Economic freedom — Focus on the Fourth Republic

Archive photo of Ghana’s economic performance from 1995

Formed from the British colony of Gold Coast and the Trust Territory of Togo in 1957, Ghana became the first sub-Saharan country to gain independence. It has been a stable democracy since 1992. Ghana’s economic strategy since 1992 has focused on macroeconomic stabilization and structural reform in a democratic environment. In Ghana, a rich economic and political debate informs and influences government policies.

The year 1992 marked a turning point in the history of Ghana: a new constitution reintroduced the democratic regime was adopted, with the establishment of the Fourth Republic. Presidential and parliamentary elections followed in November and December respectively. The participatory decision-making process continued and strengthened, leading to economic reforms that produced generally satisfactory results.

The most critical question on the lips of most citizens is; how economically free is the nation? However, it is important to understand what it means to be economically free, which is the fundamental right of every human being to control their own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest as they see fit, with this freedom both protected by the state and unconstrained by the state.

In economically free societies, governments allow labor, capital, and goods to flow freely and refrain from any coercion or constraint of freedom beyond the extent necessary to protect and maintain freedom itself. 100 represents maximum freedom.

Ghana: economic freedom, global index 1995 – 2021

According to the Heritage Foundation, Ghana’s economic freedom score is 59.8, making its economy the 89th freest in the 2022 index. Ghana is ranked 9th out of 47 countries in the sub-Saharan Africa region and its overall score is above the regional average but below the global average.

For this indicator, data for Ghana from 1995 to 2021 showed an average value for Ghana at a minimum of 56 index points in 1995 and a maximum of 64 index points in 2014. The latest value of 2021 is 59 index points.

Scores range from 0 to 100, higher scores are more desirable i.e. more conducive to economic growth. The lower the score, the higher the level of government interference in the economy and the less economic freedom a country enjoys.

– Free 80 – 100;
– Mostly free 70 – 79.9;
– Moderately free 60 – 69.9;
– Mostly not free 50 to 59.9; and
– Repressed 0 – 49.9.

Economic freedom in the last five years

Over the past five years, Ghana’s economic growth had slowed, but it recovered in 2021. The expansion of economic freedom over the same five years has resumed its upward trajectory. Helped by significantly higher scores for rule of law (property rights, judicial efficiency and integrity of government), Ghana has seen an overall gain of 3.6 economic freedom points since 2017 and climbed to the top of the “Mostly Non-Free” category. The burden on the economy from taxes and government spending is relatively light, but fiscal health has collapsed.

The Global Index of Economic Freedom has 10 components grouped into four broad categories: rule of law; Limited government; Regulatory efficiency and open markets. Overall economic freedom is rated on a scale of 0 to 100, where 100 represents maximum freedom.

Property rights

Property rights are recognized and enforced, but the process of obtaining clear land title is often difficult, complicated and time-consuming. Ghana’s legal system is based on British common law and local customary law. There is a history of government intervention in the justice system, which suffers from a lack of training as well as delays and insufficient resources. Corruption is most prevalent in the judiciary and in public services, according to the Foundation.

size of government

The top personal income tax rate has been reduced to 30% and the top corporate tax rate is 25%. Other taxes include taxes on value added and capital gains. The overall tax burden is equivalent to 14.1% of total domestic income. Public spending has amounted to 23.2% of total output (GDP) over the past three years, and budget deficits have averaged 10.1% of GDP. Public debt is equivalent to 78.0% of GDP.

Regulatory efficiency

Electricity is administered through an inefficient state-owned electricity distribution system. Bureaucracy is onerous and there is a general lack of government transparency. The fact that about one in three Ghanaians is illiterate limits productivity. The government is trying to divest 27 heavily indebted and loss-making state-owned companies, including the Tema Oil Refinery, the Ghana Electricity Company and the Ghana National Petroleum Corporation.

Ghana has four preferential trade agreements in force. The trade-weighted average tariff rate is 11.0% and five non-tariff measures are in place. The government generally does not discriminate against foreign investors except in key sectors, but the overall investment regime lacks efficiency and transparency. The financial sector has undergone restructuring, but access to finance remains limited.

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