Abstract
The significant decline of the Ghanaian economy between the mid-1970s and the mid-1980s, charted in detail in earlier chapters of this book (see Chaps. 3 and 4 in particular), is widely regarded as being due to the high degree of economic mismanagement which occurred during this period (Aryeetey & Fenny, 2017, pp. 46–52). This is not to say that economic management was of a high standard before the mid-1970s. There had been significant problems earlier, not least due to the difficulty in maintaining control of ministerial commitments to external borrowing with its associated indebtedness and debt service obligations (Cohen & Tribe, 1972). One of the key elements of the economic mismanagement in the 1970s and early 1980s was the inflexible, and rarely changed, official foreign exchange rate. For example, the 44 per cent devaluation introduced by the Busia government in late 1971 is usually regarded as being the ‘last straw’ which led to the overthrow of the government and the installation of the military government of Colonel Acheampong in January 1972 (Herbst, 1993, pp. 23 and 41). One of the first actions of the military government which took over from Busia was to revalue the Ghanaian cedi virtually negating the devaluation. Later in the decade the government of General Akuffo devalued the cedi (from ₵1.15 to US$1.00 to ₵2.75 to US$1.00) in 1978, but by early 1983 some estimates of the appropriate ‘shadow’ exchange rate suggested an overvaluation of the official exchange rate by about 1000 per cent (or by a factor of 10). The black-market exchange rate was about ₵70 to 80.00 to US$1.00 by this time, or about 27 times the official rate (Huq, 1989, p. 196; Chap. 12, Sect. 12.6 in this volume).
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Notes
- 1.
The authors were on the academic staff of the University of Cape Coast between mid-1982 and mid-1984 working in a project which was externally funded by the European Commission. Sources in the Delegation of the European Communities in Accra provided an estimated ‘shadow’ exchange rate which was ten times the official rate.
- 2.
It should be noted that cocoa beans (the seeds of the cacao tree) are largely produced in Ghana by small- to medium-sized farms, and not on a plantation basis.
- 3.
This paragraph has been paraphrased from the original text in order to abbreviate it without sacrificing the meaning.
- 4.
The CPIA system, including its evaluation and critical review is discussed in Tribe (2013).
- 5.
During the colonial period many low income countries had an economic structure which made a comprehensive income tax system an unlikely source of significant levels of government revenue. In Ghana, with a considerable amount of national income generated by large numbers of smallholder producers of cocoa beans, while an income tax on smallholder farmers would have implied prohibitively high transactions costs, by comparison an export tax (collected through the Cocoa Marketing Board—the sole exporter), and duties on imported consumer goods, involved relatively low transactions costs. As the economy grew and ‘developed’, with structural change, alternative tax systems became more viable. For example, the IMF regarded the introduction of Value Added Tax as a replacement for export taxes and import duties following trade liberalisation in the 1990s (Chapman 2001).
- 6.
‘Akpeteshie’ is a distilled spirit produced mainly from sugar cane by small-scale firms.
- 7.
These examples are based on the experience of the two authors during their period as members of the academic staff of the University of Cape Coast in the mid-1980s.
- 8.
There is considerable evidence that ‘tied aid’ has led to inputs supplied by aid programmes being over-priced to the extent of up to about 20 per cent by comparison with more competitive ‘market supply’ (Clay et al. 2008, p. 36). Studies have suggested that even where aid is not ‘tied’ inputs are often supplied in ‘sticky markets’ where the outcomes are similar to those which might have applied with ‘tied aid’ (see e.g. OECD (n.d.) and Geddes et al. 2009).
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Huq, M., Tribe, M. (2018). Governance. In: The Economy of Ghana. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-60243-5_18
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