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Ghana HISTORICAL BACKGROUND
Endowed with gold and oil palms and situated between the trans-
Saharan trade routes and the African coastline visited by
successive European traders, the area known today as Ghana has been
involved in all phases of Africa's economic development during the
last thousand years. As the economic fortunes of African societies
have waxed and waned, so, too, have Ghana's, leaving that country
in the early 1990s in a state of arrested development, unable to
make the "leap" to Africa's next, as yet uncertain, phase of
economic evolution.
As early as the thirteenth century, present-day Ghana was drawn
into long-distance trade, in large part because of its gold
reserves. The trans-Saharan trade, one of the most wide-ranging
trading networks of pre-modern times, involved an exchange of
European, North African, and Saharan commodities southward in
exchange for the products of the African savannas and forests,
including gold, kola nuts, and slaves. Present-day Ghana, named the
Gold Coast by European traders, was an important source of the gold
traded across the Sahara. Centralized states such as Asante
controlled prices by regulating production and marketing of this
precious commodity
(see The Pre-Colonial Period
, ch. 1). As
European navigational techniques improved in the fifteenth century,
Portuguese and later Dutch and English traders tried to circumvent
the Saharan trade by sailing directly to its southernmost source on
the West African coast. In 1482 the Portuguese built a fortified
trading post at Elmina and began purchasing gold, ivory, and pepper
from African coastal merchants.
Although Africans for centuries had exported their raw
materials--ivory, gold, kola nuts--in exchange for imports ranging
from salt to foreign metals, the introduction of the Atlantic slave
trade in the early sixteenth century changed the nature of African
export production in fundamental ways
(see Arrival of the Europeans
, ch. 1). An increasing number of Ghanaians sought to
enrich themselves by capturing fellow Africans in warfare and
selling them to slave dealers from North America and South America.
The slaves were transported to the coast and sold through African
merchants using the same routes and connections through which gold
and ivory had formerly flowed. In return, Africans often received
guns as payment, which could be used to capture more slaves and,
more importantly, to gain and preserve political power.
An estimated ten million Africans, at least half a million from
the Gold Coast, left the continent in this manner. Some economists
have argued that the slave trade increased African economic
resources and therefore did not necessarily impede development, but
others, notably historian Walter Rodney, have argued that by
removing the continent's most valuable resource--humans--the slave
trade robbed Africa of unknown invention, innovation, and
production. Rodney further argues that the slave trade fueled a
process of underdevelopment, whereby African societies came to rely
on the export of resources crucial to their own economic growth,
thereby precluding local development of those resources. Although
some scholars maintain that the subsequent economic history of this
region supports Rodney's interpretation, no consensus exists on
this point. Indeed, in recent years, some historians not only have
rejected Rodney's interpretation but also have advanced the notion
that it is the Africans themselves rather than an array of external
forces that are to blame for the continent's economic plight.
When the slave trade ended in the early years of the nineteenth
century, the local economy became the focus of the so-called
legitimate trade, which the emerging industrial powers of Europe
encouraged as a source of materials and markets to aid their own
production and sales. The British, in particular, gained increasing
control over the region throughout the nineteenth century and
promoted the production of palm oil and timber as well as the
continuation of gold production. In return, Africans were inundated
with imports of consumer goods that, unlike the luxuries or locally
unavailable imports of the trans-Saharan trade, quickly displaced
African products, especially textiles.
In 1878 cacao trees were introduced from the Americas. Cocoa
quickly became the colony's major export; Ghana produced more than
half the global yield by the 1920s. African farmers used kinship
networks like business corporations to spread cocoa cultivation
throughout large areas of southern Ghana. Legitimate trade restored
the overall productivity of Ghana's economy; however, the influx of
European goods began to displace indigenous industries, and farmers
focused more on cash crops than on essential food crops for local
consumption.
When Ghana gained its independence from Britain in 1957, the
economy appeared stable and prosperous. Ghana was the world's
leading producer of cocoa, boasted a well-developed infrastructure
to service trade, and enjoyed a relatively advanced education
system. At independence, President Kwame Nkrumah sought to use the
apparent stability of the Ghanaian economy as a springboard for
economic diversification and expansion. He began process of moving
Ghana from a primarily agricultural economy to a mixed
agricultural-industrial one. Using cocoa revenues as security,
Nkrumah took out loans to establish industries that would produce
import substitutes as well as process many of Ghana's exports.
Nkrumah's plans were ambitious and grounded in the desire to reduce
Ghana's vulnerability to world trade. Unfortunately, the price of
cocoa collapsed in the mid-1960s, destroying the fundamental
stability of the economy and making it nearly impossible for
Nkrumah to continue his plans. Pervasive corruption exacerbated
these problems. In 1966 a group of military officers overthrew
Nkrumah and inherited a nearly bankrupt country.
Since then, Ghana has been caught in a cycle of debt, weak
commodity demand, and currency overvaluation, which has resulted in
the decay of productive capacities and a crippling foreign debt.
Once the price of cocoa fell in the mid-1960s, Ghana obtained less
of the foreign currency necessary to repay loans, the value of
which jumped almost ten times between 1960 and 1966. Some
economists recommended that Ghana devalue its currency--the cedi--
to make its cocoa price more attractive on the world market, but
devaluation of the cedi would also have rendered loan repayment in
United States dollars much more difficult. Moreover, such a
devaluation would have increased the costs of imports, both for
consumers and nascent industries.
Until the early 1980s, successive governments refused to
devalue the currency (with the exception of the government of Kofi
A. Busia, which devalued the cedi in 1971 and was promptly
overthrown). Cocoa prices languished, discouraging cocoa production
altogether and leading to smuggling of existing cocoa crops to
neighboring countries, where francs rather than cedis could be
obtained in payment. As production and official exports collapsed,
revenue necessary for the survival of the economy was obtained
through the procurement of further loans, thereby intensifying a
self-destructive cycle driven by debt and reliance on vulnerable
world commodity markets.
By the early 1980s, Ghana's economy was in an advanced state of
collapse. Per capita gross domestic product
(
GDP--see Glossary)
showed negative growth throughout the 1960s and fell by 3.2 percent
per year from 1970 to 1981. Most important was the decline in cocoa
production, which fell by half between the mid-1960s and the late
1970s, drastically reducing Ghana's share of the world market from
about one-third in the early 1970s to only one-eighth in 1982-83.
At the same time, mineral production fell by 32 percent; gold
production declined by 47 percent, diamonds by 67 percent,
manganese by 43 percent, and bauxite by 46 percent. Inflation
averaged more than 50 percent a year between 1976 and 1981, hitting
116.5 percent in 1981. Real minimum wages dropped from an index of
75 in 1975 to one of 15.4 in 1981. Tax revenue fell from 17 percent
of GDP in 1973 to only 5 percent in 1983, and actual imports by
volume in 1982 were only 43 percent of average 1975-76 levels.
Productivity, the standard of living, and the government's
resources had plummeted dramatically.
In 1981 a military government under the leadership of Flight
Lieutenant Jerry John Rawlings came to power. Calling itself the
Provisional National Defence Council (PNDC), the Rawlings regime
initially blamed the nation's economic problems on the corruption
of previous governments. Rawlings soon discovered, however, that
Ghana's problems were the result of forces more complicated than
economic abuse. Following a severe drought in 1983, the government
accepted stringent International Monetary Fund
(
IMF--see Glossary)
and
World Bank (see Glossary) loan conditions and instituted the
Economic Recovery Program (ERP).
Signaling a dramatic shift in policies, the ERP fundamentally
changed the government's social, political, and economic
orientation. Aimed primarily at enabling Ghana to repay its foreign
debts, the ERP exemplified the structural adjustment policies
formulated by international banking and donor institutions in the
1980s. The program emphasized the promotion of the export sector
and an enforced fiscal stringency, which together aimed to
eradicate budget deficits. The PNDC followed the ERP faithfully and
gained the support of the international financial community. The
effects of the ERP on the domestic economy, however, led to a
lowered standard of living for most Ghanaians.
Data as of November 1994
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