Development economists have for years associated industrialization with economic development, arguing that countries will move from agriculture production toward manufacturing. However, in recent years the question has become whether these economies will simply skip industrialization and move to a service economy. Given the statistics in The Institute of Statistical, Social and Economic Research’s Report on the State of Ghanaian Economy, I would argue that Ghana will skip the development of a manufacturing sector.
Additionally, development economist Arthur Lewis, theorizes that there is a point in a two-sector model where all surplus labor from the rural sector will be absorbed by the industrial sector. So is Ghana is approaching this point, or does a focus on rural and agricultural development still need to be a priority?
The report states that since 2010 the agricultural sector has continued to decline in its contribution to Ghana’s economy (ISSER, 108). The service sector is the largest contributor to the Ghanaian economyat 50.6% of GDP, while agriculture contributes 21.3% and the industrial accounts for 28.1% (ISSER, 108). Looking at the table you can see that the service sector continues to be the largest sector of the Ghanaian economy from 2007 – 2013, furthermore the role of agriculture also continues to decrease from a high of 31% of the economy in 2008 to the current percentage (ISSER, 109).
This spike in 2008 and 2009 could be related to the spike in world food prices in the same period, where agricultural exports would have been sold for a higher price on the world market. While the industrial sector has grown some, it still does not account for more than 30% of the economy at any point during the time period on the table. This shows a shift from agriculture as a leading part of the economy to the service industry, rather than the theorized shift to manufacturing.
However, whether Ghana has reached the Lewis turning point is questionable, as agriculture still plays a key role in job creation in rural Ghana (ISSER, 103). In 2010, the percentage of total employment in agriculture in Ghana was 42% (World Bank Indicators). However, we can see that despite its role in employment, income from agricultural commodities is declining. This shows that there is severe inequality in the incomes of those employed in agriculture and those employed in other sectors.
Because of this I would argue there is still surplus labor in the agricultural or traditional sectors and wages are still low enough to incentivize labor to move to the service and industrial sectors. This also can help to explain the inequality between metropolitan areas, where service sector and industrial sector jobs are located, and the rural areas, where agriculture still takes place.
Because of this, there is still room in Ghana to focus on agricultural and rural development programs. The COCOBOD has focused in recent years on increasing cocoa yields through early maturing planting materials and fertilizer supplies to farmers (ISSER, 117). However, the Ministry of Food and Agriculture has also attempted to diversify through non-traditional agricultural products, which have become an increasing sub-sector of the agricultural sector and has seen increase in export earnings (ISSER, 110).
These include things such as mango, pineapple, papaya, and cashew nuts. The problem with these agricultural commodities is that they are relatively hard to introduce into the global supply chain. This is because they are difficult to ship, and quality standard remain an issue, so therefore export earnings from these may not necessarily be capitalized on. The government of Ghana could help rural development through focuses on extension services to spread crop knowledge to rural farmers, infrastructure to help farmers’ access to markets, and input supply to help increase agricultural productivity. These will all need to be improved, especially in order to make agriculture efficient as more labor moves out of the agricultural sector.
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Jessica Carroll is a first year Master’s student at the Norman Paterson School of International Affairs and an international student from the United States. Her research topics of interest are foreign direct investment and its role in economic development, particularly in Africa. Currently she is working on a paper exploring commodity exchanges and their economic benefits in Sub-Saharan Africa.
Featured Photo From David Whillans