Addressing Critical Issues Affecting Ghana’s Socio-Economic Development (2)

Seth-TerkperDevelopment is a continuous process of social, economic, cultural and political transformation of a country or society to a more complex society through human capital and capacity development, the continuous creation and production of new goods, products and services through adaptation, hard work, and cooperation among the citizenry while minimising the negative effect of the processes on the weaker members of society and the environment.

Effective and sustainable development requires the full participation of the citizens.  This process should be aided and facilitated by strong socio-political institutions and strong political leadership.

The relationship between GDP and Ghana’s economic growth should be seen from this example.  Consider two countries A and B. If country A manufactures and exports one hundred vehicles or a specified equipment to country B within a defined period, say  every one year, then country A increases its GDP through its production function and factors of production while country B increases its GDP through expenditure on goods and factors of production of country A.

If country B engages contractors and engineers from country A to build bridges, roads and dams then country B is increasing its GDP through expenditure while country A is increasing its GDP through its production function, factors of production and its human capital.
There is loss of production function, factors of production and a decline of the human capital stock of country B.

These will cause country B’s productive base to shrink while its GDP is growing but country A’s productive base will expand in response to its GDP growth.

A growth in GDP that causes a shrink in an economy’s productive base will ultimately cause the GDP and economic growth to reverse in sign and ultimately worsen inequality and poverty. For instance, China’s GDP growth is based mainly on industrial outputs (whether consumed or exported) and therefore her GDP matches her economic growth.

Ghana’s GDP growth does not match its economic growth because there is decline of the overall capital stock; loss of production function, factors of production, decline in human capital stock and degradation of natural resources and the environment.

Ghana’s GDP growth, therefore, does not lead to economic growth, rather a shrink in the economy’s productive base. This explains why despite years of massive investment in development programmes and projects the country remains poor. An economy’s productive base is made up of its institutions and its capital stock.  The GDP also does not take into consideration natural resource depletion and degradation, and environmental degradation.

A nation’s capital stock is made up of: 1) human capital stock, 2) physical capital stock (machines, factories, roads, bridges, buildings and all the infrastructure, including its capacity to produce new things or generate new outputs or its production function, 3) savings, 4) publicly available (accumulated) knowledge (in science and technology) brought about by expenditure in research and development, and 5) the natural capital stock (minerals, oil and natural gas, fisheries, salt, wildlife, forests, woodlands, farmlands, soil resources, wetlands, streams, rivers and other water sources, coastal waters, or more generally, the ecosystem).

The wealth of the nation is its capital stock. The change in capital is the increase in the capital stock less the total depreciation of the capital stock, including environmental and natural resource degradation and the decumulation of the natural capital stock.

An economy grows if the change in capital stock is positive. A growth in a nation’s GDP does not necessarily lead to a positive change in the nation’s capital stock as explained above.

The relationship between GDP and the states of a nation’s capital stocks and the effect they have on economic growth.Economic growth can be negative even when GDP is rising.

There are several quantitative measures for gauging changes in social welfare or the well-being of a nation’s citizens. These are grouped into macroeconomic indicators and social welfare (economic) indicators. Macroeconomic indicators include the gross domestic product (GDP), the consumer price index (CPI) and the rate of inflation.

The GDP is the most common macroeconomic indicator. However, and as explained above it may give the wrong signal for economic well-being.

The social welfare indicators provide measures of various dimensions of social welfare function or socio-economic well-being of citizens. They reflect the quality of life enjoyed by the citizens.

These include decent employment, proportion of the economically active population that are unemployed, income per person (or income per capita), decent housing, consumption of food, (food supplies in terms of calories available per person in relation to calorific requirements), personal consumption as a percentage of national income, access to such basic needs like water, electricity, telephone (land line), healthcare services and other infrastructure services, life expectancy at birth, infant mortality and maternal mortality, births attended by skilled health personnel (doctors and nurses), access to education (in clean and decent environment), literacy level, information, share in scientific knowledge,  sanitation infrastructure and the environment.

Five out the eight MDG’s (Goals 1-5) derive directly from social welfare indicators. Another important measure of human well-being is the Human Development Index (HDI) which ranks the overall well-being of the citizens of all countries.

Cheap energy, in this case electricity, is essential for economic growth and development. Expensive electricity leads to high cost of production and products which cannot be competitive on open competitive markets. Ghana has three power generating sources-the Akosombo Hydroelectric Dam, the Kpong Hydroelectric Dam and the Sekondi/Aboadze Thermoelectric Generation Plant.

These power generation stations are operated by the Volta River Authority and the power distributed by the Electricity Company of Ghana as two public monopolies with high monopoly powers. In the last few years another public monopoly, the GRIDco, with equally high monopoly powers has been established to take charge of the national electric power grid system.

Such public monopoly firms with high monopoly powers lead to inefficiency and rent-seeking. In most cases the so-called subsidy paid by the Government constitutes rent captured by the producers and suppliers due to low productivity and inefficiency in the production and distribution processes. This is evident from the disruptions associated with electricity supply in the country, uncontrolled price increases, limited investment in production capacity and the resulting high cost of energy.

Another problem is that the present arrangement makes it difficulty in establishing which company should be held accountable for the distribution failures of power in the country. It would have been most appropriate that the Government abolished both the VRA and ECG when the GRIDco   was established. In their places independent power generating companies should have been established.

These companies would utilise the GRIDco facilities to distribute power to their clients and consumers. This would encourage competition and efficiency and reduce the cost of power generation. It will also be necessary for the Government to remove or reduce nomenklatura to enable these public institutions to operate freely and efficiently.

In this case, the role of the PURC would be to monitor all the power generating and distribution companies to prevent collusion and price fixing. That would encourage the companies to adopt compensating and maximisation of utility function of labour, in the absence of competitive equilibrium.

Such a reform will also allow other suppliers, including private power suppliers to enter the energy sector and thus increase competition and efficiency (Tutu; 2011).

Many private power producers could use gas to produce cheaper electricity in future and increase competition in the energy sector.
Under the present arrangement and condition the three public monopolies extract huge rent, including monopoly rent and thus they can afford to be inefficient. The three companies can afford to be inefficient because of undue price hikes by these organisations, always guaranteed by Government intervention due to nomenklatura.

In order to promote economic growth in the country through export of manufactured commodities that will be competitive on the world’s open market the country needs to produce cheap and abundant electricity.

Besides, cheap electricity will reduce the Government’s energy budget and, thus, spend more on social services like education and water supply that improve the well-being of the people.

Again, cheaper electricity will promote the consumption of electricity above the present levels and improve the quality of life of Ghanaians. The unrestrained increases in tariff lead to rent-seeking and corruption since consumers should find the additional money to pay for expensive utilities.

Industries cannot expand production and employ more labour. They will also pass on the additional cost to consumers leading to loss of consumption of other goods and loss of utility in general. These undermine economic growth and worsen inequality and poverty.
Government should therefore consider establishing independent power producing companies out of the two monopolies while GRIDco manages the distribution through the national grid network.
The monopolies enjoyed by utility companies will undermine any effort by the country to achieve sustainable development and reduce poverty.
However, it is also important to recognise that the uncontrolled expansion of settlements in both the urban and rural areas means disproportionate high investment in distribution infrastructures rather than investment in the production capacity of energy.

The power producers and suppliers also suffer the same low productivity as discussed in § 4.  This has direct negative impact on the cost of electricity.
Water supply for Economic Growth: Water, like electricity, is a basic need of life and even more basic than electricity and ought not to be contested for. Abundant clean potable water is essential for processing, manufacturing and industrialisation as well as for sanitation and good public health. Access to clean potable water means: “having direct access to treated pipe-borne potable water, with residual chlorine to prevent any water-borne diseases like typhoid fever and diarrhoea”.

For domestic use a person needs an average of between 90litres to 150litres per person per day of water to secure sanitary and hygienic conditions.

This can be disaggregated as follows: 40litres for bathing, 30litres for washing, 10litres for cooking, 10litres for drinking, washing of hands and unavoidable wastage; then the additional 60litres for flushing of toilet, washing of cars and other ancillary activities.

This means that over 80% of Ghanaians do not have access to adequate clean potable water. Over 90% of the consumed water needs to be collected from the point of consumption for treatment through sanitation infrastructure, an efficient sewage or sewerage treatment system, before being discharged into water courses to prevent the spread of diseases. There are no sewerage systems or sewage treatment facilities to do that.

The inefficiencies in the production and distribution of water, a social good, has led to private production and distribution of water, not pipe-borne but sachet-borne potable water. This has led to massive environmental degradation from non-degradable plastic materials. The long term environmental cost will include flooding when the plastics block water channels and water courses.

In order to improve efficiency and reduce the cost of production and distribution, the operation and ownership should be decentralised to the district level; with MMDAs having independent suppliers of water. In this case, producers of sachet water should rather provide district/ municipal level pipe-borne potable water, with Government bearing the cost of infrastructure in public-private partnership (PPP).

Such a policy will also put pressure on MMDAs to protect the country’s streams and rivers. Besides that, underground water and aquifers constitute part of the nation’s natural capital stock and should be protected from uncontrolled exploitation by individuals and firms.
They should also be protected from pollution by the treatment and management of liquid and solid wastes.

Rural industrialisation cannot succeed without adequate rural water supply and, therefore, the need to protect the nation’s streams and rivers from pollution and silting.

However, the uncontrolled expansion of cities and towns makes effective and efficient supply of abundant and cheap water almost impossible. This calls for changes in housing delivery from single storey buildings spread over large areas to high rise apartments consuming less space.

On the other hand, the funds to pay for these houses must come from high labour productivity, production and high incomes.  It means that MMDAs should have direct control over housing delivery. Pollution and silting of streams and rivers also means that Ghana cannot take advantage of cheap hydroelectric power generation for industrialisation.
Transport Services:

Efficient and effective transport systems are vital for efficient and cheap allocation of manufactured goods and raw materials for production which are also essential for economic growth and development. While there are many modes of transport, namely, inland water and marine transport (inter-city coastal transport), air transport, rail transport and road transport, transportation in Ghana is essentially by road with some air and water transport.

Therefore, it has been assumed that massive investment in roads and other infrastructure development would stimulate economic growth. Roads are vital for mobility and accessibility.

The expectation that roads improvement and upgrading will serve as a stimulus and a catalyst for accelerated economic growth should lead to efficient allocation and distribution of resources within the country. However, the capacity to transform these resources into finished commodities must exist.

That is, there should be human capital to transform the resources into physical capital and increase the nation’s capital stock. In the absence of that the improved roads only serve to transport the country’s natural resources abroad. Such an economic state makes the people poorer (Tutu; 2011).

Only about half of the nation’s 14,000 km trunk roads and highways have good paved surfaces. Majority of the nation’s economic roads have been rendered inefficient and ineffective through the erection of physical obstructions on the roads.

Rather than increase fuel levy all the economic roads have been blocked with toll booths that impede the flow of traffic. Ironically, the greatest number of vehicles commutes within the cities and urban centres, far away from toll booths.

Rather than prevent human activities along the highways, the nation’s economic roads have been turned into endless “shopping malls” necessitating the construction of various speed calming structures to minimise vehicular-pedestrian conflicts and fatalities on these highways.

However, empirical evidence does not show that these structures have been effective in reducing accidents and fatalities on the highways. In some cases food and other commodities are sold on the shoulders of roads (both rural and urban). These undermine efficient transportation as is evident from the long queues at toll booths and other sections on the highways.

The large number of speed calming structures on high speed roads could have long term negative impact on the health of regular road users, especially the spine and waists. The high accidents and fatalities on the country’s roads reflect the low premium vehicle operators place on their fellow citizens in relation to their vehicles and the nature of punishment/sanctions imposed on offenders

In the cities and urban centres, poor junction designs, the absence of or inadequate acceleration lane, deceleration lanes and merging lanes, the encroachment of roadways and walkways cause massive traffic jams. On the other hand, residential areas lack side walkway and pedestrians share carriageways with vehicles.

A commuter can take two to three hours to travel a distance of twenty kilometers to thirty kilometers. These have negative impact on productivity and production and, therefore, efficiency of the economy.

Tolling on public roads is unfair and ineffective means of taxing road users since most vehicle operators are not captured apart from causing delays on the highways. Tolling should be carried out on only BOT roads constructed with private financing.

If the improvement and upgrading of roads do not lead to the growth of industries and increased export of manufactured goods, if the improvement and upgrading of more roads do not result in productive agriculture and the production of cheap and abundant food and the elimination of hunger and malnutrition, and if the improvement and upgrading of more roads only lead to increased extraction and export of the nation’s natural resources, then the investment in road construction becomes unproductive and has negative economic impact.

 Human Capital
The capacity of a nation’s population to produce is very important when dealing with economic growth and development. According to Solow (neo-classical) growth model, one of the three key elements of growth is the nation’s human capital stock. A nation’s human capital stock refers to the population with the capacity and capabilities to produce new things, including traded goods, services, educate and train other people for production and investment.

Education and training, and improved healthcare increase a nation’s human capital stock. Illiteracy, low level of skills and poor healthcare leads to decline in human capital stock.

Ghana’s population is largely unskilled and semi-skilled, contributing to the low productivity and production. The failure of the nation’s education to develop the threshold of human capital for development makes both education and human development in Ghana negative.
Productivity can also be improved through the process of “learning by doing”.

The term “learning-by-doing” which refers to the accumulation of experience by workers, managers and owners of capital in the process of production was coined by Kenneth J Arrow in 1962.

The accumulated experience enables productive efficiency to be improved in the future. Thus, the practice of engaging foreign consultants, particularly, engineers and contractors to design and build the nation’s roads and infrastructures will undermine a nation’s long term development.

As explained in it leads to loss of production function, factors of production and decline in human capital stock. It will be most appropriate and beneficial for the nation to rely on its limited human capital to develop the country, while using the experience acquired to educate and train more people.

There are three major barriers to human capital development and, therefore, national development. These are; i) limited access and the high cost of education in a low income country like Ghana means that it will be impossible to create the critical mass of human capital and capacity for development and, ii) the increasing use of foreign labour, expertise and services for the execution of national development programmes and projects, iii) the lack of focus on the key areas of education and academic development. They undermine the nation’s human capacity and institutional development for economic development.

Fig.6 shows the productivity of Ghanaians compared with that of other nations. It shows the low productivity in Ghana. Inefficiency and low productivity lead to rent-seeking and deadweight loss of outputs and consumption. Fig. 6 shows that, on the average, seven (7) and fifteen (15)  Ghanaians  perform the work performed by one  Swazi and one Malaysian respectively in a unit of time.

This reflects in the low level of export of Ghanaian goods by Ghanaian firms and the level of poverty in the country. Thus, unless productivity is increased several fold Ghana cannot compete on the international market and succeed in export-oriented trade and generate the wealth and accumulate the capital necessary for sustainable development.

The low level of productivity and inefficiencies are reflected in the high cost of electricity, water, fuel and other services It also explains the widespread rent-seeking in the country. It means that fighting poverty will be very difficult unless productivity issues are addressed effectively.
In order to overcome this weakness, on-the-job productivity training involving work and method studies need to be carried out. Production processes and lapses should be identified through regular performance monitoring and evaluation.

The TUC, AGI, the Ghana Employers Association and the Government need to set up a research institution to develop labour productivity and outputs standards, including farm labour outputs to ensure that workers work for their pay, that productivity and production increase several fold and workers earn increased incomes, and achieve optimum consumption. Then Government can estimate national outputs more accurately. A reduction in production costs increases the overall welfare of society.

While some labour training is going in the country it does not address labour productivity at the workplace. Effective labour productivity training should be carried out at the work place and should include work place restructuring and establishment of production assembly lines.

Many situations arising in production processes manifest themselves typically in the following symptoms:
i) recourse to excessive labour overtime, ii) bottlenecks in the flow of materials, iii) high materials wastage, iv) frequent plant breakdowns, v) fatiguing work, vi) late programme, vii) inefficiency, poor quality and workmanship, viii) delays to and by suppliers, ix) excessive errors and mistakes, x) shortage of resources, xi) insufficient information, xii) site or workplace  congestion, xiii) bad working condition, xiv) cost overrun, xv) high labour turnover, xvi) delays in repairs or replacement of parts.

These are identified through regular performance monitoring and are improved by introduction of method study followed by job evaluation and workforce development planning at the workplace.

Without productivity, standard minimum pay has no scientific basis and relevance since it is based on “sympathy” for workers. Such a practice leads to a cyclic pay rise followed by inflation.

However, there are several barriers to high productivity and production in addition to the above stated factors. These include i) too large informal sector (over 70% of the nation’s labour is in the informal sector), engaged in disguised unemployment and producing non-traded Z-goods,  ii) low food intake and poor nutrition arising from poor agriculture and food production, iii) ineffective and inefficient transport, iv) in most cases workers (including farm labourers) live far from work sites, v) most production processes are not well organised, vi) epidemiological conditions and vii) limited access to healthcare services.

The author is a civil engineer and development professional. He is the author of the book: Approaches to sustainable Poverty Reduction in Ghana. – Nana Opon Tutu

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