4th Baah Wiredu Memorial Lecture
4th Baah Wiredu Memorial Lecture
4th Baah Wiredu Memorial Lecture
in Wellbeing
Madam Chair, Distinguished Invited Guests, Ladies and Gentleman. Good afternoon.
I would first of all like to thank the Ghana Institute for Public Policy Options for inviting me to
be the speaker at the fourth Kwadwo Baah-Wiredu Memorial Lecture.
Madam Chair I will begin the lecture with a brief presentation on various governments’ positions
on the wellbeing of the Ghanaian population. I shall then spend a bit of time discussing selected
macroeconomic indicators and why they are important and provide a definition of wellbeing.
This will be followed by a discussion on the recent trends in selected indicators of
macroeconomic performance and wellbeing. I shall present a short analysis of the patterns. The
concluding part of the lecture will be to provide suggestions on what can be done to translate
good macroeconomic indicators into improved wellbeing.
1. Introduction
The overall objective of governments around the world should be, and usually is, ensuring the
wellbeing of their populations. Successive governments of Ghana have made the wellbeing or
welfare of the Ghanaian population the focus of stated policy. The Seven Year Development
Plan for the period 1963/64 to 1969/70 aimed at …’creating a socialist society in which the
individual Ghanaian will be able to enjoy a modern standard of living in his home supplemented
by an advanced level of public services outside’ (Government of Ghana, 1964, p. 2). In the
conclusion of the first chapter which outlined the purposes of the plan one of the four cardinal
points of Ghana’s policy was ‘… the welfare of the people…’ (Government of Ghana, 1964, p.
21).
Fast forward 55 years and on page 40 of the Long-term National Development Plan for Ghana
for the period 2018-2057, the overall goal of the plan, which is ‘transformation’, is spelt out.
Transformation is ‘… improvement in the living standards of Ghanaians in a structured,
predictable and measurable manner…’ Four transformations are envisioned and the one of
relevance to this lecture is social transformation. The goal of social transformation is to develop
a society where
‘every Ghanaian has the opportunity to develop themselves to their fullest potential, live
healthy and fulfilling lives and contribute to the development of their communities, their
country and humanity in general’.
Ghana Beyond Aid is premised on five goals: Wealthy Ghana, Inclusive Ghana, Sustainable
Ghana, Empowered Ghana and a Resilient Ghana. An Inclusive Ghana is envisioned to have a
poverty rate of 15%, reduced inequality, increase in formal employment, equal access to quality
education and skills and quality health care, gender equality and a pension system with broader
coverage.
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2. Definitions
Getting the macroeconomy right is an important first step to ensuring the wellbeing of the
population. There are several macroeconomic indicators that governments usually target. Top of
the list is the growth of gross domestic product, i.e. GDP. Next in importance are inflation,
interest rates, government deficits, the exchange rate and the ratio of debt to GDP.
Why are macroeconomic indicators important? The gross domestic product is a measure of the
value of goods and services produced in the economy over a period of time. An increase in GDP
suggests that the increase in output is due to an increase in employment of labour and/or capital
and/or an improvement in the productivity of labour. In the latter case the output of each worker
is rising. An increase in output is a good thing if more people are being employed and if workers
are becoming more productive. The increase in labour productivity suggests that wages will be
rising. Growth in GDP means that government revenue should increase (incomes of those
already in employment increase so more is paid in tax revenue, employment rises so more people
enter the tax net), providing more resources to invest in physical infrastructure and provide for
increased and improved social services that will create conditions for the improved wellbeing of
people. Investor confidence should improve in the context of rising GDP, encouraging further
investment in business, creating employment.
Inflation is the sustained increase in the general price level. When there is inflation, prices are
rising. That inflation is declining does not mean that prices are falling as one journalist
erroneously reported in an article I read not too long ago. A decline in inflation means that the
rate at which prices are rising is slowing down. High and rising inflation rates are to be avoided.
Rising prices reduce the value of our wages and salaries. If our incomes remain unchanged
during a period of inflation, we will not be able to purchase the same quantity of goods and
services over time. For those of us with fixed incomes such as pensions, inflation is a silent thief.
By eroding the real value of income, inflation can push some people into poverty and others
deeper into poverty. Businesses do not like high inflation because it creates uncertainty about the
future making planning difficult and therefore undermining the incentive to invest, reducing the
potential for growth.
High real interest rates may encourage savings but will stifle investment. Monetary and fiscal
policies influence interest rates and it is important that interest rates are not too low to discourage
savings and not too high as to discourage investment.
The exchange rate is an important indicator signalling the attractiveness of consuming
domestically produced goods relative to foreign goods and whether to produce for the domestic
market or to export. A cheap dollar –cheaper than it otherwise should be - makes imports
attractive shifting domestic demand to foreign goods. A cheap dollar makes supplying foreign
markets, i.e. exporting, unattractive because for each dollar earned, less cedis are received than
should otherwise be the case. The demand by foreigners for goods made in Ghana increases the
total demand in the economy and potentially widens the market size for domestic producers. The
exchange rate should be at levels that will not penalise the exporting sector. A cheap dollar can
penalise businesses that produce goods that compete with imports, because it makes the imports
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cheaper. Instability in the exchange rate is disruptive, creating uncertainty, making planning
difficult.
I have taken a bit of time to discuss some macro indicators in order to explain why governments
pay attention to them. All in all, favourable macroeconomic indicators suggest that an economy
has the conditions for growth and employment of the population.
I now turn to a discussion on wellbeing and must first provide a definition of wellbeing. To do
this I have had to wade into the discipline of psychology- an area that economists are
increasingly paying more attention to as the assumption of the rational human being comes under
more scrutiny. Wellbeing has been described as a ‘complex, multifaceted construct that has
continued to elude researchers’ attempts to define and measure’ (Pollard and Lee, 2003, p. 60).
For the purpose of this lecture the definition proposed by Dodge, Daly, Huyton and Sanders in
their 2012 paper is appropriate. They define stable wellbeing as ‘when individuals have the
psychological, social and physical resources they need to meet a particular psychological, social
and /or physical challenge’ (page 20).
It is clear from this definition that wellbeing is not static; it has an inherent dynamism. Second,
wellbeing is multidimensional. McGregor and Pouw (2017) in their paper entitled ‘Towards an
economic wellbeing’ outline three dimensions of wellbeing. There is the material dimension, i.e.
what individuals have. Examples of this are income, assets, education and health. The second is
the relational dimension- the capacity of people to use what they have. The third is the subjective
dimension- i.e. the level of satisfaction they derive from what they have. The three dimensions
interact with one another. For example, a woman with tertiary level education may have a low
level of wellbeing because she faces systemic barriers that do not allow her to realise her full
potential as a person with tertiary education. A farmer with several acres of land may have low
wellbeing because the land is far away from a motorable road and a stream so that he is not able
to realise the full potential of being a land owner.
Examples of measures of wellbeing are the poverty status of people, the nutritional status of
children, satisfaction with life, positive and negative emotions and what people think they are
able to achieve.
3. Trends and Patterns
I now turn to examining recent developments in some macroeconomic indicators and indicators
of wellbeing in Ghana. Growth rates, though positive, slowed down after the peak growth rate of
14% in 20111 when the production and export of oil began. The decline in GDP growth rates
continued until 2016 when the trend was reversed, rising in 2016 and 2017 and declining to 6.3%
in 2018. Consumption spending (real, i.e. after adjusting for inflation)– by both households and
government- declined in 2015 and 2016; growth in real investment demand declined between
2014 and 2018 with the exception of 2016. The positive growth in export demand since 2016 is
what shored up the situation contributing to the halt in the decline in growth rates.
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Inflation rates have moved from double digits to single digits. Excluding the financial sector
clean-up costs, the fiscal performance, i.e. the size of the fiscal deficit, has improved in recent
years declining between 2016 and 20182. The prices of the dollar and other foreign currencies
have increased during most of the period. The real effective exchange rate depreciated between
2016 and 2018 which is good for exporters and to promote the import substituting sector. The
debt to GDP ratio is high. Interest rates as proxied by the Bank of Ghana policy rate has fallen as
have average lending rates (33% in 2016 to 27.8% in 2019 – with an inflation rate of less than
10% this translates into very high real interest rates).
Let us now examine some of the other indicators that don’t usually make the headlines but which
also provide some information on what is happening to people’s lives.
The UNDP’s human development index, introduced in 1990 was developed as an alternative to
GDP per capita. It is an aggregate index that comprises income3, health4 and education5 – thus
attempting to capture dimensions of social progress beyond income. The human development
index ranges from a value of 0 to 1. In 2000 Ghana had a human development index of 0.484. It
stood at 0.554 in 2010 and at 0.592 in 2017. 6 Ghana’s HDI has increased by 22 percent between
2000 and 2017. Much of the improvement is due to positive income changes. However, adjusted
for inequality, the HDI was 0.379 in 2012 and 0.420 in 2017 and the improvement was much
less.
What has happened to the percentage of the population living in poverty? I shall make use of the
poverty estimates provided by the Ghana Statistical Service. The poor are those persons living in
households with a consumption expenditure per adult equivalent7 below the critical level
considered necessary to meet basic needs. The proportion of the population living in poverty
declined from 31.9% in 2005/06 to 24.2% in 2012/13 and to 23.4% in 2016/17. The Ghana
Statistical Service identifies a sub-group classified as the extreme poor. The proportion of the
population living in extreme poverty cannot meet their basic nutritional requirements even if all
of their spending is on food. This sub-category of people living in extreme poverty declined from
16.5% in 2005/06 to 8.4% in 2012/13 and marginally to 8.2% in 2016/17. Not much progress
was made in reducing the proportion of the population living in poverty between 2012/13 and
2016/17.
There is growing interest by economists in what people have to say about their wellbeing.
Increasingly, subjective assessments of wellbeing are considered together with objective
measures such as the poverty status of a person. As already mentioned there are different
measures of wellbeing. One of them is the evaluation of one’s life. The World Happiness Report
2 Government of Ghana (2019). Mid-Year Fiscal Review of the 2019 Budget and Economic Policy Statement.
3 Measured by Gross national income per capita
4 Measured by life expectancy at birth
5 Measured by mean years of schooling and expected years of schooling, i.e. the expected years of schooling that a
declining slightly to 63 in 2017. Mean years of schooling was 7 in 2012 and 7.1 in 2017.
7 Consumption per adult equivalent is consumption per person adjusting for the number of adults and children in
the household.
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has since 2012 published findings on life satisfaction for over a 100 countries including Ghana. 8
Respondents are asked to rate their level of satisfaction with their current life on a scale of 0-10.
The average values for Ghana declined from 5.091 in the period 2010-12 to 4.63 in 2012-14 and
4.12 in 2014-16, rising to 4.996 in 2016-18.
Growth in Ghana has occurred with rising economic inequality. When we examine the spatial
dimensions of poverty we find there is much unevenness in progress towards poverty reduction.
The population living in poverty remains high in the Northern Region at 61%, Upper East
Region at 54.8% and the Upper West Region at 70.9%. In the Northern Region the proportion of
the population living in extreme poverty increased between 2012/13 and 2016/17 and there was
little if any change in the incidence of extreme poverty in the Upper West Region.
Growth has not been pro-poor. In earlier periods (2005-2012), consumption expenditure per
adult equivalent of the poor increased as did that of the non-poor. However, since 2012
consumption expenditure per adult equivalent registered positive growth for households at the
upper end of the distribution whilst for the bottom 20 percent of households, it declined. A stark
rural-urban divide exists. Whereas urban households have on average registered positive
improvements in consumption expenditure as the economy has grown, among rural households,
those in the bottom 50% have registered declines in their consumption expenditure.
The gender inequality index of the UNDP comprises three dimensions, i.e. reproductive health,9
empowerment10 and labour market participation. The gender inequality index ranges between 0,
i.e. no gender inequality and 1, i.e. complete gender inequality. In 2008, Ghana had a gender
inequality index of 0.729.11 It declined to 0.549 in 201312 and 0.538 in 201713. Though declining
gender inequality remains high.
In summary, the slowdown in growth beginning from 2011 was accompanied by stalling in the
progress made in poverty reduction, an increase in economic inequality and a decline in the
subjective wellbeing of the population (until the recent increase).
4. Providing Explanations
Good macroeconomic indicators, particularly the level of per capita GDP and trend in GDP
growth are necessary but not sufficient for social progress or improvements in individual
wellbeing. GDP is not designed to measure wellbeing. GDP measures the value of goods and
services produced in the economy over a period of time. GDP could grow by leaps and bounds
because of an increase in the production of guns, grenades and ammunition. GDP could grow
over time because of an increase in the production of goods that pollute the rivers and the air,
8 https://worldhappiness.report/download/
9 The indicators for reproductive health are the maternal mortality ratio and the adolescent fertility ratio.
10 Empowerment is measured using the ratio of women to men representatives in parliament and secondary and
higher education attainment.
11 UNDP, HDR 2010
12 UNDP, HDR 2014
13 UNDP, HDR 2018
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bringing about an increase in water-borne and respiratory diseases. GDP could grow because of
the expansion of a sector that utilises very little labour so that output increases but does not
contribute to increasing employment by very much. When there is GDP growth with rising
inequality people in the high income groups will have their incomes rising faster than those in
the low income groups. Indeed, people in lower income groups may find that despite overall
growth in the economy, their incomes may not be growing at all- which is what is the recent
experience in Ghana. In none of the scenarios that I have presented to you should we expect that
improving macroeconomic indicators, such as rising GDP, will necessarily be accompanied by
an improvement in wellbeing. The economy may register positive growth, but if this growth is
not widely shared, low levels of wellbeing may be widespread.
In addition to income, wealth and their health, people also care about their personal security, the
environment and their relationship with others. Good macroeconomic performance does not
automatically translate into positive outcomes for these indicators of wellbeing.
I propose that the slowdown in the progress made in poverty reduction and the downward
trajectory in the wellbeing indicator in the recent past can be explained by the slowdown in
Ghana’s growth rate, the increase in inequality and the structure of the economy.
The national accounts show that people were hurt by the slowing down of growth- household
consumption expenditure (adjusted for inflation) declined in 2015 and 2016. Household
consumption will shrink if there is a decline in wages and/or employment because of a slowing
down of economic activity. Unfortunately, we do not have data published on a regular basis to
track changes in employment and wages and salaries.
The lack of progress in reducing poverty was also because of the increase in inequality.
Inequality is manifest in several dimensions; inequality in educational attainment with persons at
the upper end of the income distribution having more years of education than those at the bottom
end; there is inequality in access to health facilities with some regions having a better doctor-to-
patient ratio than others and availability of health personnel with specialised skills; gender
inequality in wages and salaries, wealth and educational attainment; inequality in access to
potable drinking water. These inequalities mean that some groups of people are handicapped,
limited and constrained from taking advantage of the opportunities that economic growth may
provide. Inequality means that some people are more vulnerable to economic slowdowns
especially in the absence of safety nets.
The economy has gone through structural transformation with the decline in agriculture’s
importance and the expansion of the services sector. However, further structural transformation
is required if good macroeconomic performance is to be transformed into improved wellbeing.
Agriculture’s contribution to the Gross Domestic Product and its share of employment has been
on the decline since 2000. About 38% of employment is in agriculture. This decline in
agriculture notwithstanding, it remains dominant in the rural economy, employing about 65% of
the workforce. Agriculture is a low productivity sector (Osei and Jedwab, 2013). This may
explain why the bottom 50 percent of the rural population have registered declines in
consumption expenditure in the context of overall growth in GDP. Yields per hectare for many
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crops, for example, cassava, plantain, maize, millet, groundnuts, yam and cowpea are below
what can be achieved when farmers receive the required extension support and there is
appropriate use of modern technologies. In a study on structural transformation in Ghana, Osei
and Jedwab (2013) conclude that there has been no green revolution in Ghana’s agriculture. The
shift of employment out of the sector has been into low productivity sectors – informal
manufacturing and informal services sectors. The high productivity sectors – communications,
finance, insurance, real estate and business services are high skilled sectors. Less than 5% of
employed persons are to be found in these sectors. These are the sectors, that have been
expanding in recent years, but do not absorb large shares of the working population. Agricultural
productivity must increase faster than it has done. Average yields of cassava were lower in 2017
than in 2000; higher in 2017 for rice than in 2000 and about the same for maize. 14
Another feature of employment in agriculture is underemployment. A person is underemployed
if s/he is works less than 40 hours a day. The overall underemployment rate in Ghana is 21.4%.
In agriculture the underemployment rate is the highest at 50% and even higher among those
working in rural agriculture, 70.8%.15 The economy has been recording positive growth rates,
but some groups, particularly in agriculture are not fully engaged.
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regional distribution of central government spending is not easy to come by, information on the
distribution of inputs such as units of school furniture per pupil, number of core textbooks per
pupil, for example, provide some insights into the geographical or spatial inequality in the
distribution of government spending.
Fiscal policy and monetary policy are major pathways linking macroeconomic policies and the
wellbeing of individuals. In a recent paper by Younger, Osei-Assibey and Oppong that uses data
from the 2012/13 Ghana Living Standards Survey to examine to what extent economic inequality
and poverty are reduced by government’s fiscal policy they find that the effect on reducing
inequality is quite limited. With regard to poverty reduction, government expenditure and
taxation reduce poverty by 5.9 percentage points. They find that education and health subsidies
have played a critical role in reducing poverty, without them ‘the net effect of the fisc would be
to increase poverty’. Subsidies on primary and JSS education benefit the poor; school enrolment
rates are rising and the poor are more likely to send their children to public schools. Subsidies to
senior secondary schools and tertiary education are less targeted at the poor. The policy of free
senior secondary education will contribute to making secondary school subsidies more inclusive
of the poor if the recorded increase in enrolment is from poor households. The free SHS policy
has raised the issue of whether social protection programmes should be targeted or universal.
Targeted programmes are to be preferred when there are competing demands for limited
resources. Universal programmes avoid the administrative cost - which can be large - of
targeting beneficiaries to minimise the leakage of the subsidy to non-beneficiaries and maximise
the chances that intended beneficiaries are enrolled on the programme. Universal programmes in
some instances are the carrot required to ‘buy’ the support of the middle and wealthier classes for
social protection programmes.
However, they found that pensions and the LEAP transfers have limited effects on poverty. The
poor are not covered by the pension scheme because they are not part of the formal sector of the
economy. LEAP cash transfers, target the poor and contribute to improving the living conditions
of its beneficiaries because it adds to their income, however, the coverage though rising, is still
limited and the value of the transfer has been eroded by inflation.
b. What should be done?
Thus there is the need for more social spending and implementation of policy measures and
investment in infrastructure to improve productivity in the low productivity sectors if deeper
inroads are to be made in poverty reduction and to reduce inequality. Structural transformation in
Ghana has occurred with a decline in agriculture’s share of GDP and an increase in the share of
the services sector. Employment, however, is concentrated in the low productivity retail and
wholesale sectors. Policy measures must be considered to expand employment in higher
productivity sectors. We had a stimulating lecture last night on human development in Ghana by
one of the commissioners of the National Development Planning Commission. The structural
transformation of the economy that entails increases in productivity will require an improvement
in the quality of education, improved competencies and the acquisition of skills required by a
low middle-income country in the twenty-first century. To achieve these will require a re-
evaluation of the structure of the education system and reprioritisation of education expenditures.
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A large share of government spending is already allocated to education. Policy measures and
interventions must be introduced to ensure greater efficiency and effectiveness in the utilisation
of these resources.
Households headed by persons who are self-employed in agriculture contribute the largest share
to total poverty. The incidence of poverty amongst this group of households increased between
2012/13 and 2016/17. If headway is to be met in reducing poverty and inequality, productivity in
agriculture must be improved and the incidence of underemployment in agriculture – and indeed
the other sectors of the economy-must be reduced. Extension services must be provided, inputs
must be made available on time, access to irrigation must be improved and the education and
skill set of farmers raised. Rural infrastructure must be expanded and improved- there must be
improved access to markets, electricity, potable water, government services and the internet to
facilitate the diversification into non-farm rural activities. Diversification into non-farm
agriculture can reduce the incidence of poverty. Osarfo, Senadza and Nketiah-Amponsah (2016)
found that non-farm activities improved food security and incomes among households in the
Upper East Region and Upper West Regions.
Government’s budget is skewed towards consumption expenditure. It has difficulty achieving its
target for development expenditure. A re-assessment of government spending is required and in
addition government must also consider improving its tax effort.
The fiscal position must be improved. However, we must look beyond the size of the fiscal
deficit and interrogate the size of government spending and revenues, the composition of
government spending and which groups bear the burden of taxation. Ghana’s ratio of
government spending to GDP and of government revenue to GDP is below the African
average16. The recent rebasing of the Gross Domestic Product, which revealed that the economy
is much larger than was originally thought reveals that the tax and spending ratios are much
lower than we thought them to be. This means that Government must ramp up its tax collection
effort. This will provide it with the fiscal space to increase spending in ways that will contribute
to the wellbeing of its citizens.
Political economy dimensions come into play here. Whose income and expenditure should be
taxed? The answer is the burden of taxation should be minimised for people at the lower end of
the income distribution- this does not mean that they do not pay taxes, but that the share of their
income that is paid as taxes should be lower than the share paid by higher income groups.
Neither individuals nor companies enjoy paying taxes. Which groups are more likely to
successfully resist being taxed? The withdrawal of the tax on luxury cars could provide an
answer.
We need more tax revenue to finance our social spending and investment in infrastructure. But
why should formal sector workers –a very easy group to target in an economy where the
informal sector is so large - pay more taxes when they are already paying so much? Why should
we pay more taxes when there is evidence each year of embezzlement, waste and downright theft
16In 2016 the revenue to GDP ratio for Ghana was 20.1% compared to the African average of 23.1% and the
expenditure to GDP ratio was 25.6% compared to the African average of 29.7% (African Statistical Yearbook, 2017).
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of tax payers’ money? Why should we pay more taxes when the quality of public services that
these taxes are supposed to finance leaves a lot to be desired? Why should we pay more taxes
when anecdotal evidence suggests that some of us have to make ‘unauthorised’ payments to
revenue collectors which do not enter the state’s coffers? The official tax ratio may be lower than
the actual if these anecdotes are more than just anecdotes.
If tax revenues are to be increased in order to create more fiscal space government must address
the issues just raised. In addition, government must explore ways to make it easier for us to pay
the required levies and fees. Government must reconsider the size of some of the penalties for
delayed payment of taxes, to encourage us to pay our taxes on those occasions when we are late.
A greater taxation effort, resulting in the increase in taxation of some groups will require an
improvement in the quality of government. An improvement in the quantum and quality of
public services provided must be the carrot offered to the population for them to be willing to
accept the increase in revenue generation to finance public expenditure programmes to reduce
poverty and inequality.
Before government implements its spending and taxation plans the distributional implications of
these plans must be analysed. Which groups will benefit from the provision of a subsidy or the
introduction of a new tax? What will be the effect of interventions on women and men? What
will be the effects on the poor? A similar analysis is required after the measures are introduced to
ensure that government is keeping track of the pulse of the population. To be able to answer
these questions a wealth of data is required. Government must be committed to conducting
household surveys, agricultural surveys and census, industrial surveys and censuses and labour
force surveys at regular intervals. The Ghana Statistical Service must consider collecting
longitudinal data to track individuals and households and firms over time. We will require more
nationally representative data on different segments of the population, i.e. the youth, elderly and
children. The Ghana Statistical Service must consider collecting data on subjective poverty and
wellbeing. Modules on subjective poverty and wellbeing can be easily included in the household
surveys. The Centre for Social Policy Studies at the University of Ghana in 2017 carried out such
a survey in the Atwima-Nwabiagya District in the Ashanti Region. One advantage of collecting
data on subjective wellbeing is that it makes it possible to obtain individual level wellbeing data.
The collation and collection of administrative data must be strengthened. This will make it
possible to have regional and district level data. Conscious effort must be made to collect
administrative data that is disaggregated by sex.
Data must be made publicly available. In this age of the internet we should be able to download
up to date data from the sites of ministries, department and agencies and the sites of
municipalities, metropolitan and district assemblies.
6. Conclusion
Good macroeconomic indicators will not automatically translate into improvements in wellbeing.
Growth will not always trickle down to the poor. Deliberate and concerted effort on the part of
government is required if the living conditions and the wellbeing of people are to be improved
and socio-economic inequality is to be reduced. Ensuring the efficiency and equity in
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government spending and taxation and implementing social and economic programmes to foster
growth are important. It is critical, however, that government increasingly generates the
resources through taxes, fees and levies to fund these programmes. Funding our social and
development programmes through these resources reduces our dependence on and vulnerability
to foreign donors and lenders; it will reduce the burden of debt and provide more fiscal space –
through the reduction in interest payments – for spending on development and poverty reduction.
Madam Chair, I am done.
Ladies and Gentlemen, I thank you for your attention.
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