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Import Programming in Ghana, 1966–69

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1973
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Rattan J. Bhatia

The author discusses Ghana’s experience in regulating its imports and explains why other countries contemplating similar measures should proceed cautiously.

All countries wish to optimize their use of foreign exchange resources. Developing countries are often in the position of having to take strong measures to reduce calls on such resources when they become scarce, and in this connection Ghana’s import programming measures of the late 1960s may be of general interest. Beginning in 1966 and continuing until the introduction of large-scale liberalization measures in late 1969, Ghana regulated its imports on the basis of an annual import program. (After a short-lived experiment with a liberalized import system, Ghana reintroduced a stricter import licensing system in February 1972.) Although import licensing existed even earlier, it is generally believed that the licensing then was more arbitrary and less rational economically. After the change of government in February 1966, import licensing endeavored to give increasingly greater attention to economic criteria.

The rationale for import programming in Ghana after 1965 was that the country had suffered serious structural maladjustments as a result of previous economic policies, which made it difficult to rely upon the free play of market forces to ensure a rational allocation of available exchange even though the Ghanaian currency was devalued by 30 per cent in July 1967. Import programming, therefore, continued even after the devaluation, mainly because the authorities felt that the foreign exchange situation did not warrant risking a complete liberalization of imports. In addition, Ghana was receiving external balance of payments assistance in consideration of its import requirements compared with resources available from its own earnings of foreign exchange; the estimates of assistance required the preparation of a foreign exchange budget and an import program.

Because the import program was drawn within the constraints of acute foreign exchange shortage, it aimed at

  • (a) providing a minimum of essential consumer goods,

  • (b) allowing a level of raw materials and spare parts consistent with planned utilization of the existing productive capacity of the economy, and

  • (c) ensuring imports of capital goods in an amount consistent with a planned target of investment expenditures aimed at increasing existing capacity.

Operational and Minimum Import Programs

The Ghanaian import program was worked out under two different assumptions regarding availability of foreign aid. The formulation of the “operational” import program (OIP) assumed that only such aid would be received as had been formally committed, while that of the “minimum” import program (MIP) assumed that some additional aid would be forthcoming and utilized during the course of the year. The MIP served chiefly as the basis for aid requests, assuming a certain target rate of income growth. Thus, it had no direct operational significance, except that it provided guidance for enlarging the OIP in the event of additional foreign exchange receipts. The availability of aid to Ghana was influenced by the results of the annual Ghanaian aid meetings of donor countries and institutions and Ghana. As such meetings were not held until about the second quarter of the year, while import licenses were issued at the beginning of the year, the OIP formed the initial basis for the issue of licenses.

The first stage in the preparation of an import program involved an estimate of resources likely to be available to finance imports. For Ghana this essentially implied estimating receipts from exports of cocoa, which on the average constitute approximately 70 per cent of total export proceeds. Estimates were also made for other main exports, i.e., gold, diamonds, bauxite, manganese, timber, receipts from which do not vary greatly from one year to another. Finally, account was taken of the likely inflow of private and official transfers and capital receipts.

On the payments side, the authorities estimated all items except imports (c. i. f.). The largest single item was the debt service, the amount of which was easily predictable on the basis of the existing repayments schedule. Other payments items varied within small margins and could be estimated fairly accurately. Finally, the authorities fixed a target for net build-up in external reserves.

The amount of foreign exchange available for imports was the difference between estimated receipts and outlays, including the build-up of reserves. This amount was then allocated among various categories of import on the basis of an import program.

The formulation of the import program was approached from two different angles: aggregate and sectoral. The final program reflected a reconciliation between these two approaches. As a first step, a target was adopted for the likely increase in the gross domestic product (GDP) by estimating the increase in private and government consumption and the likely level of private and government investment. Private investment was arrived at after detailed inquiry into the investment plans of major industries, while investment in the public sector was based on budgetary appropriations as well as the investment plans of public enterprises. Estimates of investment in 1968 and 1969 were related to the projections in the two-year Development Plan, 1968-70. While exports were estimated independently, as described above, imports were then derived as a residual within the framework of national income accounts. This estimate of imports was compared with resources estimated to be available for imports. To the extent that requirements exceeded (or were below) the projected availability of resources for imports, growth targets, as well as consumption targets, were revised downward (or upward) and detailed calculations repeated until resources matched requirements.

Estimates of consumer expenditure were further subdivided among main items, i.e., food, clothing, beverages and tobacco, other durables, and nondurables and services. Ideally, such estimates should be based on certain empirically established relationships between consumption and income and other easily identifiable independent variables; however, the Ghanaian programs relied on average ratios prevailing in the previous year or two.

The Ghanaian authorities next had to work out the import implications of the projected distribution of expenditures. An estimate was made of corresponding domestic supplies likely to be available, and the balance between projected demand and domestic supply was presumed to be met by imports. It was recognized, of course, that some particular commodities, within a broad category of items mentioned above, were not produced domestically, and an independent provision was accordingly made for such “nonsubstitutable” imports. Furthermore, domestic supplies themselves might be dependent upon imports of intermediate goods which were not reflected in the estimates of final demand within the system of national accounts. Demand for intermediate output was derived from demand for final products, and the shortfall in domestic supplies was allowed for in the requirements for total imports.

Under the sectoral approach, import requirements of each sector were determined separately. The sectors specified in the Ghanaian program were household, government, agriculture and fishing, forestry, manufacturing, construction, and transportation. The import demand of these sectors was separately estimated for consumer goods (durables and nondurables), raw materials, fuels and lubricants, spare parts, and machinery and equipment.

Cocoa provides 70 per cent of total export proceeds available to finance imports.

Household consumption was estimated separately for major food commodities, i.e., rice, wheat, floor, maize, sugar, milk and cream, meat and meat products, fish, butter. Since Ghana receives substantial amounts of food as aid from the United States, the authorities made detailed estimates of requirements for such commodities in justification of their requests for this assistance. The method employed was to assume some minimum increase in consumption, usually about 2.5-3 per cent (the assumed growth rate of population), over the previous year’s level, and to arrive at import requirements after taking into account the anticipated domestic production. A similar method was also employed for manufactured consumer goods, mainly textiles and tobacco, for which raw materials are partly supplied under the U.S. aid program.

Derivation of consumer demand for main items was not as mechanical as may appear from the above description. The authorities took into account, for example, considerations such as the adequacy of a price level resulting from a particular level of imports as an incentive for increased domestic production for a specific product. In other instances, especially where a commodity served both as an intermediate input for domestic industry and as a direct competitor for a domestic product, the dilemma had to be resolved between high imports and low prices, on the one hand, and low imports and high prices, on the other. Furthermore, the economics of food values were also taken into account in encouraging cheaper (in terms of foreign exchange) types of food imports, e.g., fish against meat.

The producing sectors’ demand for intermediate goods, raw materials, and investment goods was derived from the results of annual surveys in the industrial sectors, (i.e., manufacturing, mining, and forestry), and from the estimates supplied by the Ministry of Agriculture for the agriculture and fishery sectors. Import requirements of the construction industry were derived from the past trends of the ratio of such imports to domestic product and investment. In determining the demand for fuels and lubricants, factors like the growth in road transportation, trends in activities of industrial users, and so forth, were taken into account.

Relating imports of investment goods to particular types of investment was perhaps the most difficult part of the exercise and required several approaches, none of which was entirely satisfactory. One method was to relate most of the machinery imports and some construction material imports to the intended activities of the end-users, i.e., government, state enterprises, and private investors, but basically capital imports are difficult to relate completely to investment outlays. Alternatively, some ratios of investment to capital imports for major sectors were derived from recent data to cross check with aggregate investment considerations. Both these approaches were used in estimating requirements for capital goods and construction materials.

The results of the industrial survey were not mechanically translated into demand for intermediate goods. Instead, they were checked against the reporting industry’s past performance, its installed capacity, and the feasibility of its projected output in the light of the likely developments in aggregate demand and production plans for competing industries. Their requirements of raw materials in relation to their planned output (i.e., output: raw material ratios) were checked against each other as well as against the experience of previous years.

The estimated sectoral requirements were combined and compared with available foreign exchange for imports, and, where necessary, adjustments were made in sectoral targets, and hence in import demand, to eliminate the gap. They were then aggregated by major expenditure categories and, in combination with projected domestic production, yielded an estimate of GDP, as well as imports, for the program year.

The OIP was the basis of licensing, but it was modified in accordance with the MIP, as and when additional foreign exchange became available. The licensing authorities were, however, authorized to transfer allocations from one item to another within any category (e.g., between sugar and meat in the consumer goods category) should it be judged necessary during the year.

The 1969 Program: An Illustration

The 1969 program envisaged imports of

347 million under the MIP and of
305 million under the OIP. These amounts of imports implied that GDP in 1969 would grow by 4 per cent under the OIP and by 5 per cent under the MIP.

Per capita consumption under the OIP was kept at the previous year’s level but was to be allowed to increase by about 1 per cent under the MIP. Investment was planned to increase by about 15 per cent over the estimated level of the previous year under the MIP and by only 4 per cent under the OIP.

Consumption targets were translated into those for major consumer goods. Where local production was deficient, per capita availability of food items was programmed to be maintained at the previous year’s level, while the availability of nonfood items, primarily from local sources, was to increase significantly. On the basis of industrial surveys and of production forecasts by the Ministry of Agriculture, local availability of consumer goods and related imports of inputs was determined. The balance between estimated demand and domestic production was provided for in the import program and is shown in Table 1.

Table 1.Ghana: Availability of Goods and Services for Consumption, 1968–69(In millions of Ghanaian new cedis)
ImportsTotal
Domestic production19691969
1968

Estimate
1969

Projection
1968OIPMIP1968OIPMIP
Food
Rice7.16.16.811.512.913.917.619.0
Sugar1.31.38.27.37.39.58.68.6
Fish21.326.84.53.33.325.830.130.1
Meat preparations82.084.51.72.33.683.786.887.1
Maize12.510.40.21.01.012.711.411.4
Processed31.032.031.032.032.0
Other606.5622.329.724.925.2636.2647.2647.5
Total761.7783.451.150.353.3812.8833.7835.7
Manufactured goods
Beverages and tobacco58.764.80.30.20.259.065.065.0
Clothing and textiles82.2102.2(+9.6)117.87.17.1100.0109.3118.9
Other63.073.9(+7.2)120.912.312.383.986.293.4
Total203.9240.9(+16.8)139.019.619.6242.9260.5277.3
Other goods and services654.3660.5(+6.5)1654.3660.5667.0
Total availability1,619.91,684.8(+23.3)190.169.972.91,710.01,754.71,780.0

Additional domestic production under the MIP.

Additional domestic production under the MIP.

Under U.S. Public Law 480, Ghana received considerable commodity support from the United States. However, this also imparted some inflexibility in the import program since, under the Usual Marketing Requirements governing this type of aid, Ghana had to fulfill its normal import obligations from its own resources. The inflexibility in cutting down such imports limited the possibility of substituting other imports, which would have meant lower foreign exchange expenditure. In some other cases such a substitution was implemented. For example, it was felt that poultry was high-cost food and that it was cheaper to import fish to obtain an equivalent amount of protein. On similar considerations, fish imports should be preferred to imports of meat and livestock, but since the latter were on open general license, it was considered prudent not to count on the reduction of meat imports but rather to limit the allocation for fish imports.

Foreign exchange allocations were derived from the above estimates of consumer expenditure and planned expenditure on construction and were based on returns from various enterprises regarding their output and input estimates. The private sector was divided into 16 broad categories, and separate ratios between import inputs and total output were established for each category. The average for all the categories was estimated at 0.32, the ratio varying from a low of 0.07 for the food industry to a peak of 0.83 for the vehicle assembly plants. In the textile industry the ratio was estimated at 0.66.

Allocations for imports of construction materials and capital equipment could be related only roughly to overall investment. For private industrial investment, the estimates were derived from the returns mentioned above. In the OIP, only those investment plans were included that were fairly advanced and that were likely to be executed during the program year. As regards government investment, the OIP included only the expected expenditures on ongoing projects. In the MIP, additional investment expenditures were included in accordance with the projections in the two-year Development Plan.

It may be noted that the reduction, by

30 million, in total investment estimates under the OIP implied a reduction in import requirements of some
27 million, suggesting the large import content of the “marginal” investment added in the MIP, as well as almost a full utilization of local capacity to meet the needs implied in the OIP.

Implementation of the Import Program

Table 2 below compares actual imports with the targets set under the OIP and the MIP. Corresponding percentage deviations, by end-use, from the programs are shown in Table 3.

Table 2.Ghana: Actual and Target Imports, 1967–69(In millions of Ghanaian new cedis)
OIPMIPActual
196719681969196719681969196719681969
Total imports265.8283.8304.8345.0369.0347.2307.6296.6337.4
Non-aid1207.0221.2242.5213.0226.5247.3277.5248.0266.3
Aid58.862.662.3132.0142.599.930.1 248.6 271.1 2
Source: Government of Ghana, Ghana’s Economy and Aid Requirements, 1968 and 1969.

Includes private suppliers’ credits.

Equals inflow of aid as shown in the balance of payments.

Source: Government of Ghana, Ghana’s Economy and Aid Requirements, 1968 and 1969.

Includes private suppliers’ credits.

Equals inflow of aid as shown in the balance of payments.

Table 3.Ghana: Deviation of Actual Imports from Targets, 1968-70 1(In per cent)
Shortfall (−) or Excess (+) of Actual Imports Compared With
MIPOIP
19681969Jan.-June

1970
19681969Jan.-June

1970 2
Nondurable consumer goods−10+48+72+14+56+82
Durable consumer goods+3+50+53+13+50+53
Fuels and lubricants+1+8+5+1+11+5
Nondurable producers’ materials−22−31−26−6−25−11
Durable producers’ materials−44+70+44+6+139+63
Producer equipment−20−19−8+11+2−3
All imports−20−3+4+4+11+14
Source: Central Bureau of Statistics, External Trade Statistics of Ghana, 1968-70.

Based on imports c. i. f. and excluding VALCO imports of alumina.

The comparison of actual imports with the operational import program for the period January-June 1970 is based on the assumption that the operational program for the first half year bears the same relation to the annual OIP as does the MIP.

Source: Central Bureau of Statistics, External Trade Statistics of Ghana, 1968-70.

Based on imports c. i. f. and excluding VALCO imports of alumina.

The comparison of actual imports with the operational import program for the period January-June 1970 is based on the assumption that the operational program for the first half year bears the same relation to the annual OIP as does the MIP.

In 1967 and 1968, actual imports exceeded the OIP targets but fell short of the MIP targets. However, in 1969 actual imports exceeded the operational level and approximated the target envisaged under the MIP. The excess of imports over the targets in the OIP did not necessarily follow from any increase in the level of aid over assumed utilization (in fact, aid generally fell short of the levels assumed under the MIP) but rather impinged upon Ghana’s own resources. Thus, the reserve targets implied in the programs were not achieved, and Ghana accumulated arrears on current payments.

Compared with the OIP, actual imports under all end-use categories, except nondurable producers’ materials, were higher in 1968, 1969, and during the first half of 1970. The excess was increasingly more marked for consumer goods than for capital goods, although in 1969 and the first half of 1970 a significant excess was also recorded for durable producers’ materials. The consistent shortfall in imports of nondurable producers’ materials, plus the fact that imports of consumer goods exceeded the operational target, suggests that import substitution did not occur on the scale implied in the import programs. Similarly, the excess of total imports of durable producers’ materials and producer equipment, despite a shortfall in investment (see below), would suggest that the program underestimated the import component of investment expenditure. These divergences would appear to indicate that the information available to the formulators of the program was insufficient to set the import targets.

It would appear, therefore, that import performance deviated significantly from the import programs. The main reasons for this divergence may be classified as (a) institutional and (b) policy induced.

On the institutional side, there were four important units in the licensing and payments framework of Ghana: the Ministry of Trade (for general imports), the Ministry of Industries (for industrial imports), the Ministry of Economic Affairs (for aid-financed imports), and the Bank of Ghana (for payments). There appears to have been little coordination between these agencies in the execution of the program. The Ministry of Trade issued specific licenses in excess of the allocations in the import programs, in the expectation that a large part of the licenses issued would remain unutilized. Although data on actual utilization are not readily available, indications are that some underutilization did occur though not on the scale implied in the actual issue of licenses, No procedures existed which could have enabled the authorities to be continuously informed of the utilization of licenses, payments falling due, etc. The Bank of Ghana was made aware of payments that were due mainly through the exchange control form A-1, supplied to it by commercial banks requesting exchange cover only after imports had been delivered and payments were due under 180-day trade credits. In addition, the authorities had little information on unutilized import licenses carried over from the preceding licensing program. Finally, the gradual extension of the open general license also imparted a degree of uncertainty to the programmed estimates of imports under that category.

The relationship between import programming and financial policies also appears to have been less than well comprehended by the authorities. The formulation of import programs had assumed that disposable resources would be distributed among different uses in accordance with the projections of various components of the GDP, and that corresponding financial and other policy measures would be undertaken by the authorities. However, policies as implemented did not bring about the required redistribution of use, and actual changes in consumption and investment differed from those set forth in the import programs. As an example, in Table 4 actual changes in the main categories of GDP in 1969 are compared with those assumed in that year’s program. The substantial deviation in actual consumption from the program targets is symptomatic of the financial policies followed by the Government.

Table 4.Ghana: 1969 Actual and Target Changes in Components of GDP at 1968 Prices(In millions of Ghanaian new cedis)
ActualOIPMIP
Private consumption753055
Government consumption211515
Investment251040
Exports 1564242
Imports (increase -)1−40−14−57
Source: Government of Ghana, Ghana’s Economy and Aid Requirements, 1969.

At current prices.

Source: Government of Ghana, Ghana’s Economy and Aid Requirements, 1969.

At current prices.

Thus both private and government consumption were much larger than assumed under either the MIP or the OIP. As a consequence, there was also a large divergence of actual imports of consumer goods, which were at least 50 per cent higher than the level envisaged in the MIP, as was seen in Table 3. This was made possible mainly because, with an extended open general license system, excess domestic demand could more easily spill over into imports.

General Reflections

Ghana’s experience would suggest that the formulation and execution of import programming is difficult in practice. The formulation exercise is difficult because it requires information more detailed and up to date than is generally available in less developed countries. Its execution also tends to suffer because of administrative limitations which generally characterize these countries and because of the tendency to ignore the link between overall financial policies and the balance of payments outturn. Admittedly, improving these deficiencies would make import programming a more satisfactory instrument for policy purposes, but whether it could be relied upon as a permanent feature of the economic system is another question.

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