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3. THE NATIONAL SETTING

3.1. POLITICAL CONTEXT: A MATURING DEMOCRACY AND REGIONAL AMBITIONS

Ghana was the first African country to gain independence from colonial rule. Denmark was among the first countries to recognise Ghana’s independence in 1957, and soon
after development cooperation was established. Former President Kwame Nkrumah strongly promoted pan-Africanism and was a key figure in the fight against colonialism and apartheid. After a turbulent period with military rule, Ghana introduced democracy in 1992 and has successfully maintained it since. The country is an island of democratic rule, peace and stability in an otherwise fragile and conflict-ridden region. It will be critical to maintain this situation through active engagement in regional integration and cooperation, conflict prevention, conflict resolution and peace building. Ghana has adopted a more active foreign and security policy, also at continental and regional levels through the African Union (AU) and the Economic Community of West African States (ECOWAS). In Mali for instance, Ghana has supported the peacekeeping efforts through personnel on the ground as well as air service support to the UN troops.

Since 1992 the country has conducted relatively peaceful, free and fair elections, with the quality of the election process improving over the period. Ghana was one of the first African countries to make use of a biometric system in the 2012 election. Though peaceful and what has been described as generally free and fair by international and domestic observers, the 2012 election results were challenged by the losing party, New Patriotic Party (NPP). The party filed a petition to the Supreme Court contesting the results.The fact that the NPP chose legal action instead of political violence is a sign of democratic maturity. The outcome of the case affirmed the National Democratic Congress (NDC) as the winning party, after which the contender for the presidency conceded defeat and decided not to challenge the court’s decision. The Supreme Court process and the judgment have been described as a feather in the cap of Ghana’s efforts at establishing a democratic state and as a victory for all Ghanaians.

Though Ghana wrestles with a number of political challenges there are also opportunities in the political arena. The executive arm of Government is stronger than the legislature and the judiciary, and the country needs to strike a better balance. A comprehensive report of 2012 by the Constitutional Review Commission and the Government’s White Paper on this report can form the basis of work towards this aim.

Ghana is a de facto two party state. The political culture leans towards “winner takes all”, which sharpens political antagonism. A more inclusive political culture is warranted to promote national conciliation and consensus on key issues and long term plans. There is a growing demand for a less partisan political culture and the strengthening of Parliament could give all political parties a better platform to influence Government.

Civil and political rights are widely respected in Ghana. However, progress within economic, social and cultural rights is slower. Challenges persist in the form of corruption also in the legal system, inadequate provision of basic social services, harmful cultural practices, gender inequality, and violence against women and children. The under-resourced human rights institutions need to be strengthened. The issue of rights of the lesbian, gay, bisexual, transgender and intersex community (LGBTi) is contentious. A gradually more assertive civil society and a free press are pressing for improvements.
The Government of Ghana’s progressive and vocal policies on gender, children and social protection provide an opportunity to institute a dialogue concerning women’s sexual and reproductive health and rights, early child marriages, sexual orientation and human rights in general. The dialogue will take its departure in the Universal Periodic Review (UPR) recommendations and build on a common set of values and visions.

 

3.2. ECONOMIC CONTEXT: AN EMERGING ECONOMY IN AFRICA

Ghana has seen steady economic growth in recent years. After a rebasing of the GDP
in 2010, Ghana became a lower middle income country. In 2011, the growth rate was 15 percent, one of the highest in the world that year. In 2012, growth was 7.9 percent. The projected growth for 2013 is 7.4%. Over the medium term, growth is expected to be an average of not less than 8 percent. The high growth is driven by oil exploration, traditional sectors like cocoa, timber and mining of commodities like gold, as well as the service sector. The manufacturing sector is, however, stagnating or even diminishing. The agriculture sector’s contribution to the overall economy has declined and in 2012, registered a growth rate of 1.3 percent, slightly higher than the 0.8 percent achieved in
2011. Projected outturn for 2013, however, shows a more positive growth of 3.4 percent for agriculture.

The high gold prices in recent years have led to a sharp increase in illegal mining with negative effects such as degradation of the environment, depletion of natural resources, collapse of social structures and conflicts between foreign miners and the local population. Also, the high growth has not led to any significant job creation for Ghanaians. In 2011, the oil contribution to growth was 6.1 percent. This is estimated to have reduced to less than 1 percent in 2012, and projected at around 1.6 percent in 2013, but is likely to increase substantially since production of oil output is projected to double over the next ten years.

The government’s increased focus on private sector development, job creation and Public Private Partnerships (PPPs) can be seen as an opportunity to improve the situation. The first Private Sector Development Strategy provided a better business enabling environment. The second phase of the strategy has the structures in place to promote job creation through the development of a thriving private sector. The overall business environment has been improving and Ghana ranks 67th in the World Bank’s Ease of Doing Business 2014. At the same time Ghana has declined in the World
Economic Forum’s Global Competitiveness report 2013-2014 first of all as a result
of a deterioration of its macroeconomic performance.

Climate change is expected to have negative consequences in Ghana. Population
growth is high and constitutes a threat to natural resources and the environment, including rapid and unplanned urbanization. But opportunities exist to introduce innovative climate solutions in both the private and the public sectors including solar and wind energy, as well as other green technology and knowledge transfer programmes. Until the end of 2011, the macroeconomic situation was relatively positive with the inflation and the fiscal balance under control. However, the election year 2012 brought about severe challenges like a fiscal deficit of 12 percent, depreciation of the Cedi to the US Dollar of 17.5 percent, growing deficit on the balance of payment and increased debt stock. A sharp increase in the public sector wage bill, substantial fuel subsidies and other means have left little room for services and investment in social sectors.

The year 2013 has also had many challenges on the macroeconomic front. As at end September, both revenue and expenditure were below their respective targets for the period, with revenue shortfalls (15.1%) exceeding the shortfall in expenditure (6.6%). Expenditures important to growth and government priorities were significantly below target; for example goods and services (39.2%), grants to institutions (32.4%), social benefits (97.5%) and capital expenditures (5.7%). Based on the projected revenue and expenditure for Q3 2013, the fiscal deficit is projected at 10.2% of GDP for
2013. For 2013, total compensation (wages, salaries and gratuities) are projected to end the year at around 11 percent of GDP. Over the medium term (2014 – 2016), growth in compensation is signalled to show only modest growth, being 10 percent of GDP in 2014, reducing to 9 percent in 2015 and 8 percent in 2016.

The volatile economic context has challenged the provision of general budget support to Ghana. The fiscal situation has delayed disbursement of budget support and donors have intensified a critical dialogue with the Government of Ghana. In response, the government
has launched a reform agenda outlining the measures to be taken to combat future macroeconomic instability. The IMF outlook for the country is positive in the medium-term as long as the government adheres to its reform programme. At the same time, budget support constitutes a decreasing share of the national budget.The country is on the
outlook for alternative sources of funds from emerging economies and commercial loans. It calls for a re-thinking of the budget support modality in a lower middle-income context
like Ghana.

Although Ghana’s decentralization process has brought some progress to the Northern parts of the country, rapid economic growth has been accompanied by geographical disparities and inequalities.
Higher farming productivity and greater opportunities for off-farm employment in the southern part of the country could worsen the already wide disparities between North and South, increasing inequalities and heightened migration to urban centres. This has increased pockets of poverty in the cities. In addition, the country suffers from an infrastructure deficit in general; the Northern part of the country has even lower levels of investment in economic and basic service delivery infrastructure. Gender inequality
is another major concern.

If the different forms of inequalities are not overcome, there is a risk of destabilising
peace, violating rights and undermining growth. The government is well aware of the risks involved in inequality and operates social protection schemes to alleviate these problems, including expressing the wish to attract investments in the North, especially in infrastructure and agriculture value chains.

 

3.3. TRADE AND INVESTMENTS: DOING BUSINESS IN GHANA

Due to its liberal import policies as well as its strong economic growth, Ghana
offers expanding market opportunities. As a result of significant urbanization and rising middle-class income, Ghanaian consumption patterns have changed towards a higher demand for goods and services contributing to the overall welfare in society and a change of lifestyle in the large youth population. In 2011, estimated 51.9 percent of the population lived in urban areas. An indicator of the increasing wealth of the population is the declining amount of people living below the poverty line, from 51.7 percent in 1991/92 to 28.5 percent in 2005/06. Conservative trend simulations by the World Bank suggest a reduction in the incidence of poverty to 23.6 percent in
2012.

Ghana’s total imports were estimated at US$17.8 billion and exports at US$13.5 billion in 2012. The EU accounted for 21.9 percent of the total imports, and 47.7 percent of the total exports. For 2013, the trade balance is estimated to improve from the initial end-year projected deficit of US$4,957.5 million to an estimate of US$4,046.3 million on account of a drop in projected imports.

The significant categories of Danish export
to Ghana are machinery and transport equipment, chemicals, pharmaceutical products, food products, services, and technical knowhow. The major Danish imports from Ghana are cocoa, oil seeds, fruit, and biomass. A significant number of Danish companies operate out of
Ghana, including the Maersk Group, Grundfos and Novo Nordisk.

Ghana holds the potential to serve as a regional hub for trade and investment in West Africa. Ghana offers access to the market of the Economic Community of West African States (ECOWAS) which has
an estimated population of 250 million people. In order to facilitate economic activities, challenges of harmonization of laws and regulations, implementation of ECOWAS Court Decisions and promotion of free trade among member states still need to be addressed. Ghana has an opportunity to play a pivotal role in this process.

The EU and Ghana initiated an interim Economic Partnership Agreement (iEPA)
in 2007 which remains to be signed and ratified. The negotiations on the regional
EPA have been stalled, implying that Ghana will need to sign, ratify and implement
the iEPA in order not to lose its dutyfree-quota-free access to the EU market
by October 2014.

The Ghanaian market continues to be conducive to Danish investments.
However, the uncertain macroeconomic situation may hamper the framework
conditions for investments in the short to medium term. Exchange rate depreciation
and inflation both impact on business and investments. In addition, newly introduced
policy measures to address the revenue shortfall – taxes and levies (though timebound)
– also pose some challenges to the business environment.

Danida

Ministry of Foreign Affairs of Denmark
Danida
Asiatisk Plads 2 
DK-1448 Copenhagen K
Tel. +45 33 92 00 00
Fax +45 32 54 05 33
um@um.dk

 

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