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04/09/2006

GHANA: Assuring economic growth through sustainable natural resource management

FAO’s Investment Centre is increasingly being called on to assist in the process of reviewing and advising on natural resource management.

In 2004, the Government of Ghana and the World Bank identified a policy gap regarding the contribution of natural resources towards economic growth and livelihoods in Ghana. They agreed to conduct an assessment of the economic costs of the degradation of natural resources, in order to better inform policy-making and investment planning.

In the framework of the FAO/World Bank Cooperative Programme, the Investment Centre became involved in the process, providing both technical assistance and financial resources. Ghana’s Institute of Statistical, Social and Economic Research and the UK’s Department for International Development (DFID) were also key partners in this process.

The study, which has been completed, first examined the role of natural resources in economic development and rural livelihoods in Ghana. It shows that natural resources are indispensable for most of the economic sectors of the country. In particular, about half of Ghana’s gross domestic product (GDP) derives from sectors that are closely related to the natural resource base; in particular: agriculture and livestock (29%), forestry and wood processing (7%), fisheries (4%), electricity and water (3%) and tourism (5%).

The economic impact of natural resource depletion - despite their important social and economic roles, natural resources in Ghana are overexploited and continue to decline in both quantity and quality. Using adapted econometric instruments, the study quantified the economic costs of the degradation of five types of natural assets, namely agricultural soils, forests and savanna woodlands, coastal fisheries, wildlife resources and Lake Volta’s environment. The degradation of these environmental assets accounts for at least US$475 million annually, or 5.5 percent of Ghana’s annual GDP. This figure is based on conservative estimates; it does not take into account health impacts from air pollution and water-related diseases, and it reflects only five natural assets.

Current national accounting systems largely neglect the negative economic effects of the degradation of natural resources. Accordingly, wealth accumulation is being overestimated. Whilst official standard data suggest that wealth accumulation equals 25 percent of GDP, the study reveals that wealth accumulation is rather around 15 percent of GDP.

In effect, current modes of economic growth are eroding the productive base on which Ghana depends. Therefore, growth sustainability is at risk.

The way ahead - to reverse this trend, the country will seek to implement policies and deploy investments that address natural resource depletion. In particular, the study recommended actions such as: enhancing the regulatory and institutional framework, including increasing the capacity of key regulatory agencies; reinforcing the capacities and involvement of local communities and the private sector in natural resource management; transferring knowledge and appropriate technologies for sustainable agriculture, such as conservation agriculture methods; and encouraging the use of market instruments to ensure and provide incentives for responsible natural resource management, as well as to address overcapacity, such as taxation, concession and licensing schemes, and payment for environmental services.

The results of this work have implications for other governments facing similar problems. The Investment Centre remains open to contributing to similar assessments in other countries, as this represents a useful and innovative instrument for economic diagnosis and planning in the domain of natural resources.