the new government had introduced measures with a motive of boosting
government revenue while checking on government spending to prevent the accumulation of
debt. However, the energy crisis of 2006 gave way to fiscal imbalances and deteriorated the
economy even further. By the year 2008 fiscal imbalances appeared again pushing the budget
deficit to 11.5% of GDP as compared to a target of 4%. Hence, this timeline highlights the
poor fiscal policies adopted by the Ghanaian Governments and its inefficiency to stabilize the
economy considerably.

The current fiscal policies being adopted by the Finance Minister on March 2nd, 2017,
witnessed a revision in existing tax rates while a few were completely abolished. This
suggests that the government is trying to incentivize businesses, generate employment also
increase the amount of capital investment by the people.
Few of the Tax Exemptions are as follows :-
1. Exemptions for capital gains on GSE listed securities.
2. Tax incentives for companies for hiring out young graduates.
3. Exempting financial service industry from stamp duty charges as per the requirements
of the Security and Exchanges Commission.
The government has also exempted and abolished various taxes both direct and indirect.
 The commercial strategies adopted to shift out of an adverse
Balance of Payment situation.
Balance of Payments is particularly a statement that summarizers economy’s
transactions with the rest of the world during a specific period of time.
Ghana has strived to attain equilibrium in its balance of payments throughout the
years but hasn’t always achieved its target. Ghana has received major shocks in the economy
in the year 2012, 2013 & 2014 particularly due to the disruption in gas supply and the
simultaneous fall in prices of cocoa, gold and crude oil. However, in 2016 Ghana has
recorded a surplus BOP status of $247 million, compared to a deficit of $129 million in
2015.
In the year 2012, Ghana’s BOP status stood at a deficit of $1.2 billion, in contrast to
the surplus in 2011 of $546 million. BOG Governor Dr. Henry Kofi Wampah pointed out to
external factors and the cyclical dip in cocoa production as the main reason for this. In the
year 2013 Ghana recorded a deficit of $874.2 million. However, there was a significant
improvement by the end of the year 2014 where the deficit reduced to $85.2 million.
By the Q1 of 2016, Ghana’s BOP recorded a deficit of $449 million but recorded a
surplus of $2.6 billion by the end of last quarter. Other than macro factors such as increase in
cocoa prices as well as rise of gold prices in 2016, certain internal factors such as a discovery
and setting up of new off-shore oil shores and increase in cocoa production has resulted in the
surplus BOP Status. Tight monetary policy stance of the Central Bank has also renewed
confidence in the economy.
Economic Activity in Ghana has improved due to the boost in the crude oil
production and the discovery of new reserves in the Tweneboa, Enyenra, Ntomme (TEN)
offshore oil field averaging around 20000 barrels in 2016. With a forecast of 80000 barrels
per day, eventually easing out its National Deficit.
Therefore, the advantage of these oil fields sums to show that despite a country facing
pressure due to deficit balance a valuable commodity to export at a right price can provide a
country with relief and get a nation back on its feet.

Employment generation in Ghana

Ghana’s battle to tackle un-employment sprouts out post-independence. By injecting

money in each sector (Agriculture, Manufacturing & Services) and incentivizing the factors
of business respective governments have introduced various policies since the late 1960s.
This report will be a critical analysis of these policies and how it has influenced employment
from 1957 – 2017.

Kwame Nkrumah in the year 1957, adopted an Import Substitution Industry (ISI)
Model in Ghana. Government employees increased from 140,000 in 1957 to about 280,000 in
1965. The year 1965 witnessed a downturn in cocoa prices and this forced the current
government to print money and increase public debt. Ghana’s dependency on a single crop to
earn most of its revenue wouldn’t provide it a long term relief as the absence of the right
price and right demand globally cannot be favorable for its farmers. Hence the government
must advice its citizens to develop other food/cash crops simultaneously to be on the safer
side.
Nkrumah was overthrown in the year 1966, followed by episodes of military regimes.
Inefficient policies and ignorance of growing macro-economic problems created a strain on
employment generation and deteriorated social life in Ghana. Ghanaian military regime in
1972 initiated ‘Operation Feed Yourself’, a national programme focused at encouraging
citizens to produce food crops.
Lieutenant Jerry Rawlings came to power and also blamed mismanagement for the
reason of poverty and unemployment, however the acceptance of the aid from the world bank
provided the people of Ghana with a relief and healed the economy substantially. This is
similar to the (SAL) Structural Adjustment Operation that India had adopted with the help of
the World Bank.
From 2001 onwards Ghana recorded growth rates of 5-6% which has not actually
translated to employment. The Largest source of Employment i.e. the service sector
employed around 33% active population in 2000. Employment from tourism has directly
risen from 26000 to 33094 in the year 2002; indirect and induced employment rising from
64000 to 82129 in the same period, recording and employment multiplier of 3.5.
The theme of Ghana’s National Employment Policy 2017 is ‘sowing the seeds for growth
and jobs’ highlights the need for ease in business by reduction of taxes and reducing
unemployment levels.
Part 3

A. Ghana’s battle to tackle depreciation has prevailed and considerably increased

due to the pressure of imports and a fiscal deficit. Ghana needs to have a two-pronged
approach in terms of meeting its growing populations needs and reduce the growing
pressure from imports. Another remedy which would provide relief is pre-export
financing. This trend of continuous depreciation is predicted to continue however at a
marginal rate. To avoid this the government must avoid over the ceiling borrowings.
The inability of the local industries to produce products at a competitive price and
quality due to the high cost of production is an issue. Inflation is inversely
proportionate to currency; as inflation increases the currency depreciates and the vice
versa.
B. Apart from basic policies a government implements to shift out of adverse
conditions and use different monetary and fiscal tools to achieve a desired equilibrium
or condition; this project has also helped me understand various terms & jargons
necessary to understand reports and other published articles. Some of the new
concepts I’ve been introduced to is the process of sterilization & asymmetric price
transmission. While critiquing various policies I have also come across a concept
similar to the investment multiplier i.e. the employment multiplier. The fact that
policies in theory seem simpler and easier to implement, however in practical there
are various macro economical or external constraints that can delay the desired result
was an eye-opener as a business student. This fact has made me realize about the
effort and vigorous information handling a central bank or a government must
consider before implementing a certain policy.
Collecting and processing various data regarding interest rates and growth in
national income has taught me how to recognize trends in the economy based on a
government’s past performance. The contribution of various sectors in national
income has helped me analyze the importance and interdependence of these sectors
and how each sector provides a base while building the nations national income. This
project has given me a better understanding on how a monetary policy is decided and
why a certain government must install firewalls or take necessary precautions like
sterilization before flooding an economy with capital.

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 APPENDIX

1. Impact of Capital Flows - Sterilization

Sterilization mostly involves the purchase/sale of bonds by the central bank with its
main aim to offset the effect of foreign exchange intervention. The Bank of Ghana has
sterilized part of its exchange rate interventions using its own paper. In Ghana intervention
was partly sterilized in the year 2010, however the increased liquidity failed to increase
domestic credit growth due to low confidence and considerable non-performing loans in
banks. Sterilization was also witnessed during all four quarters of 2013 as well.

Source: IMF Report April 2015

2. Guide on tax proposals

Source : Ghana 2017 budget commentary and tax highlights;Deloitte

3. The term Asymmetric price transmission "rockets and feathers" plays its role here.
APT refers to the pricing phenomenon when “downstream prices” react in a different
manner to “upstream price” changes.

4. Multiplier Effect – 3.5

An employment multiplier is a measure used to determine the impact that a particular
industry will have upon a region when it arrives or departs. Tourism employment
records a multiplier effect of 3.5 meaning for every tourism jobs 3.5 more jobs are
created.

5. This campaign is similar to the ‘Operation Feed Yourself’ initiative. The campaign
will encourage the production of maize, rice, soybean, sorghum, and vegetables. the
programme would develop the agricultural value chain where surplus business and
jobs will be created in the areas of storage & transport, processing, packaging and
marketing.

6. ISI model
ISI is based on the premise that a country should attempt to reduce its foreign
dependency through the local production of industrialized products.

7. Fiscal illusion hypothesis

Developed by the Italian economist Amilcare Puviani. This is a concept that
governments would find it easy to increase tax revenues because of consumer
ignorance about the tax system and how it works. Very high-income earners are often
very skilled and aware of the ways to avoid tax through exploiting tax loopholes. A
government should initiate projects throughout its period. Government’s consider
controlling expenditure to reduce the huge deficit during election years.

8. Ghana’s National Employment Policy 2017 initiatives

a. The “Planting for Food and Jobs” campaign encourages citizens both urban and
rural to take up agriculture as a full time/part time job.
b. In 2017, Youth Employment Agency (YEA) will create 115,000 jobs in all
districts; 45,000 youth under the Youth in Sanitation module which will be
maintained by the respective District Assemblies.
c. The “One District, One Factory” is a programme designed for rural
industrialization fuels by the private sector which plans on setting up at least on
medium to large scale factory in every administrative district of Ghana. This
programme aims at creating massive youth employment. The Ghanaian
Government believes that this programme will create around 350,000 direct and
indirect jobs
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