Operationalizing pro-poor growth : a country case study on Ghana

"Operationalising Pro- Poor Growth" A joint initiative of AFD, BMZ (GTZ, KfW Development Bank), DFID, and the World Bank A Country Case Study on Ghana Andrew McKay and Ernest Aryeetey October 2004 This paper belongs to a series of 14 country case studies spanning Africa, Asia, Latin America and Eastern Europe. The series is part of the `Operationalising Pro-Poor Growth (OPPG)' work programme, a joint initiative of AFD, BMZ (GTZ, KfW Development Bank), DFID and the World Bank. The OPPG work programme aims to provide better advice to governments on policies that facilitate the participation of poor people in the growth process. Other outputs of the OPPG initiative include a joint synthesis report, a note on methodological approaches to analysing the distributional impact of growth, cross-country econometric work, literature reviews, and six synthesis papers on: macroeconomics and structural policies, institutions, labour markets, agriculture and rural development, pro-poor spending, and gender. The country case studies and synthesis papers will be disseminated in 2005. The entire set of country case studies can be found on the websites of the participating organisations: BMZ www.bmz.de, DFID www.dfid.gov.uk, GTZ www.gtz.de, KfW Development Bank www.kfw- entwicklungsbank.de/EN/Fachinformationen and the World Bank www.worldbank.org. For further information, please contact: AFD: Jacky Amprou Amprouj@afd.fr BMZ: Birgit Pickel Pickel@bmz.bund.de DFID: Manu Manthri M-manthri@dfid.gov.uk and Christian Rogg C-rogg@dfid.gov.uk GTZ: Hartmut Janus Hartmut.Janus@gtz.de KfW Development Bank: Annette Langhammer Annette.Langhammer@kfw.de World Bank: Louise Cord Lcord@worldbank.org and Ignacio Fiestas Ifiestas@worldbank.org  Operationalizing Pro-Poor Growth: Ghana Case Study Ernest Aryeetey ISSER, University of Ghana and Andrew McKay1 University of Bath and ODI. Revised draft September 2004 Acknowledgements: We gratefully acknowledge very many helpful comments on the first draft of this paper from: Andreas Pfeil and Lionel Demery, our official discussants in the project workshop in Eschborn, Germany, where this paper was first presented in July 2004; other workshop participants; DfID, London; DfID, Accra and the World Bank. We accept full responsi- bility for any remaining errors and omissions. 1Corresponding author: a.mckay@bath.ac.uk or a.mckay@odi.org.uk 2  Introduction 1. This paper is prepared as part of the multi-donor Operationalising Pro-Poor Growth study, which is focusing on aiming to provide advice to governments on how to facilitate the involvement of poor people in the growth process. It is prepared as one of 14 case studies prepared as part of this project, and following a common outline structure and analytic approach. The case study papers are prepared to assess country-level evidence on the relationships between growth performance and trends in poverty, and on how this can be enhanced. This implies therefore an analysis which combines macro and sectoral analysis of the determinants of growth and its distributional pattern, with more micro- level poverty analysis. While much of the analysis investigating the links between pat- terns of growth and changes in poverty is historical, assessing past evidence, there is also an important forward looking component on how poverty-reducing growth can be initi- ated, sustained or enhanced. 2. In this analysis the concept of pro-poor growth is of central importance. However, there are different understandings of this concept as reflected in debates in academic lit- erature and policy environments. This essentially revolves around a distinction between and absolute and a relative concept of pro-poor growth (DfID, 2004). The absolute con- cept of is that growth is pro-poor when it reduces poverty (Ravallion, 2004), whereas the relative concept is that growth is pro-poor when the poor benefit disproportionately, so implying a reduction in inequality (Kakwani and Pernia, 2000). Both notions are of rele- vance here. The absolute concept is important because it focuses attention on the rate of growth specifically for the poor, and this is what the rates of pro-poor growth reported in chapter 2 here are capturing. But it is also very important to consider the distributional pattern of growth and so the evolution of inequality. For a given rate of growth, the more it reduces inequality the bigger its poverty reduction impact will be. 3. Over the past twenty years, Ghana has managed to achieve sustained per capita ac- companied by reduction in poverty, even though levels of poverty remain high. Its growth performance over this period, while not exceptional by international standards, has been significantly above average by African standards, and it has made reasonable progress in reducing poverty in income and some non-income dimensions. In that aggre- gate sense Ghana has achieved pro-poor growth in absolute terms over this period. How- ever the picture is more complex once disaggregated (for example by location), and there has been less progress in other, especially health, indicators. This paper seeks to un- derstand the precise nature of this growth-poverty relationship, and about the extent to which its positive aspects can be sustained and enhanced and its negative aspects re- versed. 4. The paper is set out as follows. Chapter 1 provides an overview of Ghana's recent record on growth on poverty reduction, which is hen complemented in chapter 2 by an analysis of the actors underlying growth, and of the relationships between growth and poverty reduction. Chapter 3 represents the core part of the paper, focusing on the factors influencing the participation of poor people in growth. This focuses in turn on macro fac- tors and policy; pro-poor spending; agriculture and rural development; labour markets 3  and migration; and political economy and institutional factors. Chapter 4 then briefly summarises the trade offs evident between growth and specifically pro-poor growth. Chapter 5 then summarises, discussing key current policy discussions in Ghana and summarising the broad themes emerging from this study as to what is required to achieve more effective pro-poor growth in Ghana. 1. Historical Context and Growth-Poverty Trends 5. The extent and depth of poverty in current day Ghana is generally perceived to be de- rived from the absence of effort to change the structure of the economy since colonial times. This has left Ghana quite dependent on its geographical characteristics and re- source endowment for production. This former British colony covers a surface area of 238,537 sq km and borders C