Working Paper
Structural Adjustment in Africa

The main purpose of this paper is to argue that Ghana's economic recovery under SAP would have been much brighter if policy makers had not made some obvious errors in the application of the theory of 'comparative advantage' and in the selection, timing and sequencing of commodities for export. Agriculture is the dominant sector of the Ghanaian economy. It generates 43% GDP, over 50% of export earnings, and provides 70% of employment. As a result any policy lapse in this sector is bound to affect economic performance negatively. The paper draws attention to a critical evaluation of agricultural sector policies. Specifically, it argues that cocoa sector policies and implementational priorities were misplaced, thus compromising economic recovery. It is suggested that Ghana's economic recovery would have been much brighter if policy makers had been able to predict the cocoa price slump of the 1980s and 1990s and had sought to diversify the commodity export base of the economy away from cocoa exports. It is suggested, further, that diversification of the export base should be taken seriously so that the economy can move away from dependence on cocoa exports. In the past, violent fluctuations in cocoa export earnings created problems of economic instability for Ghana which, in turn, led to political instability, economic chaos and a virtual collapse of the economy in 1981. Diversification would go a long way to stabilize commodity export earnings and secure stable economic growth. Diversification by itself is not enough if supply response and institutional development in the rural sectors are low. Economic and noneconomic factors should therefore be included in designing models for economic recovery. It is recognized that commodity diversification by itself is not enough to do the trick. Recent research by institutional economists have shown that the most important variable which accounts for economic growth is institutional innovations brought about by superior political organization and administrative competence in government. It is suggested that for Ghana (Africa) to solve the problem of low supply response in agriculture, she must find a way to develop efficient institutions, for example, by lowering transaction costs. The study provides empirical examples of institutional innovations and growth. The suggestions developed in this paper, to ensure a viable SAP with the help of government intervention may be summarized as follows: (i) a superstructure of an agrarian development strategy 'with an institutional development face', for example a cooperative movement, must be put in place; and (ii) an agriculture-led growth strategy 'with an equity face' where the internal terms of trade are biased towards the agrarian sector, must be followed before rapid industrialization is begun.