Africa must ditch its overreliance on commodity exports and develop a “homegrown” model of economic growth centred on regional commerce and domestic demand, Ghana’s president has urged.
John Atta Mills told Emerging Markets that the continent must seize the “opportunity” thrown up by the global economic crisis to adopt a new development formula that centres on the regional private sector, as a catastrophic collapse in exports torpedoes the region’s growth prospects.
“This is the time for us to test our ingenuity and look inwards,” he said. “We need to look at the global economic downturn as an opportunity to find ways to be self-sufficient.”
Plummeting growth – thanks to an economic crisis widely seen as imported from the West – has imperiled Africa’s fight against poverty, while many African nations have pursued conventional macroeconomic policies recommended by rich country donors. This has raised fears among many observers of a hostile response to established policies.
But the president dismissed the suggestion that a populist backlash in Africa against western capitalism was more likely in the wake of the global financial meltdown. “No, I don’t think so,” he said.
Mills said that regional authorities should step up efforts to create a common investment market to boost private economic activity in Africa and compensate for vanishing western demand.
The Economic Community of West African States (Ecowas) agreed trade liberalization measures, including the adoption of a common external tariff in December. “We, the government, are interested in fast-tracking the integration at the Ecowas level,” he said.
Ghana in recent years has been a focal point for foreign capital in light of improved economic management, buoyant commodity prices and brighter prospects after debt relief; the sovereign has also been favoured by international capital markets, and successfully issued a $750 million Eurobond in September 2007.
But the country – the world’s second largest cocoa producer – has been hit by lower cocoa and gold prices that inflicted a 14.9% budget deficit in 2008. Standard Bank expects a budget shortfall of 9% and a 20% trade deficit this year.
Mills said the downturn would have “serious repercussions” on the country’s economy, citing a likely drop in remittances and the “decline in donor support and a decline in trade”.
The IMF expects Ghana’s growth will fall to 4.5% after five years of average annual growth above 5%. The World Bank estimates western donors are $20 billion short of their aid commitments pledged in 2005.
Mills said Ghana must reduce its aid dependency and develop alternative sources of growth. “We cannot forever rely on donor handouts. The time has come to find solutions which can stand the test of time in a global downturn or not.” He said efforts to develop agricultural production would help the country’s drive to become “more self-sufficient”.
Mills, leader of the National Democratic Congress, won the presidential election in January by a razor-thin margin to boot out the ruling New Patriotic party, on a pledge to boost social development. But with sky-high budget deficits, the government is set to cut development spending by 3.5% to help bring down the primary fiscal deficit to 4.9%.
In separate comments, Mills said African economies must increase transparency and root out corruption to attract foreign investment, in particular, for infrastructure projects.