The story is told by Ghana’s president John Kufuor to illustrate how quick Ghanaians are to blame all ills on those wicked foreigners who have forced Africans to adopt laisser-faire policies.
Since the World Bank and IMF touted it as a “model” reformer in the 1980s, its every failure has been paraded, by those who dislike those policies, as proof that markets make the poor poorer.
They point out correctly, that after two decades of reform, Ghana’s economy still crashes periodically and half its rural population has to drink water with filth in it. But they lose sight of how bad things were before Ghana attempted, haltingly, to reform.
The military regimes of the 1970s and early 80s were violent, crook and fond of enterprise-throttling controls. Cocoa farmers for example, were obliged to sell their crop to the government for as little as twentieth of the world price, and the penalty for trying to obtain a fairer price by smuggling cocoa out of the country was death.
By the early 1980s, Ghana was in such a mess that one Ghanaian in ten chose to live in Nigeria instead.
Reform began in 1983, under president Jerry Rawlings though he too was a military man who had come to power by a coup. He lifted price controls and imposed a measure of fiscal sanity. It worked. Between 1983 and 2001, average incomes grew by about 2% a year. During the 1990s, the proportion of Ghanaians living in poverty fell from 53% to 43%.
But the gains remain fragile. Partly, this is because Ghana produces significant quantities of only two things that foreigners want to buy: gold and cocoa. And in part it is because since Ghana started holding genuine elections, no government has resisted the temptation to bust the budget to buy votes.
Before the 1992 elections, civil servants got an 80% pay rise. Before the 1996 one, the government set afoot huge public works programme, padding contracts to pay off important interest groups. In 2000, the ruling party simply handed out fistful of cash to voters – at a time when the country was in deep trouble.
In 1999-2000 cocoa and gold prices tumbled, while the price of oil, which Ghana has to import, soared. Because an election was near, the government, which subsidises fuel, did not pass the oil price increase on to the consumers. To finance its generosity, it borrowed massively. The result was inflation of up to 40% and a collapse of the cedi, the local currency. Though GDP did well enough in volume terms, in dollar terms it crashed in 2000 by a third.
This is often cited as proof that a country can follow the IMF’s free-market prescriptions and still foul up. In fact Ghana has done well when it swallowed the IMF’s harsh medicine, but badly when – as often – it spat it out. In 1999, the budget deficit reached 10% of GDP – almost as bad as in Zimbabwe.
In 2000, Mr. Rawlings’ government exceeded its borrowing targets by a factor of three.
Despite that last pre-electoral splurge, his chosen successor lost to Mr. Kufuor, who seems to understand the link between populism and penury. He has promised to “make the hard choices to live within our means,” and so far he has kept his word.
He also understands that Ghana needs to produce things other than gold and cocoa, and has promised to promote a “golden age of business” in Ghana. The days of tuna and roses?
He will have his work cut out. “Non-traditional” exports such as tuna, roses and pineapples trebled in the 1990s but still make up only a fifth of the total. An American insurance firm recently set up an office in Accra, where Ghanaians process claims and whiz them back to Kentucky via satellite. But despite Ghana’s cheap and well-educated workforce, its stability and its business-friendly president, there has been no stampede of investors.
Mr. Kufuor says he wants to encourage entrepreneurship. But most Ghanaians following the lead of their revered first president, Dr. Kwame Nkrumah, expect the government to do everything for them. Even now, government jobs probably account for most formal employment – and by one estimate, half are superfluous.
Many are obviously so: there is still a Prices and Incomes Board, long after price controls were scrapped.
The finance minister, Yaw Osafo-Maafo says he want to slim the bureaucracy, but not until there are jobs for the redundant to go to.
If anti-globalisation protesters are looking for an example of laisser-faire gone mad. Ghana is not it. Under Mr. Kufuor, it seems to be ambling in the right direction. And if he can hold steady through the next election in 2004, Ghana might start to look like a real model.
