Building a Robust Economy for a Developing Country


In reference to Ghana’s Business News dated 16th November 2020, the Government of Ghana is supporting investment in the gas infrastructure to ensure a significant shift from oil-based power generation to gas-based power generation. In the long term, however, the plan is to invest in nuclear power, which can be a cheaper and cleaner energy source to support the country’s commitment to combat climate change. Minister of Energy, John Peter Amewu, said Ghana had included nuclear power in the energy generation mix. Mr. Amewu was speaking at the 2020 Ghana Economic Forum on the theme: “Resetting the economy beyond COVID-19; Building economic resilience and self-sufficiency”. The forum sought to set the agenda for Ghana’s Economic Prosperity by engaging key stakeholders to deliberate on economic development issues in a non-partisan manner.

Ghana, like all developing countries, needs nothing than a resilient economy focused on a sustainable economic growth. Efforts to increase prosperity and living standards across the country depend critically on a vibrant economy delivering strong and sustainable growth, with employment opportunities and earnings growing steadily over time. In the present economic circumstances, Ghana has more graduates than ever before but not in commensurate with job vacancies. While the traditional measure of the total output of the economy is Gross Domestic Product (GDP), it does not capture the full impact of an economy on quality of life. The focus of the government should therefore be on achieving strong and sustainable economic growth. Interwoven with discussion of economic issues, a crafted strategic framework for the economy should draw out the strong links that exist between the economic, social and environmental pillars of sustainable development. Furthermore, it should also set out a broad set of indicators that will be used to assess progress towards a strong and sustainable economy. While GDP still provides a useful way of measuring the size of the economy, for most people employment prospects and earnings are the most relevant economic measures of their quality of life.

Economic resilience is essential to better withstand adverse shocks and reduce the economic costs associated with them. Economic resilience can be strengthened by implementing policies aimed at mitigating both the risks and consequences of severe crises. In the case of risks this implies being able to monitor home-grown vulnerabilities; coping with the consequences means identifying policy settings and mechanisms that can be put in place ex ante so as to help absorbing the impact of a severe downturn. The likelihood of a severe economic crisis is reduced significantly if a country exhibits flexible and adaptable institutions.

Economic resilience can be defined in many ways, but in an open opinion, it is a term being used to refer to the ability to recover from or adjust to the negative impacts of external economic shocks. Interest in the concept of resilience has grown in recent years due to the convergence of thought on recent economic and financial crises, which was catalysed by the banking crash and recession of 2017–2018. Although some argue that the concept is fuzzy, a catch-all working definition of resilience might be the ability of an economy to adapt both to shocks and to long-term changes. The issue of resilience building is important for developing countries in view of the fact that these economies tend to be inherently economically vulnerable. Consideration of resilience building also conveys the message that vulnerable countries should not be complacent in the face of their economic vulnerability, but could, and should, adopt policy measures to enable them to improve their ability to cope with external shocks.

Economic resilience is essential to better withstand adverse shocks and reduce the economic costs associated with them. Limited economic resilience is often related to weak national economic structures. In particular, rigidities in labour markets, limited competition in product markets, framework conditions that impede the entry of new firms and complicate the daily business of existing firms, as well the quality of government services (e.g., rule of law, absence of corruption) are often considered to be the main obstacles to high shock absorption capacity.

Economic resilience is associated with the flexibility of an economy enabling it to bounce back after being adversely affected by a shock. This ability will be severely limited if, for example, there is a chronic tendency for large fiscal deficits or high rates of unemployment. On the other hand, this ability will be enhanced when the economy possesses discretionary policy tools which it can utilise to counteract the effects of negative shocks, such as a strong fiscal position, which would entail that policy-makers can utilise discretionary expenditure or tax cuts to contrast the effects of negative shocks.

A strong international identity of a country, provides a platform from which to pursue the economic objectives of increased trade, investment and tourism. It is essential to build that identity for the country and consistency is the key. Creating a stable and favourable business environment is a prerequisite for encouraging sustainable growth. Without having the fundamentals in place individual initiatives to stimulate particular activities or sectors will never achieve their potential. Crucial elements of a favourable business environment include: macroeconomic stability; competitive and flexible product, capital and labour markets; an efficient and effective public sector; and good economic infrastructure, such as transport, ICT and utility networks, housing, educational facilities, retail centres and business premises. Macroeconomic stability provides the bedrock of the modern economy, as without it businesses and individuals cannot plan and invest with any certainty. For many years, Ghana has had mixed fortunes on the back of macroeconomic instability. Stable political, social and legal environments are also important to ensure a resilient economy. A stable economy underlines the importance of flexible and competitive capital, labour and product markets. Flexible markets can be important in ensuring that growth is not constrained and that resources are allocated to where they can create most value. Competitive markets provide strong incentives for firms to be more efficient and to innovate in order to establish a competitive advantage.

Furthermore, good governance is essential for an economic system to function properly and hence, to be resilient. Governance relates to issues such as rule of law and property rights. Without mechanisms of this kind in place, it would be relatively easy for adverse shocks to result in economic and social chaos and unrest. Hence the effects of vulnerability would be magnified. On the other hand, good governance can strengthen an economy’s resilience.

Practitioners have attempted to pin down the concept of building economic resilience, and in doing so they came out with four variations on this theme. They contend that resilience is to resume form and function elastically following a disturbance; bounce-back to a pre-shock state or path; as ability to absorb shocks; and as robustness, thus, the capacity to maintain core system performance through adaptability of structure and function. However, each of the interpretations refers to or implies returning to some kind of normal state, rather than adapting or transforming fundamentally in response to change.

Economic resilience model focuses on the interaction of the commercial, social and public economies within a local economic territory, while also accounting for other, overarching factors across health and well being, government input, local identity and context, history and culture, and the need to work within environmental limits. Resilience is part of an understanding of the heterogeneity of national economies and the impact this has on their vulnerability to economic shocks and business cycles. In other cases, ideas about economic resilience intertwine with those of environmental resilience in far more extreme situations, such as environmental disaster, famine and war. It is interesting that many concepts of economic resilience focus on local economic areas.

Long-term economic performance is the result of a multitude of factors, but shocks can cause both capital and labour to move away from less to more resilient economies, and therefore embed disparities, contributing to the long-term divergence of economic performance. Resilience requires responsible businesses in the economy. A key consideration concerning the economic resilience of local economies is that each of them have clear roles within the wider national and global economy. Local economies can be extremely vulnerable to both shocks and long-term changes, many areas still struggle with the long-term decline of manufacturing, for example, and changes in industrial composition within an area can devastate local economies.

Economic resilience requires innovation, enterprise and employer engagement. Innovation and entrepreneurship not only drive productivity and growth, but enable local economies to adapt to both local shocks and long-term pressures. There are many ways in which government can support innovation and entrepreneurship, including through comprehensive and rationalised business support, and by developing linkages between universities and local businesses to enable the commercialisation of research. Innovation is a crucial element in the definition of resilience, and central to businesses capacity to adapt and renew in anticipation of and response to shocks and long-term changes.

Corporate social responsibility and social objectives of businesses account for economic resilience. Many businesses of all sizes and sectors engaging in corporate social responsibility are very important for economic resilience in two ways: First, it has a direct social benefit, bridging the gap between the commercial and social spheres; and second, it can be an indicator of the extent to which businesses are invested and embedded in a local community. To ensure utmost economic resilience, every economy should have opportunities to promote social inclusion and to align economic and social strategies. Many areas of public policy including health, education, energy, have implications for reducing poverty and inequality, and there are important interconnections between social inclusion and economic resilience.

Infrastructure can have a transformative impact on local economies, but its development needs to be clearly linked with wider economic planning. Instead of wish lists and reactive, short-term responses to local infrastructure issues, government’s plans should align housing, transport and employment strategies in order to capitalise on the power of infrastructure to transform local economies, while accounting for long-term trends and addressing wider social and environmental goals.

Providing businesses with finance has long been an important component of wider business support, but the recession and its aftermath have provided a lesson in the importance of alternative financing during downturns, and some commentators are of the opinion that there is now a new credit paradigm. While there is also a need to promote and enable alternative forms of finance, such as peer-to-peer or crowd funding, ensuring the basic availability of finance is absolutely crucial element of local economic resilience, and having a diverse range of finance institutions and instruments in place is key. Even when the economy is growing, a broad range of financial services options help to diversify the business base, and ensure that businesses are not reliant on a single model of finance to help them to invest and grow.

Progressive procurement policies can also be designed such that public spending generates maximum local economic impact. Such policies can have a particularly positive impact on small local businesses, social enterprises and the voluntary sector.

Natural resources are also key considerations in regard to local economic resilience, not least in terms of energy production and consumption. The government recognises this, and has set out a strategy for dealing with national energy emergencies. While the threat of short-term shocks is primarily a national issue, and relates strongly to national security, local economies are often dependent on particular industries or assets which themselves rely on natural resources in order to function. Understanding the threats to these industries is therefore necessary to build local economic resilience, and to play a part in responding to the need to reduce dependency globally.

Social development is another essential component of economic resilience. This factor indicates the extent to which social relations in a society are properly developed, enabling an effective functioning of the economic apparatus without the hindrance of civil unrest. Social cohesion can also indicate the extent to which effective social dialogue takes place in an economy, which would in turn enable collaborative approaches towards the undertaking of corrective measures in the face of adverse shocks. It is therefore hypothesised that social development is directly related to social cohesion, although this assertion cannot be tested empirically due to lack of data.

Further again, social development of a country can be measured in a number of ways. Variables relating to income such as its dispersion and the proportion of the population living in poverty, the long term unemployment rate, indicating the proportion of the population with low skills and inadequate employment prospects, and the proportion of the population with low level of education could be useful indicators. Still another possible approach would be to measure the number and extent of instances of industrial or civil unrest. These approaches are interesting but rather narrow in scope and very difficult to measure across countries.

Growth and environmental sustainability are often considered to be mutually opposing aims. Indeed, in many ways there is often a trade-off between business and employment goals on the one hand, and protecting the environment on the other. Over and above the natural changes in climate and the environment, it is vital that governments’ strategies take into account the potentially catastrophic impacts that man-made climate change may have on all human activity, including on the prosperity of local economies. Proper consideration of these elements is therefore essential for building resilience. Finally, good food and health are not only important ends in themselves, but it has also long been recognized that a healthy workforce is good for an economy, and there is evidence to suggest that good health contributes toward higher labour force participation, while poor health impacts negatively on wages.

Strong accountability matters when we talk of a resilient economy. We should be mindful that accountability benefits everyone. It enables people to know how the government is doing, and how to gain redress when things go wrong. It ensures that ministers and civil servants are acting in the interests of the people that they serve. Accountability is a part of good governance, and can increase the trustworthiness and legitimacy of the state in the eyes of the public. Accountability is about a relationship between those responsible for something, and those who have a role in passing judgement on how well that responsibility has been discharged. When accountability works well, it enables a degree of feedback between the government and the public that it serves. While strong accountability is not a panacea for solving the numerous challenges that government faces in a complex environment, it can improve government. It generates incentives for responsible individuals to act in the interests of the public.

To conclude, it is argued that countries may be economically successful because they are inherently not vulnerable, or because they are resilient in the face of the vulnerability they face. The obverse is also true, in that countries may be unsuccessful because they are not sufficiently resilient. The government has both demand-side and supply-side resilience features in a manner similar to business. Of course, government at various levels plays a key role in economic recovery, so this is an added dimension of resilience in this sphere. Improvements in the quality and quantity of emergency services can be thought of as resilience enhancement. Increases in financial or in-kind disaster assistance and the effectiveness of their distribution to the affected parties promote recovery as well. Governments of developing countries are encouraged to promote public partnership with the private sector and civil society, to develop mechanisms, policies and strategies that take into account the socioeconomic and environmental vulnerabilities of their citizens. Such policies and strategies should include institutional reforms to promote pro-poor economic growth, the mobilization of domestic resources and the curbing of illicit financial flows, and should enforce accountability in economic governance and management.


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