INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE sustainable solutions for ending hunger and poverty Ghana Strategy Support Program Aiming for Middle Income Country Status: What are the Growth Options? Xinshen Diao, Clemens Breisinger and James Thurlow November 16, 2007 Accra, Ghana

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 2 Outline International experiences and challenges for Ghana on the way to MIC status Accelerated growth challenge Structural change challenge Export diversification challenge Growth options for reaching MIC goal Agriculture as a main driver The role of manufacturing The role of services Divergence in regional income and poverty reduction

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 3 Accelerated growth is needed, but required growth rates vary across countries Country # of years to become a MIC When Annual GDP growth rate Brazil91965 – Malaysia – Thailand – China81993 – India?1992 – ?6.0 Vietnam?1997 – ?6.6 Ghana 10 (goal)2005 – 2015 (goal)5.5 (last 5 yrs)

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 4 Manufacturing or export-oriented services led structural change Sector share:Agriculture (%)Manufacturing (%)Services (%) Country Beginning End Beginning End Beginning End Brazil Malaysia Thailand China India Vietnam Ghana

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 5 Rapid and diversified export growth required Export growth (%) Share of ag in total exports (%) Share of a commodity in total ag exports (%) BeginningEndBeginningEnd Brazil Coffee7231 Malaysia Rubber8479 Ghana 9.0 (last 5 yr) 72 (2005) Cocoa45

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 6 Growth options for Ghana to become a MIC Agriculture will remain the main driver 40% of GDP currently 5.7% of average annual growth rate over the last 6 years, higher than GDP growth rate Agriculture will remain the most important contributor to MIC goal if its growth momentum can be maintained Reaching CAADP’s 6.0% growth target can further enhance agriculture’s role in total growth

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 7 Growth options for Ghana to become a MIC Manufacturing growth may play a limited role Small initial size limits its influence to economy-wide growth even with very high growth High dependency on agricultural inputs and hence on agricultural growth Services have strong growth linkages Half private services are domestic market oriented and 50% larger than whole manufacturing Through lowering transaction costs and increasing competition, service sector’s productivity and efficiency create growth outside services

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 8 Factors affecting Ghana’s growth options Need to prepare for possible shocks in world commodities prices, e.g., Sudden decline in cocoa prices? Sharp rise in food crop prices (maize and wheat) driven by bio-fuel development? Changing climate and its effect on agriculture? Oil discovery: blessing or curse? Changes in these external and internal conditions may alter Ghana’s growth options

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 9 Linking growth to poverty reduction

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 10 Poverty remains a challenge in North

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11 Balancing growth and poverty reduction in lagging region Greater attention to agricultural activities benefiting a majority of Northern farmers: cereals and livestock Development of high value commodities suitable for Northern savannah zone Increasing trade with neighboring countries to open new opportunities in agricultural and non- agricultural sectors Realization of potentials depend on infrastructure improvements and service provision