Tuesday, January 07, 2014

The Basic Economic Problem in Ghana and the Rest of Africa

The two main development strategies promoted for former colonial countries have been import substitution and the export of manufactured goods in particular textiles. Both of these strategies involve adding value to raw materials through manufacturing. In the first strategy this is done to produce for a domestic market and to prevent the loss of foreign exchange through the purchase of imports. In the second the country exports added value goods to generate foreign exchange to pay for imports. But, what has happened instead is that countries like Ghana have found themselves dependent upon the export of unprocessed raw materials without any value added. This generates comparatively little revenue in comparison to manufactured goods. They then have to use this smaller stream of revenue to purchase much higher priced imported goods. The constant importation of goods using foreign exchange consistently drives down the value of the indigenous currency making importation even more expensive. This cycle traps Ghana and other African countries in a dependent and permanently subordinate economic position in relation to Europe, the US, and increasingly countries in Asia and the Middle East.

2 comments:

Walt Richmond said...

Can you expand on this theme in future posts?

J. Otto Pohl said...

Sure, Walt although it isn't anything that hasn't been extensively written about during the last 50 years.