Ghana

							GHANA
Rank: 91 Regional Rank: 11 of 40
hana’s economy is 58.1 percent free, according to our 2007 assessment, which makes it the world’s 91st freest economy. Its overall score is 1.5 percentage points higher than last year, partially reflecting new methodological detail. Ghana is ranked 11th out of 40 countries in the sub-Saharan Africa region, and its overall score is slightly higher than the regional average.

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The economy is 58.1% free
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Sub-Saharan Africa Average = 54.7 World Average = 60.6
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Ghana has good scores for fiscal freedom, freedom from government, and monetary freedom. The top income and corporate tax rates are fairly low, and overall tax revenue is not excessive as a percentage of GDP. The amount of revenue from government-owned businesses is likewise relatively small. Inflation is fairly high, but Ghana has made progress in reducing price subsidies and state distortions of the market. Ghana could make significant progress in several other areas such as investment freedom, financial freedom, property rights, labor freedom, and freedom from corruption. Commercial regulations are extensive, and the labor market is inflexible. Ghana restricts foreign investment in several sectors, and the weak rule of law means that consistent judicial adjudication cannot be guaranteed. This inconsistency is due more to an inefficient public sector than to outright corruption. BACKGROUND: Ghana was the first colony in sub-Saharan Africa to gain independence. Political discourse is deepening with the development of private radio and mobile telephony. Agriculture accounts for over half of employment, almost half of gross domestic product, and about onethird of total exports (predominantly cocoa and timber). The government has made improving the infrastructure a priority and has generally followed through on economic reform. Over 300 state-owned enterprises (of about 350) have been privatized. Regulatory barriers can be onerous, however, and corruption, while lower than in other African countries, remains a problem.

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1995

2007

QUICK FACTS
Population: 21.7 million GDP (PPP): $48.5 billion 5.8% growth in 2004 4.7% 5-yr. comp. ann. growth $2,240 per capita Unemployment: 10% (1997 estimate) Inflation (CPI): 12.6% FDI (net inflow): $139.3 million (gross) Official Development Assistance: Multilateral: $571 million Bilateral: $1.8 billion (4% from the U.S.) External Debt: $7.0 billion Exports: $3.5 billion Primarily gold, cocoa, timber, tuna, bauxite, aluminum, manganese ore, diamonds Imports: $5.4 billion Primarily capital equipment, petroleum, food

How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

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GHANA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54.9 58 88.4 72 70 50 50 50 40 48.2
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leum products. Consequently, an additional 5 percent is deducted from Ghana’s trade freedom score to adjust for measures that distort domestic prices.
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50 100

INVESTMENT FREEDOM — 50%
The foreign investment code eliminates screening of foreign investment, guarantees capital repatriation, and does not discriminate against foreign investors. The laws restrict petty trading, taxi services, gambling and lotteries, beauty salons, and barbershops to Ghanaians. The process to set up a business requires compliance with regulations and procedures of at least five government agencies. Residents may hold foreign exchange accounts, and non-residents may hold them subject to restrictions. Payments and current transfers are subject to restrictions. The Bank of Ghana must approve most capital transactions, and foreign direct investment faces a minimum capital requirement.

100 = most free,

= world average

BUSINESS FREEDOM — 54.9%
Starting a business takes an average of 81 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business license and closing a business are difficult. Although the government has focused on streamlining regulations as part of its strategy of empowering the private sector, bureaucratic processes remain slow. The overall freedom to start, operate, and close a business is limited by the national regulatory environment.

FINANCIAL FREEDOM — 50%
Ghana’s financial system is small and dominated by banking. Ghana is a member of the Economic Community of West African States (ECOWAS), which promotes regional trade and economic integration. Plans to establish a West African Monetary Zone (WAMZ) with four other countries based on a second West African common currency have been delayed. There were 18 banks as of 2005: 10 commercial banks, five merchant banks, and three development banks. Five commercial banks are foreign-owned and play a leading role in the sector. The government owns over 34 percent of the Ghana Commercial Bank (the largest domestic bank) and owns two other banks. There were 19 insurance companies in 2004, including two state-owned companies that dominate the sector. The stock exchange is small, and foreign investors face some restrictions.

TRADE FREEDOM — 58%
Ghana’s weighted average tariff rate was 11 percent in 2004. Non-tariff barriers include special import fees and taxes, cumbersome and non-transparent regulations, and import bans and restrictions. The government also supports domestic private enterprise with financial incentives and tax holidays as part of its export promotion policies. Consequently, an additional 20 percent is deducted from Ghana’s trade freedom score to account for these non-tariff barriers.

FISCAL FREEDOM — 88.4%
Ghana has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 25 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. In the most recent year, overall tax revenue as a percentage of GDP was 22.3 percent.

PROPERTY RIGHTS — 50%
Ghana’s judicial system suffers from corruption, albeit less so than those of some other African countries, and the judiciary is subject to political influence. The courts are slow in disposing of cases and at times face challenges in enforcing decisions, largely because of resource constraints and institutional inefficiencies.

FREEDOM FROM GOVERNMENT — 72%
Total government expenditures in Ghana, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 33.3 percent of GDP, and the government received 6.3 percent of its total revenues from state-owned enterprises and government ownership of property. Privatization has been slow in recent years, and many state owned enterprises perform poorly.

FREEDOM FROM CORRUPTION — 40%
Corruption is perceived as significant. Ghana ranks 65th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

LABOR FREEDOM — 48.2%
The labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker can be high, and dismissing a redundant employee is costly and difficult. Daily minimum wages, which were raised in recent years, are set by a tripartite commission composed of representatives of government, labor, and employers.

MONETARY FREEDOM — 70%
Inflation in Ghana is relatively high, averaging 15.6 percent between 2003 and 2005. Relatively unstable prices explain most of the monetary freedom score. Although the government has made significant progress toward privatizing the public sector, it influences prices through the regulation of state-owned utilities and controls prices for petro-

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2007 Index of Economic Freedom