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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 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 2 Accelerated growth is needed, but required growth rates vary across countries # of years to become a MIC When Annual GDP growth rate Brazil 9 1965 – 1974 9.9 Malaysia 12 1965 – 1977 7.1 Thailand 11 1976 – 1987 6.1 China 8 1993 –2001 9.2 India ? 1992 – ? 6.0 Vietnam ? 1997 – ? 6.6 Ghana 10 (goal) 2005 – 2015 (goal) 5.5 (last 5 yrs) Country Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 3 Manufacturing or export-oriented services led structural change Sector share: Agriculture (%) Manufacturing (%) Services (%) Beginning End Beginning End Beginning End Brazil 19 13 26 31 48 47 Malaysia 29 27 9 19 44 37 Thailand 27 16 20 24 46 51 China 19 14 34 32 34 41 India 31 21 16 16 42 52 Vietnam 27 22 15 20 44 38 Ghana 39 Country Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE 10 33 Page 4 Rapid and diversified export growth required Export growth (%) Share of ag in total exports (%) Beginning End Share of a commodity in total ag exports (%) Beginning End Brazil 19.4 66 55 Coffee 72 31 Malaysia 15.4 46 29 Rubber 84 79 Ghana 9.0 (last 5 yr) 72 (2005) Cocoa 45 Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 5 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 6 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 7 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 8 Linking growth to poverty reduction poverty rate (%) p.c. income (US$) 30.0 950 26.0 850 22.0 750 M IC Base Base M IC 18.0 650 14.0 550 10.0 450 2005 2007 2009 Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE 2011 2013 2015 Page 9 Poverty remains a challenge in North Base 2015: 14.0% Current poverty rate 28.5% South North Poverty rate 45.1% South North MIC 2015: 9.5% South Poverty rate 62.7% Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE \ North Poverty rate 35.1% Page 10 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 nonagricultural sectors • Realization of potentials depend on infrastructure improvements and service provision Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11