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An urgent need for diversified economy

BY: Daily Graphic

As the global economy slides into recession as a result of COVID-19, and uncertainty about its future is rising, it becomes obvious that these trends weigh heavily on countries that depend on the production and export of a small range of products, or that sell products in only a few overseas markets.

Prices of the minerals and other basic commodities that dominate the exports of many poor countries have also declined sharply. All of these point to the urgent need for diversification strategies that can deliver sustained job intensive and inclusive growth.

During commodity booms, many resource-dependent countries find it difficult to design and implement public investments and policy reforms that provide a framework for diversification.

Economists have, time without number, underscored the need for economic diversification in order for the country to create more and better jobs. Increasing productivity of firms is critical to accelerate job growth.

To contextualise, Ghana’s economic growth has been strong over the past decade, with annual GDP per capita growth at 4.4 per cent between 2006 and 2017, while any hope of maintaining the increased growth rates of above six per cent in the last two years has been extinguished by the coronavirus pandemic.

But even before the pandemic, growth had been concentrated heavily in the natural resources and commodities sectors which has had an impact on how and where jobs can be created.

To drum the point home, only 5,000 of the nearly 250,000 graduates that passed out of universities in the country every year get employed. And this explains why there is an urgent need to diversify the economy to create more jobs.

While economic diversification is of particular importance for mineral — and commodity-dependent countries — and even more so in the face of declining commodity prices — it is a challenge for most developing countries as they seek to deliver higher-productivity jobs for the growing workforce.

It is a fact that growth comes through structural change. It is, therefore, plausible that a shift in economic activities and employment from low to high productivity areas will help to overcome Ghana’s economic concentration and challenges related to job creation.

To create a pathway to a more diversified economy, we must be deliberate and intentional about taking advantage of short-term wins in promising sectors for growth, such as agribusiness, chemicals, textiles, processed resources through upgrading of existing production and product differentiation.

It calls for interventions to lay the foundation for economic activity to flourish in areas such as human capital and physical infrastructure development, and bettering the business enabling environment by removing some of the constraints to productivity growth while addressing structural issues to attract more foreign direct and domestic investments.

It is a fact that a more diverse economy can help reduce economic volatility from commodity cycles and offer new opportunities for more people to benefit from strong economic growth.

As we work towards creating a more diversified economy, the implication is that we are immunising our economy against the dreadful Dutch disease.

Economic diversification is inextricably linked with economic development and poverty reduction, and success will be crucial for our country as we seek to increase the number and quality of jobs in the face of a rapidly growing and youthful working population.

The Daily Graphic strongly holds the view that the need for government action through well designed public investments and effective policy reforms that support a more diversified economy remains central to economic growth.