This paper reviews trends in GDP and other macroeconomic variables since independence. It assesses the performance of the different sectors of the economy and expenditure categories. The paper identifies a number of products that could contribute to maintaining the high growth rate that nontraditional exports have experienced. The medium-term fiscal sustainability analysis provides a useful quantification of the impact of the shocks experienced on fiscal performance. Ghana's social insurance system, stock exchange, divestiture program, rural finance, and poverty are also discussed.


This paper reviews trends in GDP and other macroeconomic variables since independence. It assesses the performance of the different sectors of the economy and expenditure categories. The paper identifies a number of products that could contribute to maintaining the high growth rate that nontraditional exports have experienced. The medium-term fiscal sustainability analysis provides a useful quantification of the impact of the shocks experienced on fiscal performance. Ghana's social insurance system, stock exchange, divestiture program, rural finance, and poverty are also discussed.

I. Growth, Savings and Investment1

A. Introduction

1. The period following the military coup of 1966 that overthrew Kwame Nkrumah, Ghana’s first president, was characterized by centralized economic management and inward-looking development strategies that led to declining per capita GDP and soaring inflation rates (Figure 1). The deterioration of the terms of trade, fiscal imbalances, rising inflation, and political unrest in the early 1980s led the country to the worst economic crisis since independence.

Figure 1.
Figure 1.

Ghana: Real GDP Per Capita and Inflation, 1960–98.

Citation: IMF Staff Country Reports 2000, 002; 10.5089/9781451814811.002.A001

2. By 1983 real per capita GDP was close to half its level in the late 1960s. Popular support for the government had waned, and a group of young officers led by Lieutenant Jerry Rawlings took over power. The period from 1983 to 1991 was marked by a process of transformation from an administrative system of economic management to a market-oriented system. Beginning in 1984, the implementation of the Economic Reform Program (ERP) succeeded in improving output levels and increasing private sector activity and investment, thus making Ghana one of Africa’s best performing economies.

3. The year 1992 was another watershed in Ghana’s political history. A new constitution was adopted in April, and presidential and parliamentary elections were held for the first time since 1965. The election period was characterized by sizeable government spending, which worsened macroeconomic imbalances and rekindled inflation. Political unrest in the early years of the new democratic system led to a hiatus in economic reforms. As a result, inflation rates increased and the pace of recovery slowed down.

4. In recent years, Ghana adopted an economic strategy designed to improve the environment for private sector development and reduce poverty. In this context, the country has returned to a path of macroeconomic stability and output growth, which appears to have established the basis for a sustained economic development in the years to come.

5. Against the background of these political and economic events, this chapter reviews trends in GDP and other macroeconomic variables since independence. It assesses the performance of the different sectors of the economy and expenditure categories. It identifies structural constraints and possible sources of sustained output in future years. The chapter is organized as follows; Section B presents and discusses the trends in the main production sectors and their potential for further development. Section C reviews trends in investment and savings patterns, the nature of the financing of the gap, and the developments in the external sector; and Section D briefly reviews the pattern of per capita GDP and concludes.

B. Sources of Output


6. In spite of the recent growth in the mining and construction sector, Ghana’s economy remains dominated by the agriculture sector. The relatively high share of agriculture in the Ghanaian economy and the low share of manufactured output suggest that Ghana is still at the initial stage of industrialization, even compared with other countries in the region.2 Mining has been the fastest growing activity with the metal and cement industries following closely and providing the base for industrial development. Infrastructural bottlenecks appear to be a key constraint for growth. For example, aluminum and cement production has been suffering from the limited production capacity of the electricity-generating industry, and the export industry is severely undermined by the poor condition of the transport sector.

Sectoral Composition of GDP

7. Ghana has a predominantly rural economy with agriculture accounting for about 40 percent of the value added (Table 1). The rural sector is relatively large, even in comparison with other countries in Sub-Saharan Africa (SSA), although in terms of extension of the agricultural land, Ghana is not among the largest countries (Table 2). The services sector has historically been the second-largest sector, accounting for about 30 percent of GDP, with transport services and retail trade among the most important activities. The share of services in value added has been declining. The industrial sector has seen rapid growth in recent times, as its sectoral share reached one-fourth of value added in 1997, with mining and construction among the fastest-growing activities.

Table 1.

Ghana: Gross Domestic Product by Sectors, 1975–98

(In percent of nominal GDP)

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Source: Ghana Statistical Services.
Table 2.

Top Ten Countries by Agriculture in Sub-Saharan Africa, 1970–94

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Sources: Ghanaian authorities; World Bank; and staff calculations.


8. Cereals are the main agricultural crop in Ghana, amounting to about 20 percent of GDP; maize accounts for 60 percent of cereals, and guinea corn, rice and millet account for the remainder. Other crops are cassava and yams, and cashew nuts. Cultivation of sunflower and tropical fruits, such as pineapples, has also increased recently, especially because of rising demand for their export to European countries.

9. Agricultural production barely increased during the 1970s and then contracted sharply during the years of economic crisis (1979–83). With the beginning of the ERP in 1983, production recovered and continued to increase throughout the second half of the 1980s. In particular, the area under cultivation increased steadily from the beginning of this period through 1994. The increase in acreage enabled production to expand, in spite of the decline in the consumption of fertilizers following the sharp devaluation of the cedi in the beginning of the ERP. Agricultural experts maintain that the sector still has a considerable unexploited potential that, if fully taken advantage of, would further expand crop production and thus provide a solid base for future output expansion.

10. Of the activities in the agricultural sector, fishing has been one of the fastest growing, with catches steadily increasing since 1986. The share of fishing in value added doubled from 1975 to 1993, according to the latest estimates. In the most recent years, however, growth in this sector has been sluggish, apparently because of the over exploitation of some pelagic species.

11. Although accounting for only 3 percent of total valued added, cocoa continues to be among the main export commodities of the Ghanaian economy and one of its main sources of foreign exchange. Cocoa production fell steadily throughout the 1970s and reached an all time low of 166,000 tons in 1984, with volumes less than half those in the early 1970s. After years of neglect, cocoa trees aged and low prices paid to the cocoa farmers for the crops induced smuggling of cocoa to Côte d’Ivoire. With the onset of the ERP, the new government saw in the development of cocoa production the main driving force behind Ghana’s return to steady growth. Thus, a Cocoa Rehabilitation Program was implemented, which included re-planting and maintenance of trees, while the price paid to farmers increased. This policy was successful in reversing the sector’s decline and increasing volumes considerably. The cocoa crop is expected to reach 500,000 tons by 2004/05—a production volume comparable with that in 1964/65.


12. Industrial output has increased steadily over recent years, although at a slow pace. Manufacturing was traditionally the largest sector of economic activity outside agriculture, with a share in value added of about 14 percent in 1975, well within the average for Sub-Saharan African countries. However, its share has been declining, and represented only about 9 percent of GDP in 1998, small by comparison with other Sub-Saharan countries (Table 3). This sector has been the slowest to recover during the reform period. The average production in 1990 was only about 60 percent of its level in 1977, and output in all manufacturing industries, with the exception of cement and iron, was below its level in the 1970s. According to estimates of the Ghana Statistical Service (GSS), the capacity utilization of the manufacturing industry was only about 40 percent in 1990, further evidence of the slow growth in the sector. Food processing and textile manufacturing in 1990 were still less than 60 percent of their volume in 1977.

Table 3.

Top Ten Countries by Manufacture in Sub-Saharan Africa, 1965–95.

(In percent of GDP)

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Sources: Ghanaian authorities; World Bank; and staff calculations.

13. The fastest-growing industries have been the cement, petroleum, and metal industries, together with iron production. The privatization of the iron sector in the early 1990s appears to have generated substantial benefits, as iron production, which in 1990 had declined to about 5 percent of its level in 1977, increased its volume six fold between 1990 and 1996. Sawn wood production experienced strong growth in the second part of the 1980s and through the early 1990s, before slowing down significantly because of the ban on exports of logs and other environmental constraints on the industry. Aluminum production picked up immediately after the beginning of the ERP, although by 1992 output was still below its 1980 levels. More recently, export volumes have been rising steadily, indicating production has been increasing.

14. In the mining sector, production increased in the second half of the 1980s, reaching 6 percent of GDP in 1997, even though the composition of output changed. Extraction of diamonds, which in the 1970s was Ghana’s second largest mining industry in volume terms, virtually disappeared in the early 1980s. By 1990, the average index for mining output had returned to its 1977 value, as strong increases in the production of bauxite and manganese pushed these volumes to levels one-third higher than those attained in the late 1970s. Strong growth in the mining sector continued in the 1990s, with the average production index increasing by 150 percent in the first six years. Most of this increase is explained by the doubling of the gold production, associated with the privatization of the Ashanti Goldfields Company and the strong investment in the sector thereafter. However, iron, bauxite, and manganese production, helped partly by the recent privatization in the sector, have also achieved rapid growth, increasing by almost 50 percent in the period 1990–96. This process has also raised the share of mining sector in total exports, as well as its value-added share, with gold becoming a main source of foreign currency earnings.

15. Growth in the construction industry, typically proxied by growth in the production of cement, did not recover until the late 1980s. However, since the beginning of the 1990s, output volumes have grown at a sustained rate, with volumes more than doubling between 1990 and 1996. In effect, the share of construction in GDP grew from 5 percent in 1975 to 8 percent in 1997. The current trends in the construction sector are the main force driving the observed growth rates in fixed capital formation.

16. A drought in 1998, which lowered the water levels in the Akosombo dam below ordinary production levels, caused major blackouts throughout the country. These events made the structural problems and the capacity constraints in electricity production evident.3 The government had anticipated these constraints, and, since the early 1990s, has been carrying out a series of publicly financed projects aimed at increasing the electricity generating capacity in the country. The largest single consumer of electricity is VALCO, a U.S.-owned aluminum firm that buys about 60 percent of total production; the remainder has been directed mainly to the manufacturing sector, as shown by a 60 percent correlation between the manufacturing production index and electricity volumes. Electricity generation has been insufficient to meet the country’s needs since 1994, when Ghana ceased to be a net exporter of electricity. Household and private consumption has been increasing steadily, putting pressure on production. Electricity generation grew to about 3 percent of total value added in 1998, an increase of 250 percent with respect to 1975. However, production has not been able to keep pace with the growth in the population; at end-1995, total consumption per capita had scarcely reached its volume in 1971.

Transport and services

17. The services sector has contracted slightly over the past decades. Recently, GSS rebased its estimates of GDP by sector. During this process it reestimated the share of services in value added, which now shows virtually no change between 1975 and 1996 (Table 1). The main reasons behind the delays in the development of the sector appear to be infrastructural constraints.

18. Transportation as a share of value added has increased by only about ½ percentage point since 1975. The sector still experiences substantial structural problems. In fact, based on an examination of detailed statistics, it is surprising the sector has grown at all. The volume of passengers in railways is less than a third of the level in the 1960s, while total cargo volumes transported by railway has almost halved. Also, in spite of the numerous rehabilitation programs, roads have been badly maintained. Mining sector exporters have been complaining that stocks have accumulated while waiting to be transported to the ports for export. Even traffic volumes at the airport have grown slowly. Nevertheless, activity at the ports has been gradually increasing—a positive spillover of the development of foreign trade—as volumes loaded and unloaded at the main ports are about one-fourth higher than in 1970. Growth of import volumes has substantially exceeded export volumes.

19. No specific estimate of financial services was available. However, early the 1990s also marked the beginning of a new era in the banking sector, as privatization and restructuring operations increased the volume of financial transactions.

C. Investment and Savings


20. The share of investment in GDP has historically been lower in Ghana than in other Sub-Saharan African countries. In 1970, when the investment to GDP ratios in Gabon and Zambia were averaging about 30 percent, the investment rate in Ghana was just above 10 percent of GDP. It further declined amidst the subsequent economic crisis, reaching 6 percent in 1980. The recovery, however, has been remarkable, and by 1996 the share of investment in GDP had risen to about 20 percent, a magnitude close to that of the ten countries with the highest shares in the region (Tables 4 and 5). The investment has been rising in tandem with the external current account, which seems to indicate that Ghana is running “structural current account deficits” associated with a buildup of fixed capital (Figure 2).

Table 4.

Ghana: Gross Domestic Product by Expenditure Category, 1975–98

(In percent of nominal GDP)

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Source: Ghana Statistical Service.


Public sector only.

Table 5.

Top Ten Countries by Investment-to-GDP Ratio in Sub-Saharan Africa, 1970–96

(In percent)

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Sources: IMF and World Bank databases.
Figure 2.
Figure 2.

Ghana: Savings, Investment and Current Account, 1975–98

(In percent of GDP)

Citation: IMF Staff Country Reports 2000, 002; 10.5089/9781451814811.002.A001

21. The productivity of investment in Ghana, although low by international standards, appears to have been relatively high compared to the Sub-Saharan African average, at least in the past two decades: investment has accounted for 15 percent to 20 percent of the increase in output, a productivity level among the highest in the region (Table 6).

Table 6.

Top Ten Countries in Productivity of Capital in Sub-Saharan Africa, 1970–95 1/

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Source: Ghanaian authorities; World Bank and IMF databases; and staff estimates.

Calculated as the ratio of the average rate of GDP growth to average investment, in real terms calculated at 1985 constant dollars.

22. The share of public sector investment has also been declining steadily through the years of the recovery program, dropping to 10 percent in 1996—about 50 percent of total investment, and a reduction of one half with respect to its levels in the 1960s. This development is a positive sign of the gradual withdrawal of the public sector from economic activity and the rising importance of the private sector in economic development.

Domestic Savings

23. Because of political uncertainty, gross domestic savings declined from the beginning of the 1970s to 1996. This trend caused a considerable increase in Ghana’s foreign borrowing, in particular during the early 1980s and early 1990s. Low private savings, together with high levels of government expenditures, have been the main factors behind the rise in foreign borrowing. In 1970, Ghana’s domestic savings accounted for about 13 percent of GDP, about one-third below the Sub-Saharan African average, and did not rise again above that level until 1996. However, in more recent years, the economic recovery has been strong and domestics savings levels are now very close to the average for Sub-Saharan African countries (Table 7). The continued efforts of the government to consolidate its fiscal position have placed domestic savings on an upward trend.

Table 7.

Top Ten Countries by Gross Domestic Savings in Sub-Saharan Africa, 1970–

(In percent of GDP)

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Sources: World Bank and IMF databases.

Foreign Savings

24. As in many developing countries, the current account in Ghana has shown a structural deficit, which has caused the buildup of foreign debt. However, the good macroeconomic performance during the second half of the 1980s has meant that aid flows, including from multilateral institutions, have been considerable. Because of the large share of multilateral lending, Ghana has been able to finance its increase in investment at concessional rates, maintaining the ratio of debt service to GNP at the average for Sub-Saharan African countries, even though the level of foreign debt to GNP is high in Ghana with respect to other countries in the region (Table 8).4

Table 8.

Ghana: Debt Service and Aid, 1975–95

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Source: World Bank, Global Finance Indicators.

25. Sizable aid flows into Ghana, have helped finance domestic expenditure in general, and domestic investment in particular. Indeed, recently domestic investment and aid flows have shown a strong positive correlation. In 1997, per capita aid averaged about US$50, twice the amount for the average Sub-Saharan country and equivalent to about one third of all imports, or about one half of total investment. Aid directed to the central government accounted for 20 percent of total government expenditure. Although it is not possible to show a direct relationship between growth and the extent of foreign aid, the correlation between investment levels and aid flows is a positive indication of the favorable impact of aid flows on macroeconomic performance (Figure 3).

Figure 3.
Figure 3.

Ghana: Aid Flows, 1975–96

Citation: IMF Staff Country Reports 2000, 002; 10.5089/9781451814811.002.A001

Sources: Ghanaian authorities; and World Bank and IMF staff calculations.

External Sector

26. Historically Ghana has had a small, open economy, with about one-fourth of GDP exported and about one-third imported. The export sector was the most important for the economy until development policies turned inward looking in the 1970s. The nationalistic policies and centralized economic management shifted attention away from the export sector, and the export share in GDP declined throughout the 1970s. In 1983, the new government restored the export sector, and in particular the cocoa industry, as a driving force for economic development. The exchange rate was devalued at the beginning of the ERP, and rehabilitation and restructuring programs were initiated, in particular in the cocoa, gold, and timber sectors. By the end of 1996, export volumes had returned to their level of the early 1970s. However, the much faster pace of import growth throughout the period has meant that the economy has become more and more dependent on foreign financing (Figure 4).

Figure 4.
Figure 4.

Ghana: Foreign Trade and the Current Account, 1975–98

Citation: IMF Staff Country Reports 2000, 002; 10.5089/9781451814811.002.A001

Exports. Until the beginning of the 1990s cocoa, gold, and timber, together with aluminum, represented about 90 percent of all commodities exported. In the 1950s and 1960s, Ghana was the world’s largest cocoa producer; production levels were above 500,000 tons and were the main source of foreign exchange, accounting for 70 percent of total exports. The decline in production caused a contraction of exports that continued until the early 1990s, reducing export share to 20 percent. The beginning of the 1990s marked a change in government policies toward the cocoa sector and allowed cocoa exports to rise again, reaching more than a third of total exports. While earnings from cocoa were declining, gold exports rose steadily. In 1967, gold represented a relatively small share of exports—around 10 percent. Production increased during the 1980s, responding to the increases in world prices. By 1994, gold was the major earner of foreign exchange, accounting for 35 percent of exports. Exports of timber were marginal until the beginning of the 1990s, when international prices rose markedly. This price hike led exports to increase rapidly, but the ban of log exports for environmental reasons has slowed the growth of the industry considerably since 1995. Exports of nontraditional commodities, such as palm oil, fresh fruits, and natural rubber, which did not reach 1 percent of total exports in 1980, have been rapidly growing, accounting for 23 percent of the total exports to Europe by 1997.5

27. The recent positive performance of the export volumes has been favorably reflected in per capita growth trends (Figure 5). Strong growth in the nontraditional sector indicate that small businesses have been able to diversify and successfully penetrate the European markets. Although part of the success in exporting to Europe could be due to the Lomé Convention, the recent success in diversifying exports suggests that the export sector might have the potential to become Ghana’s “engine of growth.”6

Figure 5.
Figure 5.

Ghana: Agricultural Sector and Real GDP, 1975–96

Citation: IMF Staff Country Reports 2000, 002; 10.5089/9781451814811.002.A001

Sources: Ghanaian authorities; and staff calculations.1/ Agricultural production was only available from 1980 to 1994.

28. Imports. Although the volume of imports has fluctuated widely over the past decades, broadly following macroeconomic trends, the import structure in terms of commodities has hardly changed. Machinery and transport equipment still represented 30 percent of total imports in 1997, about the same share that it held in the 1960s. Food and oil accounted for 10 percent and 17 percent of imports, respectively, in 1997. However, increases in imports of equipment are expected to spark productivity gains in the future.

D. An Analysis of Growth Patterns

29. Output growth in Ghana was severely impeded by the centralized economic management and inward-looking policies implemented from the mid-1960s to the early 1980s. The economic decline during this period is evident: in 1983 per capita income in constant cedis was about 40 percent lower than in 1970 (Figure 6).7 Per capita income in purchasing power parity (PPP) terms at constant 1985 dollars showed a decline of 30 percent in the period 1980–83 alone. As a result, the average Ghanaian in 1996 had about the same per capita income as his father had in 1971.

Figure 6.
Figure 6.

Ghana: Per Capita GDP and Per Capita Exports, (1966–1998).

(In constant 1987 USS)

Citation: IMF Staff Country Reports 2000, 002; 10.5089/9781451814811.002.A001

30. The slow growth in the manufacturing sector has meant that the economy remained predominantly rural, with the output in the agricultural sector strongly correlated with the performance of real GDP and exports, even though industrial activity, in particular mining and extraction, has grown rapidly (Figure 5).8

31. Overall, Ghana can still be considered a “success story.” The sound macroeconomic management implemented since 1983, the privatization program, the gradual withdrawal of government from economic activity, market deregulation, and the restructuring and prioritization of the export sector have been the main factors behind a rising output trend, which has remained uninterrupted for the past 15 years.

32. To conclude, Ghana has succeeded in restoring macroeconomic stability, which in turn has enabled economic activity to recover from the crisis and assume an upward trend since the mid-1980s. Investment and productivity have been rising for more than a decade, allowing Ghana to regain lost output and setting the stage for continued growth in the future. The share of investment in GDP is now at the average level for the region, and export volumes have been steadily increasing, as export diversification makes the economy less exposed to terms of trade shocks. Domestic savings have been gradually increasing, in particular public savings, which has allowed for a reduction in the external balance and the maintenance of a sounder macroeconomic position. Overall, the Ghanaian economy should be able to generate sustained output growth rates for many years to come.

Data Sources

The data used in this study rely on the estimates of sectoral production volumes as reported in the available issues of the Quarterly Digest of Statistics (GSS).9 GDP data were taken from IMF and World Bank databases and updated with current data received from authorities and IMF estimates. Investment data were taken both from IMF and World Bank databases and are based on estimates on construction and imported machinery performed by a local consultant for the GSS. Savings data were estimated from national accounts data.

The most recent published data of the commodity composition of trade, in the UN COMTRADE database, dates from 1992. Ghana’s latest report to the IMF’s Direction of Trade Statistics (DOTS) also refers to 1992; more recent data used in this study were taken from partner country data as reported in DOTS, and reports from the Ministry of Trade and Industry. A commodity composition of imports as reported in the EUROTRACE dataset compiled by the GSS in 1997 was made available to staff.


Prepared by Luisa Zanforlin.


In Côte d’Ivoire, for example, its closest neighbor, the share of agriculture in value added is close to half that in Ghana, while manufacturing represents a much larger share of output.


The drought also highlighted some structural problems with the tariff-setting system of public utilities: in spite of the increases in January 1998, electricity in Ghana was among the cheapest in the region, and the Volta River Authority, the region’s main producer, was accumulating losses. However, since 1998, the government has been implementing an extended program of tariff increases to bring prices more in line with regional averages and to restore economic viability to the electricity company.


Comparable cross-country statistics are compiled in the World Bank’s Global Finance Indicators database and calculated with respect to GNP.


Total exports to Europe account for about 60 percent of total exports.


See Chapter II on nontraditional exports.


World Bank and IMF data; in constant 1975 cedis.


A long series for agricultural production was not available; thus this study used cereal production in metric tons as an index for agricultural production (Figure 5). The simple correlation between cereal production and agricultural production was about 70 percent in the period 1980–94.


Issues available were 1971–72, 1981–82, 1985–92, 1997.

Ghana: Selected Issues
Author: International Monetary Fund