Review Ghana’s slippage in the global competitiveness ranking of the WEF, and the case for innovation

Placing 119 out of 140 countries, Ghana slipped from its previous position of 114 out of 144. The country scored 3.48, 3.76, and 3.60 on basic requirement, efficiency enhancers, and innovation respectively.

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(From L) World Economic Forum (WEF) chairman Klaus Schwab, South African President Jacob Zuma and Ghana's Vice-President Kwessi Amissah-Arthur attend the opening plenary session on the second day of the World Economic Forum meeting on Africa entitled 'Then and now : Reimagining Africa's Future' in Cape Town on June 4, 2015. The meeting is focusing on Africa's role in the world's economy. play

(From L) World Economic Forum (WEF) chairman Klaus Schwab, South African President Jacob Zuma and Ghana's Vice-President Kwessi Amissah-Arthur attend the opening plenary session on the second day of the World Economic Forum meeting on Africa entitled 'Then and now : Reimagining Africa's Future' in Cape Town on June 4, 2015. The meeting is focusing on Africa's role in the world's economy.

(RODGER BOSCH/AFP/Getty Images)
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Introduction

The global competitiveness index of the World Economic Forum in brevity, assesses the competitiveness of countries across the world, with the ultimate goal of providing an empirical, and objective assessment of a country’s ability to support its socio-economic development.  Indeed for the past 35 years, the index has identified necessary factors and the interrelations that drive the growth and economic prosperity, by building an understanding of the salient strengths and weaknesses of an economy. More crucially it provides the benchmark for a country to compare its performance with other countries [above, par, low]. This year’s [2015/2016] competitiveness index summarises the global systemic challenges [new normal indicators], of “…unemployment, low productivity, and subdued economic growth, that could still be derailed by existential uncertainties…”. Thus the vulnerabilities in the global economy for the year under review are a ‘given’ and country specific strategies from the quarters of policy formulation and implementation should enable it stem the tide.

Ghana’s performance on the index for the past 3 years [editions] has been waning, and if the performance of the economy is anything to go by, the projections and estimations by the index, speak for themselves. A more worrying phenomenon is evinced in the 2015/16 report which sees the country fall eight [8] places compared to its position for the 2014/15 period. One would have ordinarily expected, that the data and information presented by the index together with the views and reports by various stakeholders, would have given the country a reason to change course, but No!

This brief looks at the performance of Ghana on the recent index, analyzing the key themes in the index against the country’s growth and development objective, highlighting the need for innovation as a key component of the country’s development strategy. The components of the index reflect a smooth transitioning of an economy from ‘subsistent’ levels through to a modern sophisticated and innovation driven economy – a necessary condition for survival in the global economy today.

The key indicators

Placing 119 out of 140 countries, Ghana slipped from its previous position of 114 out of 144. The country scored 3.48, 3.76, and 3.60 on basic requirement, efficiency enhancers, and innovation respectively. A performance below the median score of about 3.5 on 0 to 7 scale on basic requirement presumably will affect the country’s preparedness to be efficient and subsequently innovative in its quest for sustainable development.

  • Basic requirement for economic growth and development

The construct of this indicator is based on four (4) crucial pillars which one may consider as foundational requirements towards the move from subsistence to sophistication for a 21 Century economy. Ideally these sub-indicators or pillars should create room for human capital development, and for businesses operate in a sound stable economic environment with the necessary infrastructure and institutions to deliver the end goal of socio-economic development at the micro and macro level.

On a 0 to 7 score scale, the country scores 2.74 and 2.79 on infrastructure and macro-economic environment performance respectively. This is below the median score of about 3.5, which a country like Ghana should not struggle in achieving, given gains made in other areas of the economy cumulatively. The possible effect being the frustration expressed by various business persons, and government in general regarding business sustainability and employment generation. The below median performance on infrastructure and macroeconomic environment can equally be evinced in the worsened macro-economic outlook; inflation in excess of 15 percent for a greater part of the year, public debt in unsustainable levels, output shrinking to about 3.5 percent (projected to close of year), cost of credit in excess of 30 percent, the currency (GHS) losing more than 20 percent of its value. The anecdote is further compounded by recent developments regarding investors’ perception of the extent of instability which has resulted in the yield on the country’s Eurobond reaching double digits, when its peers such as Ivory costs received a yield of about 6.25 percent. The non-reversal of the deplorable environment could further compound the problem, as the envisaged short term gains under the ‘policy credibility and recovery program’ of the International Monetary Fund has also not delivered as expected. With government further increasing its burden by growing, its recurrent expenditure (e.g. increases in wage bill of public sector workers), increasing its debt service cost, and what is considered as the new normal for commodity prices, it is not clear if this trajectory will change in the interim. FISCAL POLICY needs to be tamed!

On institutions, and health and primary education, the country scores 3.86 and 4.53 respectively. Although these are above the median score of 3.5, they compare unfavorably with the country’s peers in Sub-Saharan Africa such as Botswana, Cameroon, and The Gambia. Social investments in primary and education and health could be responsible for the high score of Ghana. But a quality assessment conducted by various stakeholders, has consistently revealed undesirable results given the objectives for which the investments are made. There however has been a consistent improvement in enrolment for instance at the basic education level attributable to interventions such as the school feeding program. Other initiatives such as national health insurance scheme and LEAP, have also contributed in various ways towards the improvement in health and basic education. With the current fiscal challenges confronting government, and the gross ‘mismanagement’ coupled with the absence of sustainability strategies, these programs are vulnerable over the long term, which could see gains in this indicator eroded.

Consequentially, the foundational requirements in furtherance of a steady progress and development could be wobbly, making the attainment of an efficient and innovation driven economy a mirage rather than a reality in the immediate future! The weight of institutions and primary education and health drive the overall score on the basic requirements index (3.48). This is however insufficient as the country placed 127 out of the 140 sampled countries, with Rwanda, Botswana and others outperforming it [Ghana] in the overall score across sub-Saharan Africa.

  • Efficiency

The efficiency of an economy becomes necessary after solid grounds have been achieved on the basic requirements. Thus the basic requirements provide the plank for operational viability of the efficiency indicators towards the creation of an economy that is efficient in resource utilisation for its development. For instance, it is practically impossible for an economy to fail on provision of basic education, health care, and macroeconomic environment, and progress on labour market efficiency, training and skills development at the tertiary level, readiness for technological innovation, financial market deepening and development and ensure efficiency in the goods market. The occurrence of this phenomenon, exposes the inconsistencies in the objective of policy formulation for economic development, which will deliver spontaneous and ‘fluke’ gains intermittently. A clear RECIPE for DISASTER!

Unfortunately this conclusion is arrived at considering Ghana’s performance on the efficiency indicators viz-a-viz its scores on the basic requirement indicators. It scores 3.76 on the indicator, with virtually all the sub-indicators above the median of 3.5 except technological readiness (efficiency). Compare the results in the table below;

Basic Requirement

(Key for factor driven economies)

SCORE

Efficiency

(Key for efficiency driven economies)

SCORE

Health and Primary Education

3.86

Higher education and training
Labour market efficiency
3.57
4.01
Macro-economic environment

2.79

Goods market efficiency
Financial market development
Market size
4.19
3.78
3.74
Infrastructure

2.74

Technological readiness

3.24

Institution

4.53

Technological readiness

3.24

[Table 1: Comparison of basic requirement and efficiency scores  Source: World Economic Forum, global competitiveness report, 2015]

Clearly there is a misnomer in the country’s strategy if the scores on macroeconomic environment and the attending results on goods market efficiency, financial market development and size of the market, which should be predicated on the soundness of the economic environment are high whiles the microenvironment remains in a volatile position. Two conclusions can be drawn from this development;

  • An existing disconnect between market players and policy decisions to influence the macro-economic environment largely
  • A quick adjustment of market players to negative effects of the macro-environment

Typical of the above conclusions will be the progress and development of the financial sector (banks, insurance, microfinance, rural banking, etc), as against the general economic slowdown for the first half of the year (2015), with banks for instance increasing their assets, deposits, and bottom lines. Again developments in the primary education, higher education and training, which will ordinarily influence the structure of demand for labour (unemployment) appears not to be consistent with efficiency in the allocation of the labour market (unless labour market efficiency is influenced by factors extraneous education and training[3]).

Granted that some of the basic requirement sub-indicators will overlap in their support of the efficiency sub-indicators, the general inconsistency is a worrying phenomenon, without resource to the efficient utilisation of the country’s resources (financial, human, and technological).

Again, it is expected that for efficient resource utilization as an economy, a complementary role should exist between the structural compositions of the economy, thus the goods market should lay some complementary support for instance to the labour and financial markets, and vice-versa. These should intend feed on efficiency of technology to drive growth. To this end, the labour market and the goods market appear to exhibit this complementarity, but the financial market is completely off tangent. This could account for its inability to support businesses with cost of credit remaining relatively high and inconsistent with monetary and fiscal policy directives.

The country records a slippage on the technological readiness sub-indicator, which negatively impacts on the ability of the financial, labour and goods market to development the appropriate sophistication required for an economy in today’s competitive environment. It is for this reason that most businesses are still dependent on old approaches to delivering services, albeit that the financial services sector is gradually adjusting. However, this is not at the same pace as is seen in other jurisdictions such as Kenya, Nigeria, Cote d’Ivoire, Rwanda, Mauritius, etc, which is a worrying phenomenon.

Innovation and sophistication

Business sophistication and economic innovation, will leverage on the developments of the basic requirement together with the efficiency in resource utilisation as well as devotion of the economy and its players (businesses, research Universities, governments) to research and development. On business sophistication the country scores, 3.90 and is takes the median position out of the 140 countries, and scores 3.31 on the innovation sub-indicator. The country ranks 65 on the overall sub-index, with Kenya (42), Mauritius (51), Rwanda (55), and Senegal (54), all outperforming it. The physical evidence of the technological sophistication of these countries is empirical, as they are home to some of the most innovative technological systems that support the social and economic life in these countries.

A worrying development arises when the country scores 4.1 on the measurement of its capacity to innovate, performs averagely or below average after interrogating quality of scientific research institutions, company spending on research and development to drive their innovation, procurement of advanced technology products by government, patent applications per the population, availability of scientists and engineers, cluster of development among others.

It is not surprising that of the 26.2 million Ghanaians, more than 70 percent remain unbanked as financial institutions have not been innovative in solving the banking needs of the public. Public sector institutions still grapple with technological innovation to deliver their public services (business registration, filing of tax returns, payment of taxes, regularisation of social security, formalisation of informal sector of the economy, engagement of ministries departments and agencies, etc.). For indigenous innovators who have decided to go contrary to the narrative, the environment has not been supportive in accommodating them. This has serious implications on the country’s ability to develop the right thinking innovative solution providers to compete with their peers in other jurisdictions. Moreso, when the traditional economy of commodity production appears to be in ‘tatters’ with commodity prices consistently exposed to vulnerabilities in the global economy. It makes sense for the country to focus its initiatives in the areas of research and development to drive innovation. This must filter through the system of education and training, and should complement the structure and cycle of economic development, providing the harmony between the labour, capital, financial, and goods market.

Conclusion

In summary, Ghana’s performance has been less than desirable in the 2015/2016 on all indicators studied under the global competitiveness index. For the year under review, the progression of the economy from its basic development requirements, through efficient utilisation of resources to sophistication and innovation, appear somewhat inconsistent and illogical, further underscoring the rather disconnected manner in which the economy functions.

Gains made in education and health, do not appear to filter through the economy. Similarly, setbacks in infrastructure and macro-economic instability, negatively affect the economy in its quest for efficient resource utilisation, from the labour, capital, finance and technological fronts. Further compounding the problem is the general laxity of devotion to research and development, to identify innovative ways of transforming the social and economic structure of the country.

This year’s index and report on the competitiveness of the country should be considered as a wakeup call, not only to the government but all players in the economy, including businesses, academia, research institutions, individuals etc. The country does not have to re-invent the wheel of progression on these themes for its development. Other countries across the sub-region and the continent appear to be going in the right direction; moving towards innovation driven economies (Kenya, Rwanda, Uganda, Gambia, and Mauritius).

These countries appear to be focusing on the simple and obvious strategies for their socio-economic development. In the current climate of global economic instability, it makes sense for a country to strive for sophistication driven by innovation and diversity. This will provide an insulation, in the case of Africa and Ghana, from shocks in commodity markets, which more often than not, create ‘development craters’. If development will be private sector driven, our efforts of development should be geared towards unlocking the creative potentials of innovation, socially and economically, from the individual, business and government levels. This is a MUST, otherwise we are DONE as a country!


Patrick Stephenson is IMANI’s Senior Research Fellow.

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