The Ghanaian Economy: An Overview: January 2013

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The Ghanaian Economy: An Overview
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4 The Ghanaian Economy: an overview
Ghanaian Journal of Economics, Vol. 1, Dec 2013

©The Author(s)
Journal compilation ©2013 African Finance and Economics Consult.
The Ghanaian economy: an overview

Paul Alagidede∞, William Baah-Boateng# and
Edward Nketiah-Amponsah*
∞
Wits Business School, University of the Witwatersrand, 2 St Davids Place, P.O. Box 98, Wits 2050,
Johannesburg, South Africa. Email: paul.alagidede@wits.ac.za
Department of Economics, University of Ghana, P. O. Box LG57,
#
Legon, Accra, Ghana. E-mail: wbaahboat@post.harvard.edu or wbboateng@ug.edu.gh

*Department of Economics, University of Ghana, P. O. Box LG57,
Legon, Accra, Ghana. E-mail: enamponsah@ug.edu.gh
Abstract
The Ghanaian economy has been on an upward trajectory over the past three decades,
yet a number of challenges bedevil growth, redistribution and sustainability. After
56 years of independence, the need for a formal academic and practitioner forum for
engaging minds on the past, present and future state of the economy has been lurking
in the background. The birth of the Ghanaian Journal of Economics is a response
to this urgent quest, providing a platform for cutting edge research on the Ghanaian
economy and similar other economies to inform policy design and implementation.
As the maiden issue, this review article seeks to retrace developments in the economy
a few steps back to bring readers up to date on current state of research. The review
is historical, and the scope is to synthesize the diverse developments in the Ghanaian
economy within the confines of a relatively brief article. This article is thus not an
exhaustive treatment of the topic, and it does not cover all the esoteric details of the
Ghanaian economy. In the end, however, we hope to offer some perspectives on the
literature for readers of the journal, investors, managers of the economy, regulators
and academics while also providing a roadmap for future research endeavours.
1. Introduction
Ghana is a democratic country located on the west coast of Africa with an estimated
population of about 26.6 million1 in 2013. It is the first sub-Saharan African country
to become independent from British colonial rule in 1957. The country’s economy
is ranked the 85th largest in the world with a total GDP of US$40.7 billion in 2012
1
The estimate is based on a population figure of 24,658,823 in 2010 with annual popula-
tion growth of 2.5%.
© 2013 The author(s) Ghanaian Journal of Economics Vol. 1, Dec.2013 5
and a per capita GNI of US$1,550 (World Bank, 2013). In the ECOWAS sub-
region, Ghana’s economy is the second largest behind Nigeria2, accounting for
10.3% of total GDP of the sub-region. Ghana’s economic performance has been
quite strong over the past three decades during which the country pursued market-
led economic policies and programmes with minimal involvement of government in
direct economic activities. The recovery of the country’s economy from recession
in the early 1980s on the back of the economic reform and structural adjustment
programme, and the sustained growth since then has earned the country a lot of
commendations in terms of economic achievement. This prompted Leechor (1994)
to describe the country’s economy as a frontrunner in the economic reform process.
Ghana recorded about 5.2 % annual average growth between 1984 and 2010 and
became a lower middle income country after a rebasing of its national accounts in
2010 with a change in the base year from 1993 to 2006. The rebasing pushed the
country’s annual average growth to 8.3 % between 2007 and 2012. In 2011, the
country commenced commercial production of oil. This development contributed
5.4 percentage points (oil-GDP) to the 15.0 % real GDP growth in that year, with
Ghana taking an enviable position as one of the six fasters growing economies in
the world that year.
Concerns have, however, been raised about the quality of economic growth
particularly in terms of employment, inequality and general improvement in the
livelihood of Ghanaians. Moreover, the growth figures have not been matched with
improved livelihoods, raising doubts about the trickle-down effects of growth.
Besides, sustainability of the growth is an issue that keeps lingering in the minds of
policy makers. As Aryeetey et al (2001) argue, the perceived lack of appreciation of
Ghana’s sustained growth performance might be linked to the fact that the measured
growth figures had little meaning for the livelihoods of Ghanaians. Employment
generation trails economic growth with most jobs created in the informal sector
where earnings are low (Baah-Boateng, 2013a). Indeed, the labour market is
characterised by high levels of informal and/or vulnerable employment, coupled
with high incidence of poverty particularly in rural areas and the northern savannah
regions of the country. The country continues to battle with the problem of maternal,
infant and child mortality as well as high level of malaria related death, indicating the
enormity of the challenge of achieving the health-related goals (Goals 3, 4 and 5) of
the Millennium Development Goals (MDG). While enrolment rates at the pre-tertiary
levels have gone up substantially, the school system still faces problems of the lack
of high calibre teachers and teaching aids. At the same time, the higher educational
system continues to churn out a large army of unemployable graduates. With the
entrance of private universities, the focus has shifted from science and technology
2
Nigeria alone accounts for 66.2% of total GDP of all the 15 ECOWAS countries.
education to the mass production of business graduates, given the relatively low
opportunity cost involved. The emphasis on ‘certificates’, rather than skills, and the
high number of unregulated, poorly staffed and shoddy fly-by-night higher degree
awarding institutions in the various capitals has become a characteristic feature of
the Ghanaian educational system in the last few decades.
The main purpose of this paper is to review the developments in the Ghanaian
economy by putting the searchlight on the key areas that should engage the attention
of policy makers. The paper also adduces promising areas of future research for the
attention of the research community. The paper is structured into seven sections
with section two examining macroeconomic developments. Section three looks
at fiscal, monetary and financial sectors. This is followed by trade and exchange
rate developments in section four. Section five discusses labour, employment and
livelihood, while health and education developments are discussed in section six.
Section seven concludes the paper.
2. Macroeconomic Developments
2.1 Growth Trends
One major indicator of a country’s macroeconomic performance is real GDP growth.
Ghana’s growth record was quite erratic prior to the mid-1980s when the country
embarked on economic reforms. From a reasonably high GDP growth of 6.2% in
1961, the economy of Ghana began to record a steady slowdown in GDP growth
reaching negative 3.0 in 1967 before recovering strongly to record 6.4% the following
year (see Figure 1). Growth remained stable for a short while and stumbled again
in 1972 with a growth rate of negative 2.5%. Indeed, growth was turbulent during
much of the period after the mid-1960s and only began to stabilise in 1984. As
shown in Figure 1, the negative growth the country experienced occurred in 1967,
1972, 1975-1976, 1979, and 1980-1981. Instructively, most of the years of negative
growth coincided with a period of intense political instability, and external shocks.
The first negative growth occurred a year after the first military coup d’état in 1966,
while the period 1972, 1979 and 1981-1982 coincided with military intervention.
The lowest growth of negative 12.9% was experienced in 1975 following a poor
response to the oil-price shock of 1973 as Ghana could not access the international
capital markets to find the bridging finance for domestic expenditures. Misguided
economic policy in the form of inflationary financing and domestic borrowing were
also to blame for the negative growth recorded in the 1970s and early 1980s. The
serious drought experienced in the country in the early 1980s, and what economic
historians point to in respect of the return of about one million Ghanaians from
Nigeria added stress to an already overburdened economy.

Figure 1: Real GDP growth rates, 1960-2012 (%)
Source: Constructed from National Accounts, Ghana Statistical Service
In searching for solutions to the economic challenges facing the Ghanaian economy
in the late 1970s and early 1980s, the government put in place liberal economic
policies under the sponsorship of the World Bank and the International Monetary
Fund (IMF). In 1986, the second phase of the reform was supplemented with
the Structural Adjustment Programme (SAP) targeted at correcting a number of
structural imbalances to ensure a sustained healthy economic growth. The response
of the economy to the paradigm shift of economic management from state control
to a liberalised one was strongly positive with a strong growth rate of 8.6% in 1984.
This positive growth performance has continued since 1984 and picking up strongly
since 2001.
The generally strong economic growth performance is a reflection of liberal
economic policy accompanied by large inflows of aid and foreign direct investment
that has triggered increased levels of investment, particularly in the public sector.
These improvements coupled with aid inflows contributed to high levels of public
spending mostly on infrastructure such as roads, schools and hospitals. Aryeetey
and Tarp (2000) have asserted that the growth of the 1980s emanated from the
expansion of capital application, largely as a consequence of increased aid inflows.
An estimation of a simple growth accounting model by Aryeetey et al (2001)
attributed Ghana’s growth pattern to total factor productivity (TFP) which in turn
was aided by the liberal economic regime. Since Aryeetey et al (2001), there have
been few or no studies examining the sources of growth in the Ghanaian economy.
The entry of crude oil exports in the late 2000s, the structural changes taking place
in education and health policies, and the shrinking of the share of agriculture to GDP
provide avenues for future research, particularly on questions regarding the sources
of growth in the Ghanaian economy over the past three decades.
2.2 Sectoral Analysis of the Economy

The pattern of Ghana’s economic growth has varied significantly by sector and
this is reflected in the shifts in the sectoral distribution of national output from
agriculture in favour of the two other sectors. Growth has been relatively stronger
in services and industry, and the outcome of this development is the shift in sectoral
dominance from agriculture to services. Estimates from Table 1 indicates an annual
average growth rate of agriculture of about 3.3% between 1984 and 2012 compared
with 7.8% for industry and 6.7% for services. Consequently, the share of services
improved from an average of 37.9% in 1984-88 to 42.5% in 1989-92 based on 1975
constant prices. After a rebase of the national accounts in 1993, the sector’s share
which dropped to 31.2% in 1993-96 improved marginally to 32.9% in 2001-05. A
rebase of the national accounts in 2006 further pushed the contribution of the sector
to GDP to an average of 50%. The strong show of services in terms of growth and
sectoral contribution has emanated largely from improved growth performance of
trade, hospitality, telecommunication and financial subsectors, aided by liberalisation
of activities that have seen increased private sector participation in the sub-sector.
Table 1: Sectoral Growth Rates and Composition of GDP, 1984-2012 (%)
Sector 1984-88 1989-1992 1993-96 1997-00 2001-05 2006-10 2011 2012
Agriculture 49.0 43.5 40.9 40.2 9.7 28.2 25.3 22.7

(1.9) (1.6) (3.1) (3.9) (5.1) (4.5) (0.8) (1.3)
Industry 13.0 14.0 27.9 27.7 27.4 21.7 25.6 27.3
(12.7) (4.4) (4.6) (4.2) (5.0) (8.4) (41.6) (7.0)
Manufacturing 8.5 8.7 10.2 10.1 10.0 8.8 6.9 6.9
(12.7) (2.6) (2.1) (4.5) (4.5) (2.6) (17.0)
(5.0)
Service 37.9 42.5 31.2 32.1 32.9 50.1 49.1 50.0
(7.8) (7.1) (5.2) (5.7) (5.3) (7.6) (9.4) (10.2)
Note: 1984-1992 figures are based on 1975 constant prices; 1993-2005 based on
1993 prices; & 2006-2012 based on 2006 constant prices
Source: Computed from National Accounts
The contribution of the industrial sector to national output also increased strongly
from 13.0% in 1984-1988 to 27.4% on account of improved growth performance
of mining and the construction sub-sectors. The commencement of oil production

in commercial quantities in 2011, pushed industrial growth rate to a high of 41.6%
and thus bringing the share of the sector from 21.7% in 2006-10 to 27.3% (Table 1).
Manufacturing recorded some appreciable growth performance in the early period
of the reform in the second half of the 1980s which contributed to improved share
of the subsector in GDP in the late 1980s and early 1990s. The removal of foreign
exchange restrictions as part of the economic reform contributed to improved
capacity of manufacturing firms through the availability of foreign exchange for the
importation of raw materials, spare parts and equipment for the operation of existing
plants and machinery. The sector has, however, witnessed weak growth which has
reflected in the declining share of the sub-sector from 10.2% in 1993-96 to 6.9%
in 2012 (Table 1). Over the past two decades, the sub-sector has been battling with
the problem of rapid depreciation of the domestic currency, high cost of credit, lack
of adequate and reliable energy supply, cheap imports and weak infrastructural
base. These factors, in addition to the structural rigidities within the economy have
contributed to the less than satisfactory competitiveness of domestic manufacturing
enterprises in the liberalised trade environment.
In contrast, agriculture which was considered the backbone of the Ghanaian
economy has consistently lost its dominance in the economy with a decline in its
contribution to national output from 49.0% in 1984-88 to 22.7% in 2012. The absence
of adequate support for the food crop, fishing and livestock sub-sectors prompted
by the removal of agricultural subsidies as part of the economic reform measures,
coupled with marketing problems and post-harvest losses cannot escape blame for
the dismal performance of agriculture. The rapid loss of forest cover as a result
of bush fires, logging and other human activities, limited support from extension
services, and the absence of adequate irrigation facilities which accounts for the
heavy reliance on rain have also contributed to the shrinking share of agriculture
in national output. The performance of agriculture would have been worse had the
cocoa sub-sector not picked up strongly from 2001 as a result of deliberate policy by
government to regain the country’s lost glory in global cocoa production. The policy
of mass spraying and enhanced producer price for farmers led to improved cocoa
production from about 400,000 tonnes on the eve of the millennium to 1 million
tonnes in 2009/10, pushing the country from third to second position behind Cote
d’Ivoire on the league of world cocoa producing nations.
The shift from agricultural dominance to services in real GDP may be perceived
as structural transformation of the economy. Structural transformation of economic
arrangement represents an increasing ability of the economy and society to respond
efficiently and effectively to changing and growing pressures for enhanced welfare
among people. This entails a process by which increasing proportions of employment
and output of the economy are accounted for by sectors other than agriculture. It
involves a net resource transfer from agriculture to other sectors of the economy
over the long term. Structural transformation is also associated with a shift from
informal to formal arrangements in the organization of economic activity. However,
evidence available suggests that the dominance of informal activities in the services
sector and the dwindling importance of manufacturing in economic arrangements
make it difficult for this structural shift to be judged as structural transformation of
the Ghanaian economy.
3. Fiscal, Monetary and Financial Sector Development

Ghana’s economic management has been characterised by fiscal deficit. Since 1992,
the country has recorded budget deficits (with the exception of 1994 and 1995 when
fiscal surplus of 2.8% and 1.7% of GDP respectively were reported) (see Figure
2). One common feature of the fiscal trend is the peculiarly unbridled spending in
election years. Since 1992, when the first general election was held to usher the
country into fourth republican constitutional rule, there have been huge deficits in
election years (the only exception is 2004). Even though fiscal deficit is not always
bad, the concern has been what caused the deficit and how it is financed. Indeed,
many economists may not even worry much about government’s decision to run
deficit to deal with severe recession by spending on public investment such as
infrastructure, education, health and research that would generate returns to redeem
the debts that would be accumulated from the deficits. However, fiscal deficits that
emanate from wasteful expenditure or simply to fund current consumption within an
environment where infrastructure, finance and human resource constraints disable
private businesses from stepping up production to meet the aggregate demand that
come from the increased consumption could stifle growth and employment.
Theoretically, there are three possible sources of financing fiscal deficit: inflationary
financing, external borrowing and issuing bonds in the domestic financial market.
Deficit financing through money printing has the effect of causing persistent price
hikes. External financing of fiscal deficit also tends to cause external debt to grow
with the implication of not only exacerbating balance of payments problems, but
also increase the interest payments on external debt which in turn worsens the fiscal
deficit problem through interest payments. The option of financing deficit through
domestic bond issue also drives up interest rates, crowds-out private domestic
investment and hampers economic growth.
Figure 2: Trends of fiscal balance and public debt in Ghana, 1992–2012
Source: Constructed from Annual Reports and Quarterly Bulletin of Bank of Ghana
The problem of fiscal deficit in Ghana is not limited to the last two decades. The
economy found itself in fiscal crisis during the period prior to economic reforms in
1983. The rapid and unrestrained growth of public expenditure in support of over-
extended public sector activity in the 1970s and early 1980s, coupled with sluggish
revenue generation on account of limited tax base resulted in huge fiscal deficit
(Tsikata and Amuzu, 1997) reaching a peak of 11.4% of GDP. The decision to finance
the deficits through money printing caused a sharp rise in money supply resulting
in high rate of inflation and overvalued exchange rate in a controlled exchange
rate regime while domestic borrowing also caused domestic debt to rise. As the
expenditure-revenue gap widened amid limited non-inflationary sources of finance,
deficit financing became the principal source of the budgetary support, causing the
share of government borrowing from the domestic banking system, mainly from
the central bank, to increase from 49% in 1970 to 86% in 1982 (Kusi, 1991). The
economic decline that ensued in the early 1980s compelled the country to undertake
economic reforms to resuscitate the economy. A major element of the reform was
rationalisation of public expenditure and revenue improving measures through tax
reforms to address the chronic fiscal problem. The reform succeeded in bringing the
deficit under control over a short period of time (1985-1991 and 1994-95).
The re-emergence of the deficit brings to the fore the need for a study on the
underlying factors explaining Ghana’s fiscal deficit problem which hit 11.8% of
GDP in 2012. This is important because the inability of government to keep fiscal
deficit under control and its financing mechanisms do not only contribute to increase
public debt, but also constrains the country’s ability to borrow to execute capital
investment. The growth of public debt in the 1990s which reached unsustainable
level of 186% of GDP, made up of 157% from external sources and, 29% owed
domestically landed the country in the midst of Heavily Indebted Poor Countries
(HIPC) in 2001. The government’s decision to subscribe to the HIPC initiative
which qualified it to benefit from debt reliefs from external creditors contributed
significantly to the rapid decline in public debt to a low of 26.1% in 2006 (Figure
2). At the same time, the fiscal deficit assumed consistent decline from 8.5% of
GDP in 2000 to 2.0% of GDP in 2005. However, in recent time, the deficit has
begun to widen. Public debt has been climbing, reaching almost 50% of GDP in
2012 (Figure 2). Although the figures are not very conclusive, rising debt raises
questions about the sustainability of fiscal policy. Can the government meet its
debt obligations without compromising on growth? This question, in addition to
solvency, international credibility and the level of debt that is commensurate with
aggregate economic performance should occupy important place in both academic
and practitioner research.
Like most economies around the globe, the conduct of fiscal policy is generally
complemented by monetary policy. In Ghana, the focus of monetary policy which
is under the purview of the Bank of Ghana is on ensuring stable rate of inflation and
exchange rates, and balance of payments equilibrium. Inflation has been one of the
key macroeconomic challenges in the country over the years and until 2011 when
a single digit rate was recorded, the rate of inflation has hovered within the range
of 10%-58.5% yielding an average annual rate of 23.1% over a eleven year period
between 1990 and 2010 (see Figure 3). As a result, average lending rates of banks
have remained quite high reaching a peak of 47% in 1996. Indeed, the economy has
witnessed a downward trend in lending rates in line with falling inflation since 2001
(Figure 3), but the average nominal lending rate of 26% and a policy rate of 16% in
2012 with 8.8% inflation has raised questions about the sensitivity of the banking
system to inflationary trends. The combination of fiscal deficit and inflation has
made it difficult for the country to meet the convergence criteria for the West African
monetary zone for the take-off of monetary integration in the West African sub-
region in addition to the UEMOA monetary zone. The survival of private businesses
in such a high interest rate environment gives a cause to worry in terms of economic
growth and employment generation. The question of how some private businesses
manage to operate in such a high cost credit environment opens up a gap for research.
Figure 3: Trends of inflation, lending rate and rate of cedi depreciation
Source: Constructed from Annual Reports and Quarterly Bulletin of Bank of Ghana
The tools used in the conduct of monetary policy depend on the structure of the
financial system. Prior to the introduction of financial reforms in Ghana in 1988,
government’s involvement in the monetary and credit policies was quite pervasive.
The financial system was dominated by government owned banks. As noted by
Gockel et al (1997), the banking system in Ghana before the financial reforms
could be described as indigenised, largely owned and strongly influenced by the
government. The type of financial and monetary policies pursued prior to the
financial reforms was based on Keynesian model that favours low interest rates as a
means of boosting investment and economic growth and subsequently high savings
rates. The monetary authorities used low interest rate, reserve requirements, credit
ceilings and sectoral credit control as the main tools to influence money supply and
other financial indicators. These measures resulted in financial repression with weak
financial intermediation. As noted by Gockel et al (1997), the banking system was
characterised by low capital base; weak management and accounting information
system; inadequate legal and regulatory framework, including ineffective supervision
by Bank of Ghana. The situation was worsened by the effect of demonetisation of
existing currency in 1979 and confiscation of fifty-cedi notes in circulation in 1982
which created loss of public confidence in the financial system with the effect of
reducing the effectiveness of monetary control as more money is kept outside the
banking system.
Against the background of these challenges in the financial system, Ghana
embarked on financial sector reforms in 1988 with the introduction of new Banking
Law of 1989. The reform measures involved the privatisation of state-owned banks
as part of the financial liberalisation and deregulation programme, development of
capital and security markets, and the promotion of non-bank financial institutions
and restructuring of the regulatory framework to improve bank supervision. After
two and a half decades, these reforms have yielded some fruits, paving the way
for the entry of foreign banks, expansion in credit, and growth in bank branches.
Prudential regulation has also been strengthened, but there are no yet adequate studies
examining the efficiency and competitiveness of the banking system. In addition to
changes in the banking system is the emergence of new products and securities
in the entire financial system. There has been growing number of funds managed
by various investment houses such as Databank, IC Securities, Ecobank Capital,
HFC Trust and Strategic African Securities among others. Growth and aggressive
funds and real estate investment trusts are beginning to make their appearance on
the Ghanaian market. However, the size of these funds is not very well documented.
The amount of assets under management, and the performance and regulation of
the funds remain unexplored. While the mutual fund industry is a relatively new
phenomenon in Ghana, it at the same time offers opportunities for researchers and
practitioners to examine the importance of this aspect of the financial system and its
contribution to the overall economy.
The market for longer term borrowing or debt instruments such as treasury notes
and corporate bonds, municipal bonds and mortgage securities are extremely thin,
highly underdeveloped and very illiquid. The government bond market particularly
remains underdeveloped. This in turn is related, but not limited to the absence of
a sound market infrastructure, a paucity of institutional investors, low domestic
savings rates, and lack of interest from international investors. The result is a small,
highly homogeneous investor group. Moreover, economic instability, often fed by
the high fiscal deficits alluded to earlier, rapid growth of the money supply, and
a deteriorating exchange rate, more often than not weakens investor confidence
and increase the risks associated with development of the market for government
bonds. To overcome some of the hurdles of the domestic market, most developing
countries look at international markets where the market is well regulated, and the
opportunities for raising capital abound. In September 2008, Ghana became the
first West African sovereign state to enter the international bond market, selling a
benchmark issue to raise $750 million. The 10-year bond was sold at par to yield
8.5%, and this followed the successful rating of B+ by both Standard & Poor’s and
Fitch. However, the prospects of more issues quickly evaporated following the onset
of the credit crunch.
The budget deficit (which stood at 14% of GDP at the end of 2008 and 11.8%
at the end of 2012) poses the greatest challenge to the development of a sound
government bond market. Such huge levels of deficits not only threaten growth
through spending cuts and austerity measures but also impose a drag on the
economy through attempts to reduce them. In the past, high inflation also posed a
grave threat to sound macroeconomic management. The solution to inflation risk
has been to issue bonds that are linked to an index of the cost of living in order to
provide citizens with an effective way to hedge inflation risk. This became known
as government of Ghana inflation indexed bonds. The principal amount on these
bonds is adjusted in proportion to increase in the consumer price index. Therefore,
they provide a constant stream of income in real (inflation-adjusted) cedis. A well-
developed bond market is key to financial development and economic growth.
At the macroeconomic level, a strong government debt market would provide a
conduit for domestic funding of budget deficits and can strengthen the transmission
mechanism of monetary policy, including the achievement of monetary targets or
inflation objectives, and can enable the use of market-based indirect monetary policy
instruments. As indicated by Alagidede (2011), development of a domestic securities
market can increase overall financial stability and improve financial intermediation
through greater competition and development of related financial infrastructure,
products, and services.
Available research in the area of corporate financing is scarce but anecdotal
evidence suggests that Ghanaian companies are shy of corporate bonds and other
long term instruments for financing. The pecking order suggests retentions and some
amount of bank borrowing, and if need be some minimal equity financing. This is
partly a reflection of the domestic economy, where over 70% of companies are small
scale and mostly family owned. There is also minimal use of municipal bonds by the
municipal assemblies and local authorities in Ghana. The big municipal areas such
as Tema, Tamale, Kumasi, Bolgatanga, and Cape Coast can raise funds to finance
road construction, waste disposal management, household water provision, build
bridges and highways, and even develop local industry. The dynamics of such a
market will not only take the burden of development from central government but
also ease the pressures on the central government budget, generate local employment
and reduce the rural-urban drift with the attendant problems of congestion, crime
and overcrowding in the national capital. For this to happen, decentralisation and
devolution ought to be sturdy and the legal and tax system rationalised. All the
mechanics of such markets are beyond this review article, however, the thought
presented here provide a menu of options to engage the minds of researchers in
teasing out the modalities for such a venture.
A very important development in the financial system is the establishment of
the Ghana Stock Exchange (GSE) by the closing decade of the 1980s. Although
attempts at establishing a stock market in Ghana dates back to the 1960s, it was not
until late 1989 that the idea became a reality (Alagidede and Panagiotidis, 2008). In
a sense, one can argue that the financial reforms, as part of the overall economy wide
restructuring that started in the late 1980s made the establishment of a stock market
inevitable. Incorporated as a private company limited by guarantee, official trading
commenced on the floor of the GSE on November 12, 1991 with three brokerage
firms and 11 listed companies. The number of listed domestic companies increased
to 13 in 1992; 19 in 1995 and currently stands at 33. The listed firms span from
gold mining and oil, banks, pharmaceuticals and biotechnology and food processing
companies.
Available data is generally sparse but most studies indicate that the GSE has
provided avenues for corporations to raise long-term capital to finance investments.
Yartey and Adjasi (2007) point out that new equity issues are a significant source of
finance for quoted companies, accounting for about 12%. In terms of assets growth
and new investments, the evidence suggests that listed companies make very little
use of the opportunities presented by the stock market. This in turn can be attributed
to a number of factors militating against company growth and new venture creation.
The average company size in Ghana is relatively small and this presents problems
of credibility in accessing external capital, particularly the inability of external
creditors to monitor the activities of companies due to information asymmetry and
the high risk nature of investments undertaken by most firms. The market is illiquid.
The turnover ratio is only about 1.6%.
In spite of these problems, the stock exchange provides an organised avenue for
trading securities issued by publicly quoted companies and the government. The
existence of an organised capital market promotes a culture of thrift. In an economy
like Ghana where the national savings rate have fallen from a high of 17% in the
1960s to 5% in the 2000s, the role of the exchange is critical in consumption timing.
The growing importance of mutual funds, unit trusts, and real estate investment
trusts could potentially enable consumers to defer current consumption in return for
future consumption and assist in the transfer of savings to investment in productive
enterprises as an alternative to keeping money under pillows and mattresses.
The extent to which the GSE can ameliorate information asymmetry, engender
growth of funds and consumption timing, and improve asset allocation is a function
of the efficiency of the market. Studies on the efficiency of the GSE have been
appearing gradually in the literature. Appiah-Kusi and Menya (2003), Osei (2003),
Ntim et al, (2011), Alagidede and Panagiotidis (2008) and Rambaccussing (2010)
address various issues such as calendar anomalies and weak form efficiency, semi-
strong form efficiency and impediments to price discovery. However, market
efficiency is an ever evolving concept and new and updated studies are constantly
needed to judge the performance of the market. Market efficiency is also now seen
as a relative rather than an absolute concept and this requires further examination
to judge the efficiency of the stock market relative to other aspects of the financial
system. Moreover, new techniques for measuring efficiency have been growing
over time. Several instruments have made their way into the Ghanaian financial
system that requires scrutiny. All these provide interesting avenues for prospective
researchers to add to the scant but growing literature on the efficiency of the GSE.
In late 2008, the GSE embarked on what we may term a ‘Big Bang’, rolling
out a corpus of reforms aimed at improving efficiency and price discovery. The
reforms hinged on new rules on automated trading, clearing and settlement and the
establishment of a Securities Depository Company approved by the Securities and
Exchange Commission (SEC). The procedures set forth in the new rules aimed to
reduce the costs and inefficiencies with the manual trading and settlement system,
increase trading activity and liquidity and boost market performance. The trading
floor of the GSE is now equipped with computers with each Licensed Dealing
Member (LDM) having access to trading workstations on the floor of the exchange.
This effectively sounds a death knell to the unwieldy practice of writing each trade
with markers on a white board. In time, the market may even become faceless when
the investing public embrace online trading fully. Currently, LDMs are allowed to
provide terminals to some of their clients for the latter to route orders to buy and
sell securities via the internet, subject to the rules of the GSE Automated Trading
System (GATS).
The reforms are still ongoing and with time, data will become available for a
more formal empirical analysis of the impact of the reforms on key microstructure
variables such as liquidity, efficiency and bid-ask-spread bounce. One recent study by
Mensah et al (2014, forthcoming) provides a novel piece of evidence on automation
of the GSE and the effect of the ‘Big Bang’ on weak form market efficiency. Their
analysis indicates that the GSE is yet to fully absorb the impact of the reforms as
both pre and post automation efficiency remains the same. Microstructure evidence
is inconclusive. However, with hindsight, we can argue that continuous electronic
auction trading system could make it possible for the market to generally publish
executed trades automatically and immediately. This would contrast sharply with the
manual system where, trades must be manually reported to the exchange within a set
time limit, after which they may be published, perhaps with time delay, according
to the rules of the exchange. Central electronic auction markets cannot function
without a relatively high degree of pre-trade and post trade transparency, and since
the investing public are obliged to interact directly (i.e. through brokers), some
portion of the consolidated limit order book (at least the best bid and ask) must be
publicly visible. These requirements of the present trading arrangement, should, all
things being equal, improve transparency, minimise fraud and boost market activity.
Hence subsequent studies and extensions of the works of Mensah et al (2014) could
be worth undertaking.
Going forward, political economy questions raised by Singh (1999) are valid for
Ghana. For instance, should developing countries like Ghana waste their meagre
resources in establishing stock markets instead of developing and improving the
already existing banking systems? Corporate governance and firm performance
has been initiated in studies such as Adjasi et al (2006). However, questions on the
procedures, customs, laws and sets of institutions that underpin the way a corporation
is directed, administered and controlled in Ghana still remain underexplored.
Director share ownership and corporate performance of Ghanaian firms, corporate
governance structure and disclosure rules ought to take centre stage in studies
examining the overall interaction of the stock market with the rest of the economy.
To date, there is no substantive study analysing the performance of IPOs. While
one would admit that there has been limited IPOs in the first place, the neglect of
the research community in examining the trends and performance of the few issues
is unpardonable. As the market develops in sophistication and stature, derivative
instruments, which are currently non-existent, may also make their appearance, thus
offering further opportunities for research in evaluating their role in risk management
and hedging.
4. Trade and Exchange Rate Developments

The international trade and payments system in Ghana has evolved from a controlled
system to a more liberalised regime. After many years of pursuing restrictive foreign
exchange rate regime, Ghana embraced flexible exchange rate system as part of the
economic reforms in 1983. There was also a shift from restrictive trade practices
to a more liberalised external trade regime. The immediate outcome of this policy
shift was a sharp improvement in Ghana’s external trade performance and improved
external trade competitiveness. The surge in foreign trade and payments improved
the balance of payments situation and contributed to poverty reduction through
increases in rural incomes (Asenso-Okyere et al, 1997). The liberalisation of the
exchange rate market made available foreign exchange to domestic enterprises to
import needed spare parts and inputs to boost production capacity and promote
economic growth.
However, in the 1990s, the unstable and rapid depreciation of the exchange rate
raised concerns about the negative effect of the liberalisation policy on the growth
of domestic enterprises in the country. For instance, between 1990 and 2000, the
cedi depreciated annually on average by 36.3% (see Figure 3) and coupled with
average annual rate of inflation of 29.3% and average lending rate of 38.5%, it
became difficult for domestic enterprises to compete effectively with overflowing

competing imported goods. At the same time, the dominance of primary commodities
in the country’s export (cocoa, unprocessed minerals and timber) makes response
to the exchange rate depreciation slow resulting in continued trade deficits, which
in turn put pressure on the exchange rate and domestic prices. The slow growth
of the manufacturing sector has contributed to the drop in the sectors contribution
to national output and this is linked to the external trade imbalance and exchange
rate constraints among other challenges such as high cost of credit and unstable
domestic prices. The common suggestions that are often cited for addressing the
external trade challenges of the country include the need to add value to the primary
export commodities, develop local taste for local products and the integration of the
ECOWAS market to promote intra-regional trade. However, the question of quality
and prices of local products are cited as the main reasons for the high patronage of
imported goods. In addition, similar types of goods produced by member countries
in the ECOWAS sub-region do not seem to promote intra-regional trade. Ghana’s
major exports which are still dominated by primary commodities are mainly exported
to European countries such as the UK, France, Italy and Netherlands while imports
are mainly from China, Nigeria and United States. With a call for the country to sign
on to the Economic Partnership Agreement (EPA), rigorous research is eminent to
inform policy in terms of the benefit and cost of any decision that will be taken by
the country.
5. Labour, Employment and Livelihood

Developments in the labour market generally mirror activities in the real sector of
the economy. However, there is evidence to suggest that employment growth in
Ghana has not kept pace with economic growth. Between 2000 and 2010, the total
number of people employed increased from 7.43 million to 10.24 million (see Table
2), indicating a 3.3% annual average employment growth as against a 5.5% annual
average real GDP3 growth over the period. This suggests average employment
elasticity of output of 0.6. A rebase of the national economy in 2006 that raised the
average annual real GDP growth rate to 7.2% between 2006 and 2010 compared
with employment growth of 2.9% puts employment elasticity of output at about
0.4, suggesting weakened employment response to economic growth in Ghana.
Total employment is estimated to have increased by about 820,000 between 2010
and 2012 (Table 2) representing annual average growth of 3.9% compared with
11.5% annual average real GDP growth. Indeed, ILO (2009) estimates a drop in
employment elasticity of output in Ghana from 0.52 in 2000-2004 to 0.4 in 2005-
2008. The slow employment growth is reflected in the marginal rise in employment-
to-population ratio by only 0.5 percentage points over 2000-2010 period (Table 2)
3
This is based on real GDP at 1993 constant prices
indicating limited ability of the Ghanaian economy to provide adequate employment

for the growing working age population.
The slow growth of high labour absorption sectors of manufacturing and
agriculture in contrast to the strong growth performance in low labour intensive
sectors of mining and finance sectors partly explains the limited employment
response to growth in the Ghanaian economy. Baah-Boateng (2013a) observed a
divergence between economic growth and employment generation and attributes it to
the slow growth of high labour absorption sectors of agriculture and manufacturing
on the one hand, and the higher growth of low employment generating sectors
such as mining and finance on the other hand. Evidently, agriculture which until
2010 accounted for more than 50% of total employment and manufacturing which
is credited with about 11%, recorded an average of 4.8% and 3.6% output growth
respectively between 2000 and 2010. Mining and finance accounted for 1.1% and
0.74% of total employment respectively in 2010. However, these sectors have been
two of the key driving forces of economic growth in recent times recording 5.8%
and 8.1% respectively over 2000-2010 and in 2011, mining together with oil (which
directly employ less than 100 Ghanaians) accounted for half of the 15.0% growth.
The drop in agriculture employment from 53% in 2000 to 42% in 2010 is a reflection
of the slow growth of the sector. The implication of the weak growth performance
of manufacturing over the period is reflected in the stagnant share of the sector in
total employment. The strong improvement in employment in the services sector
from 31.5% to 43% of total employment between 2000 and 2010 emanated from
trade which also reported strong GDP growth. While some attempts have been
made to offer reasons for the slow response of employment to economic growth in
recent times, it offers opportunity for researchers to delve a bit deeper into the micro
foundations underlying the current development.
Unemployment remains quite low at 3.0% in 2012 from a moderate rate of
5.8% in 2010. The rate dropped from 10.4% in 2000 to 7.3% in 2003 and further
down to 3.1% in 2006. Similarly, youth unemployment rate declined from 16.7%
to 16.3% in 2003 further down to 6.6% in 2006 before surging to 12.9% in 2010.
However, the rate of joblessness which consists of the unemployed and the inactive
outside the school system is estimated to be more than twice the unemployment rate
(Table 2). Baah-Boateng (2013b) attributes the relatively low unemployment rate in
Ghana and other African countries to the problem of discouraged workers or hidden
unemployment, and the high level of informality that serves as a refuge for many
people in the labour market with low level of skills.
As reported in Table 2, the informal sector constitutes the main source of livelihood
for Ghanaians, accounting for at least 86% of total employment in 2010. Indeed, the
limited employment growth occurred in the informal sector with annual average
growth of employment of 3.54% compared with 2.0% and 1.4% in the public and
private formal sectors respectively. The formal sector grew by 1.68%. This translates
into an increase in the informal sector share in total employment by 2.3 percentage
points compared to a decline in the share of public sector employment from 7.2%
to 6.4% and private formal sector from 8.9% to 7.4% (Table 2). This suggests that
employment generation over the period occurred mostly in the informal sector where
earnings are generally low. Baah-Boateng et al (2012) estimate informal sector
average daily earnings of 37.5% and 32.1% of average daily earning in the public
and private formal sectors respectively in 2006. This could be explained by the fact
that wage policies in Ghana tend to benefit formal sector employees especially those
in the public sector. The inability of the labour department to enforce the compliance
of minimum wage legislation that enjoins all employers to pay workers at least the
national daily minimum wage cannot escape blame for the lower earnings in the
informal sector which is dominated by self-employment and contributing family
work. Indeed, this development opens up a gap in research in this area to show the
extent to which the informal sector operators are denied the benefits of public wage
policies and the implications for poverty reduction.
Table 2: Employment and Unemployment 2000-2010
Year 2000 2003 2006 2010 2012*
Total employment (in million) 7.43 --- 9.14 10.24 11.06
Employment-to-population ratio (%) 66.9 68.0 67.7 67.4 72.8
Economic Sector of employment (%)
Agriculture 53.1 --- 54.9 41.6 50.9
Industry 15.5 --- 14.2 15.4 13.2
Manufacturing 10.7 --- 11.4 10.8 9.3
Service 31.5 --- 30.9 43.0 35.9
Institutional sector of employment (%)
Public 7.2 7.6 5.7 6.4 ---
Private Formal 8.9 6.7 7.0 7.4 ---
Informal 83.9 85.7 87.3 86.2 ---
Type of Employment (%)
Gainful employment 21.2 18.6 22.0 23.1 23.5
Vulnerable employment 74.9 78.2 75.4 71.5 71.1
Unemployment and Joblessness
Total Unemployment (%) 10.4 7.3 3.1 5.8 3.0
Youth Unemployment (%) 16.7 16.3 6.6 12.9 ---
Rate of Joblessness (%) 20.8 16.5 12.9 12.6 ---
*based on 1st to 3rd Cycle of the GLSS 6 Labour Force Survey (October
2012-January 2013)
Source: Computed from Population Censuses, CWIQ and GLSS
The quality of employment is measured by the type or status of employment

which indicates a worker’s attachment to the job he or she does as a regular or
wage employee, self-employed or contributing family worker among others.
Gainful employment that consists of wage employment and self-employment with
employees (or employers) accounted for 23.5% of total employment while every
7 out of 10 working Ghanaians were in vulnerable employment in 2010 (Table 2).
Vulnerable employment rate is the sum of own account and contributing family
work as a percentage of total employment. Workers in vulnerable employment are
less likely to have formal work arrangements and are therefore more likely to lack
elements associated with decent employment such as adequate social security and
recourse to effective social dialogue mechanism (Sparreboom and Baah-Boateng,
2011).
Even though vulnerable employment rate in Ghana has seen a decline with
some improvement in the number of people in gainful employment as shown in
Table 2, the pace appears to be very slow leaving many workers in poverty. As
reported in Figure 4, although incidence of poverty and the working poverty rate
have witnessed consistent decline since the beginning of the 1990s, the situation still
remains worrying. Incidence of poverty in the country dropped from 52% to 29%
between 1991 and 2006 while the proportion living in extreme poverty similarly
declined continuously from 37% to 18% over the same period. Consequently,
the working poverty rate measured by the proportion of employed people living
in poor households also witnessed consistent decline from 44% to 26% over the
fifteen-year period with the majority of the working poor engaged in informal and/
or vulnerable employment where earnings are evidently low. In effect, so long as the
formal sector employment continues to respond slowly to strong economic growth
in Ghana and coupled with the difficulty in coping with unemployment in particular
and joblessness in general, many disappointed people in the labour market would
seek refuge and water down earning in the informal sector.
Figure 4: Incidence of poverty and working poverty rate, 1991-2006 (%)
Source: Computed/Constructed by Authors from GLSS3,4&5
6. Education and Health

Education and health are the two major elements of human capital development and
also a major driving force of a country’s development through labour productivity.
Education is not only a vehicle for economic transformation at the macro level but
also a key factor that enables individuals to access gainful employment. The high
level of informal employment in Ghana and many African countries could be traced
to the low level of education. Available data indicates that 28.5% of the 15.2 million
working age population in 2010 had no formal education, while 48% could boast
of basic education (Ghana Statistical Service, 2013). Only 3% have had university
education while those with secondary education or better account for 21%. The
current situation represents improvement in education and skill development over
the past two decades. In 1991/92, about 40% of the working age population had
never been to school while 54% had some basic education with the remaining 6%
boasting of secondary education or better (Ghana Statistical Service, 1995). About
49% of adults were estimated to be literate and this improved to 72% in 2010.
These developments in education are reflected in the significant progress in the
school enrolment rate at the basic level over the past two decades. For instance,
gross enrolment rate at the primary school level which stood at 72% in the early
1990s increased to 95% in 2010, a 5 percentage point shy of the 100% target by
2015 (UNDP and NDPC, 2012), while the ratio at Junior High School (JHS) level
reached 79.5% in 20104. Enrolment at the secondary and tertiary level remains quite
low in spite of effort by government to increase access to education at these levels.
Available statistics at Ghana’s Education Ministry indicate that between 2005 and
2010, about 112 new Senior High Schools were established to bring the number to
697.
In 2010, the country could boast of 7 public universities, 3 specialised tertiary
institutions5, 10 polytechnics, 38 colleges of education and 55 Accredited Private
Tertiary Education Institutions. This is a vast improvement over the situation in the
early 1990s when the country had only 4 public universities. Public expenditure
on education in Ghana rose from 3.4% of GDP in 1988-90 to 5.3% in 2008; lower
than Kenya and Senegal but higher than Uganda and Zambia (World Bank, 2013).
Nonetheless, available statistics at the Ministry of Education show that Gross
Enrolment Rate (GER) at the secondary level of education in the country increased
from 25.5% in 2005/06 to 36.1% in 2010, while the ratio at the tertiary level was
9.7% in 2008/09. The gaps in the GER ratio from the basic level to the secondary and
tertiary levels confirm the relatively lower proportion of Ghanaians with secondary
or higher level qualification. The implication is that with secondary school certificate
as the basic entry requirement into formal sector employment, the only source of
livelihood for more than three-quarters of the working population is the informal
sector where entry is flexible.
The quality of education also raises concern about how Ghana’s education system
could promote economic transformation of the economy. It does seem to suggest that
the system of education and training is supply driven. In many instances, employers
complain about the quality of products churned out by the educational institutions.
Although the increase in the number of private tertiary educational institutions should
be celebrated, the development presents serious concerns at the same time. Unbridled
establishment of degree awarding institutions staffed by wholly unqualified and
untrained academic staff, and inadequate evaluation of would be private tertiary
institutions by the National Accreditation Board has led to the mushrooming of
fly-by-night academic institutions in every nook and corner of the country. This
development is somehow a reflection of the lousy mind-set of a populace seeking
certificates over skills, and the emphasis on business and management training to
the neglect of science and technology has opened a gaping hole in the set of skills
required by industry and the genus of graduates produced by the tertiary institutions.
This has been cited as one of the main sources of high unemployment among the
educated (see Baah-Boateng, 2012). Boateng and Ofori-Sarpong (2002) attempted
Ministry of Education, Ghana, www.moe.org.gh

4
Institute of Professional Studies (IPS), now University of Professional Studies, Accra

5
(UPSA) Ghana Institute of Journalism (GIJ) currently affiliated to the University of

Ghana, a degree awarding tertiary institution, and Ghana Institute of Languages (GIL).
to estimate graduate labour supply and demand gap and found deficits in the supply
of medical and health, engineering and technical, and management and accounting
compared with surplus in arts/social sciences and agriculture. Educational quality
and attainment, both the private and social returns to education and the education-
skills-employment nexus remain areas where research could be forthcoming.
A healthy population is a key ingredient for improved labour productivity,
economic growth and social development. Access to health care in Ghana has been
one of the major social concerns to government over the years. Ghana currently
spends about 5% of its GDP on health while its per capita health expenditure has
increased from US$45 in 2000 to US$85 in 2010, representing about 85% increase
(WHO, 2012). The positive relationship between increased health expenditures and
health outcomes is well documented with the exception of few caveats (Novignon
et al. 2012; Gupta et al. 2002; Filmer and Pritchett, 1999). Since independence
in 1957, the country has pursued a number of health policies and interventions to
safeguard the health of its citizens. Prior to independence, Ghana practiced a ‘free
healthcare’ model in which tax-financed health facilities directly delivered health
care to the citizens. Nevertheless, the model predominantly benefited a small élite
group of colonials and their African associates (Arhin-Tenkorang, 2001). The
remaining citizens who worked in the informal sector and were relatively poor and
predominantly lived in the countryside had to rely on health care services from
a range of providers such as traditional healers and missionary health centres for
which payment for healthcare was via out-of-pocket.
Following Ghana’s independence in 1957, the government of Kwame Nkrumah
introduced a universal tax-funded free healthcare system for all citizens. After two
decades of operation, the sustainability of this model was called into question as
a result of the stagnation in the economy. In particular, tax revenue among other
macroeconomic variables experienced a sharp downturn in the early 1980s leading
to the introduction of user-fees in 1972 (Osei et al, 2007). Due to the dwindling tax
revenues, the budgetary allocation to the health sector suffered greatly culminating
in shortages of essential drugs, supplies and equipment, and poor quality of health
care. In order to improve healthcare financing, Ghana initiated a health sector
reform in 1985 as part of broader structural adjustment programmes aimed at
maintaining fiscal discipline, introducing cost recovery mechanisms through user
fees also known as “cash and carry”, and liberalising health services to allow private
sector participation. In July 1985, the government of Ghana enacted the Hospital
Fees Regulation as a cost-sharing measure for the use of the Ministry of Health
(MOH) facilities with the intention to recover at least 15% of operating expenses.
This system was initiated in response to the Structural Adjustment Program (SAP)
laid out by the International Monetary Fund (IMF). Though the financial aims of
the reform were achieved and shortages of essential medicines and some supplies
improved, these achievements were accompanied by inequities in financial access
to basic and essential clinical services (Waddington and Enyimayew,1990). The use
of Out-of-Pocket Payment (OOP) mechanism for financing healthcare in the 1980’s
resulted in low utilization of healthcare services which contributed to high maternal
and infant mortalities and worsened health seeking behaviour of individuals and
households (Mensah, 2012; Mensah et al. 2010; Arhinful, 2003).
During the user-fee regime, it was estimated that only 40% of Ghanaians who
needed healthcare were able to afford it in the 1990s (Ghana Statistical Service,
2000). Ghana’s health care system during this era was chronically under-staffed,
under-stocked and generally failed to meet the basic health needs of the populace that
it set out to address in the first place (Waddington and Enyimayew, 1990; Anyinam,
1989; Asenso-Okyere et al. 1995; Konadu Agyemang, 2000). Although exemptions
were granted to certain categories of people in 1987, it did not achieve its intended
purpose of providing a safety net for the vulnerable who could not afford healthcare
services due to delays in reimbursement of the health facilities by the government,
abuse of the system and institutional bottlenecks. In 1997, another exemption policy
was implemented under which the cost for basic services for children aged under-five
years, women seeking antenatal care, the elderly over 75 years of age, and victims
of snakebites were waived. Again, these exemptions were not clearly defined and
funded, and thus, could not achieve its aim (Government of Ghana, 2007).
On the whole, user-fees, which require individuals to make out-of-pocket
payments at point of service usage is a regressive system which retards utilization
of health services (De Allegri et al, 2011). On the contrary, social insurance schemes
lead to increased utilization of health services including antenatal care and delivery
at health facilities (Ensor & Ronoh, 2005). Frimpong (2013) shows that on balance,
while the health care reforms have been able to curtail some of the intractable disease
burdens in the country the results have not been uniform. For instance, while the
reforms have had a pernicious effect on infant mortality and life expectancy, they
have been quite benign on the crude mortality rate.
The search for alternative health care policies and programmes to achieve
universal coverage through a sustainable healthcare financing scheme necessitated
the implementation of health financing options including piloting of Mutual Health
Insurance Schemes (MHIS) in the mid-1990s with some schemes receiving external
financial and technical support. Most of these MHISs focused on providing financial
protection against the potentially catastrophic costs of a limited range of inpatient
services. Ghana’s National Health Insurance Scheme (NHIS), a form of social
protection, was passed into law in 2003 (Act 650) and implemented in 2005 as a
fulfilment of an election campaign by the New Patriotic Party (NPP) during the 2000
elections. It is a ‘pro-poor’ healthcare financing scheme, and has since made progress
in enrolling members of the population. In 2012, Act 650 was replaced by Act 852
that seeks to among other things consolidate the NHIS, remove administrative
bottlenecks, introduce transparency, and reduce opportunities for corruption and to

strengthen the governance of the schemes.
The NHIS is financed through a National Health Insurance Fund (NHIF) which
is sourced from the National Health Insurance Levy (NHIL) -- 2.5% tax on VAT-
rated goods and services; 2.5% of Social Security and National Insurance Trust
(SSNIT) contributions, largely by formal sector workers; payment of premiums by
subscribers in the informal sector and donor funds. Individuals who are employed in
the formal sector and contribute to SSNIT are exempted from premium payment. As
at 2011, over 70% of the NHIS financial inflows came from the NHIL; 17.4% from
SSNIT contributions and 4.5% from premium payments (Agyepong and Nagaib,
2011). In addition, a free maternal care programme (FMCP) was launched under the
Ghana National Health Insurance Scheme (NHIS) in 2008 with a start-up grant from
the British Government.
Currently, the NHIS covers over 90% of the disease burden of Ghanaians
including medical emergencies and accidents. Services rendered to NHIS members
are reimbursed through claims submitted by accredited health facilities using the
tariff system. As at 2011, a total of 3,344 public and private health facilities were
accredited out of which 1,804 were owned by the government; 202 by faith-based
organizations; 1,315 by private-for-profit organizations and 23 by quasi-government
institutions (NHIA, 2011).
The NHIS’ total active membership has increased from 1,348,160 in 2005 to
18,031,366 in 2010 representing an increase of about 1,237% over the 2005 figure.
This increase could be partly attributed to special registrations that took place for
the poor and the under-privileged in addition to the mass educational campaigns
embarked upon by the NHIA. Table 3 shows the membership trend from 2005
to 2011. Owing to some challenges associated with the initial method used in
computing the active membership, a new and improved method was introduced in
2010. Figures from the new methodology also confirm that the number of active
members in 2011 increased by 0.8% over the 2010 figure (Table 3).
Table 3: NHIS Membership Trend (2005 – 2011)
Year Registered Members Active Members (Old Active Members
(cumulative) Methodology) (New Methodology)
2005 1,348,160 1,348,160 n/a
2006 3,867,862 2,521,372 n/a
2007 8,184,294 6,643,371 n/a
2008 12,518,560 9,914,256 n/a
2009 14,511,777 10,638,119 n/a
2010 18,031,366 14,157,708 8,163,714
2011 21,392,402 17,518,744 8,227,823*
*Figure is provisional. Source: NHIS, 2011
Despite the increased enrolment, active membership is not evenly distributed among
the various regions and socio-economic groups. Available data indicates that by the
end of 2011, active membership (as a percentage of the population) was highest in
the Upper West region where 50.9% of the population were active NHIS members
followed by the Brong Ahafo Region with 45.9% active membership and Central
Region with the least active membership of 24.6% (NHIA, 2011). Active membership
is also not the same among the various registered members. As at December 2011,
children under 18 years constituted 49.7% of NHIS active members followed by the
informal sector of 36.4% with the SSNIT Pensioners being the least, 0.3%.
Consistent with the increases in the NHIS active membership over the years,
healthcare utilization has also been increasing after the introduction of the NHIS.
For instance, outpatient visits per capita increased from 0.37 in 1997 to 1.07 in
2011; likewise, the percentage of skilled deliveries improved from 44.5% in 2006
to 52.2% in 2011. The increase in healthcare utilization implies a gradual removal
of financial barriers to access to healthcare in the country. In addition, institutional
maternal mortality ratio improved from 239 per 100,000 live births in 1997 to 173.8
per 100,000 live births in 2011 (GHS, 2011). At the national level, maternal mortality
declined from 740/100,000 in 1990 to 350/100,000 in 2011, though the current pace
is inadequate to realize the MDG target of 185/100,000 by 2015. Nevertheless,
the introduction of the NHIS might have contributed significantly to the current
gains.
Figure 5: Trend of mortality rate among children aged under-five in Ghana.
Sources: GDHS 1988, 1993, 1998, 2003, 2008
The NHIS has significantly contributed to improved health outcomes, health

services utilization (including maternal-child health) and financial accessibility to
basic healthcare (Jehu-Appiah, 2011; Blanchet et al. 2012; Dzapasu et al. 2012;
Nguyen et al. 2011; Ansah et al. 2009; Frimpong, 2013). Specifically, Figure 2
shows the trends of under-five mortality, neonatal mortality and child mortality in
Ghana as measured by the last five demographic and health surveys. It is obvious
that there were significant declines in under-five mortality, neonatal mortality and
child mortality in 2008 which coincided with the introduction of the NHIS since the
Ghana Demographic and Health Survey (GDHS) captures data five years preceding
the survey. Similarly, gains have been made in the area of life expectancy with life
expectancy for both sexes increasing by about 13 years between 1990 and 2011
(World Bank, 2013).
Although the NHIS has resulted in an upsurge of healthcare utilization and
improved health outcomes, one major challenge is financial sustainability (Abiiro
and Mclyntyre, 2012; Macha et al. 2012). This is because the main source of funding
is the NHIL (70%) with payments of premiums constituting only 4.5%. Besides,
donation from foreign partners albeit negligible, is drying up following Ghana’s
reclassification as a middle-income country. With the increasing utilization of
healthcare services, sustainable funding remains a challenge.
Odame et al. (2013) opine that while the free maternal health services policy
encapsulated under the NHIS is a laudable one, its sustainability remains a major
challenge. The paper revealed that of the total claim payments made by the National
Health Insurance Authority (NHIA) to healthcare providers, the free maternal health
services accounted for 23% of the entire claim in 2011. In fact, the NHIS expenditure
on the MCHP for the entire country in 2009 was US$49.25 million, exceeding the
British grant of US$10.00 million given for that year, implying that the programme
has been entirely financed by the National Health Insurance Fund. Unless the NHIA
finds innovative ways of funding the free maternal healthcare programme including
targeting expectant women who are really in need, the rapidly increasing recurrent
demands on this fund from the maternal delivery exemption poses increasing threat
to the sustainability of the fund. While the study by Odame et al. (2013) provides
some insight into the financial sustainability of the scheme especially with regard to
MCHP, further research is needed to explore other potential sources of funding in
addition to ensuring judicious use of current resources. Another problem prevalent
in the NHIS is that the scheme is not that pro-poor as envisaged (Dixon et al. 2011;
Jehu-Appiah, 2011), thus there is the need to improve the coverage and targeting of
the poor through informed research.
There is also the problem of perceived differences in quality of care rendered
to NHIS card bearers and those paying out-of-pocket where the latter reportedly
receive better services compared to the policy holders (Dalinjong and Laar, 2012).
SEND (2010) attributes the perceived poor quality care being received by NHIS card
holders to the increasing OPD attendance and inpatient admissions. The increased
utilization has exacerbated the doctor-patient and nurse-patient ratios in some parts
of the country with doctor- patient- ratio in the Northern region increasing from
1:8,805 in 2006 to 1:31,877 in 2008.
In health insurance, the type of provider payment mechanism being practiced
has serious implications for the reduction in corruption and fraud in the processing
of claims. Capitating providers have the tendency to increase efficiency although it
could engender low quality care in the absence of effective monitoring on the part
of the insurance provider, NHIA. After almost two years of piloting the capitation
in the Ashanti Region, the NHIA ought to put in place the necessary logistics to
implement it countrywide. The removal of user-fees has increased the utilization
of healthcare services with improved population health outcome. Nevertheless,
sustainability remains a major threat which ought to be tackled head-on.
7. Conclusion
This paper presented a review of recent developments in the Ghanaian economy with
special focus on macroeconomic trends, health and education outcomes and shifts
in the financial and monetary systems. We surveyed some of the emerging literature
from several angles: employment and developments in the labour market; health
care reform; stock market development and efficiency; fiscal sustainability and
agricultural sector policies. This review, necessarily brief and selective, hopefully,
provides the reader with a sense of the wealth of the literature, and the considerable
advances made in our understanding of the Ghanaian economy. It is hoped that future
researchers would seize on the opportunity presented in this article to address some
of the many questions that have been opened up, and the many questions that are to
emerge from key debates on the economy to push the frontiers of research forward.
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The Ghanaian Economy: An Overview

Article · January 2013

Paul Alagidede William Baah-Boateng

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Ghanaian Journal of Economics, Vol. 1, Dec 2013

The Ghanaian economy: an overview

Legon, Accra, Ghana. E-mail: wbaahboat@post.harvard.edu or wbboateng@ug.edu.gh

Nigeria added stress to an already overburdened economy.

Source: Constructed from National Accounts, Ghana Statistical Service

2.2 Sectoral Analysis of the Economy

Table 1: Sectoral Growth Rates and Composition of GDP, 1984-2012 (%)

Sector 1984-88 1989-1992 1993-96 1997-00 2001-05 2006-10 2011 2012

Agriculture 49.0 43.5 40.9 40.2 9.7 28.2 25.3 22.7

of mining and the construction sub-sectors. The commencement of oil production

3. Fiscal, Monetary and Financial Sector Development

Figure 2: Trends of fiscal balance and public debt in Ghana, 1992–2012

Figure 3: Trends of inflation, lending rate and rate of cedi depreciation

4. Trade and Exchange Rate Developments

became difficult for domestic enterprises to compete effectively with overflowing

5. Labour, Employment and Livelihood

indicating limited ability of the Ghanaian economy to provide adequate employment

The quality of employment is measured by the type or status of employment

Figure 4: Incidence of poverty and working poverty rate, 1991-2006 (%)

Source: Computed/Constructed by Authors from GLSS3,4&5

6. Education and Health

Ministry of Education, Ghana, www.moe.org.gh

Institute of Professional Studies (IPS), now University of Professional Studies, Accra

(UPSA) Ghana Institute of Journalism (GIJ) currently affiliated to the University of

bottlenecks, introduce transparency, and reduce opportunities for corruption and to

Sources: GDHS 1988, 1993, 1998, 2003, 2008

The NHIS has significantly contributed to improved health outcomes, health

Boateng, K., and Ofori-Sarpong, E. (2002). An Analytical Study of the Labour

Osei, K.A. (2003).The response to annual earnings information announcement

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