Structural transformation can spur economic growth if it increases economy-wide productivity growth. A labor market environment that enables the smooth transition of workers and enterprises across sectors and into more productive economic pursuits can make structural transformation more growth-enhancing.
A report by the World Bank presents policy considerations and options for transforming Ghana’s economy in a way that stimulates stronger, sustained growth and produces gainful, productive, and inclusive private employment.
Policy Considerations and Options
To successfully transform the economy and boost labor market performance, Ghana needs to adopt a multi-stakeholder approach and implement well-programmed development policy actions and multisector interventions. Six strategic interventions are recommended to strengthen Ghana’s economy and labor market:
Identify and nurture economic activities and enterprises that can potentially increase product complexity
. The government should consider targeting enterprises operating in sectors prioritized in the World Bank’s 2017 CPSD for Ghana to attract investors to One District One Factory (1D1F) and other programs that aim to bolster the country’s industrial sector. The 1D1F initiative aims to spur a “massive nationwide industrialization drive, which will equip and empower communities to utilize their local resources in manufacturing products that are in high demand both locally and internationally.”
As of July 2020, the 1D1F program had over seventy factories in production, with more under various stages of construction.
Countries are more successful in diversifying their economies when they move into production that requires similar know-how and builds on existing capabilities. To achieve long-term economic gains, Ghana would need to focus on strategic areas with future diversification potential. Given the country’s current exports, industrial machinery and plastics are two sectors with high diversification potential.
Its recent entry into the production and commercialization of oil and gas opens the way to develop associated industries such as petrochemicals and fertilizers, which could be targeted for export. Given strong linkages with the rest of the domestic economy, these industries can also produce broad spillover effects.
A number of economic clusters in Ghana could benefit from targeted government support. These include the light manufacturing cluster in Suame Magazine and the furniture cluster in Kumasi.
To take advantage of these developments, the government would need to address constraints to enterprise development. For example, enterprises have cited the lack of business services and technological support as key constraints to doing business. Enterprises also identify access to financing and a reliable supply of electricity and ICT as important determinants of success.
Strengthen the participation of enterprises in global value chains
Ghana could leverage the economic opportunities posed by further integration in GVCs. GVCs break up the production process across countries, allowing enterprises to specialize in a specific task suited to their capabilities, but they also place a strong premium on trade logistics. Ghana has succeeded in participating in GVCs in horticulture. To further develop the agriculture sector, the government should prioritize public investments in infrastructure, particularly in areas with high agricultural potential.
“Industries without smokestacks,” primarily the agro-processing sector, offer opportunities to create productive employment, capture more value locally (instead of having raw products processed abroad), increase exports, and reduce post-harvest losses for farmers and traders. Most of the off-farm work involved in agro-processing tends to be in trade services, including logistics to move processed products to markets. Importantly, many young people may find employment in post-processing sectors (including packaging, logistics, and marketing services) to be more attractive than farming.
The use of inclusive value chain development (iVCD), which links farmers to buyers and other stakeholders through contracts, can help reduce risks for, and facilitate connections between, players in the agro-processing sector. iVCD arrangements allow buyers (processors) to secure higher volumes of agricultural products with better and more consistent quality that are needed to access markets or operate processing plants at scale.
Farmers, meanwhile, get access to credit, gain agronomic knowledge, and reduce their production, price, and market risks. The iVCD model could be especially promising for Ghana given the prevalence of informal self-employment, primarily in agriculture. Specifically, Ghana should consider the iVCD model for cash crops grown in rural areas in the north.
Harness the potential of digital technologies and proactively adjust to the changing world of work.
To ensure the industrial sector remains competitive, the government needs to take deliberate policy actions ensure the country adopts Industry 4.0 technologies. 78 Meanwhile, policymakers need to plan for job losses and the fall in labor demand as enterprises adopt labor-saving technologies. Technologies that underpin Industry 4.0 are leading to an increasingly service-oriented labor market characterized by the sharing economy.
Digital platforms can be used to access many goods and services, from ordering and delivering meals, clothes, or groceries to hiring personal assistants or contingent workers and utilizing Internet-based scheduling. The government should encourage the growth of the sharing economy and the creation of enabling platforms by young workers, and it needs to support collaborative innovations and the commercialization of platforms through hubs.
Digital platforms can help to expand productive, gainful work opportunities in Ghana. For Ghanaian policymakers, policies around the future of work should not be based on whether employment will be formal or informal, but how to make informal employment more productive and gainful. Digital platforms offer more and new opportunities for informal workers, not just in Ghana but across Africa, by opening up new markets to artisans and domestic workers. This shift can offer enough scale for artisanal producers of food, cosmetics, and clothing to flourish, and it can help to accelerate informal trade at the regional and even international level.
In Ghana, enterprises such as TROTRO Tractor and Farmerline are leveraging digital technologies to boost the productivity of farmers. Other disruptive, platform-based sources of informal employment in Ghana, and in Africa more broadly, include ride-hailing enterprises such as Uber and the online marketplace JUMIA. The World Bank’s 2017 CPSD for Ghana identified the ICT sector as a potential priority sector for targeted investment and development.
Ghana needs to significantly invest in digitalization across the entire economy to spur economic growth and competitiveness as well as to strengthen labor market outcomes. Such a digital transformation should include the expansion of digital infrastructure and cover public and commercial platforms, financial services, skills and literacy, and entrepreneurship. An important part of the digital economy comprises digitally enabled enterprises and the integration of digital technologies with entrepreneurship ecosystems (composed of incubators, accelerators, and hubs).
To prepare current and future workers for the changing world of work, Ghana needs to invest in digital literacy and skills training. The so-called Fourth Industrial Revolution, or Industry 4.0, is characterized by growth in the use of connected, autonomous systems and smart technology in production processes. In high-income countries, employment has been growing fastest in high-skilled, cognitive occupations and low-skilled occupations that require human dexterity while shifting away from middle-skilled occupations such as machine operators.
Middle- and low-skilled workers could experience declining wages—the former because of automation and the latter because of increased competition. Ghana will need to reshape its education and training systems to both teach existing workers new skills and prepare future workers for a digital economy.
Increase and enhance the participation of women, the youth, and the poor and vulnerable in the labor market
A review of the country’s labor market policies and programs aimed explicitly or implicitly at addressing the labor challenges of the youth suggests overlapping objectives and similar core designs. Programs also appear to be biased toward young people who are already relatively skilled, high school and university graduates, or urban residents. The government, along with the private sector, needs to improve the coherence and complementarity between programs, as well as to improve their effectiveness, efficiency, and impact on equity.
Potential labor market entrants in Ghana, especially among the youth, face various challenges to succeed in the labor market. Based on growing evidence from Ghana and elsewhere, a suite of interventions should be offered to address these challenges, including vocational, socioemotional, and life skills training; knowledge, capital, and other inputs for starting and running a self-employment activity; and intermediation and counseling services to support success in searching for and securing wage employment.
These interventions can be provided through a single multicomponent program or through multiple, distinct programs that are well coordinated. Policies should include efforts to direct workers toward areas that are expected to produce productive and gainful wage and self-employment in both the short and medium/long term. The authorities should also try to support these emerging employment areas to be conducive to the participation of young and other disadvantaged groups.
The design and delivery of Ghana’s labor market programs and services need to be tailored and made sufficiently flexible to be relevant for new, existing, and returning workers. They also need to consider the different backgrounds of workers. For example, women’s constraints differ from those of men and relate to different norms and expectations around domestic, childcare, and elderly-care responsibilities as well as economic participation. Ensuring that labor market programs and services are relevant to all workers and sensitive to their differences would require customized and intensive outreach, information, counseling, referral, and overall case management.
Social safety-net programs, which target the poor and vulnerable, can have a positive impact on the overall functioning of the labor market and the behavior of workers. Initiatives such as the Livelihood Empowerment Against Poverty cash transfer program or the Labor-Intensive Public Works program can improve the psychological, physical, and material wellbeing of beneficiaries, enabling them to more constructively engage in the labor market. Social safety-net programs also promote greater human capital investment, thereby increasing the likelihood of success for beneficiaries in the labor market.
However, social safety-net programs need to be designed to have a positive effect on the labor market while reducing downside risks or negative effects on the labor market. To achieve this, the programs could actively connect beneficiaries to suitable labor market programs and services, or to private self- or wage-employment opportunities.
One such effort that is currently being rolled out by the government is an economic inclusion program for beneficiaries of social safety-net programs in northern Ghana.
. Improve human capital in the current and future workforce
Greater human capital (i.e., improved nutrition, health, education, and training outcomes) can stimulate Ghana’s structural transformation and improve labor outcomes, including labor productivity. Interventions should aim to extend opportunities for raising human development outcomes as well as improving the quality of available opportunities. Such efforts may be especially needed in relation to student academic achievement, given Ghana’s low HCI score on this indicator.
Furthermore, the greatest shortfalls in human development are observed among the poor, people vulnerable to falling into poverty, people living in rural areas and in the northern regions, and girls and women, among other groups. The lower performance of these groups on various human development indicators is likely the result of a combination of lower household demand for nutrition, health, education, and training services (owing to a lower valuation of improved human development outcomes) and poorer availability, access, and quality of human development services. Interventions should aim to address both demand- and supply-side factors behind low human capital investments.
Improving human capital development does not necessarily mean that the government is solely responsible for directly improving nutrition, health, education, and training services. Interventions in sectors such as water and sanitation, social protection, and transport, to name a few, can produce direct, meaningful, and positive gains in human capital development, as these “human development-sensitive” interventions can improve the payoff of “human development-specific” interventions in the education or health sectors.
Moreover, the government may have a greater impact on the quality of human capital development if they set the rules and creates the conditions that allow the private sector to successfully provide human capital development-centered services. To understand where and how the public sector should intervene to improve human capital development, the government needs to understand the extent and nature of private and public-sector failures in education, training, and healthcare services.
Design systems and interventions to be resilient and responsive enough to protect the economy and labor market against disasters and shocks
Ghana, just like any other country, is susceptible to the frequency, scale, and severity of negative, large-scale natural and manmade shocks and disasters. Disaster management institutions, early warning systems, and preparedness and response plans are vital to mitigate the impact of different types of disasters and shocks. However, a basic prerequisite for an effective response to unexpected events is sufficient, timely, and well-executed emergency public spending when a major event occurs.
For this, the government may need to improve its capability to reprogram planned spending; activate and earmark additional financing from own and external sources; streamline budget execution processes for fast disbursement; and find innovative ways to track the integrity of emergency spending. In the event of a shock, interventions that aim to promote structural transformation and labor market performance will need to be flexible and resilient enough to be used to minimize any disruptions.
Social safety-net programs that are effective in protecting against or mitigating the adverse effects of shocks on households and individuals can help prevent labor markets from unraveling. Left unaddressed, shocks, even those that only have a localized impact, can lead to labor market disruptions or labor dislocations that can have large-scale and persistent negative effects on social welfare.
Social safety-net programs should be designed to ensure they can: i) withstand shocks and continue to operate during emergencies; and ii) help households manage the effects of shocks. The latter may require structures and processes to smoothly and swiftly expand the coverage of safety-net programs, increase their benefits, and/or adjust the timing when benefits are distributed.
Social insurance programs that have extensive uptake and reach and offer quick and meaningful benefits and services when a shock occurs can also help protect workers and enterprises against the effects of shocks and other emergencies