Ghana 2000 and beyond : setting the stage for accelerated growth and poverty reduction

Ghaana 2000 and Beyond Setting the Stage for Accelerated Growth and Poverty Reduction Africa Regional Office Western Africa Department The World Bank t) February 1993 L| FIL COP   This report was prepared, under the overall direction of A. Chhiaer, by a team led by C. Leechor comprising: W. Alberts, J. Bahal, S. Commander, M. Fardi, P. Glewwe, A. Gupta, R. Kanbur, E. ICng, S. Mink, A. Mody,J. O'Connor, P. Plesach, 1. Schankerman, G. Schreiber, 1. Segal, K Sgist,J. Singh, G. Spiro, C. Ugaz-Estrad and S. Younger. In addition, ML Iskarnder, J. Joyce, 0. Meesook J. Strongman, J. Walters and J. Wright also made useful contributions. Ihe report has benefited enormously from comments by E. Lim, L Husain, G. Nankani, J. Page, M. Baird, V. Thomas, P. Hassan, S. Lateef, C. Ransde, T. Swayze, 1. Walton, D. Berk, and N. Bennett. Many Ghanaian officials have also provided valuable assistance and comments on an earlier draft of this report, including Dr. Botchwey, Dr. Joe Abbey, Mr. Amissah-Arthur, Mr. Anyemedu, Mr. Mamaah (MFEP), Mr. Daapah (MOG) and Mr. Kumah (BOG).   Contents Foreword iii Executive summary ix 1. Introduction I Macroeconomic Changes 1 Institutional Development 4 Poverty Implications 5 2. Poverty reduction through growth 6 Poverty Alleviation: The Lessons of Global Experience 6 A Poverty Profile of Ghana 8 The Psttem of Accelerated Growth and Poverty Alleviation 10 Public Expenditure Patterns 12 Social Safety Nets and Traditional Coping Mechanisms 15 3. Investing in people 17 Educadon 17 Health 22 Enabling Environment for Human Resources 24 4. Sectoral sources of growth 27 Ilustrative Scenarios 28 Prospects in Agriculture 29 Agricultural Prices, Incentives and Supply Response 29 Growth Prospects in Mining 42 Prospects in Industry 43 5. Fostering entrepreneurship I: Macroeconomics, finance, and trade 52 Macro Policies to Promote Private Investment 52 Wages, Incomes and Inflation 55 Mobilizing Financial Resources 59 Creating an Enabling Environment 61 6. Fostering entrepreneurship II: Infrastructure support 72 Infrastructure 72 Telecommunications 82 Energy 85  CONTENS 7. Managing the process 89 Political and Economic Risks 89 Extemal Factors 89 Povety Considerations 90 Environmental Considerations 91 Public Sector Management 91 Restructuring Institutions 92 New Methods and Indigenous Management Practices 96 Endnotes 97 References 99 Figures 1.1 Per capita GDP: Ghana and Thailand 1 1.2 Development diamonds for Ghana, Thailand and Malaysia 2 1.3 Net foreign inflows by type and percent of GDP 4 3.1 Ghana and the NICs: Primary education 18 3.2 Ghana and other developing countries: Infant mortality rates 22 3.3 Ghana and the NICs: Total fertlity rate 25 4.1 Per capita GDP 28 4.2 Sectoral compoition of GDP 28 4.3 Ghana: Food prices 30 4.4 Ratio of cocoa producer prices, Ghana and C6te d'Ivoire 31 4.5 Ghana: Real food prices 31 5.1 Gross capital formation 53 5.2 Private shares of investment and domestic credit in developing countries 53 5.3 Private investment in Ghana and Thailand, 1985-1990 53 5.4 Monetary aggregates and domestic credit to the private sector as a proportion of GDP: Thailand and Ghana 55 6.1 The state of trunk roads 74 6.2 Energy strategy public sector resource implications: Key measures 88 7.1 Comparative increases in the price level 89 7.2 An overview of possible restructuring changes 93 7.3 Privatization gains and losses 94 Boxes 2.1 World Development Report 1990: Correlation between growth and poverty eradication 7 2.2 Global 2000: Impact and lessons 14 3.1 The contribution of human resources to development- An international perspective 18 3.2 Ghana's student loan scheme for higher education 21 3.3 Agenda for action 26 4.1 Colombia's flower exports 41  CONTE vE 4.2 Agricultural intensification can lessen pressure on forests 42 4.3 Diversification through agroindustry in Thailand-The case of cassava 47 4.4 Should states intervene in trade or shouldn't they? 50 5.1 Does Ghana need a VAT? 56 5.2 Costly end-of-service benefits slow down privatization in Ghana 68 5.3 Accelerating privatization: The experience of Hungary 69 5.4 On the CIMIC phenomenon: Joint-venture companies in China 71 7.1 Democracy or authoritarianism 90 7.2 Does ownership matter? 95 Tables 1.1 Structure of production 2 1.2 Structure of aggregate demand 3 2.1 Variation in country experience 6 2.2 Food expenditure pattems by poverty group 8 2.3 Sources of income by poverty group 9 2.4 Sources of agricultural income by poverty group 9 2.5 Revenue from the sale of crops by poverty group 9 3.1 Impact of raising junior secondary school quality on cognitive achievement: Ghana 19 3.2 The economic burden of adult illness, selected countries and years 23 4.1 Regression estimates of agricultural supply response 30 4.2 Ratio of retail price to farm gate price, Ghana 31 4.3 Southeast Asia: Contribution of manufacturing and mining 44 4.4 Malaysia: Growth in manufacturing value added (1968-86) 45 4.5 Growth in agricultural production and exports in Southeast Asia: 197 1-81 47 4.6 Distribution of dynamic export products (Thailand and Malaysia) 48 4.7 Dynamic products in world merchandise trmde, 1979-87 48 5.1 Projected economic indicators 54 5.2 Financial depth in selected countries 55 5.3 Indices of prices, average earmings and minimum wages, 1983-90 57 5.4 Credit extended by the banldng system 59 5.5 Investment incentives on FDI in ASEAN countries and Ghana 65 5.6 Export incentives in Southeast Asia and Ghana 66 6.1 Telephone main lines per 100 inhabitants 84   Abbreviations BOG - Bank of Ghana CEPS - Customs, Excise and Preventive Service COCOBOD - Ghana Cocoa Board CSIR - Council of Scientific and Industrial Research DUR - Department of Urban Roads EAP - Environmental Action Plan ECG - Electricity Corporation of Ghana EMS - Economic Management Support (Project) EPC - Environmental Protection Council EPZ - Export Processing Zone ERP - Economic Recovery Program ESAF - Enhanced Structural Adjustment Facility GCD - Ghana Consolidated Diamonds GDP - Gross Domestic Product GES - Ghana Education Service GIC - Ghana Investment Center GLSS - Ghana Living Standards Survey GOG - Government of Ghana GSB - Ghana Standards Board GWh - Gigawatt Hour GWSC - Ghana Water and Sewerage Corporation ICB - International Competitive Bidding IPA - Investment and Project Analysis (Division) IPPF - International Planned Parenthood Federadon MPEP - Ministry of Finance and Economic Planning MLNR - Ministry of Lands and Natural Resources MOA - Ministry of Agriculture MSD - Management Services Division MTADS - Medium Term Agricultural Development Strategy NFRDP - National Feeder Roads Development Progran NGO - Non-Governmental Organization NIC - Newly Industrialized Countries NPART - Non-Perfonning Assets Recovery Trust ODA - Overseas Development Administration (UK) OHCS - Office of the Head of Civil Service PAMSCAD - Program of Actions to Mitigate the Social Costs of Adjustment PFP - Policy Framework Paper PIB - Prices and Incomes Board PIP - Public Investment Program PPMC - Precious Minerals Marketing Corporation PTP - Production Test Plot SEC - State Enterprise Commission SGMC - State Gold Mining Corporation SOE - State-Owned Enterprise UNDP - United Nations Development Programme UNFPA - United Nations Fund for Population Activities VAT - Value-Added Tax VRA - Volta River Authority WDR - World Development Report   Executive summary 'Ghana has been the beacon on the African cross over the poverty line for another half Ghana's adjuswment coninent. ftwasthefirttogainindependence. century. Ghana needs to consolidate and program is one of the Itwasthefirsttopursuedirigistepolicies. It uws build on its achievements in recent years in more successful ons in also thefirst to turn around andfollow inten- order to further advance the goal of poverty Sub-Saharan Arica. Even sie adjurtments. Will it now become hefirst reduction.Itneedstostriveforfastergrowth so, with per capita income to achieve rapid and equitable growth?' through policies that create opportunities and tangible change for the poor. _ a The Ghanaian economy stands at a cross- Can Ghana break out of its low-income aWnPm, the average poor roads. Ghana's adjustment program is by status and make a bold dash toward a better peron wonotcross any yardstick one of the more successful quality of life by the next century? The over the povety linefor ones in Sub-Saharan Africa. A decade of dynamic growth in East Asia shows that it waother haf ce y stabilizingpolicieshasyieldedbroadbudget can be done. It took the UK 58 years to balance, stronger export growth, a reason- double per capita income, and Japan 34 able external position and some beginnings years to do the same. However, fast growing with respect to structural reform, including East Asian economies such as China, Indo- some limited privatization of state-owned nesia, and Thailand are achieving this in enterprises and closure of chronic about a decade. They are also doing it with lossmakers. There has been growth in sec- an unprecedented reduction in poverty. tions of the agricultural economy, particu- Ghana will naturally follow a Ghanaian way larly for the main export earner, cocoa, and instivingtowardtheseobjectives.Itshould, also in the mining sector where renewed nonetheless, seewhat hasworked elsewhere foreigninvestmenthasbeenattrscted.These and adapt it to the Ghanaian environment. policy shifts have reversed to a considerable This study attempts to assist in this debate extent the apparently inexorable decline of by asking the question-what would it take the economy that marked much of the pe- forGhanatobecomearniddleincomecoun- riod between Independence (1957) and trybythe year 2007, the 50th anniversaryof 1983. Ghanaian independence? And what would By the end of the 1980s, however, be needed to ensure that the average poor Ghana'spercapitaincomeremainedatabout Ghanaian would participate in this process US$390, which placed Ghana among the sufficiently to cross over the poverty line by poorest countries. Ghana continues to have that time? a high dependence on a small range of exportables,principallycocoa,goldandother Elements of Successful Growth minerals; low domestic savings; low aggre- gate investment and a strilcingly low level of In looking at successful development expe- private investment. Evenwith the improved rience an obvious area from where one economic performance since 1983, real would try to draw lessons is East Asia as well growth has only been about 5 percent per as parts of Latin America. The East Asian annum, with per capita income rising at success is often referred to as a miracle!- about 2 percent per annum. At this rate, the which is a misnomer. Instead, East Asia average poor person in Ghana would not demonstrates what can be achieved with a  x EXECUTIVE SUMMARY combination of pragmatic and sensible gov- Ghanaian private capital abroad. For this to ernrentpoliciesandadisciplinedandhard- happen Ghana needs vigorous private sec- working population that responds to the tor participation and investment. Ghana's right incentives. Indeed, other East Asian private investment to GDP ratio is only one economies such as the Philippines, Viet half of that observed in East Asia in the Nam, and Myanmar have not yet achieved 1960s and only one quarter of the private the successes of their neighbors. Favorable investment rates today. Finally, it should be external factors obviously had an impact, noted that, even if growth does not quite but were not vital to this success. reach the extent anticipated, the effort itself * Were favorable global trading condi- may provide a common national purpose tions the reason for East Asia's export suc- and a unifying force amidst the anxiety Ghana's ratio of private cess? The region's exports grew at nearly 9 associated with the political transition. Aim - investmentso GDP is percent a year during 1965-80, when global ing high and trying harder appears to be a only half that obsend conditions were helpful. But they also con- low-risk and high-gain option provided that in Ekd Asia in the tinued to grow at nearly 10 percent in the expenditures are kept within lirnits. 1 960s anda quarter of 1980s,whenglobalconditionsdeteriorated. One lesson of intemational experience the region's private * Was arelationshipwithjapan the key to is that the sources and patterns of growth tnvesreiopsprv their export success? Exports from East seldom follow a plan, whether rigid or in- Asia toJapan in the 1980s grew at 7 percent dicative. But, clearlymuchofGhana'sgrowth ayearbutexportstotheUSAandtoEurope in the medium term (up to 2000 AD) can grew at 12 percent and 11 percent, respec- come primarilyfrom agriculture, mining and tively, in the same period. Nor were trading the service sectors. Industrial growth will blocsafactorbecauseEastAsia did not have foUow with a time lag, but the basis of any arrangements that mattered in an eco- industrial growth-education, infrastruc- nomic sense. ture, telecommunications, support for de- * WasJapanese investment a critical fac- velopment of markets and import of tech- tor in East Asian success? Perhaps, but nology-must be laid now. To make an Japanese investment typically went into assessment of the feasibility of achieving countries which followed sound growth- fastergrowthitshouldbenotedthatGhana's promoting policies. In most cases recovery growthratessince 1983werenotverydiffer- in domestic private investment preceded ent from those achieved by Thailand and large inflows of foreign direct investment. Malaysia ageneration ago, exceptin agricul- Is Ghana ready for accelerated growth? ture where performance has been weak. This is a question often raised in discussions The potential for rapid agricultural growth both in the country and in international clearly does exist in Ghana. Even if Ghana does not fora. The question suggests that there may The central questions this study asks are quite reach the growth be preconditions for fast growth which do what domestic actions accounted for the anticipated, the effort may not yet exist in Ghana. Certainly, in human success stories and what is their relevance provide a common resources and infrastructure Ghana falls for Ghana? Three factors stand out in the naionalpurpose behind some of the fast-growing NICswhen success stories despite their considerable they were beginning their acceleration into diversity-primary education and literacy, fast growth a generation ago. The catch-up opennessininternational markets, andpub- process in these areas, if properly funded, lic sector discipline augrnentedby a comple- will take at least a decade. This process mentary relationshipwith the private sector. should begin by reallocating public funds into these priority areas by reducing expen- Emphasis on Human Development The ditures in other areas. If the necessary one area where we were able to find very changes are made, the acceleration ofgrowth clear differences between Ghana and some could begin before the end of this decade. of the more successful fast-growing econo- Ghana can move toward faster growth mies was in the area of education-particu- through better use of its existing human and larly primary education. Ghana's tertiary physical resources as wel as by attracting and secondary education system compare  UCUTmVE SUMMARY favorably with those of fast-growing coun- in the first place but there remains the tries at the time when they were beginning question of financial distress of companies their push toward rapid growth-at least it which were earlier protected but could now does so in numbers. But where Ghana lags invest in potentially competitive activities if far behind is in primary education and over. they were able to get financial and other all literacy. Most successful countries had support. How best to help these enterprises achieved near-universal literacy as a pre- is discussed in the report. condition to rapid growth compared to While Ghani's trade ratios (ratio of cx- Ghana's literacy level of about 55 percent ports to GDP and imports to GDP) have (functional literacy is estimated to be only risen in recent years, for a small country 35-40 percent). Ghana is also behind sev- these ratios could increase substantially. eral African countries on this score. Ghana Ghana's export ratio of 15 percent of GDP Ghana's tertiary and needs to focus the bulk of its public re- remains small. The export ratio is low be- secondary education sources in education toward this objective cause Ghana's exports outside of cocoa and systems compare flaorably and rely more on private resources to fi- minerals remain small. What can Ghana do with those of East Asian nance its growing secondary and tertiary to push export growth more forcefully? One, economies when they education program. It must also look into it can consider the option of an appropriate were beginning their push less expensive forms of tertiary education. exchange rate policy to provide non-dis- w rapid gmwtb... Similar choices need to be addressed in criminating export incentives and focus on I,ut Gh owtb the area of health. By comparison with rap- providing govemment support in finance in Ghary lagsa 6 d idly growing developing countries, identify- and infirastructure to exporting firms. Two, in primary education and ing Ghana's long-term health and nutrition labor costs are an important factor in deter- overall literacy goals appears simple. But budgetary and mining the competitiveness of Ghana's ex- manpower capacity constraints will force ports. Thus, wage bargaining should be choices. First, more emphasis is needed on linkedmuchmorecarefullytolaborproduc- primary health and preventative care rather tivity. Three, Ghana needs a better devel- than hospital and curative care. Second, oped system for duty drawback, export fi- resources tend to be skewed toward urban nanceandqualitycontrolmechanisms.Four, areas. The unequivocal recommendation of changes in rules and regulations are needed past studies has been for the Government to to facilitate entry of foreign buying compa- maintain its comrnitment to irnprove, and niesinto the market. Five, there isa need for more equitably deliver, primaryhealth care. better export infrastructure-telecommu- In addition, other key areas deserve discus- nications, warehousing, refrigeration, etc. sion: the development of a national drug The need to promote exports is policy to strengthen the capacity for drug uncontestable.What is debatable, however, regulation and enforcement, and the craft- is the role of foreign partners, including ing of a consistent national strategy to ad- Ghanaians abroad, in the future Ghanaian dress malnutrition problems. economy. In the past this question has not been discussed on economic considerations Openness. The second clear and obvious alone. But it is important that two issues difference has been in the degree of out- should be brought out. First, official devel. ward orientation. Ghananeeds amuch more opment assistance may come down from aggressive export drive focusing especially about 8 percent of GDP today, which is on agriculture, agro-processedproductsand relatively high by intemational standards. light manufacturing industries. Ghana in- Commercial borrowing on a large scale is troduced fairly sweeping trade liberaliza- not a viable or wise option for Ghana. For- tion early on, and Ghana's import regime eign direct investment can play an impor- remains relatively liberal. Some would ar- tant role in filling this gap. Second, foreign gue that the importliberalizationproceeded partners can play a key role in technology too fast and has led to severe adjustment transfer and in Ghana's export drive as was problems for the industrial sector. Many of the case in most East Asian economies and these industries were not very competitive in parts of Latin America. Partnership with  xa EXECtrrE SUMMARY foreign businesses needs greater emphasis. and telecommunications, as wel as in rnin- Even China-an avowedly socialist coun- ing and manufacturing, by encouraging try-now allows 100 percent foreign equity greater participation of the private sector in companies and has attracted massive for- through leasing, joint ventures and manage- eign investment. ment contracts. Public sector discipline and private in- Public Sctor Dircipline and Privae - vestment promotion go beyond expendi- ves*ment. A third and very striking differ- ture allocation and fiscal issues. Lack of ence between Ghana and the East Asian clarity in the limits to public sector activity success stories is in the interaction between imparts skepticism in the minds of potential the public and private sector. Good govem- investors. This sense of uncertainty exists in The sense of sncertanty ment does not necessarily mean a small Ghana today, and remains as a major im- in Ghama today ewmais a government, but one which has a dearly pediment to private sector confidence and major impediment to definedroleandmostiimportantlysproactive investment response. Part of it is due to the prpivae sector confidnce complementary relationship with the pri- continuanceof acobwebof old controls and and invmesw rerponse vate sector. In East Asia government spend- regulationswhichremain on thebooks. Even ingwasnotnecessarilysmall,butwasgeared though the regulations are not usually en- to promoting the private sector. The em- forced, investors are apprehensive. Part of phasis on the role of government in most the uncertainty arises from lack of transpar- countries in EastAsia has obscured a funda- ency in the enforcement of laws and regula- mental fact: in East Asia the public sector tions. And part of it arises from the continu- has been a net saver since the 1960s, rarely ance of government ownership in a wide crowding out the private sector. East Asian range of production activities despite its governments have been fiscally prudent. In intended objective to leave these areas to Ghana's case, fiscal policy has improved the private sector. Transparency, due pro- considerably, but there is scope to do more. cess, speedy divestiture which cuts through This study points towas to lower the size of the red-tape surrounding asset valuation, the overall public sector deficit in Ghana by: labor laws and the requirements of indig- reducing transfer to SOEs, reducing enous ownership are necessary to rebuild unfunded liabilities such as end-of-service confidence. benefits, cutting uneconomic subsidies on In regard to the degree and nature of water,electricityandtransport,andimprov- government intervention in promoting ing revenue mobilization through VAT. growth, there is considerable debate and But, lower fiscal deficits need not imply important differences in interpreting the a smaller government. In fact, a strategy for international experience. One interpreta- The emhasis on the role accelerating growth would imply a larger tion emphasizes the degree and extent of of the govermen has role for the Government. Even if the share across-the-board market-friendly reforms obscured a findamental of govemment expenditure in the economy that were instrumental in East Asian suc- fact: in E& As the stays constant its size would increase enor- cess. These included: macroeconomic sta- public sector has been a mously as the economy grows rapidly. The bility, fiscal prudence, competitiveness net saverswnce thc 1960s, Government can contribute more for the through appropriate exchange rate and la- rarely crowding out e economy with the same resources by im- bor market polices, and appropriate expen- p*ale secwo proving its financial management, speeding ditures in social and physical expenditures. upimplementationofdevelopmentprojects, Much of the thrust of the ERP has been reorienting its expenditure pattern and by along these lines and should obvious]y con- raising the quality of its services. There is a tinue. A second interpretation argues that case for larger govemment involvement in, governments went much further and tar- among other things, primary education and geted either specific sectors and in the case health, transportinfrastructure, and research of Korea certain business houses for special and extension, as well as operations and assistance, especially if these were geared to maintenance. At the same time, the Gov- exports. These special incentives included emment could leverage its outlays in energy privileged access to credit and foreign ex-  EXECUllVE SUMMARY xw change as well as tax incentives. It is com- be addressed. At the same time, however, mon today to acknowledge that East Asian informal labor markets, especially in urban governments intervened, but that theywere ameas, are often highly inefficient, where more efficient at it than others. Should underemployment, and hence low income, Ghana go in for this type of "state-spon- is the rule rather than the exception. Dimin- sored" capitalism in the future is not an easy ishing the distortions and rigidities in factor question to answer. andproductmarketsrmustbeunderstoodas If Ghana does folow this path a few the most efficient means for increasing the simple rules would help. First, help only the poor's productive assets and raising the re- export industries. Second, help only those turn on these assets through changes in industries which already exist in the private relative prices. The key public policy prob- sector-fledgling companies which are try. lern in this regard is therefore how to assist An informal body such as ing to break into the export market-avoid poor and vulnerable groups without distort-, the Private Sector supporting projects where there is no appar- ing economic mechanisms, since any seem- Advisoy Group, which ent private sector interest. Third, help ingly'pro-poor distortionscouldhurtboth has provided sensible subsectors in general, but not particular the chances for sustained economic growth optionsfor deregulation. firmns to avoid the danger of the potential for and, ultimately, the poor themselves. could be the basis for "crony capitalism." An informal body such Second, a broad-basedpattern ofpublic de ine bsufer as the Private Sector Advisory Group expenditure in basic education and health, developing a buss (PSAG), which has provided sensible op- as noted above, and other social and eco- govermm tpartnership in tions on deregulation, could continue to nomic infrastructure has also been an im- fosteing gowth provide a useful forum for discussion on portant feature of countries that have trans- these issues as weDl, and be the basis of a lated high growth into effective poverty re- developing business.-government partner- duction. Ghana's current pattem of public ship in fostering growth. expenditure reveals considerable bias to- ward urban areas, and against primary edu- Other Relevant Lessoni cation and health care. But even if public from International Experience and development expenditures were dis- tributed more equitably geographically, care Increased Opportunites for the Poor. If the must be taken to ensure that such additional accelerated growth envisioned in this report resources are not distributed so as to en- is distributed proportionately, or better, to trench existing relations of inequality, al- the poor, then a sustained and significant lowing powerful local groups to gain prefer- reduction in poverty can be achieved by ential access to resources and services. 2007. What is needed to ensure that the poor participate in the growth process? In Environmental Considerations. The in- A broad-based pattern of the first instance, international experience temational experience also shows that pur- public expenditure in suggests that well functioning factor mar- suing indiscriminate growth policies can basic education and kets, particularly labor markets, are crucial cause significant environmental damage. In health and other social in allowing income increases at the growth hindsight, many of the current high-growth and economic poles to spread throughout the economy. countries may wish to have given more at- infastructure has also But such factor market mobility is not auto- tention to the management of the growth been an imortantfeature matically pro-poor and care must be taken process and its environmental implications. of an tm t have to understand the unique characteristics of For example, subsidies for the use of fossil of countries that have Ghanaian society which can either encour- fuels, chemicals, irrigation water and log- iranslated high growth age or impede the poor from benefitting ging may have been curtailed. The rights to into eectwe poet from access to these markets. For example, own and manage land and natural resources reduction the evidence from Ghana indicates that may have been clarified. Provision of dean while rural and urban informal labor mar- water and sanitation may have been acceler- kets work well and respond to economic ated. And yet it would be incorrect to infer stimuli, the urban formal sector is character- that growth or accelerated growth is neces- ized by rigidities and distortions that need to sarily achieved at the expense of environ-  x,W EXECUrIVE SUMMAY mental integriq. Properly managed, growth and needs. Theywould also be more respon. can proceed without sacrificing environ- sive to local constituencies ifgiven adequate mental quality. Furthermore, the resources responsibilities and resources. With the ex- generated by growth can support the invest- ception of a few major cities, however, the ments in human and physical capital neces- process of devolution will have to be gradu- sary for improving the environment. ally phased in to allow for a build-up of local organizations. Public Sector Management. Ghana has Ghana is currendy facing difficulties benefitted from strong and able economic clearing the backlog of rehabilitation due to management during a difficult period of many years of maintenance neglect. The adjustmentsince 1983. Continuityandprag- current strategy which places a high priority Pmopedy n,anagedA, -o matism have contributed immeasurably to onrehabilitation and maintenancewith some can proce u thiss'success. This strong centralized man- extensions, based on estimated high eco- sac,2ftisivg _pt' agement was a major hallmark of the suc- nomnic rates of return, is correct and should qu49 cessful East Asian economies'where a small be continued. For the near future the ability group of economic managers had a rela- to produce and transport agricultural prod. tively free-hand in economic management. ucts and minerals will remain critical. The This was coupled with an'institution within acceleratedgrowthstrategycanbe enhanced the Government entrusted with the task of by giving a higher priority to public invest. long-term thinlking and policy formulation. ments in the relatively underdeveloped ar- Ghana'hasablepolicymakers,butlackssuch eas with high growth potential, such as the an institutionalized body aidn to Taiwan's Westem region, but with due consideration Council 'for Economic Planning and Develi for environmental concems. A greater role o'pmnent or Korea's Economic Planning of local authorities in project design, selec- Board (EPB). It' would also benefit from tion and maintenance is desirable as part of independent policy andresearch'institutes an overall devolution of responsibilities. suchastheThailandDevelopmentResearch Major changes in procedures for contract- Institute (TDRI) and the Korea Develop- irig, procurement and planning are also ment Institute (IDI), which provide very needed. The role of the public sector in essential inputs into public debate on policy many infrastructure-related activities also issues, needs re-examination. As far as basic infra- While there is a case'for greater central- structure is concemed, the issue is not own- ization in strategic planning and macroeco- ership but management and execution. The nomic policy, there is a clear need for a Government can own the ports-both sea greater devolution' of responsibilitie's for and air-the railway stock, and the road projects and programs in several areas from network, but should consider transferring the central to subnational iuthorities, as is their operations and management to the envisaged in Ghana's current policies. De- private sector. Innovative finance and leas- volved responsibilities do not imply that the ing arrangements are being designed else- local authorities will, have to provide the where toimprove effective deliveryof infra- services themselves, but to ensure that ap- structure services while ensuring basic ser- propriate services are provided, perhaps vices are provided to the needy and to through management and operational con- remote regions. Power and telecommunica- tracts. District assemblies, city councils and tions are areas where private participation is community organizations have better ac- being encouraged theworld overand Ghana cess to information about local preferences should draw lessons from this trend.  CHAPTER 1 Introduction The arithmetic of the growth rates is fairly beenshowntobesobytheEastAsianNICs. With 6 percent growth in straightforward. At current rates of growth Thailand had aper capita income level about per capita income, Ghana of per capita income (about 2 percent per 50 percent of Ghana's in 1960, yet by 1990 could reach de stas of annum), Ghana would require about 20 its income level was 3 times that of Ghea an upper middk income years for per capita income to grow from its (Figure 1.1). A comparison of Ghana's key cows,ry by the year 2007 present level of US$400 to US$600. This indicators with that of Thailand and Malay. e 50th a venasry of would just about qualify Ghana into the siashowswhytheseeconomiesdidsomuch Ghanian independen status of lower middle income countries. A better than Ghana. They clearly started with 2 percent higher growth rate would push relative advantages-better infrastructure Ghana into the lower middle income cat- and a more educated population. But since egory well before the end of the century and then they have built on these advantages would also, if maintained, place Ghana into whereas Ghana lagged behind (Figure 1.2). the upper middle income category by the Faster growth will bring with it funda. year 2015. It is conceivable that growth mental changes in the structure of the creates its own momentum and Ghana can economy and in its institutions. The share of achieve significantly higher growth rates. agriculture will decline decisively, and more With a 6 percent growth in per capita in- and more of the labor force wil be em- come Ghana would reach the status of an ployed in the urban areas. The nature of upper middle income country by the year political representation will change and the 2007.' demandsandpromisesofsocietywillchange. Accelerated growth goes hand-in-hand There will be both macroeconomic and in- with poverty eradication. At the current stitutional transformations. rates of economic growth (5 percent) and population increase (about 3 percent) it is Macroeconomic Changes estimated that the average poor person would not cross over the poverty line for As a starting point, Ghana's producion is another half a century. By contrast, if the dominated by a slow-growing agricultural pace of economic growth could be raised to sector (see Table 1.1) and the dynamic 8 percent a year, this cross-over time would be reduced to about 23 years. If population FIURE 1.1 growth could be reduced to 2 percent a year Per capita GDPk Ghana and Thailand while GDP growth remained at 8 percent, 1961 dollars the time for the average poor person to cross 400 the poverty line would be less than two Thaibnd decades. 30 Such a strategy needs careful consider. 200' ation because of the potential of macro. 0oo instability and other risks associated with it. But if any low-income African country is on 7 1961 1970 1980 1990 that path, Ghana surely is among them. A Scume IFS. rapid growth spurt is achievable and has  2 IWMRODUCTION agriculture and the rest of the economy. It is Development damonds for Ghana. Thailand and Maaysia unlikely, however, to maintain the growth of industry and services without raising agri- Human resources cultural growth. Already, there are indica- 2 ;100 tions that the manufacturing sector has been slowing down since 1988. Continued slug- X - , . .; 60\ gish performance of agriculture would limit the potential for accelerated growth. Enhancingtheperformanceofindividual Global 12 100 80 40 4 20 4 6 10 Infrastructure subsectors dearly would improve the over- interation (No. of phones/ all growth. The analysis in this report sug- GfoDpetntrad 1989) *. 1989) gests that a significantly higher GDP growth rate can be achieved through relatively mod- erateandpresumablyfeasibleimprovements \ '*. - ,'30 / in individual subsectors. For example, GDP growth can be raised from 5.4 percent to 8.5 percent by the year 2010 by raising and sustaning agricultural growth from 2.7 per- cent to 4.0 percent, industrial growth from % 70 8.6 percent to 11.5 percent and service Private sector developmfent growth from 7.5 percent to 8.0 percent. The (Banking system caedit to private sector, main reason for this result is that the shares ______of______GDP,__________1989____________ of the dynamic sectors expand over time and exert more impact on the overall growth. manufacturing sector is very small. The ser. But accelerating growth is not just a vice sector is relatively large and has been an matter of raising production mechanically importa'nt source of growth.. and changing demand. There must be ad- With the exception of agriculture, the equate incentives for increased production, ratesofgrowthinindividualsubsectorssince adequate demand and marketing facilities 1983 have been high by international stan- as well as adequate financial resources to dards. (Part of the growth, however, wis make production possible. attributable to rehabilitation investments The structure of Ghana's final demand with low ICOR and to the existence of has changed little since 1965. But for devel- underused capacities available in the early oping countries as a whole, and for Asian 1980s.) If this performance could be main- countries particularly, there has been a tained during the next two decades, the marked shift in the shares of investment and shares of the faster-growing sectors' indus- exports. The principal feature of Ghana's try and services would expand, thereby rais- current aggregate demand structure is a ing GDP growth. Historical evidence shows very large share of consumption, 90 percent that there are strong interlinkages between compared to 82 percent for Thailand in TABLE 1.1 Structure of production (Percent of GDP for shares; percent per annum for growth rates) Ghana 1990 LDC 1990 Thailand 1965 Thailand 1990 Share Growth Share Growth Share Growth Share Growth in GDP 1983-90 in GDP 1980-90 in GDP 1965-801 in GDP 1980-90 Agriculture 43 2.7 31 3.9 32 4.6 12 4.1 Industry 14 7.5 35 8.2 23 9.0 39 9.0 Manufacturing (9) 9.5 (27) 11.1 (14) 11.2 (26) (8.9) Services 43. 7.5 34 6.5 45 7.4 48 7.8 GDP 100 5.4 100 6.1 100 7.3 100 7.6 a. Exduding countries with per capita income above s600 in 1990. Souxes: Government of Ghana: Wbrld Deveopmnt Report.  INTRODUCTION 3 1965, and a small share of domestic saving, private sector's incentives to invest. 10 percent compared to 18 percent for Much of the savinrg (about one third) Thailandin 1965 (see Table 1.2). The share that finances Ghana's current investment of investment in Ghana is thus compara- comes from abroad. To meet the invest- tively small. Of particular importance is the ment required under accelerated growth, size of private investment, which is 8 per- domestic saving will have to expand more cent in Ghana, compared to a share in than proportionately. For example, to fi- Thailand of 16 percent in 1965 and 32 nance an investment volume of about 25 percent in 1990. percent of GDP, domestic saving will have To allow for higher growth, a significant to double, rising from 10 percent to 20 change in the structure of demand can be percent of GDP, even if foreign saving re- anticipated. For one thing, higher growth mains at5 percent of GDP. If foreign saving would require a higher share of investment. were to be maintained in dollar terms, but This maybe accomplished without lowering not as a share of the rising GDP, then the the level of consumption, if the incremental required domestic saving would have to go saving rate is higher than the average saving up even more. Meeting this saving require- rate-more of the extra income is saved ment in the context of a relatively low per rather than consumed. Furthermore, the capita income is a major challenge. increased investment would imply a corre- Intemational experience shows that, sponding increase in imports. The external .under a period of rapid GDP growth, im- balance of the country could be maintained ports grow even more rapidly. Ghana's im- by raising exports or increasing direct for- port requirements underaccelerated growth eign investment. Such a transformation has and a liberal trading environment may rise already occurred in the case of Thailand, from about $1,300 millionin 1991 to about where between 1965 and 1990 the share of $8,000 million in 2010. Shortages of for- investment has risen from 20 percent to 37 eign exchange can inhibit growth bylimiting percent, the share of imports from 18 per- the access to imports of machinery and cent to 41 percent and the share of exports supplies. Under a liberal foreign exchange from 16 percent to 38 percent, while foreign and trade regime as in Ghana, exchange rate investment increased marginaLy. adjustments should in principle induce ex- The efficiency of capital use in Ghana port growth and import reduction. But in has been high, as indicated by the relatively practice logistical and administrative con- low incremental capital output ratio (ICOR) straints may prevent rapid export response of 2 to 3 in the recent past. As the recovery and therebynecessitate additional exchange phase of the economy shifts into a growth rate adjustments and further reduction in phase, however, more investment would be imports. Many of the East Asian countries required per unit of extra output. The chal- lenge in economic management is thus two. TABLE 1. Structure of aggregate dmn fold: first, to increase the volume of invest- (Percent of GDP) ment consistent with higher growth and second, to maintain the level of efficiency so (1990) countries' (1990) (1965) (1990) that growth is maximized for any given level Consumption 90 72 82 67 of investment. If the ICOR can be kept at Government (8) (11) (10) (10) the current level of about 3, the share of Pniveaent (82) (61) (72) (57) Investment ~ 1 5 3 1 2 0 3 7 investment in GDP would have toincrease Govemmenth (7) (13) (4) (5) from about 15 percent to about 25 percent Private (8) (18) (16) (32) ExportS' 1 5 1 8 1 6 38 inordertoraiseGDPgrowthfrom5percent Imports 20 21 18 41 to 8 percent per annum. The bulk of the National savings 10 28 18 33 Foreign savings 5 3 2 3 increase in investment would have to come F a. Exduding countries with per capiU above t600 in l990. from the private sector, unless significant b. The share of government investment was estimated on the basis of 19 countries for which data were gains could be made in the Government's avaiable, resource mobilization without sacrificing the sources: worsds adiopment Repot;intematio fnancisl statistU vanrus issues  4 INIRODUCTION FIGURE 1.3 tional levers for bringing about change and Net foreign inflows by type and steering the economy will become more percent of GDP indirect. 10 . Ghana will become a very different 8 - Pnvate flows economy from the one that exists today with 6 . _ very different social pressures, employment 4 Official flw and skill needs. First, Ghana will be a much more urban society although stiDl with a 2 _ _ large share of the population in rural areas. Malaysia Thailand Ghana But this population will be much better 1969-83 1987-90 integrated into the economic life of the Three aspects of institu- Offiaal flows: ODA grants and loans. country.2 Second, Ghanawill be much more . . . P~~~~~~~nvate flows: FDI. portfolio Investments tional change need andaexponIcredits. integrated into both the global economy emphasis-the shftfrom Source: OECD. and especially into the West African a control economy to economy. Its institutions and the overal indicative planning, the placed the highest priority on export devel- management of the economy wiDl probably shift from public-private opment in order to provide relief to the need changes. competition to partner- foreign exchange constraint on growth. Three aspects of institutional changes ship, and.the decentraliza. External financial assistance played a that wil emerge prominently in preparing stionand &voaeceontraofza modest supporting role in financing the for accelerated growth need emphasis-the won and devolstion of rapid growth of Southeast Asian countries. shift from a control economy to one where responsibilities In the case of Malaysia and Thailand, for the statewillguide thegrowthofthe economy instance, the annual capital inflows were through indicative planning, the shift from less than 3 percent of GDP during the public-private competition to partnership, period 1969to 1983 (seeFigure 1.3).About and the decentralization and devolution of one half of the inflows accrued to the private responsibilities. sector in the form of foreign direct and The management of a more complex portfolio investment and export credit. economy which Ghana wil grow into will Ghana has been more fortunate in this re- require more indirect rather than direct spect, having benefitted from capital in- control and guidance-a greater use of in- flows of about 8 percent of GDP in recent centives and taxes to channel resources into years. The share of private-sector capital productive investment and exports. For ex- flowshas been very small, however, amount- ample, Ghana has taken big steps in moving ing to about one tenth of the total. out of foreign exchange allocation. But in some areas more regulation will be required. Institutional Development As r re and more public companies are transferred into private ownership and man- Adequate investment demand and avail- agement, regulatory bodies will be needed, ability of resources are necessary, but not particularly on utility pricing, environmen- sufficient, conditions foracceleratinggrowth. tal policy, forest management and use of The capacity to implement projects, coordi- national and mineral resources. nate activities and folow established proce- Along with lesser controls will come the dures in a timely manner is also required. If, need for a greater partnership between the for instance, it takes two to three years to public and the private sectors in the estab- implement a one-year project, then the re- lishment of goals and priorities. The real sultinggrowth ratewould be one half orone battle is not between the public and the third of the desired rate, even if all the private sectors but between Ghana and the financial resources are available. Implemen- rest of the world. As the economic pie grows tation capacity, however, generally reflects both the public and the private sectors wil the institutional structure and the level of grow-although the latterwiD probablygrow skills available in the -system, rather than faster given the large presence of the public that of individual project managers. In a sector in the Ghanaian economy despite largely more complex economy the institu. some privatization. The current 17 core  JNlRODUCIION 5 commercial enterprises left in the hands of Poverty Implicaions the public sector would need reconsidera- tion in the near future. If Ghana is to be- The macroeconomic changes proposed in come a major West African trading hub, its thepreceding section have obvious relevance airlines, ports and railways will have to be for the poor and vulnerable. While the next extremely competitive and hence operate chapters examine thisissue in greaterdetail, through the private sector. This observation one point is worth mentioning here. The also applies to power and telecommunica- informal sector will continue to provide the tions. means of livelihood for the majority of the Over the last year the successfulwork of poor for the immediate future. For it is in thePrivateSectorAdvisoryGrouphasshown the informal sectorwhere the poor as small that a partnership can emerge. To ensure a agricultural producers and small traders and Gh mus guard continuous build-up of enabling rules and service providers are living at the margin. In against he tmaon to facilitating decisions, many strategic admin- this circumstance, macroeconomic policies squeeze &e infoSrml istrative options should be considered. First, must encourage, or at least not discriminate sedor uWdy or toforgo a problem-solving attitude, already initiated against, the functioning and dynamics of the invesb-et in Ae uidr by the Government through the Private informal sector, even if macro policy atten- r o r s Sector Advisory Group, can be broadened tion is primarDly directed towards enhancing prov on of soc se and extended to a wider range of issues. the more productive, outward-oriented sec- Vwcl)fr th poor as a Second, a more motivated and more profes- tors through market mechanisms. means ofislmfrsnA#g sional civil service can be cultivated to per- If the Government is to obtain the level k hgbff domxeuc form fewer and more critical tasks that can- of investment and domestic savings sug- SM"V' nee&dfed o wt5 not be carried out by commercial enter- gested above, the obvious question is to prises. Third, increased emphasis can be ask where in the economy, be it in the for. given to the role of the public sector agen- mal or informal sector, can the needed cies in generating and disseminating infor. change in the consumption-savings ratio mation. The information necessary for busi- occur to meet the requirements for in- ness includes both changes in regulations creased domestic savings. Can the domes- and procedures aswell as prices, production tic savings rate be increased without put- and new investments in various sectors. ting a disproportionate burden on the in- Finally, there is a trend, which has been formal sector? Ghanaian macro policy must encouraged by the Govemment, toward guard against the temptations to squeeze greater decentralization and devolution of the informal sector unduly, or to forgo in- government responsibilities tolocal authori- vestment in the wider provision of social ties. This trend is significant because the services for the poor as a means of jump- management of a more complex economy starting the higher domestic savings pro- and policy cannot be done by a very central- cess. Yielding to such temptations could ized system of govemment. More impor- have high social costs and further exacer- tandy, a decentralized system will allow a bate the socioeconomic disparities between much greater play for the emergence of the poor and non-poor. indigenous systems, strengthening munici- The issues and options for addressing palities and local government. This will in the prospects for change are presented in the long run encourage participatory de- the following sections. The principal ratio- mocracy, strengthen legitimacy and the rule nale for accelerating growth-poverty re- of law and encourage community involve- duction-is presented in Chapter 2. The ment in the growth and development of strategic options concerning human re- Ghana. A striling difference between most sources, sectoral growth, enterprise devel- developed and developing countries is the opment and infrastructure are discussed in much larger share of govemment in the tum in Chapters 3 to 6. The final Chapter, developed economies compared to a devel- 7, deals with the question of how the pro. oping country, but most of it is at the local cess of acceerating growth can be man- and municipal level. aged.  CHAPTER 2 Poverty reduction through growth 'To my children, in the hope that when they Poverty Alleviation: The Lessons grow up they will see kss of it, no matter how of Global Experience they decide to measure it. s -Amartya Sen Debates on issues of poverty alleviauun Wue as subject to fads and fashions as anything 'For aU of us to get rich, some of us will have else. But experience is a great teacher. The to get rich first. " lessons of experience with poverty allevia- -Deng Xiao Ping tion have been accumulating for the past four decades. The World Bank's World Accelerated growth is only meaningful when Development Report 1990: Poverty provides seen as the means to an end. That end is the an overview of the experience and draws eradication of existing poverty in Ghana. condusions that reflect a growing consen- Poverty has several dimensions, including sus. The UNDP's first Human Development low income and low achievements in basic Report, which came outin the same year, can needs such as health and education. While be interpreted as reaching the samne broad it can be argued that the ERP has benefitted conclusions. the Ghanaian poor on average, this is not Table 2.1 characterizestheperfonnance enough. Analysis of poverty profiles based on the poverty front for a number of coun- ontheGhanaLiving Standards Surveyshows tries in terms of the average annual reduc- that at current growth rates, the extreme tion in the incidence of poverty, and supple. poorwould not climb out of povertyforover ments this with the corresponding rate of half a century. This is the real reason to aim reduction for the under-5 mortality rate. for accelerated growth. From Table 2.1 it is clear that there is considerable variation in the performance TABLE 2.1 of different countries. The star performer Variation in country experience on the income poverty front is Indonesia, e Avcuntindexage annual reduction with an average annual reduction in the Average incidence of poverty of 2.34 percent, which Headcountiandex Under-five mortality Country and period (percentage points)' (percent)b led to a fall in the incidence of poverty from Indonesia (1970807) 2.34 (58) 3.3 (146) 58 percent in 1970 to 17 percent in 1987. Malaysia (197387) 1.66 (37) 3.7 (46) The worst performer was Sri Lanka, where Brazil (1960-80) 1.45 (50) 2.8 (107) Pakistan (196244) 1.43 (54) 1.8 (200) theicidenceofpovertyfellfrom37percent Costa Rica (1971-86) 1.41 (45) 9.3 (35) to 27 percent over the period 1963 to 1982, Thailand (1962-4) 1.40 (59) 4.4 (70) an average annual rate of reduction of 0.51 India (1972483) 1.04 (54) 1.8 (199) Colombia (1971488) 0.91 (41) 7.2 (64) percent. Notice, however, that there is not Mor'occo (1970-84) 0.64 (43) 5.6c (136) by any means a perfect correlation between Sri IUnks (1963-82) 0.51 (37) 2.8 (66) pefraconiompvrtadpror Note: Use of the incwm shortfaU rather than the headcount index yields essenUally the same ranking. perforranceonincomepovertyandperfor- A. ti in pa mance on social indicators such as the mor- b. 1975-80 rate in psrntr fa C. talty rate for those under age five. For Soume Ieproduced fom SDOS. Table 3.5. example, Sri Lanka's performance on this  POVERTY REDUCTION THROUGH GROWTH 7 front, although worse than that of Indone- BOX 2.1 sia, is still respectable. Colombia, which is World Development Report 1990: on the lower end of income poverty perfor- Correlation between growth and poverty eradication mance, however, does the best on morhlty The three East Asian countries-Indo- to expand into all banches of economic for those under five. On the other hand, nesi, Malaysia, and Thailand-demon- activity. Increased public spending on Pakistan, which is ranked fourth out of the stmate the benefits of an appropriate bal- social services, especially public health 10on incomepovertyperformance, is ranked ance between policies that spur growth and education, promoted equity and en- last on under-5 mortality. and policies that enable the poor to par- dowed the poor with the human capital The conclusions of the World Develop- ticipate in growth. AU three achieved and needed to benefit from the new employ- ment Report 1990 based on this analysis are sustained annual GDP growth rates of ment opportunities and to participate in summarized in Box 2. 1. The lessons of glo more than 6 percent. This growth-rela- the economic growth. tively labor intensive, with agriculture to In other countries the creation of bal experience are that no country has the fore-generated demand forthe fac- opportunities forthe poor and the devel- achieved or sustained any significant reduc- tors of production owned by the poor. opmentoftheircapacitytorespondhave tion in poverty without sustained and sig- These countries also provided for ad- not always been well balanced. Brazil's nificant growth. Even in China, following equate social spending. As a result, they GDPgrowthexceededthatofeveryother three decades of development based on an have achieved universal primary educa- country in the sample, and Pakistan tion, and their infant mortality rates are equaled the 6 percent annual growth unprecedented commitment to egalitarian- lower than those of many countries with achieved by the East Asian countries. Yet ism and poverty reduction, the number of similar incomes. The improvement in in neither country did social indicators people living in absolute poverty was esti- skills and quality of the labor force en- improve rapidly. Brazil has one of the mated by the Government as 250 million- abled the poor to seize the opportunities highest mortality rates for children under roughly equal to one half the population of provided by economic growth. five amongthe middle income countries, Sub-Saharan Africa. It was only after a de- Indonesia was able to combine ac- and Pakistan has one of the lowest rates Sub.Saharan Africa. It was only after a de- celerated economic growth with impres- of primary enrollment in the world. The cade of sustained and rapid growth gener- sive progress in reducing poverty. Be- failure to improve the skills of the labor ated by market-oriented reforms that the sides addressing economic imbalances force has limited poor people's ability to number of absolute poorwas reduced to the and distortions, this was basically the benefit from grwth. In each case the current level of 80 million people. result of a strong focus on public invest- headcount index fell, but less quickly But growth alone is not sufficient. The ment in rural development and an em- than in Indonesia or Malaysia. pattem of growth is important, and pub.ic phasis on public expenditures concern- So, it is possible to have economic pattern of growth IS important, and public ing the welfare and productivity of the growth without much socal progres. expenditure on basic infrastructure, health poor. Broadly speaking, policies stimu- The converse is also true: social indica- and education is also essential. Asian coun- lated investment in labor-intensive ex- tors can be improved even in the absence tries that have made a significant dent in port-oriented production. The enabling of rapid economic gowth. The experi- poverty within a generation have followed a macro environment of trade liberaliza- ence of Sri Lanka shows that remarkable two-pronged strategy. They have fostered tion, agricultural diversification and the social progress can be achieved even at development of financial and low levels of income. Yet, as the experi- growthwhich uses poorpeople's most abun- infrastructural support services was ence of India, Morocco, and Sri Lanka dant assets (mainlytheirlabor),and abroad- complemented by initiatives to generate shows, low GDP growth makes it diffi- based pattern of public expenditure on ba- income-eamingopportunitiasforthepoor cult to reduce poverty. sic social services. But, even this may leave and to enhance the productive resources A key condusion emerges from all certain vulnerable groups unprotected. Con. of the poor by improving their access to this: the countries that have been most sequendy, safety nets that complement ex- physical assets, human capital, credit and successful in attacking poverty have en- inputs. Sustainedemploymentcreation- couraged a pattem of growth that makes isting family and community arrangements especially in small-scale enterprises and efficient use of labor and have invested in are needed. expansionofrualdevelopmentprograms the human capital of the poor. This two- The global experience with poverty alle. into the moremote areas-proved nec- part approach, proposed in this Report, is viation raises three fundamental policy is essary requirements for poverty allevia- the basic strategy for the reduction of sues for Ghana. First, is the comparative tion. poverty. Both elements are essential. The In Malaysia the strong economic first provides the poorwith oppotunities advantage oriented, liberal external and in- growth in the 1970s and 1980s was ac- to use theirmost abundant asset-labor. ternal trading regime based, accelerated companied by significant achievements The second improves their immediate growth strategy likely to be pro-poor? Sec- in poverty reduction. The development well-being and increase their capacity to ond, how broad based is Ghana's pattern of of a labor-intensive manufacturing sec- take advantage of the newly created pos. public expenditure, and what can be done tor, an open trade and price regime and sibilities. Together, they can improve the to improve the patter? Third, how ad- a flexible labor market enabled the poor lives of most of the world's poor. equate are the present social safety nets?  8 POVERTY REDUCTION THROUGH GROWTH Before we discuss these questions it is in- try, where most cocoa is growth. The man- structive to look at the poverty profile for made Volta Lake cuts vertically through the Ghana. savanna and forest zones. It has long been recognized that the problem of poverty is A Poverty Profile of Ghana more pronounced in the savanna region and in the Volta Basin region, but the GLSS Poverty in Ghana is the subject of several indicates that poverty is important in the recent studies, including a profile of the mid-coast region as well. Using the head- poor that is based on the first year (1987/88) count index, the savanna region has a pov- of GLSS household survey data.' This pro- erty incidence of 56 percent, and the region file, which is summarized here, explores accounts for 18 percent of the nation's poor various characteristics of the poor, defined and 35 percent of the extreme poor, com- as living in households with per capita ex- pared with a population share of 12 percent. penditure below two thirds of the mean, as The savanna, Volta Basin, and mid-coast wel as the extreme poor, defined as having zones account for 64 percent of the nation's per capita expenditure below one third of poor although they account for only 32 the mean. Using the first poverty line, 35.9 percent of the population. percent of the total Ghanaian population, Consumption pattems show that the 27 percent of non-Accra urban residents, share for food is the major expenditure and only 4 percent of Accra residents, fall component for poor (69 percent) and non- below the threshold. Thus povertyin Ghana poor (66 percent) alice. There is more of a is predominantly a rural phenomenon. The difference between the two groups once urban poor are much less numerous and, as consumptionisdisaggregatedintopurchased demonstrated by further analysis, are in and home-produced food items. For the general less poor than their rural counter- poor, consumption ofhome-produced food parts. Over 43 percent of rural inhabitants items accounts for 33 percent of total con- are below the poverty line. The incidence of sumption, while for the non-poor the share poverty in rural areas is more than 13 times is only 22 percent. The poor are neverthe- the incidence in Accra. less quite dependent on markets for food While the most vulnerable groups are purchases, since the above figures indicate rural, there is significant regional variation. that over half their food consumption is Ghana can be divided into a number of purchased. Disaggregating food consump- ecological zones, comprising a coastal strip tion into various product categories reveals in the south, a forest belt covering about a thatthepoordonotdominatetheconsump- third of the country and a dry northern tionof anyimportantfoodstuff (Table 2.2). savanna covering about one halfof thecoun- Turning to sources of income, any poverty alleviation strategy in Ghana must contend TABLE 2.2 with almost 88 percent of incomes of the Food expenditure patterns by poverty group poor coming from self-employment. This (Percernt) income comes predominantly from agricul- All Non-poor Poor All Non-poor Poor tural activities (see Table 2.3), which ac- Rice 4.4 4.5 4.3 100.0 86.2 13.8 count for abouttwo thirds ofincome ofpoor BMrazde 46 48 3.6 100.0 85.5 14.5 households. Much of this agricultural in- Cassava 7.7 7.7 7.6 100.0 86.1 13.9 come comprisesconsumption ofhome-pro- Kenkey 6.5 6.5 6.9 100.0 85.1 14.9 duced foods. Only about one third of agri. Fish 22.4 21.9 25.7 100.0 83.8 16.2 Meat 5.7 5.9 4.3 100.0 89.2 10.8 cultural income, net of input costs, comes Palm oil 2.1 2.0 2.3 100.0 84.2 15.8 from sales of crops, animals, and theirprod- Refined oil 1.1 1.2 0.9 100.0 88.8 11.2 Frui 2.2 2.3 1.6 100.0 89.9 10.1 ucts (see Table 2.4). Cereals and cocoa Alcoholic drink 3.2 3.1 3.9 100.0 82.6 17.4 each contribute about 20 percent of the vegetabls 11.8 11.6 12.6 100.0 84.9 15.1 Others 25.0 25.5 22.5 100.0 7.3 12.7 crop revenue earned by the poor, followed All 100.0 100.0 100.0 100.0 85.9 14.1 closely by roots/tuber sales, then vegetables Sour: Boatens. LO..atat(199I). (Table 2.5). Similar to the consumption  POVERTY REDUClTION THROUGH GROWTH 9 story, however, the poor do not domninate in TABLE 2.3 ~' incorn-earnng .Sources of income by poverty group any particular income-eaminagricultural (Percent) activity, whether this be crop production, All Non-poor Poor All Non-poor Poor livestock or crop transformation. Employment income 7.30 8.10 4.40 100.00 86.60 13.40 Education level is strongly linked to Agncultural income 55.60 52.90 65.10 100.00 74.00 26.00 poverty status. In the GLSS panel over 80 Non-farm self-employment income 28.20 29.70 22.80 100.00 82.00 18.00 Actual and imputed renit 1.70 1.60 2.10 100.00 72.90 27.10 percent of the poor lived in households Educational scholarships 0.08 0.10 0.04 100.00 89.40 10.60 where the head had no educaion. In con- Remittances received 4.10 4.10 4.20 100.00 77.40 22.60 Other income 3.00 3.50 1.40 100.00 89.70 10.30 trast, those households in which the head All 100.00 100.00 100.00 100.00 77.80 22.20 had a secondary level of education or higher Source: Boateng, E.O. et al (1990). make up less than 1 percent of the poor. School enrollment is close to 57 percent for cM rnaged 6 to 10 in the poorest 30 TABLE 2.4 children aged 6 to 10 in the poorest 30 Sources of agricultural income by poverty group percent of households, but this is still lower (Million cedis) than for the population as a whole. All Non-poor Poor Poverty analysis using GLSS data is Revenue from crops 100.13 73.23 26.90 derived from the construction of a poverty Revenue from transformed aop products 14.50 11.87 2.63 Revenue from animal products 0.12 0.09 0.03 line for the whole population. Disaggrega- Consumption of home-produced food 217.10 167.50 49.60 tion of the poverty line by area of residence Expenditure on crop inputs -17.22 -13.20 -4.02 and differences in the cost of living, particu- Expenditure on inputs for transformed crop products -0.58 -0.45 -0.12 Expenditure on inputs for livestock reanng -2.30 -1.89 -0.41 larly the costs for food, reveals complemen- Expenditure on land -2.69 -1.93 -0.76 tary insights into rural-urban poverty differ- Total 309.06 235.22 73.85 entials. One recent analysis has attempted Source: Boateng, E.O. et al (1990). to combine GLSS data on the urban and rural poor with estimates of the cost of a TABLE 2.5 bundle of goods deemed to meet basic con- Revenue from the sale of crops by poverty group sumption needs. When combined with the (Percent) fact that on average two thirds of basic All Non-poor Poor All Non-poor Poor consumptionneedsisaccountedforbyfood Cocoa 22.9 23.5 21.00 100.0 75.9 24.10 Oil palm 3.4 2.9 4.90 100.0 62.3 37.70 expenditures, then crude estimates ofurban Plntain 9.6 10.1 7.90 100.0 78.2 21.80 and rural insecurity (or food poverty) can be Bananas. oranges, other fruit trees 2.4 2.5 2.30 100.0 75.1 24.90 derive. Becase ofdifferntial in th cost Groundnut 4.3 3.9 5.70 100.0 65.4 34.60 derived. Because of differentials in th cost PPineapple 0.2 0.2 0.04 100.0 94.3 5.70 of food in urban and rural areas, the results Cassava 10.5 11.1 8.80 100.0 78.1 21.90 of this analysis showed important differ- Yam. coo'yam 7.8 6.8 10.70 100.0 64.0 36.00 Maize 16.7 16.6 16.80 100.0 73.6 26.40 ences in urban and rural food insecurity. In Rice 3.3 3.2 3.70 100.0 70.8 29.20 brief, theresultsrevealedthatalargerpro- Vegetables 16.2 16.9 14.30 100.0 76.9 23.10 brief, the reutsrvaldOthers 7.7 7.3 9.00 100.0 69.5 30.50 portion of the population who Jive in urban All 100.0 100.0 100.00 100.0 63.1 26.90 areas are food insecure than those in rural Souse boateng, E.O., et al (1990). areas, although in absolute terms more food- insecure people live in rural than in urban areas. that need to be addressed. They are: (a) the Various other social and economic data health status of the population remains poor: are also instructive in supplementing the infant mortality remains high, preventable GLSSpovertyprofileforGhana. Qualityof parasitic and infectious diseases are preva- life indicators, such as average life expect- lent, malnutrition is widespread; (b) there ancy, child malnutrition, infant mortality, is a large gap between the health status of literacy levels, and immunization, have all the urban and the rural populations, as well improved since the sharp deterioration in as among regions; and (c) access to health the early 1980s. Access to primary health care facilities is limited for the poor, espe- care facilities and safe drinling water also cially in rural areas. improved. Nevertheless the available indi- Several features of poverty in Ghana cators still point to three major problems stand out from the preceding discussion.  10 POVEKIY REDUC1ION THROUGH GROWTH First, the depth and breadth of poverty in at this rate, then it will take 20 years for him Ghana means that continued strong eco- or her to cross the poverty line. In other nomic growth isafundamental requirement words, at present growth rates the cross- to provide the opportunities and resources overwould not occur until well into the next forpovertyalleviation. Macroeconomic poli- century. And this is for the average poor cies need strengthening to support such person. Consider those in extreme poverty, growth. Second, poverty is largely a phe- with a standard of living half that of the nomenon of low productivity of self-em- averagepoorperson-inotherwords, those ployed workers, usually farmers. Agricul- living in households with per capita con- tural sector policies are thus cdtical. Third, sumption of 11,498 cedis per annum (or the poor do not generally dominate con- less) in 1987/8 Accra prices. For this ex- Poven is a phenomenon sumption of any staple, or participation in treme poverty level, a per capita income that stems largely from t any income-producing, agricultural activity. growth of 2 percent per annum would put low productivity of self- Thus there are no obvious vehicles for tar- the cross-over time in an incredible 53 years. employed workers, geting the poor through market-based con- In other words, at present growth rates the usuallyfarmers. sumptionorproductionsubsidiesthatwould alleviation of extreme poverty would not Agricultural sector entail substantial leakage to the non-pooror occur for more than half a century. This is policies are thus critcal complex administrative mechanisms. clearly unacceptable. Fourth, the human costs indicated by the If instead, the per capita growth rate current low level of social indicators will were at about 4 percent per annum-which remain substantial even with continued eco- would be the result of population growth at nomicgrowth, and thus education andhealth 3 percent per annum and an 'accelerated" will remain priority sectors. growth rate of income at 7 percent per annum, the cross-over time for the extreme The Pattern of Accelerated Growth poor would be cut to 25 years, and that for and Poverty Alleviation the average poorwould be cut to I0 years or 2002 AD. ThisistherealreasonwhyGhana WhiletheERPhasputtheeconomybackon should aim for accelerated growth. its feet, it is but a start. As shown above, The above scenarios are all based on the poverty in Ghana remains severe. The ex- assumption that the poor participate pro- tent of the problem can be highlighted if we portionately in the gains from growth. But if ask the following question: 'How long will it the gains from growth are biased away from take the Ghanaian poor to climb out of the poor, the cross-over time will be even poverty if their incomes continue to grow at longer. This is why the pattern of growth is the average rate of growth of per capita also important. International experience income during the past few years?" shows that two features are crucial in ensur- For Ghana, the 1987/88 poverty profile ing that the gains from growth are spread uses a poverty line of 32,981 cedis percapita evenly across income groups and across perannumin 1987/88Accraprices, which is regions. First is the operation of product two thirds of mean consumption per capita and factor markets, in particular labor mar- per annum for the country as a whole, as kets. If labor markets and labor migration revealed by the Ghana Living Standards are responsive to economic stimuli, then Survey.-Wth this poverty line, 36 percent of increased activity at the 'growth poles" the population were in poverty in 1987/88, spreads outward as rising wages at the poles and their mean consumption if 22,296 cedis pull in labor and transmit the impulse to per capita per annum, which is 67.6 percent other regions. The second feature is an even of the poverty line. spread of basic health, education and infra. With a population growth rate of about structure. Basic infrastructure helps in re- 3 percent per annum, and national income moving market segmentation, which can growth of 5 percent per annum, income per stand in the way of a broad spread of growth. capita will grow at 2 percent per annum. If Basic health and education, however, in- the average poorperson's income also grows crease the ability of the poor to benefit from  POVERTY REDUCTION THROUGH GROWH1 the opportunity created by accelerated not only took place toward the growth poles, growth. but also in the reverse direction and the Ghana's poverty profile and labor mar- actual numbers of net migration are smalL ket characteristics suggest that a strategy The analysis further reveals quite different based on liberal external and internal trade returns to education in the different seg- can lead to a pattern of income growth that ments of the labor market. Earnings in ur- is pro-poor, because the gains of growth will ban informal jobs do not indicate any signifi- be passed on to the abundant and hence cant returns to education and earnings on low-cost factors of production-labor and household farms are positively related only small landholdings. But the precondition to primary education. Earnings in formal for this happening is that infrastructure and employment relationships are much more institutions investments that remove both closely related to education. Informal sector Ghana's pov* profilk market segmentation and rigidities must be workers in Accra earn less than other urban and labor market in place. The removal of labor market dis- areas. Outright unemployment is limited in characterstics suggest that tortions is essential for factor mobility and Ghana and inability to find work might not a strateV based on liberal for the poor to participate in the growth be the most critical problem facing poor exe,ral and intemd I process. Without removing the constraints Ghanaians. However, underemployment trade can kad to a to the poor's accessibility to productive as- and rather low returns to labor seem to be sets and without a strategy that both encour- counterproductive elements in the allocative pat of me growth ages the enhancement of the productive function of the informal urban and rural that ispo resources of the poor and increases their labor markets between growth and poverty resource endowments, the most vulnerable alleviation. The mixed evidence emerging groups in society will not be able to enhance from recent studies on the labor market their productivity and generate more in- suggests the value of tracking informal sec- come. tor wage rates and other features as a means So far as labor markets in Ghana are of monitoring poverty. concerned, the evidence is mixed. First of However, the urban-formal-public sec- all, the signs of relative fluid market forces tor labor market presents a somewhat dif- in the allocation and remuneration of labor ferent picture. Employment in the Govem- go along with signs of market segmentation mentandpublic sectors grew dramatically- and rigidity. Secondly, the evidence shows a between 1975 and 1982 at an annual rate of dichotomy between the informal urban and 14 percent. At the end of the 1970s the rural sectors on the one hand and the urban public sector accounted for three quarters formnal public sector on the other. The sirni- of organized sector employment.4 Over half larity of hourly earnings within urban and of the remaining private organized sector rural areas, and between men and women, employment was concentrated in manufac. the seasonal earnings differential as well as turing. While roughly 15 percent of total the absence of important earnings differen- manufacturingsectoremploymenthadbeen tials for secondary jobs, all indicate that in- in larger (>30 workers) firms in 1973, the formal urban and rural labor markets are generalized contraction of the economy and performing their allocative functions rela- the constraint on imports had reduced that tively well. There are also signs of labor share to around 9.5 percent by 1984. The movementinto agriculture, particularlyinto next data snap-for the mid- 1980s--indi- tradables production and mining. The main cates that civil and education (GES) service reallocation of workers has been toward the employees numbered around 305,000 with cocoa-producing Western Region, at the SOEs accounting for a further 250,000. In same time that the Greater Accra Region short, aggregate public employment com- appears to have been losing workers. prised roughly 12 percent of the total labor The same analysis, however, also indi- force. The GLSS sample for 1987/88 gave a cates that the migration flows have not, as share of 14.5 percent for household heads. yet, been large enough to equilibrate eam- Since 1984/85 employment adjustments ings across sectors and regions. Migration have been an explicit part of the govern-  12 POVERIY REDUCnON THROUGH GROWM ment program. Significant job losses in en- ment more than output. Although net job tities such as the Ghana Cocoa Board losses appear smaller than expected, the (COCOBOD) have occurred. Atits peakin overallpicture is of considerable asymmetry 1980 that agency accounted for over 15 in the rates of job destruction and job cre- percent of wage employees. Since then, ation, with a structural shift away from for- cutting out ghost workers and other staff mal, urban sector employment and some has resulted in net employment losses in reversion toward a pattern of labor alloca- excessof30,000.Bymid-1990COCOBOD tion akin to the pre-independence period. employed slightly over 42,000 people. For a There also appears to be reasonably strong sample of 32 SOEs forwhich data are avail, growth among small-scale and micro- able it is clear that there have been employ- enterprises, with the latter acting as one ment reductions but at a relatively gentle form of safety valve for surplus labor.7 This rate. Between 1987 and mid-1990 employ- has promoted some movement oflaborinto ment had fallen by somewhat over 10 per- agriculture, along with a growth in self- or cent, with a less than 5 percent decrease in household-based employment in both ur- the COCOBOD.' Over 1989 and 1990 civil ban and rural areas. It is difficult to separate and educational service retrenchments were the effects of job contraction in the orga- of the order of 25,000 with a further gross nized sectors, particularly the public sector, reductionin 1991 of around 10,000. Svelnar from theimpact of new entrants to the labor and Tutu (1991) give a figure of gross re- narket. dundancies of just under 45,000 between 1985 and 1990 with a comparable number Public Expenditure Patterns laid off in the SOEs. Net employment loss figures are more difficult to obtain. For How broad based is Ghana's pattem of 1991, however, net losses for the civil ser- public expenditure? The simple answer is vice were around 6,300 with additional net that we do not really know, because the losses of 7,800 envisaged for 1992. information base does not as yet exist for us In short, it appears as if there have been to find out. What little we do know, based major gross quantity adjustments in the ag- on budgeted expenditures and some mea. gregate public sector. Net changes have ger figures on actual spending, suggests that been less significant. It is difficult to be there is a strong urban bias. But Ghana precise, but it would appear that in 1990/91 badly needs a system of timely and accurate the civil and educational service still em- reporting of current and investment expen- ployed over 300,000 people or around 6 diture by the public sector, so that analyses percent of the labor force. Data covering can be conducted of the distribution of 224 nonfinancial SOEs' employrnent for expenditure, by region and by program (for 1990 indicate that total employment was example, primary education and primary around 227,000. It should be noted that health care). This analysis can then lead to COCOBOD alone accounts for 17 percent budget guidelines that start off the annual of SOE employment. Employment in the budget hearings. Of course, analysis will not 17 core SOEs appears to have fallen by be of much use without the political will to around 17 percent between 1986 and 1990. achieve a broad distribution of public ex- This still yields a level of public and govern- penditure. Butwithoutthe information base, ment employment in the range of 10-11 the poverty alleviation goals of accelerated percentof the laborforce. Forthe organized growth will be more difficult to achieve. private sector, trade liberalization has pruned With government revenues not likely to back the manufacturing component to some increase as rapidly in the future as was true extent and allowed for some employment during the 1980s, accelerating progress on contraction to validate the already very low alleviatingpovertythroughgovernmentpro- levels of effective capacity utilization.' Steel grams will require examining the scope for and Webster (1991) report, however, that a improving the composition and effective- higher share of both small- and larger-scale ness of existing expenditure priorities. No firms had by late 1989 expanded employ- matter what sector is involved, targeting  POVERnY REDUCnON THROUGH GROWTH 13 expenditure to reach the poor in Ghana wiDl drugs list has been established and the MOH be most effective if achieved through a distribution system reformed. The conver- geographic focus on the most disadvan- sion to a cash-and-carry system for PHC taged regions and districts, concentration centers is a top priority, improving drug on the poverty pattern which is strongly availabilityin rural areas. Therecurrentbud- rural, and more serious in northern areas, get was increased significantly in 1989 to along with rural pockets in the Western, facilitate travel in public health and out- Central and Volta Regions. Zonal target- reach programs. Rehabilitation of existing ing-whether of health care, basic educa- health centers and posts, along with eight tion, water supply, or rural roads-that fo- major hospitals is being undertaken as part cuses on areas with generalized poverty is of the development budget, although as likely to be more effective than targeting noted, with inadequate achievements in The composition of within areas that are highly stratified. terms of completed sites. budeted e nditures in The effectiveness of budgeted expendi- A similar story is to be found in educa- healh and eduction ture in addressing poverty continues to be tion: for example, recent implementation of remains charcted by a constrained by implementation and infor- capital projects in the education sector indi- sftng ubn Ss mation weaknesses that have been apparent cates that substantial constraints continue for some time. Inadequate implementation to being shortfalls from targeted expendi- capacity is revealed in capital projects in ture, and to disfavor the poorest regions of education and health, with potentially large the country. In 1990, actual capital expendi- impacts on the poorest regions, having the ture was only 60 percent of the budget worst completion record. Many programs estimate, with the UpperWest, UpperEast, show a large discrepancy between budgeted and Northern Regions collectively receiving resources and actual expenditure. But gen- only 11.6 percent of actual expenditure de- erally, budgetary data are not even available spite having 19 percent of total population. that would provide a breakdown of expen- Even within the Northern Region, the bias diture by districts to permit an analysis of is towards urban areas, and this is reflected how well resources are being channeled to in the poor performance of rural districts in areas most in need. Attention-needs to be terms of clss size, classrooms perschool, or given to budgetary accounting systems, in- classes per dassroom. volving the Ministry of Finance, the Con- Improving the participation of the poor troDer and Accountant General's Depart- will benefit from aggressive implementation ment (CAG), sector ministries, and dis- ofthesector-widereformprogramlaunched tricts, to permrit tracking and adjusting bud- in 1987. This program to address the sector's gets on a district level. decline began with primary education and is The composition of budgeted expendi- now in a second phase of reforms at the tures in health and education remains char- senior secondary school level that are ex- acterized by a strong urban bias. For ex- pected to be completed by 1993. Among the ample, resources are heavily weighted to- longer-term sector objectives are universal ward hospital care compared with preven- primary enrollment and eradication of illit- tive and primary health care. Urban hospi. eracy. At the primary level, intakes are tals receive a disproportionate share of re- planned to grow at 5 percent per year, such sources suchasprofessional personnel, drugs that first grade participation rates will in. and other supplies. A number of important crease from 72 percent of the 6-year-old initiatives to reform the system need to be cohort at present to 102 percent by the year strengthened. 2000. Concurrently, a National Functional In the health sector, the Government is Literacy Campaign is being prepared that fully aware of weaknesses in the delivery will focus on non-formal education foradults. system.Anumberofimportantiitiativesto The immediate program also aims to reform the existing system need to be strengthen the relation between the educa- strengthened. Beginningin 1988, the MOH tional content and socioeconomic needs of began preparatory work to overhaul and the country, raise quality, and insure finan- rehabilitate health delivery. An essential cial sustainability. The costs of pre-univer-  14 POVERIY REDUCTiON THROUGH GROTH sityeducation are beingaddressedbyreduc. form period. The gap, to be covered by ing it from 17 to 12 years, to help offset Bank and other donor resources, is equiva- increased textbook and boarding fees at all lent to the recurrent and capital costs asso- but the primary level.The qualityof instruc- ciated with implementation of the senior tion is also being improved through a re- secondary school reform program. With vised and updated curriculum. Estimates of completion of this phase of the reform in the costs of public education over the next 1993, the Government should be able to three years indicate that maintaining a con- fund anticipated education costs from its stant share of the projected total govern- own resources, while sllowing forcontinued ment budget would permit covering about expansion of enrollments. The budget ad- 92 percent of requirements during the re- justments will result in primary education receiving 42 percent of the education bud- get over this period. BOX 2.2 Given the fact that most of the poor Global 2000: Impact and lessons reside in rural areas, the role of agriculture Global 2000 is short for 'Sasgkawa Glo- Most of the credt was provided by and basic rural infrastructure is critical. Ag- bal 2000," a non-profit NGO. The main the banking system, with extension stff ricultural extension services and research objective of its project in Ghana, which providing key intermediay services. institutions are also being resuscitated after was initially conned to cereals, is to Farnmerswereallowedtorepaytheircredit anextendedperiodofdeclne andbudget- demonstrate that substantial increase in in kind after the harvest and than obtain crop production caLn be attained through inputs in kind for the next season. lhlis aly neglect. For extension, the initial focus the adoption of simple technological im- was manageable in the early years of the has been on increasing the mobility and provements-supported by the effective project, but it created storage and mar- outreach capacity of agents through provi- provision of a nnge of key services to keting problems when farmer participa- sion of transport, taining and supervison. farmers, includingthe provision of credit tion inesed to tens of thousa& GCredit The Global 2000pilot project (see Box 2.2), and inputs and the assurnce of remu- repayments were very high (90 percent) nerative producer prices. A critical up to 1988, but declined shaply (to 40 disseminating an existing improved maize premise of the Global 2000 approach is percent) in 1989 when the program was production package through the extension that the keys to technology adoption by dramatically expanded and many fu.m staff of the Ministry of Agriculture, has farmers lie in 'leaming by doing' and in ers had difficulties disposing of their resulted in dramatic maize yield increases, prviding farmers with the farmers with crops. This created senous probems for and the approach is now being used to reach the necessary inputs and assured market extension staff who had to cajole frmers large numbers of farmers. Remaining prob- outlets. to repay their loans. Consequently, the Farmers selected to paricipate are program for 1990 was scaled back to lemsinclude: incompetent extension agents, required to set aside a one-acre portion 20,000 farmers. fragmentation of extension services and of their farm, called the 'production test Global 2000 has demonstrated that messages among several institutions, exces- plot"(PIP),todemonstmtetheimproved technobogiesexistforsignificandyincreas- sive involvement with input delivery, and technologies. Thisisanarealargeenough ingtheyieldofcertainceredaandlegume inadequate outreach to the high and rising to permit meaningfiucomparison ofcrop crops and that, given an appropriate en- yield with the rest of the farm where abling environment (effective technical proponon of women farners. The Govem- traditional practices are applied. Exten- assistancq, adequate and timely inputs, ment is in the rmidst of developing a unified sion staff collaborated with community assued output markets, and remunera- national extension strategy to address these leaders in selecting famers, PlPs, and tive output prices), fanmers reily adopt outstanding issues.The public research sys- the technological improvements to be productivity-enhancing technology, tem is also under review to devise a strategy tested. The program's main drawbacks in- that will include irnproving research respon- The program began with 40 famers clude: (i its emphais on short-term ains in 1986. Famners' yields increased sig- in production and the concomitant 6 sivenesstofarmers'constraintsandstrength- nificantly (in most cases, maize yields of attention to institudon budding, ad ening links to extension services. The Gov- more than doubled), and Global 2000 (u)themultipliciryofnon-xtensionfmc- emnment has also increased the budgets of quicidybecameveypopularamongboth tions assigned to extension staff (crdit research institutes in real terms for several farmers and extension staff. Tle number adminisation, input supply, and pro- consecutive years. of participating farners increased to duce purchasing and marketing), which Ileutve years. 20,000 in 1988, vhen MOA decided to is neither sustainable on a national scale The Goverment has identified the de- adopt the PTP approach in selected ar- nor conducive to the development of an teroration of the feeder road network as a eas and increased the numberof districts effective extension swevice over the long major constraint to agricultural production andextension stffinvolvedintheproject, team. and marketing, and more generally to rural and to 85,000 in 1989. development.Afeederroadprogramispres- ently being developed which will comprise  POVERTY REDUCIION THROUGH GROWTH the rehabilitation of most of the existing ing strategy. A review of practices in other network and a limited amount of extension countries reveals a mixed record as to which into areas of high agricultural potential. Iinds of programs are best able to reach the Implementation is increasingly relying on poor. Formal social security systems, cen- small- and medium-scale private contrac- trally administered by the Government, do tors using labor-intensive techniques, and not have agood record. The Latin American thereby providing work in rural areas. experienceissalutary-thesystemtherehas Progress has already been made in institu- led to an enormous drain on the budget and tion strengthening, including more decen- has mainly benefitted the middle and upper tralized identification of rehabilitation and income groups. However, labor intensive maintenance needs, and in the establish- public works have proved to be useful in ment of a sustainable maintenance manage- many Asian countries, and are now being ment system. experimented with in Latin America and in Africa. Social Safety Nets and Traditional In the early stages of its economic recov- Coping Mechanisms ery program, the Government identified the need for a targeted anti-povenly program to In Ghana, many of the means bywhich poor provide transitional assistance to disadvan- households and individuals cope with peri- taged groups. The Program of Action to odic crises involve maling claims for assis- Mitigate the Social Costs of Adjustment, or tance on kin or fellow members of the same PAMSCAD, initiated in 1988, was devel- community. Such assistance may take the oped to fill this need with donor support of form of transfers of labor or, very often, of about US$84. million. Among the criteria food. Assistance in the form of labor is for projects to be included in PAMSCAD commonly sought by farming households were: having a strong poverty focus, high suffering a temporary crisis of labor avail- economic and social rates of return, modest ability at a key point in the agricultural cycle institutional requirements, and also high due to the sickness of members of the work visibility to enhance public support for the force. Membership in social institutions of economic reform program. Emphasis was kinship and community also guarantees ac- placed on community initiaives, employ- cess to key natural resources such as farming ment generation through public. works and land, and to common property resources food-for-work projects, training and place- such as forests that provide significant sup- ment services for redeployees from the pub- port to the livelihoods of the poor. The lic sector, and basic needs provision such as vitality of the bonds of social cohesion in hand-dug weDs, low-cost sanitation, essen- social institutions such as these is thus very tial drugs and supplemental feeding. important in reducing the vulnerability of Initially conceived as a transitional, the rural poor to temporary shocks and quick-implementing program, PAMSCAD welfare crises. In practice, such networks nevertheless took time to get under way. remain the principal 'safety net" for most of Finalizing component design and donor the poor, especially the rural poor. This commitments, and establishing administra- poses a major challenge to policymakers, as tive procedures caused delays. But progress yet scarcely addressed, of finding in what is being made in several areas; a recent ways govemment policies can act to ensure govemment review of the program is help- that these community- and kinship-based ing to resolve implementation difficulties. mechanisms are not eroded but in fact flour- In the context of rapid growth, it would also ish. The detailed field-level experience of be useful to have a forward-looking review non-governnental organizations may be of of how the experiences of PAMSCAD can particular value in this area. be incorporated into future design. Global Beyond these traditional coping mecha- experience with similar public employment nisms, carefully designed public safety nets schemes may be useful here. are a vital component of any poverty-reduc- Recent reviews of experience, in coun-  16 POVERIY REDUCTION TROUGH GRtOWH tries such as India, Bangladesh, China, * Careful design can ensure that these Guatemala, and several African countries, schemes go beyond transfer mechanisms, including Nigeria, Niger, Burkina Faso, and generate useful assets for the local com- Senegal, Cameroon, Sudan, Ethiopia, munity. Local participation is important, Kenya, Tanzania, Rwanda, Botswana, Zim- but so is the presence of a shelf of designed babwe and Mozambique, indicate three projects, ready to be activated as the need main lessons: aises. This leads to rapid response in emer- * Policymakers must avoid the tempta. gencies, and forwardplanningallowsproper tion of letting the wages on these projects be assessment of needs. set too high or rise too high. Paradoxically, * Following on from the second point, as the lower the wage the more likely it is that von Braun et al note: the poor benefit, since it wil only be worth- 'To ensure useful and sustainable asset while for someone to turn up for work at creation, public works need to be intrted these schemes if his or her best alternative into the ,,oimal panning jystem for infra- wage is even lower. Another problem is that structure and otherpublic goods provision.... as wages rise and more people turn up, Donors needto strengthen mainstream gov- employment wiDl have to be rationed to emment institutions, rather than set up par. meet the budget constraint, and the poor allel structures, which remain donor depen- are likely to be excluded. dent. "  CHAPTER 3 Investing in people 'The heart of the whole process of indwstnal creases in post-primary education typically ization and economicdevelopmentis intellec- go together with primary education, while tual; it consists in the acquisition and applica- education of the elite without mass educa- tion ofa corpus of knowledge concerning tech- don is unlikely to engender econiomic growth nique, that is, ways of doing things. (Easterlin, 1980). -David Landes, 1980 The Asian NICs, as well as Thailand and Malaysia, had all achieved universl primary Human resources are a country's wealth, education by the time they began their in- and it is people, not machines or money, dustriali2ation (Figure 3.1). Today, Ghana that make economies grow. This is the has lower primary enrollment and literacy uncontestable evidence from the develop- rates than the NICs had when their eco- ment experience and it is in this field that nomic growth began to accelerate. Ghana's Ghana will need to make the biggest strides primary enrollment ratio is also lower than to 'catch-up" if it is to break into the league that of several African countries, including of fast growing economies. Investing in Botswana, Mauritius and Zimbabwe. In the people does not guarantee fastgrowth. Even last few years a considerable improvement with the best of policies, Ghana cannot oftheprirnaryenrollmentratioisunderway. achieve the rapid growth seen elsewhere if it At the first-year level Ghana now has 90 does not invest more, and more effectively, percentintakeandgrossenrollrment(P1-P6) in human capital (Box 3.1). is up to 80 percent. At the secondary level, however, Ghana's enrollment ratio is al. Education ready quite high and compares favorably with the NICs at take-off. Ghana's official Development history shows that, whether at literacy level of 55 percent is relatively high initial or higher levels of industrial develop- for Africa, but in the 1960s and 1970s the ment, general and versatile education is the NICs had higher literacy levels than Ghana best strategy. A dynamic industrial environ- today: Korea (1960), 70.6 percent; Hong ment demands that workers be able to per- Kong (1960), 70.4 percent; Singapore formnewandmultipleskills.Inaneconomy (1970), 68.9 percent; Malaysia (1970), 58 experiencing dramatic changes, including percent; and Thailand (1970),78.6 percent. rapid innovation, a broad base of general In addition, the GLSS' data on the abWlity to scientificandengineeringskillsthroughbasic read, write and do simple arithmetic reveal education is more critical for success than even lower levels of literacy and numeracy. specialized technical education. General Recent evidence from Ghana shows a education pays for itself in the long run; clear relationship between human capital, however immediately irrelevant it is to spe- measured both by education level and by cific jobs, it enhances receptivity to knowl- cognitive skills, and productivity. Studies edge and the capacity to learn and thus using the GLSS data estimated positive improvesthecost.effectivenessoflatertrain- rates of return to additional years of school- ing. This is not to say that secondary and ing in different sectors of the economy. The higher education can be ignored; but in- estimated rates of return among private  18 INVESTING IN PEOPLE BOX 3.1 sector wage earners were 3-7 percent Te contribution of human resources to development- (Glewwe, 1991). In agriculture, an increase Ae tematonal perspective of one year in adult education will, on aver- age, raise farm profits by almost 4 percent In the countries that followed Great period 1910-45,with substantial on-the- (Jolliffe, 1992). In non-agricultural self- Britain's industial revolution, the time job training and foreign technical asSis- ti-eere Is aseic eofa required formajorchangesinthequality tance. Important education programs employment, there is also evidence of a of life shonened steadily ovr the centu- focusing on universal primary education positive impact of education on household ries (World Bank, 1991).The growth of an adult litercy were launched during enterprise income (Vijverberg, 1991a, knowledge an technologicalinnovadon the late 1940s and 1950s. In the 1960s, 1991b). Future increases in the quality of quickened this pace of progress, and has higher education was also greaty ex- education should yield even higher rates of allowed late starters to catch up. It is no panded, and many students vere sent surprise then that education should be a overseas fortechnical and advanced train- o m g t nin keyfactorineconomicgrowth. Indeed, it ing (Pack and Westphal, 1986). How much growth in education is appears that the wide availability of pri- Taiwan today has one of the most needed over the next decade or two to mary education was a precursor to the educated populations among deveop- provide the foundation for a flexible work onset of modern economic growth in ing economies, and is another good ex- force? Can Ghana afford the additional many countries. In Germany and the ample of a strong economic foundation investments in human resources necessary UnitedStes,thereweremorethan 1,500 based on an educated and highly skilled for fast growth? ere are two major chal children in primary school per 10,000 of labor force. As in Japan and Korea, gov- population in 1820 (Eastedin, 1980). emnent policy focused fist on univer- lenges: One is a quantitative challenge, that Literacy too was already very high when salizing primazy and secondary educa- of meeting the rising need for primary and industrialization began in the rnid and tion for the rapidly growing population secondary education at cost levels the Gov- late 1800s in the Scandnaviax cosrnes. in the two decades after the war. Free emient can afford, using equitable financ- In Asia, Japan's rise as a major eco- compulsoryeducation was extended fromn . nomicpowerhas been atributed,in pan, six to nine years in 1968, and literacy ng mechanisms. The second challenge is to its highly educated and education- rose from 58 percent in 1952 to more more qualitative and arises from Ghana's consciouspopulation(Morishima, 1982). than 92 percent in 1987. Taiwan also overall development goals. As industry ex- By 1872 a universal and compulsory sys- expanded vocational trining as a mean pands and diversifies, the demand for a tem of primary education had been intro- to develop its skilledwork forc. Taiwan's technically qualified labor force will increase. ducedandthefoundationsforsecondary share of students enrolled in vocationl 'Without qualitative improvements, quanti- education had been lid. More recent trining (3.4 percent in 1988) is slightlytative accomlish entsh vue. examples ae Korea and Taiwan. higher than South Korea's, and much tative accomplishments have less value. Korea's relatively strong base of hu- higher than Mexico's, Brazil's, Japan's, Ghana's National Program of Action man capital in the ealy l960s waskeyto and Hong Kong's. A close link with in- (NPA, 1992), which follows from the 1991 its technological capability and the fast dustry was instrumental in ensuring that World Sunmmit on Children, is a very clear rise in its industria output Its accumula- this training was responsive to skils de- declaration of the Govemment's recogni- tion of human capital started during the manded. tion of the importance of human develop- ment in the overall process of economic growth. As the NPA states, providing basic Ghana and the NlCs: Infant mortality rates education for all, especially for children from low-income and rural families, is still to P40 be realized in Ghana. In rural areas, only 140 54 percent of children have been enrolled 120 in primary school and only 87 percent of MalaysiKorea those who started school complete grade 6. 100 Taland If schoolng up to grade six is necessary to so G Thailand achieve functional literacy, then these entry Ghana and retention rates imply functional literacy 60 within that rural age cohort of 47 percent at 40 / best. The money costs of schooling are not trivial, and may dissuade some parents from 20 sending their children to school. At least two thirds of private expenditures related to 1!9160 1965 1970 1975 1980 1985 1990 school attendance is devoted to items be- Sou1e Wo1d9 179tdatab19. sides school contribution, textbooks and school supplies. These effects may vary for  INVESTlNG IN PEOPLE 19 male and female children; recent evidence Besides expanding enrollments, im- suggests that distance to a primary school provement in the quality of education re- has a larger effect on the schooling of girls mains a major goal. If Ghana is to achieve than of boys. Indeed, enrollment of girls in some of the dynamic growth of the East all levels of education lags behind that of Asian NICs, the quality of instruction and boys. Investments in basic education should completion rates must rise. What is it that yield large dividends in terms of sustained, makes for effective learning? Which invest- and equitable, economic and social growth ments in education are most effective in in Ghana. In addition to these broad ben- boosting the human capital attained by stu- efits,basicgeneraleducationincreaseswork- dents? A recent study of junior secondary ers'mobility and productivity, and increases schools in Ghana found that very basic access of disadvantaged groups to more school improvements can make a big differ- Providing basic education specific training and employment.9 ence in reading and mathematics achieve- for all, especlyfor Universal primary enroDment, under mentt" (Table 3.1). The direct effect mea- children fom lowncome favorable macroeconornic circumstances, sures the increase in the text score with years and uralfgilies, istall will lead to higher demand for secondary in school fixed. The indirect effect then lo be realied in Ghana and tertiary education. There is also evidence adds the impact that comes from an incrase and the e llme of girls that availability of secondary schools raises in years of schooling brought about by the and behindlmea of b rys primary enrollments. This interdependence change in school quality. The mean score on allg lehes A of boys ae among the levels of schooling implies that the reading test is 7.1 (out of 23) while that of the Government should articulate more on the math score was 9.6 (out of 36). clearly its policies regarding upper second- Improvements examined indude building ary and tertiary education forthe 1990s and more schools to reduce travel time, raising beyond. In particular, the public system wiLl teacher experience, repairing classrooms, not be able to meet the demand for second- providingblackboardinschools,andraising ary and tertiary education, given the demands thenumberoftextbooksperroominschools. for public primary education; so to help meet Repairing clasrooms that leak when it rains needs the Government should develop very and providing blackboards in clasoms soon clear guidelines for private sector pro- currently without them have the strongest vision ofgood qualitysecondary and tertiary effects on achievement in both mathemat- education. In all three levels of education, ics and reading. Repaiing lealdng class- expanded physical infrastructure would re- rooms prevents schools from closing on quire correspondingly larger recurrent ex- rainydays,raisingthetimechildrenspendin penditures. Can these resources require- school. Schools that cannot afford roof re- ments for the future be met? pairs may still be able to improve quality by TABLE 3.1 Impact of raising Junior secondary school quality on cognitive achievement: Ghana Mathematics score Reading score Policy option indirect Direct Total Indirect Direct Total Reducing travel time from 2 hours to o hours +3.44 - +3.44 +5.24 - +5.24 Raising average teacher experience from 2 years to 10 years +3.19 - +3.19 +4.87 - +4.87 Repairing classrooms in schools where all classrooms cannot be used when it rains +3.10 +5.45 +8.55 +4.73 +7.78 +12.51 Providing blackboards in schools where none presently exist +4.05 +9.43 +13.48 +6.16 +12.95 +19.11 Providing 50 more textbooks per room in schools which now only have 25 per room - - - - +1.92 +1.92 Source: Giewwe and Jacoby (1992).  20 INVESTING IN PEOPLE purchasing backboards for all classrooms. well enhance receptivity to knowledge and Secondary and higher education and the capacity to learn to a vast audience. training in specific skills are more effective Attempts should be made to produce attrac- when built on a solid foundation of general tive and effective educational broadcasts, education. In order to build technological and their impact should be closely evalu. capacity, improvements in math and science ated. education at the primary and lower second- Short, skill-specific training courses and ary levels should be included in future edu- in-service programs also provide a quick cationpolicy. Graduatesshouldachievebasic route for raising the skills of the labor force. language and mathematics proficiency lev- With these programs, mobilization and ef- els. The Education Reform Program has fective use of private sector educational and Given Ghana's resource already initiated vocational and science-ori- training resources for technology capacity constraints, expansion of ented curriculum changes at all levels. building must be explored. In many coun- basic (primary and junior At the upper secondary level, there is a tries, the private sector provides a large secondary) education will trade-off between vocational and general proportion of post-school and on-the-job likely draw public re- education. Because the vocational courses training. The employers' own technical ex. sources awayfiom higher are taken together with core subjects of a pertise, their knowledge about demand for (senior secondary and general structure, students remain flexible. specific skills, and their lower cost of train- tertiary) educa, n .New reforms should consider the lessons ing often make enterprise training more tertiary) education learned from 'diversified" secondary edu- effective than any other post-school train- cation curricula which have had disappoint- ing, both in developing and industrial coun- ing outcomes (World Bank 1991). Despite tries. In Taiwan, the National Vocational higher costs per student, they are no more Training Fund, begun in 1972, imposed a effective than academic (general) second- 1.5 percent payroll tax on the total payroll of ary education in enabling graduates to find companies with 40 or more employees. jobs. A good quality academic secondary Cooperatingfirms provided equippedwork- education can prepare graduates to find shops for student apprentices who prac- work aswell as any 'diversified" curriculum. ticed their silU under normal plant condi- Another type of employment training tions, while vocational schools provide the lies outside the regular school system. At a courses, classrooms, and libraries for em- very basic level, literacy programs offer the ployees of these firms. The program gready chance'to raise productivity and the quality increased the share of trainingconducted by of life for a broad segment of the popula- firms. Although the recession and other tion. For out-of-school youths and adults problems led the Fund to be canceled in who never attended school or who have 1978, it left a permanent mark on how lapsed back to illiteracy, the Government technical skills are developed in Taiwan. launched a-nationwide literacy program in Today, much of Taiwan's vocational train- January 1991. For illiteracy to be eliminated ing is provided by the private sector. An- within a decade, the program must reach other example is Singapore. There, enter- over 5.3 million adults. From 1992 to 1994, prises financed worker training through the it will reach only a fraction of this-about Skills Development Fund which was estab- 840,000 adults. But success even at this lished as a levy-grant fund in 1979 based on smaller scale depends heavily on whether a payroll tax. In 1989, about one fifth of the the initial level of enthusiasm shown by totalwork force received training supported volunteer instructors and participants can by the SDF. A major problem that arose was be sustained and whether all the carefully how to reach the small firms, who found the crafted features of the program are imple- application for funds administratively cosdy mented. A final opportunity to expand ac- and cumbersome. This would be a problem cess and improve the quality of employment in Ghana too. Singapore helped these firms training lies in the efficient use of radio by simplifying the application procedure broadcasts. Radio offers a relatively inex- and by introducing a voucher system. In pensivemeansofcommunicationwhichmay 1989, the SDF reached all firms with more  INVES7ING IN PEOPLE 21 than 100 employees, 97 percent of those mensurate increases in expenditures (given with 50-99 workers, and 55 percent of those that cost recovery of boarding expenses will with 10-49 workers (Dahlman and be instituted) through theplannedincrease Sananikone). in student-teacher ratios, the Govermment Given Ghana's resource constraints, must plan beyond the next five years. As expansion of basic (primary and junior sec- primary and secondary enrollment rates in. ondary)educationwilllikeydrawresources crease, the demand for tertiay education away from higher (senior secondary and will rise, pressing further on budget con- tertiary) education. However, such a shift in straints. Imposing selective tuition fees can resource allocation need not result in lower also serve another Government objective, economic growth. Recent research by Dol- that of expanding the numberof students in lar (1992), using cross-sectional data from mathematics, science and engineering over 100 countries, shows strong positive courses. Communities, through both PTAs correlation between primary and secondary and participation in Community Initiative education levels and economic growth, while Projects, are supplementingpublic resources no such correlation was found for tertiary by contributing to funds for quality im- education. While correlations are not proof, provements in schools, and covering repairs these results are corroborated by the expe- rience of other countries summarized in Box 3.1. Below, additional or alternative On sc3.2 sources of funding for secondary and ter- tiary education will be discussed, so that in1989,theGovenmuentofGhanainsti- stulents are paying only al fraction reductions in expenditurcs on these levels tuted a charge to univerity students for In real terms of what they bomowed. reductions in expenditures on these levels housing and meals. At the sme time, it Moreover, the scheme may not acally may not be needed. offered students an optional loan worth collect any additoal revenues for the The Govemment recently announced a about $200 to help meet these costs. The Govemmenr, rather, the social security medium-term program of higher education most innovative aspect of the loan is the system maybe subidizing the board and reforms."1 Among these is recapitalization collection mechanism, which is through lodging expenses of university students. and expansion of facilities. This would im- the social security system. Once a gradu- This is becuse workers unually accumu- ate finds employment, the standard 5 late maximum rerment benefits some prove the quality of teaching of science and percent payroll deduction plus the yem priortoretrement,butcontinueto engineering programs. Although an expan. employer's 12.Spercenteontribudongoes contribute to the social securty system. sion in enrollment alone would reduce unit totheSocialSecurityAdministaonand Thus, even if students wait four years costs, further decreases in unit budget out. is treated as aloan repaymentratherthan before sardng to accumulate their re- lays can be attained by improving cost effec- a contrilution to the individual's re- drement bnefits, the normal work life ment account. Students, therefore, pay may be such that these students anyhow uiveness in institutions and by increasing their loans not through an increaed so- would have woded an exta four or five cost sharing with students. Eliminating the cial security rate, but rather by deferring years beyond the perod that full redre. subvention of lodging and incidental ex. contibuting to their own retirement ac- ment benefits had been accumulated. penses and providing alternative low-cost, counts until the loan is repaid. While it is too early to tell what the self-financing housing for students and fac- The Ghanaian student loan programn impact of the program will be on tertiaty ulty would be a good place to start This isoneofthemostinnovativeinthewodd. enrollments and public resource avail- It is also one of three progams that abk for education, it seems that two change would redress the regressive system recovers funds in proportion to a reforms would significantly increase the of transfers implicit in Ghana's education graduate's eamins, the othertwo being realcostrecoveryfromtheloanprogam. system. These changes should be instituted in Sweden andAustralia.This repayment Furst, the interest rate on the loan should soon so that resources can be channeled mechanism has received much attention be raised to reduce the subsidy on the instead to the better maintenance of class- in recent literture which advocates in- loan. Second, the colection should be room andfibrary facilitiesand laboratories. comecontingentpaymentsonequityand made on top of normal if borowing r.m and libraryfacilitiesandlaboratories. efficiency grounds. students had ten pecent of the alary To enable students/parents to finance Buttheprogramisnotwithoutprob- deducted insteadof the normalfive per- an increasing share of costs, the existing lems. A first concem is a large interest cent, the loan could be repaid without student loan scheme should be extended subsidyontheloan.Theprogramcharges divertingre sourcesfromtheSocialSecu- (see Box 3.2). The Govemment's current an interest rate of 3 percent, cornpared rity fund. position is that tuition will continue to be withinflationwhichhasaveragedover2S fieeof carge Whg an xpanion f enoll. percent during the past six year. The low Sotm: Albrecht and Zkdeuman, 1991. freeof charge.While an expansionof enroll interest rate on the loan implies that ments may be accommodated without com-  22 INVESIING IN PEOPLE and maintenance of school buildings (such sector role in general education, especially as the repair of leaking roofs after the rainy at the post-primary leveL In Ghana, the season). proportions attending private schools are Parents are already contributing to in. low compared with many developing coun- vestmnents in education in Ghana, but an tries. At present, at all levels, more than 90 even stronger partnership with the nongov- percent of students attend public school. ernmentalsectorinprovidingeducationmay Wealthier parents send their children to be necessary for Ghana to achieve its goals high-quality (secular) private schools, and for all levels of education. In many commu- spend as much as 2-4 times more per child nities, residents provide labor and material than parents with children in public schools. to construct school buildings. School contri- Three percent of primary schoolers, two A stronger partnership butions at primary and (public) secondary percent of junior secondary schoolers, and between the govermen- school levels amount to 308 cedis and 3,522 less than one percent of senior secondary tal and nongovernmental cedis, respectively, in rural areas, and 1,102 students attend private religious schools, sectors in providing cedis and 8,352 cedis, respectively, inAccra. where expenditures per student are similar education may be Schooling-related food expenses, books and to those in public schools. necessaryfor Ghana to other school supplies add about 2,000 cedis achieve its goalnfor all for primary schools and 7,000 cedis for Health lchrevel tts gofeducasfon asecondary schools in rural areas, and about levels of education 6,000 cedis and 15,000 cedis in Accra to Health is the other major element of human those expenses, respectively.12 These ex- resource investment. Historically, Ghana penses are not trivial for the poorer house- did not reach the same standards in health holds. For households at the lowest expen- as in education and today it lags consider- diture quintile, on average, per capita edu- ably behind developing countries that have cation expenditures for primary education experienced or are experiencing rapid eco- represent 12 percent of total per capita nomic growth. The infant mortality rate in expenditures; forthejuniorsecondarylevel, Ghana in 1985-estimated to be 91 per 17 percent; and for the senior secondary 1,000 live births-is higher than the infant level, 41 percent.1' mortality rate in Korea, Malaysia or What are the prospects for more private Singapore in 1960 or Thailand in 1970 (Fig- sector provision of education? The contri- ure 3.2). According to estimates of the bution of the private sector to post-school Ministry of Health, one half of all deaths in skilltrainingwasmentionedearlier.Inaddi- Ghana occur at the age group 0-4. The tion, there is room for a greater private major causes of infant mortality are low birth weight (prematurity), pneumonia, measles, diarrhea and anemia. Similar in- Ghana and other developing countries: Infant mortality rates fectious and parasitic diseases, respiratory problems, intestinal worm infestations, and 160 nutrition-related factors are the leading 140 causes of death in children under the age of 120 five. More than a third (36.1 percent) of 100 deaths in this age group are caused by pre- Ghana ventable and infectious diseases. 80 Better health and nutrition are desirable 60 Kenya ends in themselves, but their impact on 40 Zimbabwe productivityandincomescannotbeignored. Thailand Mauidus The 1991 World Development Report shows 20 Korea that potential income loss from illness in c Malaysia 1