MIAMI UNIVERSITY the Graduate School

MIAMI UNIVERSITY The Graduate School

CERTIFICATE FOR APPROVING THE DISSERTATION

We hereby approve the Dissertation

Richard Aidoo

Candidate for the Degree:

Doctor of Philosophy

______Director (Dr. Abdoulaye Saine)

______Reader (Dr. Walter Arnold)

______Reader (Prof. Cyril Daddieh)

______Graduate School Representative (Prof. Ayo Abatan) Abstract

CHINA-GHANA ENGAGEMENT: AN ALTERNATIVE ECONOMIC LIBERALIZATION IN SUBSAHARAN AFRICA

by Richard Aidoo

China’s engagements in Africa have grown exponentially over the past decade leading to some scholars hailing it as one of the most prominent changes in international relations in recent times. Bilateral trade flows, investment projects and developmental assistance mainly characterize this relationship. Trade between China and Africa has grown an average of 30 percent in the past decade, and in 2008 trade and investment activities topped 106 billion US dollars. Comparing these figures with that of 1997 when China was doing 5 billion US dollars in Africa, one can appreciate the rapid increase in economic activities. This momentous increase is buttressed by China’s agenda to expand markets and secure reliable natural resources. This makes China’s economic engagement with Ghana fundamental as well as strategic. Economic cooperation with Ghana is fundamental as this sub Saharan African nation is a useful measure for Africa’s gradual march to economic self-determination. Being the first country to achieve political independence in the sub region, Ghana’s relationship with the Chinese provides a useful political economic base for various discussions. Chinese economic and technical assistance to Ghana mainly in the energy and construction sectors depicts Beijing’s seriousness to ‘do business’ with Ghana, which has recently joined the ranks of oil producing nations on the African continent. Strategically, as Beijing strengthens economic ties with Ghana – clearly one of Africa’s stable democracies, China’s ‘image’ of doing business in Africa is greatly helped as some of its critics point to its trading activities with authoritarian and rogue regimes on the continent. This dissertation explores China’s engagement in Ghana from a wider framework of the politics of economic liberalization. First, it aims to look at the relationship between China and Ghana which has progressed from a more political and diplomatic approach to an economic nature. Through the investigation of this relationship, the differences between the Western approach to economic reform, represented by the Washington Consensus and what is now referred to as the “Beijing Consensus”, China’s approach to aiding economic development are discussed. As this study contributes to the much needed nuanced discussion of China’s engagement in Sub Saharan Africa by providing a good country case study, it also furthers our understanding of the “alternative” economic model that Beijing is couching vis-à-vis Washington’s neoliberal policies. It also generates the conversation as to whether economic liberalization in the case of Ghana (and SSA) is imbued with some Chinese characteristics.

CHINA-GHANA ENGAGEMENT: AN ALTERNATIVE ECONOMIC LIBERALIZATION IN SUBSAHARAN AFRICA

A DISSERTATION

Submitted to the Faculty of

Miami University in partial

fulfillment of the requirements

for the degree of

Doctor of Philosophy

Department of Political Science

Richard Aidoo

Miami University

Oxford, Ohio

2010

Dissertation Director: Dr. Abdoulaye Saine

2010

Table of Contents

List of Tables v

List of Figures vi

List of Maps vii

List of Abbreviations viii

Dedication x

Acknowledgments xi

Chapter One: Introduction 1.1 Rationale of the Study 7 1.1.2 Dynamism of state institutions 7 1.1.3 Diversity of economic approaches to development 8 1.2 Historical Background: “A tale of Three Phases” 9 1.2.1 The Bandung Phase (1955-1960) 12 1.2.2 Post-Bandung Phase (1961- early 1980s) 13 1.2.2 Age of Business (early 1980s – 2008) 15 1.3 Liberalization as a framework 17 1.4 Research Methodology 19 1.4.1 Data Sources and Sampling 19 1.5 Dissertation Outline 20 Chapter Two: A Conceptual Approach for Understanding Ghana’s Economic Liberalization 2.1 Related Concepts 25 2.1.1 Varieties of Capitalism 25 2.1.2 The Dynamism between the State and Private Enterprises 27 2.1.3 The Centripetal Nature of Globalization 28 2.2 Ghana’s Economic Liberalization-A Literature Review 30 2.3 Towards a more Contextual and Institutional Analysis 40 2.3.1 Weakness in Current Research 40 2.3.2 Institutional Change 42 2.4 Conclusion 44 Chapter Three: China in Ghana: The Benefits of the Liberalization Agenda 3.1 China-Ghana: Major Forum on Cooperation Agreements 48 3.2 Ghana-China Economic Engagements: The Benefits of Liberalization 49

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3.2.1 Trade 49 3.2.1.1 Exports 50 3.2.1.2 Imports 52 3.2.2 Investments 56 3.2.3 Aid & Infrastructure/ Technical Assistance 59 3.3 Conclusion 66 Chapter 4: From Washington to Beijing: Liberalization from the West, or Liberalization with Chinese Characteristics? 4.1 Sizing up the Washington Consensus 71 4.1.1 Stage in the SAP towards Economic Reform 74 4.2 Characterizing the Beijing Consensus 76 4.2.1 Beijing’s Policy of “Noninterference” 76 4.2.2 The Advantage of State-Directed Capitalism 86 4.2.3 Importance of South-South Cooperation 87 4.2.4 The Environmental Disengagement 90 4.3 Conclusion 92

Chapter 5: Discussions, Suggestions, and Conclusion 5.1 Providing the needed Context 94 5.2 Discussions 96 5.3 Suggestions for Further Research 100 5.3.1 Ghana 100 5.3.1 Sub-Saharan Africa 101 5.4 Conclusion: A Watershed, not a Sea Change 102

Appendices 103

Bibliography 107

List of Tables

Table 1.1: Top Ten African Importers from China

Table 1.1: Projections for China's Commodity Import Demand

Table 2.2: Proven Reserves of Oil in Africa, January 2009

Table 4.1: Ghana’s top 20 foreign investors, September 1994-June 2007

Table 4.1: For Africa, China’s Policy of “Non-interference” is

Table 4.2: From the Washington to the Beijing Consensus: What are the consequences?

Table 5.1: China’s Influence More Positive Than America’s

List of Figures

Figure 3.1: Ghana’s Exports to China (2000-2008)

Figure 3.2: Ghana’s Imports from China (2000-2008)

Figure 3.3: Chinese share as a percentage of the total textile imports (2000-2005)

Figure 3.4: Chinese Registered Projects in Ghana (2000-2008)

Figure 3.5: Estimated value of Chinese infrastructure finance commitments in sub-Saharan Africa, 2001-07

List of Maps

Map1.1: China’s Engagement in Sub-Saharan Africa, 2006-2007

Map 3.1: Ongoing Road Network Constructions by Chinese Contractors

vii

List of Abbreviations

AFRC Armed Forces Revolutionary Council ATL Akosombo Textiles Limited CDB China Development Bank CGE China Geo-Engineering Corporation CNOOC China National Offshore Oil Corporation CPP Convention People’s Party CPPCC China People’s Political Consultative Conference CWE China International Water and Electric Corporation DCPSA Dedicated Communication Project for Security Agencies DIC Divestiture Implementation Committee DIS Destination Inspection Scheme EPRS Export Proceeds Retention Scheme ERP Economic Recovery Programme Exim Bank Export Import Bank FOCAC Forum on China Africa Cooperation GDP Gross Domestic Product GEPC Ghana Export Promotion Council GIPC Ghana Investments Promotion Council GNP Gross National Product GNPC Ghana National Petroleum Corporation GNTC Ghana National Trading Corporation GTMC Ghana Textile Manufacturing Company IMF International Monetary Fund ISSER Institute of Statistical Social and Economic Research JTL Juapong Textiles Limited NAM Non-Aligned Movement NDC National Democratic Congress

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NLC National Liberation Council NPP New Patriotic Party NRC National Redemption Council OECD Organization for Economic Corporation and Development OPEC Organization of the Petroleum Exporting Countries PERP Public Enterprise Reform Program PP Progressive Party PNDC Provisional National Defense Council PRC Peoples Republic of China SAP Structural Adjustment Program SME Small or Medium-Sized Enterprise SSA Sub-Saharan Africa UBA United Bank of Africa VAT Value Added Tax WTO World Trade Organization

To my Son Joel Ekow Aidoo for his resilience and unconditional love, even when it didn’t make sense to him. You are indeed the best thing that ever happened to me. & In loving memory of my late wife Dorothy Ewurabena Aidoo. Your strength remains my strength.

Also, to my late Parents who still look down from above with smiles and cheer.

Acknowledgments

This dissertation is, in many ways, a culmination of several efforts. With the long hours of reflection and writing, preceded by months of research by the author, this work represents the test of human endurance as well as a labor of love. I first and foremost give thanks to God whose steadfast love and grace made all the difference in my life, and from whom I have drawn strength throughout my academic life. I thank my late parents, Ransford and Joana Aidoo, for constantly reminding me that “there is no royal way to success.” I, however, owe the completion of this work to my dissertation committee. From the bottom of my heart, I say thank you to Dr. Abdoulaye Saine whose continuous mentorship and inspiration was once again made manifest as my dissertation director, during his busiest period as acting chair of the Department of Political Science. A great debt of gratitude to Professor Cyril Daddieh and Dr. Walter Arnold, for serving as readers of my dissertation, and to Professor Ayodele Abatan, chair and professor of Engineering Technology at both Miami Hamilton and Middletown, for taking time out of his busy schedule to serve as the graduate school representative on my committee.

My great admiration goes to Professor Ryan J. Barilleaux, professor and former chair of the Department of Political Science and Professor John Rothgeb former director of graduate studies for their support during my doctoral studies in Miami University. Together with others, they made my doctoral studies possible by ensuring assistantships and funding for conferences. I would also like to acknowledge Professor John Hughes former Provost and Senior Vice President, University of Vermont, for his support and also for believing in me. Special thanks go to Professor William Hazelton, for being so inspiring and comforting during some of the most difficult days of my studies in Miami University. My deep appreciation also goes to Dr. Walter Arnold for helping me conceive ideas that led to my dissertation, and for generously helping me nurture an interest in East Asian politics alongside my primary focus on Sub-Saharan Africa.

Undoubtedly, my deepest and unreserved gratitude goes to Dr. Abdoulaye Saine. For the past five years, he has helped me unearth and shape my intellectual and professional capacities. Within this same period, his guidance and support in every way possible have made a difference in my studies. Dr. Saine has become a mentor, an advisor and with his almost daily encouragement instilled in me a sense of achievement. I will like to express my thanks for his continuous and invaluable contribution to my research. I also recognize the assistance of Betsy Burger and Opal Crist both of the Department of Political Science.

This dissertation would not have been possible without the support I received during the fieldwork in Ghana. My heartfelt appreciation goes to Miss Ama Aidoo of the Methodist University College for her dedication as a research assistant. Her follow-ups and interviews,

when I was “stretched thin” in Ghana made all the difference to a successful data collection. I also wish to especially thank staff of the Ghana Investment Promotion Centre, Ministry of Finance and Economic Planning, Ministry of Trade and Industry, Ministry of Works and Housing, Department of Roads and Highways, Ministry of Foreign Affairs, Ministry of Energy, the Bui Authority, and the Embassy of the People’s Republic of China. I recognize the efforts of Stella Sebgawu, Head of Investment Services at CDH Securities Limited, and Kwesi Ohene- Bamfo, Communications Officer of the Bui Authority. A deep sense of gratitude goes to my colleague, Dr. Francis Schortgen of Mount Union College, whose insightful and intellectual discussions have in no doubt contributed to my deepening interest in East Asian politics and economics.

My entire doctoral work would have been but a dream without the most needed support of William and Melissa Maxine Gibbons of Oxford, Ohio, and Richard and Jeannette Pippin of Liberty, Indiana whose role as god-parents to my son Joel was god sent. Their unconditional love and immense loyalty to us saw me through this phase of my academic development. I made it to conferences, and my field research with their unremitting support. For them, I reserve a special place in my heart. I also salute Nancy Wilsey for her deep love for Joel and me. To my three sisters, Irene, Esi and Ama who continue to support and nurture the dream bequeathed to us by our late parents, I have deep love and respect. I also gained enough support and encouragement from my fiancée, Afua Awuku, whose dedication and love is so much refreshing.

Finally, I would like to show total appreciation for the vision of my late parents who inspired me to be who I am today. Their love for education and God grounded me through my journey from Africa through Europe to North America. It was during this journey that I lost both of them but I know they still look on with great support and cheer. This will not be complete without the mention of my late wife, Dorothy Aidoo, whose love has indeed made me a better person. Daily, I strive to be the best in everything because of what she stood for. To my son, Joel Aidoo, I say thank you for the unconditional love and companionship, and also for the ‘kiddy stories’ I always look forward to after each school day. You are indeed my life.

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“the twenty-first century is the century for China to lead the world. And when you (Chinese) are leading the world, we (Africans) want to be close behind you”

Former Nigerian President Olusegun Obasanjo,

“we must turn toward the East, where the sun rises.”

Zimbabwean President Robert Mugabe

“neoliberal reforms advocated by the World Bank and others had failed to generate the kind of growth they sought”

Ethiopian Prime Minister Meles Zenawi

“I achieved more in my one hour meeting with President Hu Jintao in an executive suite at my hotel in Berlin during the recent G8 meeting in Heiligendamm than I did during the entire, orchestrated meeting of world leaders at the summit, where African leaders were told little more than that G8 nations would respect existing commitments.”

Senegalese President Abdoulaye Wade

Chapter One: Introduction

China’s sudden interest has little to do with philanthropy1

Adama Gaye, Senegalese Journalist

The rise of the People’s Republic of China (PRC) in contemporary times has been likened to the awakening of a sleeping giant. If this euphemism is true, then it is fully awake on the African continent. China’s engagements on the continent have a long tradition dating back to the fifteen century. However, the nature, scope and scale of the current Sino-African relations have been rather monumental as China’s alliances with African countries have soared. The economic interests in Sub Saharan Africa (SSA)2 have seen a consistent rise with increase in the volume of trade, investment inflows, and development aid to aid different African economies. Major developments that preceded the current phase of Sino-Africa relations have all been crucial as they have contributed in many ways to the scale of Chinese engagement in SSA.

From the days of the struggle for political self-determination to the current attempt to achieve economic stability and growth in most countries, the Chinese have had some influences in Africa. These were manifested by their contribution to landmark projects like the Tanzania- Zambia railway which was constructed in the 1960s to connect China to the African continent. In addition to infrastructure, they lent support to efforts at ridding Africa of colonialism especially in Southern Africa. The motives and tenets that underlie China’s reach into the outside have been variedly discussed and supported. According to Yu (1972), in the case of Africa, three main objectives define Chinese policy towards the continent. First, China attempted to establish and foster their revolutionary influence by helping African nationalist movements fighting against colonialism, and white-minority rule. Second, the Chinese saw Africa as the ideological “indirect

1 Deborah Brautigam and Adama Gaye, “Is Chinese Investment Good for Africa?” Online Debate, Council on Foreign Relations, February 20, 2007, www.cfr.org/publication/12622/is_chinese_investment_good_for_africa.html.

2 In this dissertation, the use of Africa refers to Sub-Saharan Africa (also referred to as Africa South of the Sahara).

battleground”, as it attempted to oppose United States and the Soviet Union. And thirdly, China wished to demonstrate the superiority and effectiveness of its development model.

The main purpose of this dissertation is to explore the strategic relationship between China and Ghana within a broader framework of relations between China and Sub-Saharan Africa. It poses the following three central questions:

. How is the relationship between Ghana and China evolving?

. Given Ghana’s past experience of economic reform, how different is Beijing’s approach to economic engagement from Washington’s approach to economic reform?

. Has the Beijing Consensus redefined or contributed to the understanding of economic liberalization and/or reform?

Ghana is undergoing transformation as a result of its relations with China, even though little attention has been paid to this. Diplomatic relations between China and Ghana date back to 1960 when the latter became a republic. This relationship has, however, seen gradual but incremental progress throughout the years as engagements have shifted from ideological to a more economic basis. With relations formalized, Ghana became an ardent supporter of the PRC in its war against India in 1962. As relations between Beijing and Accra warmed up, China’s bid to re-enter the United Nations was vehemently supported and campaigned for by Ghana in the 1970s.3 This saw in return an attempt on China’s part to nurture the relationship with grants and technical assistance to Ghana. After the Tiananmen Square affair in 1989, China sent the first senior diplomat to Ghana, which very much signified its commitment to explore further friendship ties. In the 1990s, the Chinese then demonstrated this commitment by rewarding Ghana’s loyalty with the construction of a National Theatre, an edifice that stands in the centre of Accra and a few

3 See Idun-Arkhurst, I. (2008) Ghana’s Relations with China (Braamfontein: The South African Institute of International Affairs) pp. 3-5

miles from where Nkrumah declared Ghana’s political independence from the British in 19574. Right from independence to the 1990s, the relationship between the two nations has metamorphosed from a more diplomatic nature to include the engagement of various economic sectors in Ghana. With cocoa, gold and other hard minerals like bauxite, manganese and industrial diamonds, Ghana has become a valuable partner to the Asian economic giant - serving as a big market for Chinese exports (see table 1.1).

The first significant wave of Chinese work in Ghana occurred in the mid-20th Century, a few years before Ghana’s independence from British rule in 1957.5 This early population numbered a little over a hundred and even though there are no recent official figures of Chinese in Ghana, some Chinese scholars estimate the population to be several hundred up to over a thousand (Ho, 2008). A few years before independence from British rule, one of the first Chinese factories was opened in Takoradi, producing household enamelware such as pots, pans and other cooking utensils. From the 1950s into independence and until the late 1980s, Chinese involvement in Ghana was primarily in manufacturing industries especially in textile and more specifically imitation wax print, although a few factories in metalwork were also established. However, from the mid-1970s to 1980s, Ghana experienced political economic instability including several coup d’états, economic mismanagement by various governments and, finally, the establishment of the Rawlings government after he seized power for the second time in 1981. Most Chinese residents responded to this period by returning home to China and Hong Kong while others moved to the western world. Also with economic and political change most of the Chinese left behind in Ghana were mainly employed by the factories if their labor was needed, while others also settled in the restaurant industry or smaller factories in metalwork and other household utilities.6

4 For most of the narrative on the history of China-Ghana engagement see Idun-Arkhurst, I. (2008) Ghana’s Relations with China (Braamfontein: The South African Institute of International Affairs) and also see Jiang and Jing (2010) Deepening Chinese Stakes in West Africa: The Case of Ghana, China Brief Volume 10, Issue 4.

5 Among the Chinese who have a longer history in Ghana, some relate to Chinese presence reaching further back by about a decade to the late 1940s and early 1950s – Ho, Conal Guan-Yow (2008) Living Transitions: A Primer to Chinese Presence in Ghana, China Monitor: Centre for Chinese Studies

6 Ho, Conal Guan-Yow (2008) Living Transitions: A Primer to Chinese Presence in Ghana, China Monitor: Centre for Chinese Studies

After Deng Xiaoping’s economic reform policy Gaige kaifang opened China to the global market, some Chinese both from Hong Kong and mainland China began filtering back into the country. The major change came with some social and economic stability taking place in Ghana. While some established Chinese factories attracted and employed some Chinese, many Chinese traders imported Chinese products (soap, cloth, household items, tires, electronics etc.) in the Accra and Tema areas. At the same period, Ghanaian traders have been introduced to various trade fairs in Guangzhou as well as more Chinese products into the Ghanaian market. Aside from this surge in trade, the Chinese also established more restaurants.7

Table 2.1

Top Ten African Importers from China South Africa Nigeria Egypt

Algeria Angola Morocco Benin Sudan Ghana Libya

Source: Trade Law Centre for Southern Africa, ‘Africa’s Trading Relationship with China.’ 2009 spreadsheet, based on data from the Chinese version of the World Trade Atlas

China is doing business with almost every country of the continent irrespective of geographical size or location, economic or population size. In a recent account titled China Safari: on the Trail of Beijing’s Expansion in Africa (2008), Michel and Beuret (2008:2) reported a noticeable presence of the Chinese based on their visit to ten African nations. According to them, they noticed “a changing Africa, undergoing a transformation as momentous as decolonization.” To

7 For more on the story of various relations between Ghanaians and the Chinese see Edinger et. al (2008) “New Impulses from the South: China’s Engagement of Africa,” Centre for Chinese Studies: Stellenbosch University

see some of these changes and how they have affected the sub region, it is essential to explore any part of this ongoing transformation in Africa, and from different conceptual angles. Therefore the case study of Ghana will provide some useful basis to understanding China’s economic engagements in SSA.

1.1. Rationale for the Study

China’s rapidly expanding engagement in Africa in the areas of development cooperation, trade, and investment has attracted great attention and given rise to different reactions around the world (Kurlantzick, 2007; Eisenman, Heginbotham, and Mitchell, 2007; Zafar, 2007; Brautigam, 2009). As this represents an emerging field of study with gradually increase in reliable analysis and empirical investigations at hand, one of the major questions that still remains is whether China is effectively contributing to sustainable development in Africa; or, rather, China’s primary concern is to gain access to Africa’s raw materials and to open up new markets? In order to address the big changes that are taking place in Africa as a result of China’s growing economic ties, the use of a country case like Ghana provides a more contextual dimension to the ongoing discussions. Also, this case study allows us to delve into the underlying differences between the Western approach to economic liberalization, and the Beijing economic approach. Therefore, this study has a dual purpose as it first looks at the dynamism of the state and its institutions as they adjust to economic situations; and secondly the versatility of economic approaches to development.

1.1.2. Dynamism of state institutions

In developing economies like Ghana, the state and its institutions play a major role in economic development. Thus any discussion of the impacts on different economic partners on the process of economic development cannot proceed without recognizing the contribution of the state and its institutions and how they adjust to the different economic environments. During the 1990s, Ghana’s economy was largely perceived as successful with the first generation of World Bank neoliberal reforms had been largely implemented. Notwithstanding, the second generation of these reforms proved most challenging since it required higher levels of cooperation among

state institutions and civil society. Also, there were stronger incentives for the state to proceed with such reforms since it had a firm grip on the course of economic policies.8

Chapter four of this study compares and contrasts the neoliberal approaches to reform embodied in the Washington Consensus and adopted by Ghana’s government in the 1980s, to that of the China’s state centered economic development approach, and what has come to be known as Beijing Consensus.9 With this task at hand, the role of the state is crucial, and this study alludes to the fact that as the state plays a central role in economic development, its ability to adapt to different economic platforms is what is crucial to sustaining an economic relationship and thereby building the developmental capacity to sustain economic progress.

1.1.3. Diversity of economic approaches to development

Since independence most African governments have tried different approaches to economic development in the bid to strengthen their political independence. The adaptability of these economic approaches to the development needs of these countries has sometimes seen the combination of different economic ideologies with indigenous initiatives.10 Since political independence under Kwame Nkrumah in 1957, Ghana has attempted different economic policies – from state-centered models to liberal market approaches. In the course of these policies, Ghana has developed relations with both the West and the East, each of whom have relatively contributed to Ghana’s efforts at achieving economic self-determination. Western governments like the United States and Britain have supported Ghana’s development efforts with foreign aid, technical assistance, and trade; however, one of the most known of these relationships is between Ghana and international financial institutions like the World Bank, and International Monetary

8 For more discussion of the state-dominant reforms in Ghana, see Handley Antoinette (2008) Business and the State in Africa: Economic Policy-Making in the Neo-Liberal Era (Cambridge: Cambridge University Press)

9 The general reception of Beijing and its developmental model in Africa has led some scholars, most notably, Joshua Cooper Ramo (2004:3), to suggest that China is creating a new “Beijing Consensus” that is “remak(ing) the whole landscape of international development, economics, society and, by extension, politics.”

10 Julius Nyerere, ex-president of Tanzania pointed at African communalism which is a characteristic of most peasant life as useful feature of ‘indigenous socialism’ referred to as ujamaa the Swahili word for ‘familyhood’ or ‘extended family.’ This idea was hailed in some circles for its adaptability to the African economic environment.

Fund (IMF). In reaction to global economic situations in the late 1970s and early 1980s, the Ghanaian government under Flt. Lt Jerry John Rawlings initiated interventionist economic policies to reform Ghana’s economy on the advice of the IMF and World Bank. The first phase of the reforms consisted of the implementation of a set of austerity measures to introduce economic discipline referred to as Structural Adjustment Program (SAP). With the adoption of the austerity measures and its subsequent effects on large portions of the population, the government then adapted to the Economic Recovery Program (ERP) under which various sectors of the economy were liberalized. Exchange rate policies, fiscal and monetary policies, privatization, and trade policies all saw dramatic changes with increased liberalization of the economy. This step was meant to correct a number of structural imbalances in order to engender sustained healthy economic growth.

After years of structural adjustment programs, and being touted as a success by the World Bank and IMF, Ghana still faces daunting economic challenges. China’s engagement with Ghana is therefore a welcome and relevant economic relief, as China takes advantage of Ghana liberalization policies and also introduces a different economic or business ethic into Ghana efforts at economic development. How will Ghana, with its liberalization policies in place, adapt to doing business with Beijing? This focus represents one of the main strands in this study.

1.2. Historical Background: “A Tale of Three Phases”

“Historically, Africa and China shared a lot together…”

Chinese resident in Toronto’s Chinatown For centuries, China has had commercial and cultural ties with Africa. These ties have been manifested in the volume of trade and investments on the African continent, as well as the various co-operations that have been entered into by the two sides. Jinyuan Gao (1984)11 reports that it was the famed explorations of the Chinese Moslem admiral Zheng Ho during the Ming

11 Gao, J,(1984) “China and Africa: The Development of Relations over Many Centuries” African Affairs, Vol.83, no.331 9

Dynasty (1368-1644) that represents the first concrete manifestations of Sino-African relations. This relationship has seen an increase over the decades as indicated by the diplomatic visits by Chinese leaders and the changes in Chinese foreign policies and their effects on foreign nations. For instance, following the closed door policy by the Qing Dynasty, contact between Africa and China slowed down. In fact, Mitchell and McGiffert (2007)12 clearly states in the tracing of China’s relations with the developing world that while China has historically had substantial and productive interactions with peoples and cultures beyond its borders, Imperial China’s external engagements through the centuries nonetheless were infused more with alienation than outreach. Another point to note is that relations between China and Africa have not been skewed towards one part of Africa but rather have spread over the years from the Eastern Africa (see Yu, 1975)13, and Southern Africa (see Pike, 198514, 198815) through to other parts of Western and Northern Africa (see Map1.1).

In this study, the emphasis is on Ghana’s relationship with China which exhibits a change in the nature of the engagement, mainly from a more ideological and political position to a more economic one. As observed in other countries in SSA, Ghana’s relationship with China takes a common path from relative diplomatic to active economic engagement. In recent times, this path is mainly dominated by the economic activities between Ghana and China. Three main phases stand out in the case of Sino-Ghanaian relations: the Bandung period, Post-Bandung period and the Age of Business. The third phase – Age of Business - is the major period of focus for this dissertation.

Ghana established official diplomatic relations with China in 1961, a year after the former became a republic. On March 26, 1961, Peking (Beijing) began formal and friendly relations with Ghana with the presentation of credentials. However, as a characteristic of China’s activities with most SSA countries, the relationship between Ghana and China has also been

12 Mitchell D. and McGiffert C. (2007) “ Expanding the “Strategic Periphery”: A History of China’s Interaction with the Developing World” in Eisenman J., Heginbotham E. , and Mitchell D (eds), China and the Developing World: Beijing’s Strategy for the Twenty-First Century, New York, M. E. Sharpe, pp.3-25

13 Yu, G. (1975) China’s African Policy: A study of Tanzania, New York, Praeger

14 Pike, H. (1985) A History of Communism in South Africa, Germiston, South Africa

15 Pike, H. (1988) A History of Communism in South Africa (2nd Edition), Germiston, South Africa 10

erratic with periods of disengagement for mostly political and ideological reasons. In general, Ghana has had much stable relations with China from the period immediately after its independence through to the current period.

The three periods of Sino-Ghanaian relations explored in this study: Bandung period, Post-Bandung period and the Age of Business have been done using the first conference of Asian and African nations held at Bandung, Indonesia in 1955 as the landmark. After an attempt to reduce border tensions and improve Sino-Indian relations, the five principles of noninterference, mutual respect for sovereignty and territorial integrity, equality and mutual benefit, mutual non- aggression, peaceful coexistence (hereafter, “the Five Principles”), was worked out by Premier Zhou Enlai and Indian Prime Minister Jawaharlal Nehru. Shortly after Zhou and Nehru’s meeting in 1954, delegates from twenty-nine Asian and African countries met in Bandung, Indonesia, to affirm the Five Principles. Among the delegates from Africa were the delegates from Ghana (then Gold Coast) who took the opportunity to further relations with China and other Asian countries present at the conference. This conference, which was a watershed period for both the Africans and the Asians, led to major as well as subtle influences on Ghana’s relations with China

Map1.1. China’s Engagement in Sub-Saharan Africa, 2006-2007

Source: Brautigam, 2009

1.2.1 The Bandung Phase (1955-1960)

Even though this conference was mainly set as a follow up to what has been suggested in 1953 at a meeting of prime ministers in Colombo, Ceylon (now Sri Lanka) which included prime ministers of Burma, Ceylon, India, Indonesia, and Pakistan (known as the Colombo Powers) (Taylor, 2007), for nations struggling for political independence countries like Ghana (then Gold Coast) this presented a platform to be part of what President Sukarno (then president of Indonesia) referred to as “the first intercontinental conference of the so-called colored people in the history of mankind”16 and further rally support for its independence agenda. After the conference, as the first black African country to gain political independence, Ghana received

16 “Bandung Conference,” Keesing’s Contemporary Archives (May 7-14, 1955), p.14182. 12

support from Pan African groups and personalities during its post-independence struggles hence its support of the Bandung Declaration (which mainly consisted of the Five Principles) was to affirm its commitment to the objective of the Conference as resounded in Nehru’s closing speech. According to him:

We are brothers not only because we are Asians and Africans, but also because we are linked by the immeasurable wish for peace, resolute resistance to all dictates, firm determination to raise ourselves from backwardness. I am deeply convinced that we have made a great achievement here, not only to the benefit of Asia and Africa, but for the whole of mankind as well.17

During this period, Ghana gained political independence in 1957 and republican status in 1960, and these gave the country the needed international recognition to engage in political and economic relations with other sovereign states. In the bid to get rid of imperialism, Ghana experimented with Eastern ideologies which led to engagements with the Soviet Union and the People’s Republic of China. During this phase, China’s relations with Ghana, like most parts of the continent, was relatively insignificant as Africa was largely made up of colonies governed by Europe, with few underdeveloped independent nations, and incipient economies.

1.2.2. Post-Bandung Phase (1961- early1980s)

This period saw an increased involvement of the Chinese in Africa as they gradually became more present both in the political and economic fronts. In this period, contacts grew progressively between China and North Africa with cultural visits by the Chinese to Ethiopia, Morocco, Sudan and Tunisia. Most of these North African states also established diplomatic ties with China. In Western Africa, Ghana further deepened diplomatic ties with China as President Kwame Nkrumah concluded a ten-year friendship treaty in August 1961. Thus Sino-Ghanaian relations were well-rooted in strong personal relationships between the political elites of the two countries – mainly President Kwame Nkrumah and Premier Zhou Enlai. Over this period, Ghana provided crucial diplomatic support to China, while China has reciprocated with political and economic support for development. For instance, Nkrumah campaigned for the reinstatement of the PRC in the United Nations and also supported China in the border conflict with India in

17 “Conference in Bandung,” Review of International Affairs (May 1, 1955), 5:1222, p. 11. 13

1962. China in turn rewarded Ghana with grants and continuous technical assistance for Nkrumah’s development agenda (see Idun-Arkhurst, 2008). Gilks and Segal (1985) report that in the 1960s, China supplied weapons to Ghana’s newly established militias and along with the Soviets provided arms to Nkrumah’s private army (presumably the militia which the Chinese have advised him to form in late 1965). Also the creation of guerilla training centres in Ghana help facilitate the supply of arms to guerillas from several more states, including Niger, Cameroun, Rwanda, the Ivory Coast (now Cote d’Ivoire), Nigeria, Upper Volta (now Burkina Faso) and Malawi.

In spite of the emphasis on politics and ideology in the earlier phase of Sino-Ghanaian engagement, economic and technical agreements were also worked into the relationship. During his visit to China in 1961, Nkrumah signed a twenty-year agreement on economic and technical cooperation, and a five-year trade and payment agreement with the Chinese government. The long-term economic and technical agreement provided for a Chinese interest free loan of 19.6 million dollars payable over a five year period beginning in July 1962. Repayment was scheduled over ten years, a tenth of which is due each year beginning July 1, 1967. The agreement also provided for the dispatch of Chinese industrial and agricultural experts to Ghana, the training of Ghanaian technicians and skilled workers in China, the sale of industrial equipment (especially for textile industries). Some of this equipment was to help establish a number of textile mills in Ghana under a protocol between the two countries signed in 1962. The trade and payment agreement stipulated annual credits by both parties of 11.2 million dollars18 each way, repayable yearly (see Prybyla, 1964:1136).

Another feature that characterized this period and shaped Sino-Ghanaian relations is the high-level visits that also signify the friendship and solidarity. With a good personal relationship between Nkrumah and Zhou En-lai, the official visit of Nkrumah to China in 1961 and a reciprocal visit by Zhou to Ghana in January 1964, made fruitful strides towards Sino-Ghanaian relations. The relations between the two nations froze and all efforts at developing Sino- Ghanaian stalled with the military overthrow of Nkrumah in 1966 while he was on an official trip to Beijing. According to Mackeras (2001), this event did not only signal deterioration in

18 In this study, dollars refer to US dollars unless otherwise stated.

relations between Ghana and China but also saw several important African countries split with China. In November 1966, China closed its embassy as Ghana suspended relations in August of that same year. This also saw the repatriation of an estimated 200 Chinese aid workers and embassy officials from Ghana.19 However, this situation was short-lived as relations resumed on February 1972 with the re-opening of the Chinese embassy in Ghana.

1.2.3. Age of Business (early 1980s – 2008)

This period represents the contemporary phase of China Africa relations, and the main focus of this study. This part of the Sino- Ghana evolution grants us the opportunity to see how Beijing’s ideological and political approach gradually gave way to increased economic engagement. In the case of Ghana, this is a particularly significant period signified by the lunching of the Golden Age of Business20 to open up the country as a gateway for economic trade and investments. The main rationale behind the focus on this phase in this study is twofold. First, this period fits into the broader discourse of Sino-Africa relations which has gained tremendous importance in African studies and generally the study of international political economy. The studies and scholarly discussions on the ‘new’ and monumental phase of China’s engagement in Africa have gained relevance due to the current increase in trade, investment, and aid figures, and with this increase, attention has been drawn to the meteoric rise of China. In these pertinent discussions, country cases like that of Sino-Ghanaian relations are very crucial as they provide the much needed nuance to an emerging discourse.

The second reason for the choice of this phase is mainly conceptual. The Age of Business represents Ghana’s attempt to intensify the neoliberal efforts to liberalize its economy to gain global recognition and attract foreign investors. This therefore serves as a useful case that fits the analytical framework of liberalization in a global era. Ghana’s post independence economic experience is largely made up of economic reform linked to Western and global institutions such as the World Bank, and IMF. This first sets the background for a look at the evolution of economic relationships via liberalization, as the country’s attempt to open up its

19 “Quarterly chronicle and documentation”, The China Quarterly, 26, April 1966, p. 222

20 In 2001, Ghana’s erstwhile New Patriotic Party (NPP) government introduced its strategies for making the private sector the bedrock of economic development and for achieving what it calls the “Golden Age of Business.” 15

economy to attract international investments and to globalize its economic operations gains momentum with Chinese economic engagement. Also, this sets the foundation for looking at Beijing’s economic agenda for SSA (in this case Ghana) vis-à-vis the Western approach through a set of ideas like what the Washington Consensus offered.

From the late 1970s through to the late 1990s, African countries like Ghana have been going through economic reforms to engineer and sustain economic growth, and here, China played a lesser role in this regard as Western institutions have had the major part in shaping these weak economies. Ghana’s continuous political support including its vote to reinstate China in the United Nations in 1971, nurtured Sino-Ghanaian relations. In the late 1980s, Ghana’s unflinching diplomatic support offered by the Rawlings-led government to Beijing during the controversial repression of the Tiananmen Square pro-democracy protestors was also notable. In return, the Chinese government rewarded Ghana in 1990 with a grant a $2.4 million to renovate the National Theatre, an edifice that represents China’s continuous engagement with Ghana (see Idun-Arkhurst, 2008).

From 2000, Beijing further increased its economic commitments to Ghana (at the same time as in other African countries) with offers of grants and soft loans; trade, manifested in increased exports and imports; and some infrastructural investments. Ghana’s exports to China totaled only $25 million with imports of $93 million in the year 2000. Exports grew to $32 million in 2003 with imports of $180 million. In 2006, the figure went up to $39 million for exports while imports surged to $504 million. On December 30, 2009 China granted Ghana two concessional financial facilities totaling 100 million Chinese yuan, approximately $14.65 million. In April 2007, Jia Qingling, the chairperson of the Chinese People’s Political Consultative Conference (CPPCC) visited Ghana and signed agreements that included a $30 million concessional loan for the Dedicated Communications Project for the security agencies. Also in this same period the first batch of an 11-member Chinese medical team arrived in Ghana for a two-year medical mission. The six-member medical team, which includes experts in cardiology, anesthesiology, neurology and urology, is the first batch of the 11-member medical team. Its members were selected from hospitals in Guangzhou, capital of the southern Chinese

province of Guangdong. After constructing Ghana’s Ministry of Defence, China has also offered to rebuild the Ministry of Foreign Affairs’ structure after it was razed down by fire late 2009.

1.3. Liberalization as a framework

In the bid to explain economic liberalization particularly in developing countries, most scholars of political economy have emphasized the political nature of the process of economic reform (see Williamson, 1994; Haggard and Kaufman, 1992; Nelson, 1990). In relation to this, economic policy making is not simply a matter involving rational deliberations over the merits of an alternative policy stance but rather a political process in which there are both winners and losers. In spite of this, economic rationality is also emphasized in the discussion of economic liberalization (Williamson, 1994; Schamis, 1999). Thus to understand economic liberalization, one will have to perceive the idea of economic reform essentially a contest between economic rationality and political and social interests.

Some scholars also perceive the dynamics of economic liberalization through the lens of public choice approach which point to the belief that society is composed of rational individuals who pursue their own self-interest. In furthering this self-interest, it is argued that these individuals will form or join groups in a bid to lobby the government for economic policies that maximize their share of society’s resources. At the same time public officials will concede to demands of these groups if they believe it will get them re-elected back into office or earn them substantial bribes (Grindle and Thomas, 1991). Also in this direction, governments will introduce interventionist policies that serve the interests of lobby groups and cronies, rather than market-oriented ones that maximize efficiency. Thus scarce economic resources will be wasted in rent-seeking and corruption as different groups compete for state largesse, even though Grindle (1991) argues that public choice theorists also have in their analysis the ‘enlightened technocrats or states people who are somehow liberated from the pursuit of self-interest and thus able to see beyond short-term goals to long-term public interests.

From the above, the word ‘liberalization’ has both political and economic connotations, even though most refer to its strict political characterization. In Huntington’s account of the

Third Wave Democratization: Democratization in the Late Twentieth Century (1991), “liberalization…is the partial opening of an authoritarian system short of choosing government leaders through freely competitive elections. Hence, the political liberalization connotes the freeing up of society or to allow for the protection and promotion of civil rights and all forms of freedom i.e. freedom of speech and assembly, freedom from torture. However, in the growing body of literature on reform and liberalization and for the purpose of this study, the concept of liberalization will be variedly referred to from an economic perspective. Przeworski (1991: 57- 58) sets off by defining liberalization with terms like opening, decompression, renewal, reconstruction, and remodeling. These terms, according to him, describe policies of change carried out within strong limits. Economic liberalization can therefore be specifically defined as a process leading to the implementation of privatization and a free market economy. This process involves economic restructuring, such as the removing tariffs and other barriers to trade, providing incentives for foreign investment and tax reforms for exporters, reforming the financial system, deregulating the labor market, privatizing public enterprises, and protecting private property. According to Monshipouri (1995), if economic liberalization is properly implemented, it leads to the emergence of new, functionally interrelated centers of economic power and decision making. When these centers mature, they cannot be controlled for long by authoritarian regimes. Thus economic liberalization is closely connected to the possibilities of political liberalization. David Pool relates to this in his examination of economic and political liberalization in Turkey and Egypt, and he therefore states that:

Economic liberalization sets constraints on political liberalization, and although a degree of political liberalization can facilitate the introduction of economic reform measures, the social and political consequence of such measures put limits on the extent of political reform. As a result of this symbiosis and dialectical tension between the two processes, economic liberalization is marked by progress and regress and political liberalization is authoritarian, cautious, and controlled (1993:49). It is therefore clear that economic liberalization is a very complex process that involves many separate changes, and the order in which these changes are made matters a lot. If the changes are made out of order, or if some necessary steps are missed, or if the world economic climate is unfavorable, things may easily become worse, and in some cases economic reforms may reverse. For instance, each time a country unsuccessfully tries to liberalize, it is likely it will go into debt

(Grosh, 1994).21 However, in the case of Ghana’s economic reform, one wonders whether the complex process of political and economic openness that was supposed to be achieved by the Washington Consensus has provided a useful base for Beijing to increase its engagement with Ghana, and also to side-step the challenges of the Washington Consensus and be different. This has been further explored in subsequent chapters of this work.

1.4. Research Methodology

This study adopts a combination of theory and empirical data, and also of description and analysis. The use of both the conceptual and the empirical data will make for rich discussions and conclusions – what Robert Bates et al (1998:3) refer to as analytic narratives, based on the “conviction that theory linked to data is more powerful than either data or theory alone.”

1.4.1. Data Sources and Sampling

To achieve the combination of concepts and empirical data, the research draws on two main data sources: the primary source which acquired data mainly through semi-structured interviews (see appendices for questionnaire schedule) with individuals and groups from relevant organizations and institutions. This includes officials from the Ghana Investment Promotion Council (GIPC); Divestiture Implementation Committee (DIC); Ministry of Trade and Industry; Ministry Finance and Economic Planning; Department of Roads and Highways; the Ministry of Foreign Affairs; Ministry of Works and Housing; Ghana Export Promotion Council (GEPC); IMF and World Bank Country offices; the Embassy of the People’s Republic of China. Also, individuals from some Investments firms like CDH Securities Limited and Banks like the United Bank of Africa (UBA), as well as Chinese business men and Ghanaians who are either in joint ventures or engage in business with Chinese investors or enterprises. In some cases, the contacts and interviews were done via telephone or email.

The selection of key informants from the above public and private sectors were done bearing in mind their position in these institutions as well as their knowledge of the subject area.

21 For more discussion on the ‘The Politics of Economic Liberalization’ particularly in African countries, see the edited volume by Widner Jennifer, A. (1994) Economic Change, and Political Liberalization in Sub-Saharan Africa (Baltimore: John Hopkins University Press)

Also, the availability of these officials and business individuals was taken into account. This therefore indicates the use of purposive sampling. However, to compensate for a weakness of this type of sampling which is the possible exclusion of other potential individuals with pertinent knowledge on the subject, accidental sampling is adopted. This form of sampling enabled the researcher to reach and interview respondents outside the selected informants.

The secondary data sources comprised of published books, newspaper articles, journals, government documents and reports, project and policy documents; promotional materials on trade; aid and investments in Ghana. These sources were libraries and resource centres of institutions and organizations in both Ghana and the United States. With these, various perspectives on the China’s momentous engagement in Africa as a whole and Ghana in particular are raised and discussed. The wealth of secondary sources helped augment or support information from the primary sources to enable the research present an informative impression of this ongoing developmental account in Ghana.

1.5. Dissertation Outline

The study mainly attempts a juxtaposition of China’s approach to economic engagement with that of the western economic policies known as the Washington Consensus,22 which has had a great influence in resuscitating and shaping Ghana’s economy. The subsequent chapters collectively build on the sporadic efforts to examine China’s engagement with Ghana (see Idun- Arkhurst, 2008; Tsikata et. al, 2008), and also enhance the comprehension of the emerging complexities as a result of this relationship. A study of this nature could also prove invaluable to the extension of knowledge regarding dynamics of economic liberalization at a monumental period in the political economic history of Ghana and SSA.

22 A term which was coined by John Williamson in 1990 to emphasize the ardent subscription to free-market principles by the IMF, the World Bank, the US Department and other Washington, DC based institutions in their dealing with most parts of the developing world (see De Rivero, 2001; Khor, 2001)

Chapter 2 –The Conceptual Approach to Understanding Liberalization in Ghana

This chapter considers the contemporary scholarly literature on economic liberalization as it pertains to Ghana’s experience in economic reform – particularly showing the various features as designed by western financial institutions such as the World Bank and IMF. In addition to presenting the general review of economic liberalization in Ghana, this chapter also incorporates the role of the state (government) in shaping the economic development. An analytical view is adopted for institutional change in this study as the alteration in policies and structures as a result of the Washington Consensus and Beijing economic plans in this case is worth exploring.

Chapter 3 – China in Ghana: The Benefits of the Liberalization Agenda

This chapter features discussions on China’s impact on the Ghanaian political economy. The main emphasis is on trade – exports and imports, investments, aid and infrastructure/ technical assistance. The chapter also features discussions on pertinent issues encountered by both Chinese business individuals and enterprises. Landmark projects such as the Bui Hydroelectric Dam, birthed through this economic engagement, are prominently highlighted and discussed. Chapter 3 thus sets the foundation for exploring the similarities and/or differences between China’s foreign economic policy i.e. “Beijing Consensus” and the “Washington Consensus” in Chapter 4.

Chapter 4 – From Washington to Beijing: Liberalization from the West, or Liberalization with Chinese Characteristics? This chapter provides a comparative account of the Washington Consensus and the “Beijing Consensus.” The former approach adopted by the Western institutions like the IMF and World Bank – a rhetoric that postulates that the combination of the market and democracy produces a stable economic configuration which can create and sustain economic growth and development. On the other hand, China’s approach, now popularly referred to as Beijing Consensus – which is skeptical about the benefits of privatization and free trade, but however encourages other nations to fit into the global system bearing in mind their own economic self-

determination. This chapter considers these approaches from analytical angles, and most importantly drawing mainly from the experiences of Ghana, and other SSA countries.

Chapter 5 – Discussions, Suggestions and Conclusion

This final chapter reviews the study through the highlighting of the major arguments presented in the previous chapters. In addition to rounding-up of the arguments and discussions, the chapter contains the potential avenues for future research. Given that Sino-African relations is a relatively new research agenda, and that of Sino-Ghanaian relations is a work-in-progress, this chapter will also project that this study could provide some of the needed context for country case studies.

Chapter Two: The Conceptual Approach to Understanding Liberalization in Ghana

“African countries are clear that when it comes to economic growth and transformation, China has much to offer that is relevant to present-day Africa.”

Dr. Ngozi Okonjo-Iweala, Managing Director of the World Bank 23

Since the 1980s, Ghana has undergone a dramatic process of economic liberalization. Prior to this period, the state intervened heavily and directly in the economy through strategic trade and investment policies, the provision of cheap credit and subsidies to priority sectors and borrowers, and the cultivation of a range of state-owned enterprises.24 Following the poor showing of international oil prices in the1970s and successive poor economic planning, the government sought to introduce a range of reforms that dramatically reduced the extent of its intervention in the economy. This was in response to the attempts by the World Bank and the International Monetary Fund (IMF) to help the government to initiate reforms that will help the resuscitate the economy from near collapse. The two international financial institutions worked closely together in pursuance of the Structural Adjustment Programs (SAPs).25 In this case, the IMF directs its efforts at providing short term stabilization loans aimed at ensuring the stability of the macroeconomic climate, then the World Bank continues with the long term adjustment programs, dealing with issues such as the taxation, privatization of State Owned Enterprises,

23 N. Okonjo-Iweala, ‘Viewpoint’; Z. Weiwei, ‘The Allure of the Chinese Model’, International Herald Tribune, 2 November 2006

24 From Independence 1957 to the 1980s several of these State Owned Enterprises (SOEs) were set up and managed by different governments; both military and civilian. Ghana's State Meat Factory at Bolgatanga in the Upper East Region, which produces the VOLTA corned beef; the Boatyard Division of GIHOC at Mumford Village in the Apam District in the Central Region; in 1972, the government rook over the African Timber and Plywood Company; 25 Structural Adjustment Programs are programs by which the World Bank and the International Monetary Fund (IMF) lend in support of economic and institutional reforms rather than the specific investments. These reforms are aimed at enhancing economic growth through economic efficiency in the use and allocation of economic resources.

financial liberalization, international trade supports non-tariff barriers, removal of restrictions for foreign investments. This also included some regulatory reforms and institutional reforms such as that of the civil service.

Over the years, with the proliferation of neoliberal economic policies and the tenets of the Washington Consensus, loans and grants from the World Bank and the IMF are with conditions which are geared at deregulating the economy. Thus, after the adoption of the SAPs in the 1980s, Ghana was faced with austerity measures ranging from privatization, financial deregulation and trade liberalization to the removal of subsidies, currency devaluation, cutbacks on wages and social spending, civil service retrenchment and democratic and institutional reforms (see Lodewijks, 2006; Stiglitz, 2003). This direction of reforms have been the focus of several research studies most of which have pointed to the fact that the initialization of reforms by government represented attempts at liberalizing of the economy. With the Rawlings administration staying in power for two decades (1981-2000), the program of economic liberalization has seen some continuity, followed by the Kufuor administration that took these steps further as the institution of neoliberal reforms and policies defined and guided the government. As part of the Kufuor administration’s attempt to widen international economic and political cooperation, it strengthened relations with the international financial institutions and the G8 and rekindled relations with China and other key bilateral partners in Europe and the Arab World (Boafo-Arthur, 2007). The unfolding reality is that China’s meteoritic rise in the global economic system coincided with Ghana’s continuous democratic progress and search for an economic agenda that will propel it to economic self-determination. How can these two fates be analytically understood?

Did Ghana’s past efforts at economic liberalization prepare it for a fruitful relationship with China? Is China’s new engagement in Ghana (Africa) showing continuity of neoliberal economic policies? By this relationship, is China’s policy toward Africa heading in a different direction from that of the West – pointing to economic liberalization with Chinese characteristics. Considering these daunting issues in Chinese relations with Ghana, like other sub-Saharan African countries, and weighing the implications of the outcomes of such

discussions depicts the intricate nature of this debate. This necessitates an analytical framework to help generate comprehensive discussions.

After an attempt to explore some related concepts to this political economic discussion, the remainder of this chapter is mainly divided into two main parts. Part one looks at the broad and existing literature on the nature, trend and implications of Ghana’s efforts at economic liberalization. This part reviews Ghana’s post independence economic growth which has mostly been as a result of the liberalization (reform) of its economy. By understanding the path that Ghana has taken to economic liberalization, the foundation is set for analyzing the differences that exist between the Washington Consensus and China’s pragmatic economic approach; and also this helps to generate insights into the threats and opportunities that liberalization contribute to the economies of developing countries. Part two looks at the framework of institutional change, which will better account for any explanations that might exist for the changes that have taken place between the state and/or the private sector as a result of China’s increased engagement with Ghana. The rationale behind the projection of this analytical framework is that any attempt at economic reform will generate some institutional reforms within the political economy of a country, which may be understood by looking back on other past endeavors – path dependence.

2.1. Related Concepts

This chapter is very central to the study as it helps with the setting of a good foundation to understanding Ghana’s recent past in economic reforms, and also to enable a scrutiny of the relationship between China and Ghana as it progresses. Towards these goals, other concepts may prove valuable to Ghana’s case. Three of such concepts related to the discussion of Ghana’s political economy are: varieties of capitalism; the dynamism between the state and private enterprises; and the centripetal nature of the globalization.

2.1.1. Varieties of Capitalism

This discussion of Sino-Ghanaian engagements within a political economy framework is actor -centered which refers to the fact that we see the political economy as a terrain populated by multiple actors, each of whom seeks to advance his interests in a rational way, in strategic

interaction with others (Scharpf, 1997; Hall and Soskice, 2001). Over the years, the development of capitalism has exhibited heterogeneity. In their work, Good Capitalism, Bad Capitalism Baumol, Litan, and Schramm (2007) offer a taxonomy of different capitalist systems in the world – there is the state-guided capitalism, in which government sets industrial policies and direct investments. Then there is the oligarchic capitalism that empowers and enriches the few at the expense of the many. The third variety is the big-firm capitalism that accentuates the dominance of big firms but suppresses innovation. Gilpin (2001)26 also elucidates the differences that exist among capitalist systems in different regions of the world by considering three main factors: first, the primary purposes of the economic activity of the nation; second, the role of the state in the economy; and third, the structure of the corporate sector and private business practices. In the case of China, its ascent in the global economy continues to rest on certain unique institutional arrangements both domestically (Young, 2003; Sweetman and Zhang, 2009) and internationally, particularly during the post 1978 reforms which according to Lau, Qian, and Roland (2000), produced all winners and no losers.

Also, following a quarter century of liberalization by China, markets for products, labor, and materials are well developed and increasingly competitive. While investment decisions, capital markets, and transfer of ownership rights still bear the imprints of official, the overall impact of market forces continues to deepen (Brandt and Rawski, 2008). Though China’s engagement in Africa has persistently exhibited features of liberalization such as taking advantage of laws regulating business ownership in countries like Ghana, its “business is business” mantra with its accompanying doctrine of noninterference sets its approach apart from Western efforts at reaching African markets.

26 Gilpin R. (2001) Global Political Economy: Understanding the International Economic Order, Princeton: Princeton University Press 26

2.1.2. The Dynamism between the State and Private Enterprises

“The government kept saying that the private sector was in the driving seat but it was not. The private sector has been marginal all along”27

S. K Apea - Special Advisor to Ghana’s Ministry of Finance and Economic Planning.

In most developing economies, the role of state institutions to liberalize economies cannot be understated. In their study of the ‘Drivers of Change’ in Ghana, Booth et al. (2004) identify economic liberalization in the 1980s and political liberalization a decade after that as the main factors behind the fairly decent growth performance. In the case of Ghana, these economic and political changes steered by state driven policies have engineered some growth as shown by an improvement in most of the macroeconomic statistics. Political decisions such as that of the erstwhile New Patriotic Party (NPP) administration’s decision to step up engagement with China as part of its efforts at building relations with the wider international community28 have had far- reaching implications for the Ghanaian economy. The efforts of the Ghanaian government are not much different from other African states whose development efforts are believed to emphasize the efficient state to mimic the “East Asian Model”. However, I contend that even though SSA economies (including the case Ghana) may emphasize the role of the state in their development efforts, the relationship between African states and the private sectors has not been the most amiable, as the efficacy of the state in economic development has been questioned. The Stanford economist, John McMillan’s book Reinventing the Bazaar: A Natural History of Markets (2002) demonstrates how violent clashes between state regulators and small traders is hardly a feature in a dynamic, rapidly growing and liberalizing economy (such as China), but more likely in the case of less dynamic economies. He describes how in 1979 the military government of Ghana resorted to violence and brutality to shut down the Makola marketplace in the city of Accra. The military officers dynamited and bulldozed the entire marketplace, beating

27 As quoted by Handley A. (2008) Business and the State in Africa: Economic Policy-Making in the Neo-Liberal Era (Cambridge: Cambridge University Press): 172

28 Most of these policy directives were depicted by the efforts of the then President of the Republic of Ghana, H.E. John Agyekum Kufuor most discussed in an undated write-up titled “Visits Abroad Under taken by the President” found at the Ministry of Foreign Affairs

and killing some traders because of perceived price gouging which has led to high inflation and subsequent economic failure. On the other hand, Huang and Qian (2008) states that in China, the repression of small entrepreneurial traders was not intended to eliminate them but rather to extract rent from them.

Additionally, the commitment to any economic engagement with another model of development (which is not new to Ghana) will certainly challenge the conceptual description of the state as neo-patrimonial – one in which there is little sense of the public good or of public service, and where the resources of the state are the estate of the ruler (see Jackson and Rosberg, 1984; Sandbrook, 1985). This is because the nature of the neo-patrimonial is profoundly anti- developmental as it emphasizes the short-term appropriation and distribution of resources by the state, rather than long-term growth and wealth creation. In Ghana’s recent history like most African states, the neo-patrimonial model has been evoked to describe the state’s misuse of public resources to the detriment of the entire population.29 These existing issues which will certainly affect any relations between China and Ghana, and further influence attempts at sustaining the process of economic liberalization must be explored within the context of this recent surge of Chinese economic activities in Africa.

2.1.3. The Centripetal Nature of Globalization

China’s rise in the global economy, and the wave of Chinese enterprises around the world, particularly after the launch of economic reforms in China in 1978, prove that the Chinese have indeed gone global. Through its “Go-Out” (zou chu qu) policies, the Chinese government has put forward a clear and definite economic development strategy to increase per capita GNP to the level of medium-developed countries by the mid 21st century.30 In this vein, China realizes that natural resources were central to the attainment of this goal and other development goals and thus in 2003 issued a Policy on Mineral Resources whose overarching objective was “to build a well-off society in an all-round way in the first 20 years of the new century (Rocha, 2008).”

29 A distinguished Ghanaian economist, Jonathan Frimpong-Ansah (1992), enunciated the ‘the vampire state’ as a way of labeling the extreme neo-patrimonial nature of the state in Ghana as well as African states – The Vampire State in Africa: The Political Economy of Decline in Ghana, Africa World Press

30 The Three Step Development Strategy www.china.org.cn/english/features38199.htm

In pursuit of its objectives, China embarked upon a global expedition to lock in much needed natural resources in order to satisfy its insatiable appetite for raw materials. Even though China still has enormous potential for mineral resource prospecting and exploration, these can neither meet an ever increasing domestic demand, nor sustain China’s dramatic economic growth (see Sutter, 2010) (refer to table 2.1). In light of these projections, China is scouring the world to meet some of its short, medium, and long-term needs. In this direction, countries in Africa, Asia, Latin America, Middle East, Central Asia, and Russia have all been pursued by the Chinese. With this quest to find mineral resources, the Chinese government and Chinese enterprises consider Africa rich in natural resources, particularly crude oil, nonferrous metal, and fisheries (Taylor, 2009). Chinese companies are in various deals with majority of the nineteen African countries that have proven oil reserves or are already producing oil (refer to Table 2.2).

Table 3.1 - Projections for China's Commodity Import Demand

Table 2.2 - Proven Reserves of Oil in Africa, January 2009

Source: Oil and Gas Journal, Vol. 106, no.48, December 22, 2008

Globalization has immense implication in this study as China’s efforts at “going out” have engulfed the global economy, churning policies, and influencing repercussions of its foreign policy towards African countries. China, through the effects of its financial and trade policies on the international macroeconomic environment, has an indirect impact on economic management in Africa. Also with its influence in setting global prices, China’s actions have major repercussions for world interest rates, output, and inflation. The Chinese have directly contributed to macroeconomic management in Sub-Saharan Africa by helping create the large commodity booms that have resulted in the inflows of capital into the continent (Zafar, 2007).

2.2. Ghana’s Economic Liberalization – A Literature Review

“Seek ye first the political kingdom and all else will be added unto you”

Dr. Kwame Nkrumah, Founder and the first president of Modern Ghana31

Following the struggle for political independence, virtually every sub-Saharan African country has pursued some form of economic reform. In the 1970s and 80s most countries were forced by their low growth and overwhelming balance of payment problems to turn to the

31 Dr. Kwame Nkrumah, like other leaders of nationalist movements in pre-independent Africa projected such political expectation: that in Africa the road to economic prosperity ran through politics

multilateral and bilateral institutions for help. This help was characterized by stringent conditions, and also comes in the form of programs for stabilization and structural adjustment, the core of which is the dismantling of significant parts of their apparatus for regulation and control – programs of economic liberalization. In the late 1980s and 90s political change also swept through sub-Saharan Africa, as one-party states, and military rulers who ascended to power through military interventions gave way to the use of ballot box and a potent civil society.

The re-entry of China into Africa has largely been referred to as a counteractive force to liberalization (both political and economic)32 even though this study argues that this relationship is part of the broader discourse, particularly economic liberalization. The following review focuses on Ghana’s experience with economic reform and liberalization, and in the process, the discussion reveals the symbiotic relationship that exists between economic liberalization and political liberalization. Economic liberalization in the Ghana’s case needs to be understood in terms of the way in which political and social interests shape processes of reform in both a positive and negative sense. Markets, it is argued, cannot survive in a political and social vacuum: they can only flourish where powerful coalitions of interests that support economic liberalization exist to underpin them (see Rosser, 2002). In this case, markets and domestic financial issues are seen as political constructs that embody specific political and social interests. As Chaudhry (1993: 247) has put it, markets are based, by design or default, on political principles (who gets what, why and how) and on the choices of how individual resources, rights, aspirations, and possibilities are reconciled with collective ones. Hence, Ghana’s economic liberalization cannot be understood as a matter of economic rationality prevailing over political and social interests, but rather must be seen in terms of a struggle between competing coalitions of interest in which one coalition prevails over the other. The literature on economic liberalization in Ghana (as part of economic reform) has largely reflected the enormous influence of Western Institutions and they also emphasize the importance of both the economics over the

32 Most scholarly attempts from the West in response to China’s monumental engagement in Africa quickly acknowledge this fact in their discussions. For a discussion of some of the perceived underlying motives of China’s efforts in Africa see Peter Brookes and Ji Hye Shin, China’s Influence in Africa: Implications for the United States (February, 2006) http://www.heritage.org/Research/AsiaandthePacific/bg1916.cfm#_ftn2

politics. Booth et al (2004)33 identify economic liberalization in the 1980s and political liberalization in the 1990s as some of the key factors behind the fairly decent growth the Ghanaian economy is encountering.

Ghana’s economic and political development story is one that stands out in the Sub- Saharan African region. From emergence from colonial rule as a political pacesetter through the several economic and political downturns, to an exemplary economic and political liberalization record, the country’s intra and international relations have been pertinent to spurts of political and economic successes. In their classic work Ghana: Coping with Uncertainty, Pellow and Chazan (1986) identified the territory which became Ghana as having a long, lively trading tradition. The Asante Empire, a known prosperous kingdom of the eighteenth century was built on a prosperous trade in gold, ivory, and slaves and locals exported other commodities such as palm oil and timber. The growing prominence and presence of the British in the country, their abolition of slave trade, and their annexation of southern states, began to change some of these economic patterns (Rimmer, 1992).

After independence from the British in 1957, Ghana’s economy was one of the most prosperous in Africa, with an annual GDP growth rate of as high as 6 percent, substantial foreign exchange reserves, and a formidable civil service (see Donkor, 1997). The first government led by Kwame Nkrumah initiated development by instituting policies that granted free education and healthcare, jumpstarted mass industrialization and electrification programs in addition to establishing several state-owned enterprises to compete with existing private and foreign enterprises. Regrettably, by the early 1960s Nkrumah had resorted to a one-party state through the consolidation of power in his ruling Convention People’s Party (CPP). The abuse of political power and mismanagement of resources led to economic decline, which fueled the overthrow of the Nkrumah regime in 1966 (see Mensah, 2006a).

33 In this overview study titled Drivers of Change in Ghana Booth, Crook, Gyimah-Boadi, Killick, Luckham, and Boateng (2004) mention international trade and competition; financial institutions; foreign direct investment; and Ghanaian entrepreneurship as economic drivers. They also list intensified party competition; free flow of information and critical mass media; and the Ghanaian diaspora – emigration and return processes as political drivers

The military overthrow of the CPP government did little to improve the economic wellbeing of Ghanaians, as the junta continued the neopatrimonial state characterized by features of economic mismanagement and corruption. According to Mensah, Oppong-Koranteng, and Frempah-Yeboah (2006) by 2000, Ghana’s post-colonial political pendulum had swung intermittently between four military dictatorships and four democratic governments.34

With a second Rawlings military coup supported by radical students, trade union workers, and junior members of the military in 1981, the regime adopted tactics Dzorgbo (2001:281) refers to as “Robin Hood Politics” to inject some economic and political discipline into Ghana’s political economy. These include detention, confiscation of property, extortion and abductions and execution of “enemies of the revolution.” This socialist revolution interspersed with violence affected the economy, which experienced astronomical inflation rates, chronic food shortages and mass poverty. Based on the 1984 World Bank Report, Boafo-Arthur (2001:147) describes how deplorable the Ghanaian economy had become prior to economic reforms:

Between 1970 and 1982, income per capita fell by 30 percent and real wages by 80 percent; import volume fell by two-thirds; real export earnings fell by one-half, and the ratio of Ghana’s export to GDP dropped from 21 to 4 percent. Furthermore, the domestic savings rate fell from 12 to 3 percent and the investment rate from 14 to 2 percent of GDP; finally, the government deficit rose from 0.4 to 14.6 percent GDP of total government spending. In the same vein, Konadu-Agyemang (2001:6) estimates that by the early 1980s the inflation rate of Ghana has surpassed 100 percent, and GDP per capita income had fallen by 27 percent from its 1960 level of 1009 US dollars to 739 US dollars. As if the economic downturn was not enough, Ghana experienced its worst series of droughts between 1978 and 1983 resulting in a

34 The National Liberation Council (NLC), which overthrew Nkrumah, was replaced by the democratic government of K. A Busia and his Progressive Party (PP) in 1969, only to be toppled by Colonel I. K. Acheampong and his National Redemption Council (NRC) in 1972. Jerry Rawlings’ Armed Forces Revolutionary Council (AFRC), in turn overthrew the NRC in 1979, and handed over to the civilian government of Dr. Hilla Limann in the same year, only to return to power with his Provisional National Defence Council (PNDC) in another military takeover. Jerry Rawlings switch and ruled as an elected civilian leader under a democratic dispensation from 1992 to 1999, when his National Democratic Congress (NDC) party lost in the general elections to the New Patriotic Party headed by John A. Kufuor. For more discussions on this see Mensah (2006) ‘Ghana’, in Thomas M. Leonard (ed.), Encyclopedia of the Developing World, Vol.2 (New York: Routledge), 699-702

steep fall in food production and decrease in water levels at the country’s only Hydro electric dam affecting generation of electricity for domestic and industrial uses (see Toye, 1990). Werlin (1994) acknowledges that Ghana’s economic challenges which necessitated reaching out of the borders for help, were also caused by exogenous factors such the global economic upheaval caused by the OPEC crisis in the 1970s, and the perennially unfavorable terms of trade for Ghana’s primary export commodities such as cocoa, gold, timber, bauxite. With such deplorable economic conditions, the Rawlings government with its populist and socialist stance, turned to Western governments and institutions i.e. the United States, World Bank, and International Monetary Fund (IMF) for food and economic aid, after futile efforts to reach out to so-called progressive communist countries such as Cuba, and former Soviet Union with whom Ghana supposedly shared solidarity.

Mensah, Oppong-Koranteng, and Frempah-Yeboah (2006:99) rightly argue that while deplorable economic circumstances of the 1970s and the early 1980s served as a significant catalyst, Ghana’s economic reforms (mainly economic and political liberalization) was not begotten solely by crisis since the country has encountered earlier economic challenges. Other factors – including the government’s willingness to reform, the presumed lack of alternatives, the sheer ruthlessness of the government and the ‘authoritarian advantage’ enjoyed by Rawlings and the PNDC at the time, and the political and social dynamics, and strategies of the government (e.g. the use of populist coalition and populist rhetoric) – contributed to the successful initiation of Ghana’s economic reform. In other words, the role of the government (state) in responding to the economic climate with external help (Western governments and financial institutions) as well as institutional changes was unquestionable in this regard.

Between the period of 1960 and 1983 referred to as the pre-liberalization in Ghana, Fosu and O’Connell (2006) state that this period was one that the state was in control of the economy and like other sub-Saharan countries this has had an adverse effect on economic growth. Hence during the pre-liberalization period a significant, interventionist role for the central government was considered essential to overcome the widespread market failures; but by the 1980s, the pendulum had swung back: the excess of state intervention had made the development community to view government failure, the negative unintended effects of state intervention as

often worse than the market-induced ills it was designed to overcome (van de Walle, 2003:4). So an effective government is needed to oversee the economic recovery. As poignantly stated by the World Bank, “underlying the litany of Africa’s development problems is a crisis of governance” (1989:60); Ghana’s efforts at economic growth witnessed some positive results in the 1990s as the country like most parts of the sub-Saharan Africa experience a burst of political liberalization and democratization. Ghana’s economic reform also affected the relationship between the state and other market institutions.

In an overview of Ghana’s post independence economic growth, Aryeetey and Fosu (2008) look at the relationship between the state and the labor, credit, land, goods and service markets. In relation to the labor (employment) market, research reveals that the growing deficits that hit the country in the 1960s and 1970s could be attributed to considerable featherbedding of the formal sector whereby the sector employment grew significantly but with very little attention paid to productivity (see Boateng, 1997). In this direction, the main tool used by the government to control labor has been the minimum wage – a minimum wage policy was first adopted in 196335 to raise the income levels of unskilled workers within the context of social policy. Since the initiation of this policy, minimum wages have been adopted at as instrument to effect across- the-board increases in salaries in the public sectors. During the pre-reform (liberalization) era, Aryeetey and Fosu (2008:58-59) note that there was mass employment in the public sector, a consequence of a policy objective of employment maximization supported by a broad-based regime of state controls on all major aspects of Ghana’s economy. This adversely affected the private sector as private sector employment, which stood at about 149,000 in 1960, fell to 48,000 in 1980. In the case of the credit market which was very small for private investment, government interventionist approaches such as the establishment of the Ghana Commercial Bank in 1953; and the specialized banks like the Co-operative Bank, and the social Security Bank in the 1970s. Again, Aryeetey and Fosu (2008) state that the interventionist policies in the credit market resulted in a reduction in the size of the financial market activity, limiting competition in

35 In Ghana, two main concepts of minimum wages are adopted and used. First is the “daily minimum wage” normally used for the Civil Service, and second is the “statutory minimum wage” below which it is illegal to employ labor – it is fixed in consultation with the Tripartite Committee of government, employers, and organized labor.

the financial system and making the financial market respond more to the needs of the state than to those of the of the productive agents.

Ghana’s economic liberalization which embodied a set of reforms agreed upon with the Bretton Wood institutions took off in the 1980s with very little or no concern for political liberalization. Boafo-Arthur (1999:17) observed that the IMF and the World Bank could not have been oblivious to the various extra-legal measures put in motion by the PNDC (under the Rawlings regime). The institutions simply turned a blind eye to the regime’s excesses for the sake of the reform program. In the 1980s and early 1990s, as the IMF and the World Bank embarked on the second and third generation reforms, issues of democratic government were overlooked for the reform initiatives that were in the offing. Mensah, Oppong-Koranteng, and Frempah-Yeboah (2006:99) note that governmental ruthlessness was a common feature of economic reforms in many developing countries including parts of Asia (Philippines) and Latin America (Chile). Nonetheless, the role of the government in initiating and sustaining these reforms via the policies that they craft cannot be underrated. In fact, in their work the Relevance of Asian Development Experiences to African Problems (1994) Seiji Naja and Robert McCleery acknowledge that in the 1980s and 1990s, policies that have been tremendously successful in generating manufacturing exports in Asian countries, had bleak results in African countries. They, however, state that out of the four sub-Saharan African countries (Burkina Faso, Benin, Ghana, and Senegal) that recorded some significant increase, it was only in Ghana that the increases could be directly tied to policy changes.

Economic liberalization has been characterized mainly by fiscal reforms; public sector and civil service reforms; divestiture and privatization; and other reforms in the primary sector. All these are part of the IMF and World Bank conditions imposed on failing economies in the developing world to help with restructuring of their economies (i.e. Structural Adjustment Programs – SAPs). Also referred to as the “Washington Consensus Model”, these characteristics stemmed from the neoclassical economics and in this case with the central argument that at the heart of the crisis in SSA is unrealistic domestic policy issues such as pricing policies, overvalued exchange rates, and excessive state intervention in the economy (see Kofi and Desta, 2008).

Fiscal Reforms

In an effort to repair the fiscal imbalances, tax reforms, enhance revenue collection, and increase fees for public services. Also the government was to focus more on capital expenditure to build up the infrastructural base of the country to help attract investors. Also as a general characteristic of nearly all IMF/World Bank reform policies i.e. SAPs, the Ghana government was to reduce its involvement in the direct production and the provision of services by privatizing several state-owned enterprises by placing them on a divestiture list (Kapur et al., 1991; Donkor 1997). According to Appiah-Kubi (2001), tax reforms under the SAPs included the consolidation of public sector employees’ fringe benefits and allowances with personal income which then become taxable while there is a reduction on the highest marginal rates of both personal and corporate incomes from 65 percent in 1983 to 35 percent in 1995; widening tax incentives and other exemptions to increase foreign direct investment, for instance export taxes were abolished with a few exceptions to enhance the nation competitiveness in the global economy – excise duties on locally made items with exceptions of tobacco, and alcoholic beverages. Another important reform to help make revenue collection very efficient was the introduction of the Value Added Tax (VAT) in 1995 amidst mass opposition which compelled the government to withdraw it and reintroduce it three years later after intense public education, debate and consultation (see Tsikata, 2001).

Research indicates that Ghana’s fiscal situation improved under the IMF/World Bank sponsored SAPs (World Bank, 1995; Tsikata, 2001). Government revenues increased from 5.38 percent of the GDP in 1982 to 19.31 percent of the GDP by 1998; tax revenue also went up by threefold from 4.56 percent of the GDP in 1982 to 15.57 percent by 1998. Also, domestic savings rose from as low as 3.62 percent of the GDP in 1983 to 13.38 percent in 1997; government savings increased from 1.72 percent of the GDP in 1983 to about 8.11 percent in 1994 (Appiah-Kubi, 2001: 87-88). However, it is an interesting fact that in spite of the policies of privatization and liberalization, government expenditure still rose substantially under the SAPs (Amoako-Tuffour, 2001; Donkor 1997). Some attribute this increase to the government’s external engagements in peacekeeping, a major push to rehabilitate the nation’s aging infrastructure, and largely reformulation of governmental structures such as the district

assemblies with the accompanying decentralization initiatives (Mensah, Oppong-Koranteng, and Frempah-Yeboah, 2006).

Public Sector/Civil Service Reforms

According to Haruna (2001:122), the SAP and its accompanying reforms gradually transformed Ghana’s public sector from one of state interventionist, public-administration, and expansive into a business-like public management entity. The basis for this set of reforms was to achieve an overhauled public and civil services sector to make them more efficient and useful tools for development. By the early 1980s, state-owned enterprises and the civil services had so underperformed that the national economy had virtually become a hostage of their own underperformance – characterized by over bloated and economic inefficient sectors (Donkor, 1997:125). According to Adda (1989: 305), before the reform (early 1980s), state-owned enterprises numbered 235 in the state, out of which the state owned direct majority shares in 181. The inefficiencies of the state-owned enterprises were mainly attributable to the government subsidies, most of which went into remunerations and benefits. Most of the reforms within the public/civil service were done through the Public Enterprise Reform Program (PERP), founded in 1983 to facilitate the streamlining and pruning off the inefficiencies in these sectors. Under this program, the government privatized some enterprises and pushed the remainder to operate more like private corporations with emphasis on production and performance. These changes produced some positive results as state-owned enterprises consumed 10 percent of the government expenditure compared to 25 percent in 1983 (Donkor, 1997:25).

Divestiture and Privatization

With political and economic exuberance, the immediate post-colonial administration led by Kwame Nkrumah saw the path to economic self-determination through industrialization. This led to the establishment of numerous state run enterprises most of which collapsed and became “white elephants” through the post-colonial period mainly due to gross mismanagement and corruption. Thus, divestiture was a core part of the IMF/World Bank reforms in Ghana ( as it has been encouraged among other reform countries) with the conviction that state-owned enterprises tend to perform poorly, due to the culture of maladministration, corruption, lack of accountability and transparency. With support from the World Bank, the government established a Divestiture 38

Implementation Committee (DIC) and a Divestiture Secretariat in 1987 to help with the process of divestiture through consultations at different levels with the society. Gyimah-Boadi (1990) notes that divestiture would enhance efficiency and curb the competition between the public and private sectors, and, ultimately, promote market-oriented economic development. This is underscored by the rationale for the divestiture, which includes the fact that many of the existing state enterprises had outlived their usefulness, and that the process will reduce the fiscal burden on the government and help provide funds that will go to helping the social services sector.

Even though the divestiture took different forms based on the particular enterprise in question, the common forms according to Mensah et al. (2006) included the outright sale, partnership, contracting out, and deregulation. Known instances of Ghana’s divestiture under the SAPs included: the deregulation of the country’s communication sector with the establishment of the National Communication Authority (Act 524) in 1996 to open up television and radio broadcasting to the private sector; privatization of Ghana Telecom in 1997 by sale of 30 percent of the government’s share to the Gcom Consortium led by Telecom Malaysia; establishment of a joint venture between the state-owned Ghana National Trading Corporation’s (GNTC) bottling department; Coca Cola International, and the African Growth Fund of the USA in 1999 (Haruna, 2001: 124-5).

The divestiture invariably has been seen as benefitting members of the business class and community, especially those well connected with the ruling government, at the expense of ordinary Ghanaians who lacked the financial capacity and connections to participate meaningfully in such as a program. The divestiture generally entails the shifting of ownership from public to private hands through direct purchase, partnership and other related arrangements (see Mensah, Oppong-Koranteng, and Frempah-Yeboah, 2006). However, the government’s divestiture program encountered some difficulties, most of which were as a result of high cost of divestiture-related retirement benefits and job (re)training programs. Research by Gyimah-Boadi (1991) and the World Bank (1996) show that divestiture and privatization in Africa have been criticized, especially in relation to the acute lack of accountability in the process. Suspicions and allegations of government officials giving away national assets to their friends, families and foreign agents under the pretext of divesture abound in nearly all the high-profile divestiture

programs in SSA. There are also serious concerns about the loss of government legitimacy following massive divestiture. The withdrawing state subsidies from social services and the reduction of public employment and services are abound to generate disloyalty, especially where the government has traditionally been seen as a benevolent or paternalistic provider of jobs and social services.

As much as the story of Ghana’s liberalization is well known and documented, it is essential to further explore how the country’s relationship with the Chinese is furthering our understanding of it. The review of economic liberalization in Ghana reveals the roles of Western institutions like the IMF and World Bank; and how the state brings about change through its relationship with the institutions. The observation of the trend of Ghana’s liberalization experience begets two important issues. Whether there have been some changes in further attempts to liberalize the economy? And if there have been any changes, have they altered our understanding of economic liberalization as a concept?

2.3. Towards a more Contextual and Institutional Analysis

This part of the chapter serves a dual purpose the first section will examine the major dearth in scholarly studies on Sino-Ghanaian relations – as we look at the current efforts in this direction. But most importantly, this section also highlights some of the much needed nuance in literature pertaining to Sino-African relations. The next section looks at the importance of arguments on institutional change, considering the fact that SSA countries can only benefit from the transformational changes China has undergone as a country if only the relationship between Beijing and these countries results in institutional change that will foster economic development. These discussions do not ignore the fact that the relationship between China and SSA countries (in this particular case Ghana) has not produced some challenges which have been the main focus in arguments put forward by the critics of this surge in economic activities.

2.3.1. Weaknesses in current research

The obvious increase in literature on China-Africa relations very much underscores the importance of this issue in the global political economy, and most importantly in African studies. 40

Nonetheless, dealing with this topic has mostly been done with some inherent weaknesses in either the selection of case studies or in the attempt to develop a contextual analysis.

Firstly, the existing attempts at exploring relations between Ghana and China exhibit some major shortfalls. Like most other studies that explore Sino-African relations, discussions on Sino-Ghanaian engagements have been “de-contextual” in nature – giving some credence to Paul Pierson’s (2003: 354) assertion that “the rise of rational choice and the variable mind-set within political science have joined to create a disciplinary environment in which “context” is for many a bad word – a synonym for thick description and an obstacle to social scientific analysis.” Most of the studies have been rather thin or altogether ignored the institutional or interactional arrangements that birthed or have enormous impact on the current statistics on economic investments, trade, and aid that exists between both countries. The sporadic effort at researching Ghana’s economic engagements with China mainly focus on how much China has invested in Ghana, as well as the assistance Ghana receives from this relationship. These efforts contributes very little to our understanding of the institutional and interactional dynamics that differentiates this relationship from what the country has had or still has with the West. I therefore argue for a useful analytical study of Sino-Ghanaian relations which will provide the needed description of this relationship behind the empirical values that exist or have been projected in documents and other studies.

Drawing on Przeworski’s (1991: 57-58) description of liberalization, as one concept that evokes terms like “opening”, “decompression”, “renewal”, “reconstruction”, and “remodeling”, it is essential to seriously consider research on major agents shaping Ghana’s economic and political liberalization. Most of the scholarly works done on Ghana’s economic liberalization efforts have mainly concentrated on the efforts of the West and its institutions, paying little attention to the impact of East Asian economies. This can no longer be the norm given China’s momentous economic outreach in SSA, and its growing influence in Ghana. Despite the obvious increase in economic activities between China and Ghana (particularly with the discovery of oil), attempts to explore this part of Ghana’s economic “opening-up” is in it incipient stages, necessitating a study that will also look at the continuous efforts at economic reform in this era of “China in Africa.”

With most studies on Sino-Africa concerned with cost and benefits of this relationship, not much has been done to explore the role of institutions and how the change in these institutions may alter the future of this relationship. China’s rise in the contemporary global economy has much to do with its own institutional arrangements, particularly with regards to the state-economy relationship. As Duckett (1998:162) argues:

State institutions…have retained control over many resources and still exert considerable influence over policy formulation and implementation. They can use that influence to direct the economic transition process in ways favorable to themselves Thus, it is essential that any effort to examine the relationship between Africa and China should incorporate the impacts of institutions and the role that these institutions such as government ministries and departments play in shaping the current nature as well as the future of this relationship. The case of Ghana will be useful in this direction given the existence of mature and formidable institutions that represent the state, and also the recent enviable record of governance that Ghana has achieved among its peers in the SSA region.

This research therefore fundamentally engages in discussions and the presentation of analyses which will provide information on the institutional and interactional arrangements that define the economic and political relationship between Ghana and China – the much needed context for case studies on Sino-African relations. Also, this will enable the study draw useful comparisons between Western and Chinese influences on Ghana’s continuous path on economic liberalization.

2.3.2 Institutional Change

Many schools of thoughts in social change have contributed to our understanding of institutional change.36 Economic development, in particular has offered a dynamic basis for understanding

36 In their work “Political Science and the Three New Instutionalism,” Political Studies 44, no. 5 (December 1996): 936-957, Peter Hall and Rosemary Taylor point that these schools of thoughts include historical institutionalism, rational choice institutionalism, and sociological institutionalism. For some recent work in this regard, see James Mahoney and Kathleen Thelen, Explaining Institutional Change, (Cambridge: Cambridge University Press, 2010); Paul Pierson and Theda Skocpol, “Historical Institutionalism in Contemporary Political Science,” in Political 42

institutional change, especially institutional change of gradual and incremental nature. For instance, based on his work on the economic history of Europe and the United States, Douglass C. North (1994:342) developed a theory of institutional change involving institutions and organizations. According to North, institutions are the humanly devised constraints that structure human interaction, whereas organizations are groups of individuals bound by some common purpose to achieve objectives. Thus for North, “if institutions are the rules of the game, organizations and their entrepreneurs are the players.” Furthermore “institutions change, and fundamental changes in relative prices are the most important sources of that change…. [For] relative price changes alter the incentives of individuals in human interaction.” Actually, North posits that not only do price changes constitute the causal forces for changes in institutions, institutional change is typically incremental and is path-dependent” (1990: 98-100). Douglass North’s theory of institutional change provides a powerful explanation of the dynamics of gradual or incremental institutional change within a market-oriented economic system. Especially useful is the concept of “path dependence” which often characterizes the concept of institutional change even though they might differ in definition. North (1994:342) defines it as the “powerful influence of the past on the present and future.” For instance, in explaining how the Northwest Ordnance “provided the basic framework dictating the pattern of expansion of the United States over the next century,” North concluded that “Once a development path is set on a particular course, the network externalities, the learning process of organizations, and the historically derived subjective modeling of the issues reinforce the course.” For Sewell (1996: 245), path dependence means that “what happened at an earlier point in time will affect the possible outcomes of a sequence of events occurring at a later point in time.” On the other hand, Mahoney (2000:507) argues that “path dependence characterizes specifically those historical sequences in which contingent events set into motion institutional patterns or event chains that have deterministic properties.” Also insightful is the view of Paul Pierson (2000:251) who sees path dependence as the “social processes that exhibit increasing returns,” which therefore means that “preceding steps in a particular direction induce further movement in the same direction” and that “the probability of further steps along the same path

Science: The State of the Discipline, ed. Ira Katznelson and Helen Milner (New York: W.W. Norton, 2002), 693- 721.

increases with each move down that path.” For the purposes of this study, path dependence, a feature of institutional change, can be understood as the features of existing forms of institutional patterns or arrangements that shape and facilitate institutional change. Such a perspective helps to explain the persistence of existing forms or patterns of institutional arrangements as a result of economic engagement between Ghana and China. The (re) structuring of government policies, institutions and organizations to take advantage of this monumental political and economic change in SSA has driven many governments in the region including the government of Ghana. One essential question in this case will be why is institutional change related to the issue of Ghana-China economic engagement? As addressed by some scholars, human actors rationally choose to reproduce existing institutions, which leads to a path dependent change, “because any potential benefits of transformation are outweighed by the costs” (Mahoney 2000:507). Hence, this supports the understanding that Ghana’s current economic engagement with China may or may not exhibit characteristics which mimic its engagement with the West and its institutions. As much as Mahoney’s explanation and others may be plausible, it is also obvious that in this particular case, constraints of limited institutional endowments also provides explanation for why gradual institutional change in the case of Ghana’s political economy is characterized by path dependent – which draws from the past of this growing relationship (between Beijing and Ghana).With the history that lies between these two countries, Chapter 3 looks at China’s economic efforts in Ghana.

2.4. Conclusion Research on China’s growing presence in SSA is gaining so much attention in different fields of study. This sudden interest has all the more given credence to the use of country cases to monitor and report the operations and outcomes of China’s activities on the continent. These country cases help provide the needed nuances in the numerous effort to explore Sino-African relations. Ghana is a case that has received little attention in relation to these explorations, in spite of its strategic influence in political and economic activities in SSA. Selected attempts at researching Sino-Ghana relations have lacked the needed contextual build up to allow for “serious” research on the impact of this relationship. Also, the influences of the state and other

institutions in Ghana’s economic liberalization efforts are crucial to our understanding of Ghana’s nurturing economic and political relationship with China. Conceptually, this chapter outlined the understanding of liberalization which is foundational in Ghana’s economic developmental efforts, and further substantiated the concept with the empirical evidence of policy changes and various roles played by the government and other institutions in the bid to open up and reform an economy that was in shambles. This approach lays a good foundation to examine institutional changes via path dependence which enables a look at influences of the past and their importance on analyses of the present and future. China’s economic engagement with Ghana like other countries in SSA, has patterns, and sequences which are part of a gradual or incremental change that may alter our understanding of the idea of liberalization. Chapter 3 furthers the debate by looking at the scope and character of Sino-Ghanaian relations through trade, aid, and investment.

Chapter Three: China in Ghana: The Benefits of the Liberalization Agenda

His ‘gifts’ were tangible and generous37

South African newspaper The enviable growth pattern of several East Asian economies is a known fact. With strong and consistent growth rates in these newly industrializing economies (NIEs) like Hong Kong, South Korea, Singapore, Taiwan, and most notably China, the rhetoric has been how African economies can tap into the “East Asian miracle” to achieve a similar development. This has increased the relevance of economic engagements between SSA countries and their counterparts in Asia, as the latter serves as a trove of development experiences. Ghana’s economic growth, for instance has been compared with that of South Korea, as two countries with about the same economic characteristics in 1957 (see Werlin, 1994). However, China’s emergence as a global economic power has so many implications for other developing economies, particularly those in the SSA region. First, China’s increased growth has intensified competition in the global markets for manufactured goods, and thus manufacturing industries in many countries (particularly developed economies) are witnessing the negative effects of this recalibration of global market shares – as they see their export shares in the manufacturing sectors erode. Also, the increased demand for natural resources by these fast growing Asian economies like China has created new opportunities for the traditional suppliers of these natural resources most of whom are in SSA.

China is investing and trading with almost every country in SSA – oil producing countries, producers of hard minerals, timber producers and more. In relatively small economies like Ghana, the question has been whether they will be able to take advantage of the opportunities that China’s presence is creating, and to further translate this relationship into sustainable economic growth. Some have also raised the threefold argument of whether China is a development partner; economic competitor or colonizer to its African counterparts (Alden,

37 A South African newspaper commenting on the signing of several aid agreements by Hu Jintao during his visit to Mozambique in 2007

2008; Curtis, 2008; Habib, 2008). For instance, China development efforts in Ghana are a reminder of its relationship with Western institutions like the IMF and World Bank under the Washington Consensus. However, China’s attempt to chart a different relationship with African countries has seen the quadrupling of trade, investments and aid during the past decade. Li Ruogu, head of China’s Export Import Bank (Eximbank), predicted six months after the 2006 Sino-African summit that his bank would commit 20 billion dollars over the next three years to finance Chinese exports and business in Africa (including North Africa).38 By comparison, World Bank loan commitments to countries in Africa over a similar three-year period (2006 to 2008) totaled just over 17 billion dollars.39

In Ghana, imports from China moved from a 3.7 percent share in 2000 to 9.8 percent share in 2004 (ISSER, 2005), representing the increasing importance of China as a trading partner. Between 2001 and 2005, the value of Ghana’s imports from China increased more than four-fold, from 160.5 million US dollars to 740.1 million dollars (IMF, 2006). In 2004, the value of the bilateral trade between the two countries reached 500 million dollars, up to 70 percent over the 2003 figure (see Tsikata et al. 2008). These statistics reflect the forging of closer trade engagements between Ghana and China. However, it is essential to determine the extent to which China is taking advantage of the current liberalized economic environment in Ghana; and also how the latter is gaining from this increase in economic activity with the former. Secondly, with the long-standing relationship between Western financial institutions and Ghana, the arrangements with the Chinese does not necessarily end Ghana’s neoliberal dispensation under the Washington Consensus. However, it is essential to know how the Chinese are engaging their Ghanaian counterparts in the areas of trade, aid, and investment. This will then set the basis to examine how these two economic platforms differ from each other in relation to the Ghanaian economy and SSA in general, in chapter 4.

To address the above issues effectively, this chapter concentrates on Sino-Ghanaian economic relations with emphasis on three main manifestations of this engagement; investment, trade, and aid. Exploring these in the study generally shows some increase in economic activities

38 Mu Xuequan, “Financial Collaboration a New Focus in China-Africa Economic Co-op,” May 17, 2007, Xinhua (the official Chinese news agency) 39 World Bank data applies to Fiscal Years 2005-2006 to 2007-2008. World Bank, Annual Report (various years) 47

between the two countries, particularly in the ‘Age of Business’ era. A precursor to the discussion of these issues is a brief review of cooperation arrangements between Ghana and China embodied in the agreements during the Third Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) held from November 3 to 5, 2006 in Beijing.40

3.1. China-Ghana: Major Forum on Cooperation Agreements

Cooperation arrangements between Ghana and China touch on issues of political/diplomatic as well as economic interests. First, with reference to diplomatic cooperation, the two countries agree on the issues relating to sovereignty and territorial integrity. In this agreement, the most crucial is the adherence to the “One China Policy” which sees Taiwan as an inalienable part of the PRC. This agreement provides the foundation to all bilateral cooperation since China refuses to maintain diplomatic (and most importantly economic) ties with any country that recognizes Taiwan as an independent nation. Ghana and China have agreed to explore means of greater cooperation in the UN, World Trade Organization and other global and regional organizations. Furthermore, China has been very supportive of the ideals of the African Union (AU) and its New Partnership for Africa’s Development, a new blueprint to foster African development. This was evident in Hu Jintao’s opening address as he stated that:

To strengthen unity and cooperation with Africa is a key principle guiding China's foreign policy. China will continue to support Africa in implementing the New Partnership for Africa's Development and in its effort to strengthen itself through unity, achieve peace and stability and economic revitalization in the region and raise its international standing41 With regards to economic cooperation, the PRC has agreed to cooperate with Ghana in the areas of agriculture, investment, trade, and the construction and restructuring of infrastructure. In the area of agriculture, exchanges have been facilitated in irrigation, agro- processing, agricultural infrastructure development. In terms of investment, China and Ghana

40 The Conference emphasized China’s renewed interest in Africa as it served as a platform to broadly outline the cooperation agreements that China has or aims to have with African countries. In the opening speech of President Hu Jintao, he outlined a plan for a new “strategic partnership” and a deepening of economic cooperation” with African countries. Also pledging to double aid, ratchet up concessional finance for trade and infrastructure and allow duty-free entry for many African exports over three years. Again China would set up a fund for investment in Africa, build a hundred schools and thirty hospitals, and establish up to five trade and economic cooperation zones across the continent. According to Hu Jintao this strategic relationship with Africa would be based on “win-win cooperation.” 41 See http://english.peopledaily.com.cn/200611/04/eng20061104_318236.html accessed 02-15-10

have resolved to foster mutual investment and to explore new areas for investment. In addition to this, the Chinese government is geared toward encouraging a number of Chinese banks in the setting up of the China-Africa Development Fund (expected to reach an amount of 5 billion dollars) to support reputable Chinese companies to invest in projects in Africa that will create employment, foster technological progress and promote development. In the area of trade, agreements have been made to boost balanced trade between China and Ghana. China has also agreed to open up its markets further to goods from Africa; for instance, the number of export items to China eligible for zero tariffs will expand from 190 to over 440. Infrastructure is arguably the area of greatest cooperation between China and Ghana and several agreements have been drawn up over the years for Chinese firms to undertake construction projects. These have included the construction of roads, buildings and most recently (and ongoing), a hydroelectric dam. Another area of cooperation is that of aid and debt relief. China has in recent years become significant development partner to Ghana, providing increasing amounts of aid comprising loans, grants and technical assistance. Ghana is also benefitting from the Chinese government resolution to double the amount of development assistance to African countries in 2006. A large proportion of the aid Ghana receives goes to fund infrastructure development. Concerning debt relief, in 2007, China agreed to write off 25 million US dollars of Ghana’s debt, accumulated since 1985. The subsequent section examines trade, investment, and aid as main efforts by Ghana to engage China in the “Age of Business.”

3.2. Ghana-China Economic Engagements: The Benefits of Liberalization

3.2.1 Trade

The trade industry has contributed immensely to Ghana’s economic growth attempts over the years. Most of the country’s economic reform policies have aimed at generating more revenue through the enhancement of the export and import sectors. Ghana, like most SSA countries, depends heavily on the primary sectors of the economy – notably agriculture, mining, and forestry – for the bulk of its exports. Also, the import sector has been extremely vibrant bringing in products from different parts of the world, and particularly cheaper goods for the welfare of the low income consumers. Over the years, a number of fiscal, monetary and trade reforms were instituted not only to improve the performance and the reliability of these primary sectors, but also to help align them with the broader market objectives and goals of the economic 49

liberalization program. China’s economic engagement with Ghana has taken advantage of policies initiated within both the export and import sectors, and the respective look at the two sectors will align some of the policies to the gains realized. In some cases, this has led to intense competition between Chinese enterprises and the Ghanaians – the textile industry is one such case which is highlighted in this discussion.

3.2.1.1 Exports

By the late 1970s and early 1980s, Ghana’s economic conditions were in a very deplorable state. Cocoa production had then decline from 403,000 tons in 1970 to 179,000 tons in 1983, and 9 percent of government expenditure was devoted to nonperforming state-owned enterprises. Average growth rate of investment as percentage of gross domestic product (GDP) had by 1982 fallen to 2 percent from the 1970 levels of 14 percent, and the domestic savings rate fell from 12 percent to 3 percent over the same period (Boafo-Arthur, 1999, 47-48). This state of economic affairs led to the government of Jerry John Rawlings’ Provisional National Defence Council (PNDC) which took over power on December 31, 1981, through a military intervention and later became the National Democratic Congress (NDC) – to introduce market reforms in 1983.42 Under the instruction and direction of the World Bank and the International Monetary Fund (IMF) these reforms had at their core export promotion amongst other policy directives.

China has been part of the bid to sustain Ghana’s efforts at economic growth by taking advantage of policies by the Ghanaian government to encourage and diversify the export sector. From the traditional exports like cocoa, aluminum and timber to particularly non-traditional ones like seeds of herbaceous plants, and fuel wood, in logs and billets, the Chinese are gradually increasing their scope of Ghanaian products for exports. This has been made possible in the Age of Business by the aggressive policy changes by the two main successive governments (the NDC and the NPP administrations), who have been driven by a neoliberal economics. From the advent of the Structural Adjustment Program in the 1980s (under the Rawlings NDC administration) to the launching of the Golden Age of Business (under the Kufuor NPP administration), export policies have been periodically modified to help increase as well as mainly encourage exports of

42 A period seen as part of the “Age of Business” where attempts were made by government(s) to liberalize the economy and allow the private sector to serve as the engine of growth

nontraditional agricultural products. This is one of policy directives of the IMF and the World Bank’s aimed at reducing trade deficits and in the bid to generate sustained economic growth (see Deng, 1998; Kofi and Desta, 2008).

In Ghana, exports are controlled by the Exports and Imports Act 1995 (Act 503). However in recent times, enterprises engaging in nontraditional and traditional exports to China take advantage of export incentive schemes. The Ghana Export Promotion Council (GEPC) and the Ministry of Trade and Industry offer an Export Proceeds Retention Scheme (EPRS) which allows exporters to exchange all foreign exchange proceeds from nontraditional exports into cedis (local currency) at competitive rates negotiated with the exporter’s bankers or keep them in their foreign exchange accounts. Also, a corporate tax rebate exists, which allows any manufacturer or exporter engaged in agricultural production to claim 40 percent to 75 percent of his tax liability. These policies together with an up-front duty exemption allowing exporters to enjoy a 100 percent duty exemption on imports intended to go into production for export, have served as incentives to improve the amounts of exports to China in recent years, as shown in fig. 3.1

Source: Ministry of Finance and Economic Planning (Ghana)

From the above figure 3.1, it is clear that total exports from Ghana to China over the years have not been very impressive. Apart from the year 2008 which shows marked improvement probably due to China’s increased attention to the country after the oil discovery along the West African coast, most of the other years post less than impressive totals. The lowest levels of exports were recorded in 2002 and 2007. Tsikata et. al (2008) report that during the same 2002, China’s share of total exports was 0.43 and thus further argue that the gap between China’s share and the total has been widening over the past seven years (from 2000 to 2007) showing that even though there has been increase in total export trade over the years, our exports to China has remained stagnant. Thus, from the data Ghana has not gained much from exports to China. However, this can all change within the next decade as Ghana, represented by the Ministry of Finance and Economic Planning and the Ghana National Petroleum Corporation (GNPC) have signed a strategic cooperation with the China Development Bank (CDB). Under the agreement, the CDB will cooperate with GNPC in a wide range of activities including the development and of oil and gas resources, gas processing and transportation and petro-chemical industry development.43 With the discovery of oil and gas as strategic resources, and with the introduction of enticing export incentive schemes in a liberalized economy, Ghana will gradually move into the ranks of other oil endowed SSA nations like Angola, Gabon and Congo- Brazzaville.

3.2.1.2 Imports

Imports have played a very crucial role in the Ghanaian economy especially with the promotion of the private sector as an integral part of the economic development strategy. The IMF and World Bank sponsored adjustment programs encouraged the privatization of state- owned enterprises and the promotion of manufacturing industries, and with these came increased importation of machinery, equipment, and other resources. Also, in this direction, Ghana eliminated foreign exchange controls and adopted a market-determined exchange rate system which provided incentives for the private sector to attract foreign capital and to pay for import.

43 See http://www.zibb.com/article/5719074/Ghana+signs+cooperation+pact+with+China+Development+Bank accessed on 30-01-10. 52

In addition, trade liberalization enabled businesses to carry on international trade without going through the cumbersome procedures required for securing import licenses (Boafo-Arthur, 1999).

During the Age of Business, Ghana has become one of the top importers from China (see table 1), and with this comes the maturing of relations between the two countries. China serves as a source for much needed and cheaper consumer goods for most Ghanaians, and as rightly put by one customer at the Melcom Shopping Centre44 in an interview, “if you don’t have enough money to spend, you better look for where these Chinese products are sold.”45 The top ten commodities imported from China included broken rice, telephonic switching apparatus, footwear, electricity meters, trunks and suitcases, bicycles, primary cells and batteries, woven fabrics, and air conditioning machines (Ministry of Finance and Economic Planning, 2008).

Source: Ministry of Finance and Economic Planning, 2008

44 Melcom is one of Ghana’s largest retail department stores with Indian management. It has 16 branches nationwide and does wholesale distribution with most of its imports from Asia, particularly China and India.

45 An interview with a shopper at Melcom during a busy shopping day in the Accra Branch, July 2009

Chinese exports to Ghana which have lately witnessed some significant increases, had a more than 100 percent increase from 2007 to 2008 (see fig 3.2.). This increase represents the momentous increase in relations between Ghana and China, as it has been for almost all of SSA. However, most significantly the increase can be attributed to an orchestrated attempt by the NDC and NPP governments within the Age of Business to open up the economy, and take advantage of international trade. According to a senior official at the Ministry of Trade and Industry, “as African countries position themselves to benefit from trade with China, a global economic giant, here in Ghana, we have been adjusting trade policies to help us benefit from this relationship.” From April 2000, the Ghana government replaced its import policy of Pre-shipment Inspection with the Destination Inspection Scheme (DIS) where inspection of imports is at the port of clearance. The DIS is to facilitate trade; provide efficient verification of imports; check revenue loss by providing an impartial assessment of the duties and taxes to be collected; and limit the opportunities for fraud, fiscal evasion and price discrimination. With these policy schemes in place, the relationship between China and Ghana seems like a promising one even though Chinese imports into Ghana have lately been problematic, an issue explored in the next section.

ISSUE ONE – TEXTILE WARS

As China expands its reach into the continent of Africa, its increasing exports to different countries is seen as doing more harm than good. Textile imports from China have quickly become one of the areas of contention in trade relations with SSA countries. By the end of 2004, Chinese textile exports to South Africa had grown from 40 percent to 80 percent, forcing an estimated 75, 000 people out of jobs and, in neighboring Lesotho, 10, 000 jobs were lost and ten clothing factories shut as a result of competition from cheaper Chinese imports. Nigeria textile industries in Kano and Kaduna were said to have been similarly negatively affected.46 This unfortunate trend has also generated some debate in Ghana where the growing competition between cheaper textile imports from China and that of some well-known traditionally entrenched textile prints has had some negative effects on the latter.

46 Council on Foreign Relations, “More Than Humanitarianism: A Strategic US Approach toward Africa”, Independent Task Force Report 56, 2006: 49. 54

The textile industry in Ghana was once a very booming industry, which employed about 25,000 workers in local companies like Ghana Textile Manufacturing Company (GTMC), Akosombo Textile Limited (ATL), and Juapong Textile Limited (JTL). Most of these companies produced high quality cloths and clothing products, designs and very good textile brands, which sold so well on the local market as well as other markets in the West African region as well as SSA in general.

Fig.3.3. Chinese share as a percentage of the total textile imports (2000-2005)

Source: Ghana’s Ministry of Trade and Industry, 2006

The wax prints produced by these companies had a high domestic demand as these represent part of the Ghanaian apparel culture. In recent times, the fortune of this industry has changed, and this is evidenced by the recent shutdown of the spinning and weaving departments of household textile brands like the Ghana Textile Print (GTP) and Printex as a result of cheap textile imports from China.47 From figure 3.3, it is clear that China’s share as a percentage of total textile imports have been increasing over the years from about 17 percent in 2000 to almost 30 percent. This has varied impacts on the textile industry in Ghana as Chinese textiles are displacing domestic textile products and in some cases forcing the closure of some textile

47 The Textile Industry In Ghana and Trade Liberalisation (February 14, 2009) http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=157543 accessed January 28 55

production units. Other consequences are in relation to the job losses, loss of revenue and the loss of research and development for the textile industry which is where the Chinese seem to be catching up with the industry in Ghana.

As economic reforms led to the adoption of the IMF/World Bank sponsored Structural Adjustment Programs (SAP) in the 1980s and 1990s with its concomitant liberalization policies, the troubles of the textile industry has been blamed mainly on the textile imports from China and other countries, as well as the access that the Chinese have to the Ghanaian textile industry. Responding in a dialogue, a textile trader at Makola Market in Ghana’s capital, Accra, lamented that “it’s no longer profitable to be selling these Ghana-made textile prints because the Chinese ones, which look similar and of a lower quality have captured the market with their cheaper prices.”48

3.2.2. Investments

In the past decade, China has grown to become a major investor in SSA with projects in almost every country in the sub-region. During the Forum on China-Africa Cooperation (FOCAC)49 in 2006 attended by 43 African heads of State and 48 delegations, Beijing’s far reaching commitments to Sino-Africa relations included setting up a development fund of 5 billion to encourage Chinese firms to invest in Africa. This support has driven up Sino-African investments, which is evidenced by China’s bilateral agreements with 48 of the Africa’s 53 countries (see Raine, 2009). In 2002, some 585 Chinese enterprises received approval by the Chinese authorities to invest in Africa, and currently, it is estimated that over 700 Chinese enterprises operate in Africa. In addition, important Chinese FDI destinations include Tanzania, South Africa, Senegal, and Ghana (Broadman, 2007:97). However, in recent times, a large proportion of Chinese FDI has gone to oil-rich African countries, which has made Ghana an attractive FDI destination since the discovery of oil along its coast.

48 In a dialogue with a textile print trader in one of open markets in Accra in July of 2009

49 The Forum on China-Africa Cooperation (FOCAC) established in 2000 in Beijing provides a new institutional base and dialogue mechanism for consolidating and broadening to enhance the substance of cooperation between China and its African counterparts 56

In the past decades, Ghana has gained significantly from investment inflows from China. Between 1994 and 2006, China had a total of 249 projects registered, 34 percent of these in the manufacturing sector and 19 percent in general trade (GIPC, 2006). These have shown marked improvements over the few years as the total number of projects is currently over 300, and in 2007 and 2008, general trade overtook the manufacturing sector as 47 and 40 projects were registered respectively (GIPC, 2008). The increase in both the manufacturing and general trade sectors is a reflection of economic liberalization policies under both the (P) NDC and NPP administrations. The establishment of the Ghana Investment Promotion Centre Act, 1994 (Act 478) laid out a clear and revised path with limited legal procedures to the registration of a business in the country.

Source: Ghana Investment Promotion Centre (2008)

A major part of creating a congenial business environment to attract foreign investors includes narrowing the registration procedures to three main steps: first includes incorporation at the Registrar General’s Department; second is acquisition of an Investment Registration Certificate from the Ghana Investment Promotion Council (GIPC); and third is a Secondary Clearance which is an immigration quota obtained from the Immigration Department through the GIPC. Joint venture ownership of business between Chinese and Ghanaian partners has a set 57

equity of 10,000 US dollars, while 100 percent foreign participation is also allowed with equity of 50,000 US dollars.50 With such clear and less cumbersome procedures in investment establishment and ownership, Chinese companies have increased steadily over the years with 2007 and 2008 showing the most in foreign-owned business projects over the years (see fig. 3.3). Most of the Chinese-owned projects within those two years are from the general trade sector which has lately seen an investment boom.

ISSUE TWO - THE BROUHAHA OVER SMALL CHINESE ENTERPRISES IN GHANA

Most Chinese firms operating in Ghana are small or medium-sized (SME), and the low levels of equity is a reflection of the incipient nature of the economic relationship between China and Ghana (Idun-Arkhurst, 2008), and the attempt to adopt a “feet-wetting approach.” This means most of these small to medium scale businesses invest small amounts in low risk sectors of the economy such as the general trading, and study the business climate before progressing to a high risk and more profitable ventures. However, from the many Chinese restaurants, herbal clinics, through to hotels and food processing industries, the economic landscape clearly features the increase in Chinese SME businesses.

Some see the increase in small and mid-sized businesses (especially the joint ventures) as an opportunity to generate the needed dynamism and economic competition that will help integrate Ghanaian business enterprises into the global value chain through backward and forward linkages (see Tsikata et. al. 2008). Also, the collaboration between Chinese small and medium enterprises and the local firms can facilitate technology transfer from Chinese to the local companies. However, in spite of these advantages, the growth of these SMEs has become a major source of friction in Sino-Ghanaian economic relations, as the Ghanaian traders accuse Chinese merchants of flooding the local market with cheap products and venturing into retail businesses, which is prohibited to foreigners by Ghanaian investment laws. One other major problem is the regulation of these SMEs by government especially as the numbers increase. A senior officer from the public relations office of the GIPC confirmed in an interview that “with

50 Ghana Investment Promotion Centre (GIPC) Doing Business in Ghana – GIPC Incentive brochure; and Ghana: The Premier Guidebook for Business Globe Trotters identifies the various legal arrangements for building business enterprises in Ghana

the gradual increase in Chinese investments comes the problem of regulation which has been a challenge for the GIPC.”51

Some Ghanaian business operators point to the Chinese SME’s intentional flouting the investment laws and regulations. A few Chinese SMEs are believed to be operating without the appropriate registration documents, and with utter disregard for the investment laws. Recently, seven Chinese entrepreneurs were arrested and arraigned before a court in Assin Fosu in the Central Region of Ghana, for engaging in mining activities without the appropriate license.52 In defense of such accusations of neglect, the owners of Huashun Manufacturing Company Limited and Hua Feng Trading Company Limited manufacturers and distributors of bags and shoes in Accra (Ghana) state that “the laws often change, and we are sometimes unaware of the changes.”53 However, in the business and economic circles, regulation of investors in Ghana has been a challenge over the years given the almost incessant changes in governments and economic ideologies. This is definitely impacting Sino-Ghanaian relations in the Age of Business.

3.2.3. Aid & Infrastructure/Technical Asisstance

China’s record of assistance to African countries dates back to most of the struggles for political self-determination on the continent. In most parts of Africa, attempts to lay a foundation for Sino-African relations has mainly manifested in some of the landmark projects such as the Tanzania-Zambia Railway line constructed in the 1960s. With China’s contemporary rise in Africa, grants and financial assistance, and infrastructural projects have increased as the Chinese attempt to renew relations with the world’s poorest and marginalized continent. In the past decade, China has become a major financier of infrastructural projects in SSA (see Foster et. al,

51 In an interview with an officer from the Public Relations Department of the GIPC in Accra, July 2009

52 Chinese in Court for illegal mining, The Ghanaian Journal, March 25, 2010 - http://www.theghanaianjournal.com/2010/03/25/chinese-in-court-for-illegal-mining/(accessed 28th March 2010)

53 During a dialogue with some Chinese entrepreneurs in Accra, July 2009

2008), as infrastructural projects have seen some increase in recent times as depicted by the estimated values of these projects in figure 3.5.

Fig.3.5. Estimated value of Chinese infrastructure finance commitments in sub-Saharan Africa, 2001-07

Source: World Bank – PPIAF Chinese Projects Database, 2008

Chinese companies are engaged in some prestige projects like presidential palaces, party headquarters and conference centres in the SSA, but along with these, China also builds new schools, hospitals, railways, roads and other social amenities. This is the same in the case of Ghana where Chinese architects and planners Taining Cheng and Xianghan Ye constructed the National Theatre amidst other prestigious projects in the 1990s. By the late 2007, Chinese companies had either completed or were in the process of building among other developments, a dam, two stadiums, offices for the Ministry of Defence and housing for the police, two hospitals and a youth cultural centre.54 Between 2001 and 2007, Chinese telecommunications firms supplied information and communications equipment worth almost 3 billion dollars to SSA,

54 China’s ambassador to Ghana, Yu Wenzhe, cited these figures and projects at the seventh-anniversary celebrations of the first meeting of FOCAC. “China to Encourage Credible Investment in Ghana: Ambassador”, report posted on the website of Ghanaian government, 9 November 2007, http://www.ghana.gov.gh/ghana/china_encourage_credible_investment_ghana_ambassador.jsp.

mainly to Ghana, Ethiopia, and Sudan. Ghana has received aid and other forms of assistance from China, which has come in various ways. However, the overwhelming majority of these projects have been in the form of infrastructure development.55

Chinese aid to Ghana has mainly been in the form of loans, grants and technical assistance. The loans have taken the form of either interest-free or interest subsidized preferential loans/concessional loans granted by the Chinese government through either the Ministry of Commerce or the Export and Import Bank (EXIM). In 1995, the Chinese granted 18 million dollars in concessional loans to be used in the promotion of joint ventures between Ghanaians and Chinese companies, to engender innovation of ideas and technology. The 18 million dollars was divided into three parts for three companies: 7.25 million dollars went to Sian Goldfields; 8.75 million dollars to Calf International Cocoa; and 2 million given to Ghana Shandong Netting Company. All three companies defaulted in their shares of the loan leaving their guarantor, the Ghana government to take over the payments.56

Another 30 million dollars in concessional loans was given to the Ministry of Communications directed at the first phase of the National Communications Backbone Network Project in 2006. The main objective of this project is to connect all the 10 regional capitals and 36 towns to the internet. This was followed by another 30 million dollars in 2007 with similar terms as the first concessional loan – an interest rate of 2 percent per annum, a maturity period of 20 years, a grace period of 5 years, a commitment and management fee of 0.5 percent each. The project is to help develop the first phase of an ICT project named the Dedicated Communications Project for Security Agencies (DCPSA) – aimed at developing ICT facilities for the various security agencies like the Customs and Immigration; Ghana Armed Forces; Police Service; Fire Service.

The relations between China and Ghana have led to the provision of grants and interest free loans to the latter. The Chinese government provides these loans for projects first, and then follow with negotiations later. These interest-free loans are more often written-off as grants,

55 Based on a brief interview with Mr. Hu at the Embassy of China in Ghana, July 2009

56 Based on interviews at Ministry of Finance and Economic Planning

mostly to foster the friendship and cooperation between China and Ghana. In 2002, an agreement was reached for the Chinese government to provide Ghana with an interest-free loan of 30 million dollars for the construction of the 16.9 kilometer Ofankor-Nsawam section of the Accra- Kumasi road which was completed and commissioned in 2006 (see map 3.1). From 2004 through to 2006, China gave the Ghanaian government a series of interest-free loans which went into the refurbishment of the National Theatre; establishment of a Vocational Training Centre at Dansoman in Accra; the setting up of a youth centre in Ghana’s second largest city of Kumasi; a 9 million construction of the Ministry of Defense (out of which the Chinese gave a grant of 7.5 million dollars). Along with these interest-free loans, China also granted a 25 million dollars debt relief on debts accumulated since 1985.

Technical cooperation also represents one main way that Ghana has further deepened its relationship with China. This represents the infrastructural development which is much needed by Ghana in its attempt to attract more investors, to help it achieve its aim of becoming economically sustaining. Ghana’s liberalization agenda under both the Rawlings (NDC) and the Kufuor (NPP) administrations considered the attraction of FDI as a major plank to economic growth and development. “To increase the FDI, Ghana needs a reliable infrastructural base which consists of a good and reliable road network, an improved rail system, and possibly a dependable air travel network …, and the Chinese have tapped into this in a big way.”57 Some of the major road network projects have been or are being done by Chinese companies like China Railway Wuju Group Corporation, China International Water and Electric Corporation (CWE), China Geo-Engineering Corporation (CGC), and China Jiangxi Corporation just to mention some (see Appendix 1 for map showing the regions in which Chinese road construction is taking place). A few of the numerous infrastructural projects in which the Chinese are involved include the Afefi Irrigation Project, the Dangme East District Hospital, the Police and Military Barracks, and the Bui Hydro-Electric Power Dam which is currently at the heart of Sino-Ghanaian relations.

57 Based on an interview with the Director of Projects Ghana Department of Roads and Highways in Accra, Ghana, July 2009

ISSUE THREE – THE BUI DAM PROJECT: AID WITH CHINESE CHARACTERISTICS

The construction of the Bui Hydroelectric Dam Project is one of about 15 hydroelectric power projects that the Chinese are constructing or have completed all over the African continent, in countries like Benin, Republic of Congo, Ethiopia, Mozambique, Sudan, and Zambia. The Bui dam has always been part of Ghana’s plan to augment its main source of hydroelectric energy, the Akosombo Dam on the Lake Volta which supports the ever increasing industrial and domestic needs of country. However, the current construction of the Bui hydroelectric dam by the Chinese construction company, Sino hydro, is symbolic of the new phase in the evolving relations between China and Ghana. It also represents the ambiguous nature of the relationship between Ghana and western financial institutions like the World Bank and the IMF – this project was initially slated to be financed by the World Bank which withdrew its support for the project after an environmental and social impact assessment in and around the Bui National Park revealed environmental impacts such as loss of fauna and flora as well as the social cost of displacing local inhabitants. The Chinese government, however, accepted to take up the project after President Kufuor’s visit to China in 2006.58

The government of Ghana initiated the construction of the Bui Hydroelectric dam by the establishment of the Bui Power Authority with the Bui Power Authority Act, 2007 (Act 740). Then, through an executive instrument in 2008 the government acquired 455,912 acres of land situated at the Bole and Nsawkaw in the Bole-Bamboi and Tain Districts of the Northern and Brong Ahafo Regions of Ghana (see map 3.1). The dam is expected to generate 400 megawatts of power which will help with rural electrification projects; and to potentially export power to Burkina Faso, Cote d’Ivoire, and Mali under the West Africa Power Pool (WAPP) arrangement. The Bui Dam Project is designed for multipurpose uses. Apart from hydropower generation, the project has irrigation, fisheries and tourism potential. The irrigation potential is estimated to cover 3000ha of land.

58 Gathered in an interview with the Communications Officer of the Bui Power Authority in Ghana, July 2009

In line with Chinese aid activities in SSA, the construction of the dam is being financed through a hybrid credit facility comprising a concessional loan from the Chinese government and buyer’s credit facility from the Export and Import Bank of China (Eximbank). The total project cost is about 622 million dollars which consists of a concessional loan of 263.5 million dollars, a buyer’s credit of 298.5 million dollars, and 60 million dollars from the government of Ghana.

Map 3.1: Ongoing Road Network Constructions by Chinese Contractors

Source: Ghana Department of Roads and Highways, 2009.

LEGEND China Railway (Wuju)

Top International Engineering Corporation China International Water & Electric Corporation China Jiangxi Corp 65 China Geo Engineering Corp

Just as the “Beijing Consensus” projects the innovative and independent approach towards development (see Ramo, 2004), this dam project features a unique innovation that taps into a joint Ghanaian ingenuity and Chinese developmental experience – the creation of the Bui City, a project that will help deal with some of the environmental and social impacts. The Bui City project is to create a city that is based on policy support like Shenzhen in China; with a profitable agricultural economy to take care of its inhabitants like that of Hainan island; and finally, engender development that benefits from tourism like Sun City in China. Thus, the city is to be a model city which combines the suitability of physical environment to people which will in turn deal with the environmental and social costs that will result from the dislocation of the flora and fauna, as well as the displacement of local inhabitants.59

The Bui hydroelectric dam represents China’s different approach towards aid. At a conference in London in 2007, Joaquim Chissano, former President of Mozambique and winner of the Mo Ibrahim prize for excellence in African leadership, castigated aid donors for systemically dismissing African need for infrastructure and also generally ignored the need for development of the local private sector – “we should devise innovative ways to leverage aid to attract private sector resources in order to nurture and support the emergence of robust entrepreneurial classes that have a strong stake in the national economies.” China’s emphasis on technical cooperation through infusion of innovation, construction of infrastructure and its claim to “finance with no political strings attached” is aid that stands different from what African countries like Ghana have experienced in the past (see Brautigam, 2009:10-11).

3.3. Conclusion

Ghana’s relationship with China has seen some growth with improvement in diplomatic relations as well as economic engagement. Ghana’s touted success in the adoption of World Bank and IMF liberalization policies is well known and documented; however, these same liberalization policies have helped open up Ghana’s economy to other trading partners, most prominent among them is China. China’s trade with Ghana has lately seen some significant improvements with Ghanaian exports to China creeping up and with a great potential of

59 YREC-ZPRDR Design Joint Ventures (2009), Overall Planning for Bui City. China-Ghana

quadrupling in the next decade given Ghana’s newly found oil. In terms of imports, Ghana is one of the top ten importers of Chinese products in Africa even though this looks like a bumpy road as local producers point to the role China is playing in the weakening local production, for instance in the textile industries. The picture in the investments category is not much different as Chinese enterprises have increased over the decades. The liberalization climate has allowed for more growth in foreign-owned investment projects even though joint ventures have also seen a cautious increase. Evidently, the increase in investments have been witnessed in the general trade and the manufacturing sectors with the former showing tremendous increase as a result of government policies that are conducive for foreign trading enterprises.

China is charting a different path in relation to aid and technical assistance to African countries. The nature of the infusion of Chinese economic and technical aid into Ghana is an indication of this different course China intends to take, relative to what the Washington institutions, and other Western governments and institutions have done and continue to do. According to Brautigam (2009:11), China’s aid and economic cooperation differ, both in their content and in the norms of aid practice. The content of Chinese assistance is considerably simpler, and it has changed far less often. Influenced mainly by their own experience of development and by the requests of recipient countries, the Chinese aid and economic cooperation programs emphasized infrastructure, production, and university scholarships at a time when traditional donors (from Washington and the western countries and organizations) downplayed all of these. Beijing’s new role in Africa has received much attention as it is trying to chart a new path imbued with characteristics and values that are core to its sudden rise in the global economic sphere. Ghana’s relationship with China has seen significant growth in the past decade, growth that exhibits Beijing’s agenda of “going global” and yet maintaining some fundamental characteristics which have come to define Chinese economic endeavors, setting it apart from other forms of capitalist structures. The next chapter explores in depth these characteristics which further helps make the case for a new China in Ghana (and SSA), as well as how they distinctively defined Ghana’s new “partner-in-liberalization” and sets it apart from that the Washington Consensus.

Chapter Four: From Washington to Beijing: Liberalization from the West, or Liberalization with Chinese Characteristics?

Western ideas and institutions of economic management are experiencing a crisis of confidence in the global space.

Stefan Halper60

The branding of capitalism in most emerging economies has been a vital discussion in international political economy. The effect of opening up economies to the international market and other different economic terrains helps bring out the considerable differences among economic ideologies. It also engenders the discussion of the different roles that major economies like China and the US play in shaping smaller and unstable economies like Ghana, as they struggle to connect to a competitive global economy. In its attempt to attract investors, particularly in the age of business, Ghana continues to do business with major economies and institutions from the West most of whose economic ideology is represented by the Washington Consensus – an idea postulating that the combination of market and democracy had one stable economic configuration which can create and sustain economic growth and development (Williamson, 1990; 1994). On the other hand, Ghana’s growing diplomatic relationship with China has served as a useful background to the development of an economic relationship that has far-reaching implications for the country’s development paradigm. China’s approach, now popularly referred to as Beijing Consensus, which is skeptical about the benefits of privatization and free trade; however, it encourages other nations to fit into the global system ‘in a way that allows them to be truly independent, to protect their way of life’(Ramo, 2004:4).

The differences in economic paradigms may sometimes range from the changing role of institutions (including the state) to safeguarding the existing economic institutions in order to preserve a particular economic ideology. Thus, Ghana’s adherence to the Washington Consensus immensely affected several of its domestic policies governing trade and investments, and also led to the establishment (and sometimes reshaping) of other government institutions like the Divestiture Implementation Committee (DIC) and many others to help with economic

60 Stefan Halper. The Beijing Consensus: How China’s Authoritarian Model Will Dominate the Twenty-First Century, New York: Basic Books, 2010: 35

reform. As already shown in chapter 3, these changes in policies and regulations; and the new or improved institutions for economic reform have significantly impacted on the economic relationship between China and Ghana.

The discussion of the relationship that Ghana has under both the Washington Consensus and Beijing Consensus brings to the fore the debate between the “structuralists” and the “monetarists” before the adoption of the Economic Recovery Program (ERP) in the early 1980s. With the crumbling Ghanaian economy which brought Rawlings and the PNDC to power in 1980, the debate emerged between two main conceptual approaches to economic reform – the “structuralist” and the “monetarist.” The “structuralists” may be generally defined as those who believed that the peculiar structure of the post-colonial Ghanaian economy, in particular excessive ‘openness’ and dependence on primary commodity exports, was the cause of the country’s past and present economic crisis. According to them the economic crisis is primarily external rather than internal, and this led to blaming of failures of controls on government incompetence and corruption: hence, most of the “structuralists” advocated for state intervention amidst other policies. The “monetarists”, on the other hand, referred to those who advocated IMF-type policy prescriptions for economic reform. To these “monetarists”, the main causes of Ghana’s economic challenges were internal and could be located in government deficits and inflation, thus, they advocated monetary restraint, budget balancing, devaluation, trade liberalization to stabilize the economy and to relieve the pressure of balance of payments (see Hutchful, 1996:144-5). The tension between both approaches was temporarily dissolved as the PNDC administration combined the “structuralist” objectives with the “monetarist” approaches (see Huq, 1989). However, with the Washington Consensus advocating “monetarist” approaches and the Beijing Consensus sharing the characteristics and objectives of the “structuralist” argument, it becomes clear that Ghana’s attempts at economic growth can neither be explained through one economic approach nor through a single economic engagement.

During the Age of Business, Ghana’s economic relationship with China has gradually moved from near obscurity with mainly diplomatic encounters to mainstream political and economic engagements increase in investments, trade, and aid. Western economic policies still have varying impacts on the Ghanaian economy as western countries and institutions still

dominate in economic activities, particularly in the manufacturing sector of the economy (see table 4.1 below).

Table 4.1 Ghana’s top 20 foreign investors, September 1994-June 2007

Source: Ghana Investment and Promotion Council, 2007

What then are some of the differences between the Washington and Beijing approaches? Using reports, scholarly evidence, and some anecdotes, this chapter first looks closely at the Washington Consensus drawing some instances from Ghana’s experience as well as that of SSA in general. It is then argued that within an era representing the best three decades of China’s economic growth and reforms (see Liu and Zhang, 2009)61, Ghana’s engagement with China has

61 In their edited volume “China’s Three Decades of Economic Reforms (2009) Xiaohui Liu and Wei Zhang explore the thirty years since China initiated economic reforms and its open-door policy. According to them China has been transformed from a poor nation almost completely isolated from the global economy to an engine of growth of the world economy and this dynamic transition has been among the most dramatic developments of recent history. As its economy continues to grow rapidly, it will definitely have important consequences for itself as well as for the wider world economy. 70

witnessed liberalization with some unique Chinese characteristics. This economic relationship is mainly guided by China’s noninterference doctrine has defined its engagement with the developing world since the 1950s. Other remote factors which have set Beijing’s approach apart from Washington include the advantage of state-directed capitalism; the importance of South- South cooperation; and the environmental disengagement.

4.1. Sizing up the Washington Consensus

As the Reagan and Thatcher administrations assumed office in US and Britain respectively in the late 1970s so did conservatism which in no time became the official policy of both countries. The new conservative brand of economic ideas then became the Western brand of free-market democracy, based on the dual premise of free markets and democratic pluralism as the optimal way to organize society (see Halper, 2010). As monetarism and free-market doctrine captured the policy debate in Washington, so did they come to dominate the agenda of two highly influential financial institutions that were based there – the World Bank and the IMF. Ghana became identified with these two institutions during the 1970s global economic recession when most developing countries were in dire need of financial help (Kapur et. al, 1991). In the package of economic reforms to Ghana, the IMF and World Bank outlined conditions to be met before loans were provided. These measures in the SAPs together form the core of the Washington Consensus (see Williamson, 1990; 1994). In effect, these include 10 policy prescriptions:62

imposition of fiscal discipline privatize state - run enterprises reform of taxation deregulation of markets liberalize interest rates Adopt a competitive exchange rate cut spending on health and Remove barriers to trade education Removal of barriers to foreign direct securing of property rights investment

62 Niall Fergusson, The Ascent of Money: A Financial History of the World (London: Allen Lane, 2008):308

The consequence of these economic requirements symbolizing the Washington Consensus model, on Ghana and other African countries, has been far reaching with some major victories as well as some disappointing results. The latter was somehow summed up with facts in the Financial Times of London as it reviewed economic conditions in Africa in a special issue on September 1, 1993:

After a dozen years of structural adjustment and more than 170 billion dollars in net development assistance, the sub-Saharan African economy is still falling behind. Incomes per head fell by an average 1.1 percent a year between 1982 and 1992 compared to an average rise of 0.8 percent a year in all developing countries and the 6.4 percent in the East Asian developing countries.63 On the other hand, the Washington institutions do point to examples like Ghana as successes to the advice and conditions embedded in the SAPs. However, a brief and closer look at a sector of the economy – microeconomic commodity price trends reveal the varying impact of the Washington Consensus. Since the Structural Adjustment Programs in Ghana, the GDP has grown by an average of 4.9 percent a year, over twice the SSA average of 2.1 percent.64 To some critics and scholars, this general growth in the case of Ghana is negated by the severity of the cost of SAP on some social groups (Toye, 1990:1991). Reference is made to the high rates of inflation averaging more than 30 percent per annum between 1984 and 1992; a high dependence on a few commodities for export (mainly cocoa and gold); low rates of domestic saving; and a strikingly low level of private investment (see Kofi and Desta, 2008) .

On hindsight, it is compelling to argue that Ghana’s economic recovery under the SAP would have been more significant if policy makers had not made some obvious errors in the selection of a sector (the cocoa sector) as a catalyst of growth. This selection was obviously based on the then fortunes of the cocoa sector which was providing 70 percent of employment; produces over 50 percent of the export earnings; and generated 43 percent of the GDP (see Kofi and Desta, 2008). It is further argued that if the government under the SAP had measured the volatility and subsequent slump of the price of cocoa on the market and promoted more diversification of other non-traditional export commodities, there would have been more positive

63 Financial Times (London), September 1, 1993, p. iii.

64 Ibid.

impacts.65 The unstable nature of cocoa under the SAP mirrored similar extreme fluctuations in past cocoa earnings which created more problems of economic instability negatively affecting the GDP in the early 1980s. This dire economic situation exacerbated the unstable political climate; further economic chaos contributed to collapse of the economy in 1981. In this case, SAP policies did not do much to encourage the diversification of export commodities, thus leading to the overdependence on a commodity which was susceptible to global market price fluctuations.

In spite of the impact that the SAPs have on commodity prices, the general impact of SAP was reflected in a report by the United States Congress which sees both negative and positive elements present in the SAPs. According to this report:

in both Ghana and Senegal structural adjustment has contributed to the first real sustained per capita economic growth in many years and to an improved framework for future growth. … structural adjustment has produced little enduring poverty alleviation, and certain policies have worked against the poor.66 Earlier in the same year of the report by US Congress, some Western media looked favorably at the SAP as a positive step to help reform the economies of African countries. Again, the New York Times singled out Ghana’s efforts under the SAP as well as the role of the Washington institutions. In an article titled “In the Western Eyes”, the renowned newspaper regarded Ghana as a model in Africa as it stated that:

More than five years ago, when the World Bank decided to make the state-dominated economy here a model for free market innovation in Africa, Ghana was in the grip of stagnation. Since then, Ghana has boasted Africa’s highest consistent growth rate, an average of 6 percent a year since 1983.67 As shown by the various assessments of the SAP, and in the case of Ghana, some policies that emanated from the program were not as effective as expected, and some rather impacted

65 Confirmed in the discussion with an official of the Ghana Exports Promotion Council (GEPC), July 2009

66 US Congress (Committee on Foreign Affairs, US House of Representatives), Structural Adjustment in Africa: Insights from the Experiences of Ghana and Senegal (Report of a Staff Study Mission to Great Britain, Ghana, Senegal, Cote d’Ivoire and France, Nov. 29-Dec. 20, 1988) (Washington, DC: US Government Printing Office, March 1989)

67 New York Times, January 3 1989

negatively on large sections of the population. Also, the processes and procedures involved in the making of these reform policies to ensure their effectiveness have also been criticized. In comparing China’s approach to economic engagement to that of the Washington Consensus, Senegal’s President Abdoulaye Wade was recently quoted as saying that “I have found that a contract that would take five years to discuss, negotiate and sign with the World Bank takes three months from inception to conclusion with the Chinese authorities. I am a firm believer in good governance and rule of law. But when bureaucracy and senseless red tape impede our ability to act – and when poverty persists while international functionaries drag their feet – African leaders have an obligation to opt for swifter solutions.”68 To allow for a clearer understanding and comparison between the Washington Consensus and Beijing Consensus, the next section briefly lays out the main processes involved in the crafting of a SAP.

4.1.1 Stages in the SAP towards Economic Reform

The SAP consisted of three main phases: the first is the Stabilization Phase; second is the Rehabilitation Phase; and finally the Liberalization and Growth Phase. Within each phase are a set of objectives to be achieved and it is necessary to identify these objectives before impact studies were undertaken or evaluated. According to Kofi and Desta (2008) the stages include the following:

Stabilization Phase This phase was to help reduce price distortions in the economy. The Stabilization phase therefore sought to: (a) correct structural imbalances; (b) realign relative prices in favor of production and export sectors; (c) reduce the governments' budget deficit; (d) reduce inflation; and (e) stimulate aggregate domestic supply and reduce imbalances in external and fiscal accounts. It was accepted that a quick disbursement of assistance, to finance the inflow of necessary supplies such as food, fuel, and other imports - would be essential to guarantee the success of the program. This phase was considered as a precondition for the success of the currency devaluation exercise.

68 Abdoulaye Wade, “ Time for the West to Practise What It Preaches,” Financial Times, January 24, 2008

Rehabilitation Phase The main focus of this phase was to improve the capacity utilization of existing assets. This phase called for the rehabilitation of the roads, ports, railways, and other transportation infrastructure. It also envisaged the provision of essential raw materials and imported inputs to the productive sectors, with particular emphasis on exports. The general macroeconomic policies carried out under this phase included programs: (a) to maintain the incentive structure; (b) to provide an appropriate exchange rate; (c) to streamline the import licensing system; (d) to ensure an adequate foreign exchange budgeting system; (e) to realign the interest rate structure; and (f) to minimize the use of price and distribution control systems. The policies carried out in this phase included what was needed to be done at the sectoral levels.

Liberalization and Growth Phase After successful implementation of the first two phases, the Liberalization and Growth phase would then be implemented. The policies to be undertaken included: (a) liberalizing trade and payment controls; (b) reducing domestic price controls; (c) introducing competition in the public sector and removing rigidities, barriers, and distortions in the economy; (d) removing barriers that inhibit production and growth; and (e) up grading management and technical efficiency in individual enterprises.

A look at the impacts of these three phases reveals how convoluted and mechanistic the SAPs are in practice. Especially when compared with the recent economic impact that China has and continue to make in Ghana – a country that has been touted as a success with regards to the implementation of the prescriptions of the Washington Consensus. It can also be argued that Chinese economic growth in Ghana like most other SSA countries is coming at the heels of some Western challenges. The enormous challenges of the SAPs have been its “one-size-fit-all” nature coupled with the inflexible approach to dealing with suffering economies. These have set the stage for China’s continuous growth in various economic sectors. Hence, even countries like Ghana that have enjoyed some positives from the Washington Consensus reform policies still see

Beijing as a good option – one that redefines liberalization with its own characteristics, as well as the advantages that accrue to it.

4.2. Characterizing the Beijing Consensus

Based on China’s advances into the various economic sectors as discussed in chapter 3, it is clear that as a business partner, China continues to take advantage of Ghana’s liberalization efforts. However, China’s good economic showing in Ghana and other parts of SSA has been associated with some characteristics that clearly differentiate its efforts from that of the West. These characteristics range from institutional structures to social arrangements that have indeed come to characterize China’s economic endeavors, and hence a central part of its dramatic growth in SSA. The main characteristic, which is also a guiding principle in Beijing’s foreign policy toward developing countries, is the doctrine of noninterference – which has cast China’s economic engagements as largely “unconditional” and “non-prescriptive”, and further supports the “business is business” mantra. Other relatively crucial factors are the advantage of state- directed capitalism; the importance of South-South cooperation; and the environmental disengagement.

4.2.1. Beijing’s Policy of “Noninterference”69

The term ‘noninterference’ was articulated in the “Declaration on the Inadmissibility of Intervention and Interference in the Internal Affairs of States” (hereafter, “the Declaration”) approved by the United Nations General Assembly on December 9, 1981. Building upon the earlier 1965 Declaration on the Inadmissibility of Intervention in the Domestic Affairs of States and the Protection of their Independence and Sovereignty and the 1970 Declaration on the Strengthening of International Security, the Declaration denies states “the right to interfere or intervene in the internal and external affairs of other states.”70 It also designates the signing of treaties and creation of alliances with third-party states or military blocs as forms of interference,

69 For a more detailed discussion on the doctrine of Noninterference as China’s Foreign Policy in Africa, see Hess, S. and Aidoo, R. Beyond the Rhetoric: Noninterference in China’s African Policy, African and Asian Studies, Vol. 9 (2010), 356-383

70 United Nations General Assembly, Declaration on the Inadmissibility of Intervention and Interference in the Internal Affairs of States, approved on December 9, 1981, http://www.un.org/documents/ga/res/36/a36r103.htm.

concerns that are outside the scope of this investigation. With reference to the content of the UN document, to clarify China’s lack of desire to comment on the controversial issues categorized as “internal affairs” will require specifying some of the specific state actions constitute acts of intervention or interference and therefore represent violations of the principle of noninterference:

1) Using armed intervention or the threat of force to disrupt the political, social or economic order of another state or change its political system. 2) Using direct armed intervention or subversion to undermine the stability of another state. 3) Allowing one’s own territory to be used by rebellious or secessionist movements to indirectly subvert the stability or institutions of another state. 4) Arming or otherwise supporting rebellious or secessionist movements or mercenaries within another state’s territory. 5) Employing hostile propaganda for the purpose of intervening in the internal affairs of another state or undermining its stability. 6) Using one’s power and influence to prevent a state from freely determining its own political, social and economic development. This includes the unsanctioned (by the United Nations) use of economic blockades to interfere in a foreign state’s internal affairs.

While this definition of noninterference is certainly broad and nebulous, it represents China’s very articulation of the principles by which it has largely and consistently dealt with its African counterparts including Ghana. The five principles of noninterference, mutual respect for sovereignty and territorial integrity, equality and mutual benefit, mutual non-aggression, peaceful coexistence (hereafter, “the Five Principles”), worked out by Premier Zhou Enlai and Indian Prime Minister Jawaharlal Nehru to reduce border tensions and improve Sino-Indian relations on June 28, 1954 was later expanded to discursively cover China’s external relations with other states particularly those in the developing world. During his state visit to China in August 1961, Kwame Nkrumah concluded a ten-year friendship treaty based on the five principles after which he endorsed a twenty-year agreement on economic and technical cooperation (Prybyla, 1964). 77

China’s current emphasis on the doctrine of noninterference is shaped by its perceived self-interests. Engaging African states like Ghana without prejudice to their domestic policies or political composition and honoring their right to noninterference facilitates important economic objectives, such as acquiring the raw materials and energy supplies required to fuel China’s rapid economic growth, opening markets to its abundant manufactured exports and providing its companies with investment opportunities. Noninterference has also proved extremely useful in furthering Beijing’s diplomatic goal of winning over a large group of allies in the developing world. It is this large cohort of numerous albeit less powerful states that can help deflect Western criticisms of China’s human rights abuses, marginalize the international status of Taiwan, and limits the hegemonic power of the United States.71 One major basis for Ghana’s support of non-interference is based on the fact that it establishes an international norm that stronger states should not use their power to force their will on weaker states and serves to support the independent decision-making of developing nations.72 China’s advocacy of noninterference has thus helped China win the diplomatic support of weak state allies and further aided in the development of economic relationships.

African states are central to China’s current economic aspirations. By extending aid and investment without conditions and promising to honor the doctrine of noninterference in its partnerships, China has won increased access to African markets, energy resources and other raw materials. In recent years, securing a reliable supply of African oil has become an increasingly important objective. China was once a leading Asian oil exporter, but as the country’s economy expanded in the 1980s and 1990s, domestic oil consumption surged and, by 1993, China became a net oil importer. National oil demand has only continued to grow, and China has become the world’s second largest oil importer, behind only the United States. To meet its increasing needs, China has turned to many of Africa’s largely untapped reserves and now imports roughly one- third of its oil from Africa.73 Hence, with Ghana’s discovery of oil, its relationship with China seem sustainable, particularly given that Chinese oil companies are in the country and are trying

71 Denis M. Tull, “China’s Engagement in Africa: Scope, Significance, and Consequences,” Journal of Modern African Studies 44:3 (2006), 460-461. 72 In an interview with the Acting Chief Director, Ministry of Foreign Affairs, July 2009 73 Stephanie Hanson, “China, Africa and Oil,” Council on Foreign Relations Backgrounder, June 6, 2008, http://www.cfr.org/publication/9557/china_africa_and_oil.html (accessed February 5, 2010). 78

to wrestle some of the oil deals from Western companies like Exxon Mobil.74 Because sustaining economic development is the central overarching goal of China’s national policy agenda, acquiring access to foreign oil and meeting national energy demands has become a critical issue of national concern for China, and “energy policy (has been) elevated to the level of strategic national security.”75 Courting states with a policy of noninterference has proven particularly important in China’s effort to secure access to energy resources, as many oil-rich SSA states particularly have politicians that are skeptical of Beijing’s agenda. Advocating noninterference allows Beijing to ignore those shortcomings and focus on the business of energy extraction, without the trouble of demanding political or economic reforms from its partner states.

China has also courted Ghana as one of the African markets for its exports (see table 1) and investment projects. As an emerging export-driven economic powerhouse, Beijing is always exploring the globe for consumer markets to which it might export its goods. In recent years, Sino-African trade has increased dramatically, from around $10 billion in 2000 to $106.8 billion in 2008,76 with China mostly exporting “electrical equipment and machinery (41%), textiles (18%), garments (11%), and new technology (8%), such as electronic and information facilities, software, and aviation and aerospace equipment.”77 SSA states like Ghana have also proven to be appealing destinations for Chinese firms to invest (see fig. 3.2 and fig. 3.3), particularly in securing infrastructure contracts, as already discussed in chapter three. As latecomers into the international market, Chinese companies have often found themselves at a competitive disadvantage to Western firms with more technical expertise and experience. In Africa, however, Chinese companies have found niche markets where they can invest with limited competition from foreign firms.

74 China Battles Exxon in Ghana Oil Deal, http://blogs.forbes.com/energysource/2010/03/02/china-blocks-exxon- in-ghana-oil-deal/ (accessed March 10, 2010) 75 J. Ndumbe Anyu and J.P. Afam Ifedi, “China’s Ventures in Africa: Patterns, Prospects, and Implications for Africa’s Development,” Mediterranean Quarterly 19:4 (Fall 2008), 96. 76 “Chinese-African trade volume hits all time high to reach US$106.8b,” Xinhua News Agency, January 20, 2009, http://english.mofcom.gov.cn/aarticle/counselorsreport/americaandoceanreport/200901/20090106014983.html (accessed February 5, 2010). 77 Li Anshan, “China’s New Policy toward Africa,” in China into Africa: Trade, Aid, and Influence, ed. Robert I. Rotberg (Washington, DC: Brookings Institution Press, 2008), 31.

The doctrine of noninterference has helped China win access to these critical niche markets by allowing Chinese firms to invest in states and regions where competition from Western companies is limited. While Western firms have often been dissuaded by the risks associated with investing in traditionally unstable states or been inhibited by economic sanctions placed on particular regimes by Western governments, Chinese firms have distinguished themselves as being less “risk-averse” than their Western competitors, investing in traditionally volatile states such as Angola and the Democratic Republic of the Congo, and in economic sectors, such as construction, that have been largely ignored by Western investors.78 In Ghana the Chinese are faced with more competition from other Western investors since the country is recognized as one of the most stable on the continent. However, even in the face of such competition China is fast gaining ground in all the economic sectors in Ghana, as it is trying to do business by evoking policies like that of noninterference. By extending aid and investing without conditions on partners, China has won access to markets and resources largely off limits to Western competitors and a reputation as a reliable business partner. In the eyes of many African leaders, because Chinese promises for aid and infrastructure projects are unconditional, backed up by Beijing’s promise to honor noninterference, they are more likely to be fulfilled without interruption than those made by Western states, who may delay projects to insist on reforms aimed at combating corruption or other perceived problems.79 In engaging African states with promises of noninterference, China has successfully charmed many ruling regimes and won access to strategic resources important for supporting its growing economy, especially oil, secured markets for its exports and helped its companies win investment contracts. The recent efforts by the China National Offshore Oil Cooperation (CNOOC) to team up with the Ghana National Petroleum Corporation (GNPC), to bid against ExxonMobil for 23.5 percent of the Jubilee oil discovery at 4 billion dollars is one such attempt.80

China’s renewed focus on noninterference has also helped the country enhance its strategic geopolitical position. In his essay, “the Beijing Consensus,” a term first articulated by Joshua Cooper Ramo (2004) who suggests that Chinese leaders have identified American

78 Tull (2006), 468-469.

79 Tull (2006), 466-7. 80 China Extends String of Oil Acquisitions in Ghana Deal, http://moneymorning.com/2009/10/12/china-ghana-oil/ (accessed on the February 20, 2010) 80

hegemony as a major threat to their continued development, with many uncertain “about whether or not the U.S. will ‘allow’ China to rise.”81 American hegemony, which has in many respects, eroded since the 1970s on the global scale, has nevertheless remained prominent in the East Asian region, largely facilitated by the continued subordination of Japan, an economic power, to the United States in many critical areas of foreign and military affairs. 82 Beijing, furthermore, sees many international organizations, such as the UN, as instruments that sustain American or ‘Western’ hegemony.83 Because of the continued military and economic might of the US, its prominent position within international organizations, and its continued influence in East Asia, both directly and through traditional allies, such as Japan, South Korea, and Taiwan, Beijing sees a need to check American power, lest it hinder Chinese development. Because China greatly lags behind the United States in terms of military might, Beijing has sought to develop “asymmetric” power that might serve as “strategic leverage” to prevent the U.S. from using its power to restrict China’s growth and increasing global influence.84 To build this leverage, China has decided to place special emphasis on its soft power, actively wooing states throughout the developing world by stressing mutual benefits, “win-win” relations, and the promise of noninterference.85 In this process, China has won a large number of allies in Africa and other parts of the Third World who can help China counter U.S. influence and support Beijing’s assertions of noninterference, limiting the impact of Western states and IFIs’ demands that developing countries (including China) implement internal reforms.86 China’s allies from Africa in particular have also helped China in pursuing its main ideological foreign policy objective, persuading states not to diplomatically recognize Taiwan87 in order to isolate it internationally and undermine any aspirations of hoping to achieve formal independence. In China’s relations with Africa, Ghana is a crucial piece of the puzzle as it represents the democratic, stable, and

81 Ramo (2004), 40. 82 Mark Beeson, “Hegemonic Transition in East Asia: The Dynamics of Chinese and American Power,” Review of International Studies 35:1 (January 2009): 96-7. 83 Piet Konings, “China and Africa in the Era of Neo-liberal Globalization,” CODESRIA Bulletin 1&2 (2007): 17. 84 Ramo, 38. 85 Joshua Kurlantzick, Charm Offensive: How China’s Soft Power is Transforming the World (New Haven, Connecticut: Yale University Press, 2007), 38-39.

86 Ibid, 41.

87 Ibid, 42. 81

dependable partner that Beijing can fall on to supports any international agenda. With its diplomatic image in Africa, Ghana also somehow validates China’s economic activities in Africa, counteracting what Western critics refer to as “doing business with rogue states in Africa.” Thus, in pursuit of these diplomatic objectives, countering Washington’s economic objectives through the projection of soft power and ensuring international nonrecognition of Taiwan, the principle of noninterference has proven to be a useful diplomatic tool for China. The Chinese have found noninterference to be a powerful brand used for projecting Chinese influence into Africa – a brand that most African leaders and some populations have embraced. From Table 4.1, Ghana ranks high among countries that see the policy of noninterference as a good policy in spite of the criticisms that this policy faces especially in China’s dealings with African countries.

China’s brand of noninterference has had particularly strong currency when juxtaposed against the painful historical experience of Western colonialism and the promotion of neoliberalism in the region. China, unlike most Western states, is not tainted as a former imperialist power, and having overcome its own historical ‘humiliations’ at the hands of imperialists by embracing an independent developmental strategy for generating rapid economic growth, is widely viewed as an appealing model for many African states to imitate.88 The China model has clearly presented a challenge to the “Washington Consensus,” whose ten instruments intended to serve as conditions or reforms for states receiving loans include import liberalization, privatization of state enterprises, fiscal discipline, reductions of public expenditures (particularly subsidies), tax cuts, market-determined interest rates and exchange rates, import liberalization, liberalization of foreign direct investment (FDI), and deregulation of markets.89 As previously discussed using the instance of Ghana, in many SSA states, the Washington Consensus reforms are viewed with skepticism, as they are associated with social destabilization and the substantial human suffering, most critically among women, children, and the poor, which many countries

88 Sautman and Yan (2007), 80

89 John Williamson, “What Washington Means by Policy Reforms,” in Latin American Adjustment: How Much has Happened? ed. John Williamson (Washington, D.C.: Institute for International Economics, 1990).

endured while implementing Structural Adjustment Policies during the 1980s.90 Even when some successes are achieved such as some economic stability in the case of the reforms in Ghana, they still come with some challenges such as extreme poverty with the cut back in social expenditure, and also environmental exploitation due to increased mining and lumbering activities to boost exports.

In recent decades, Beijing has sought to reconcile its aversion to conditionality, expressed in its advocacy of non-interference, with its desire to liberalize its trade policies and engage in the global market. In its approach to Intergovernmental Organizations (IGOs), China has sought to strike a careful balance between its desire to participate in IGOs, such as the IMF, WTO/GATT, and World Bank and thus reaping the benefits of increased engagement with the global market and offers of loans and technical training offered by these organizations while simultaneously seeking to avoid the conditionality, i.e. ‘interference’ in its domestic affairs and those of others. As noted by Hempson-Jones (2005), China, regardless of its expressed reluctance to bind itself to the requirements of conditionality in its domestic affairs, has nevertheless from the 1980s won access to World Bank loans and technical resources by acquiescing to demands from the organization, such as the devaluation of its currency, the removal of import restrictions, and the acceptance of competitive bidding by international firms in its domestic development contracts.91 In its more limited relationship with the IMF, China has likewise agreed to demands that it devalue its currency (in 1985), end restrictions on international payments and work towards establish currency convertibility. In regards to the WTO, China has accepted the most expansive terms of conditionality: “non-discrimination through the unconditional most-favored nation (MFN) clause; a preference for the use of price- based measures, such as tariffs; …avoidance of unfair trade practices, such as export

90 Giovanni Andrea Cornia, Richard Jolly, and Frances Stewart, ed., Adjustment with a Human Face: Protecting the Vulnerable and Promoting Growth (Oxford: Clarendon Press, 1987), 1-2.

91 Justin S. Hempson-Jones, “The Evolution of China’s Engagement with International Organizations: Towards a Liberal Policy,” Asian Survey 45:5, (2005): 708-9.

subsidization or dumping,” reforms aimed at establishing independent judicial institutions in China, and an acceptance of the overarching authority of the WTO dispute mechanism.92

In its role as a foreign investor and increasingly important source of loans and aid in the Third World, China has, however, denounced the same kind of conditionality and subordination of autonomy demanded by IGOs that it has formally accepted at home, insisting that it is a different kind of outside presence – one that respects the principle of non-interference, honors the right of national sovereignty, and refuses to impose conditionality upon other developing countries in exchange for the extension of aid and investment.

92 Ibid, 709-710.

Table 4.1: For Africa, China’s Policy of “Non-interference” is:

Country A good Basically good, More Quite Don’t Number policy (%) but with some harmful harmful know problems (%) than good (%) (%) (%)

Botswana 22.2 34.3 18.7 9.1 15.7 230

Egypt 34.4 23.6 19.5 7.2 15.4 195

Ethiopia 14.3 50.5 16.3 11.2 7.7 196

Ghana 24.0 32.8 13.6 19.2 10.4 250

Kenya 31.1 35.8 16.6 12.4 4.1 193

Nigeria 17.3 31.0 14.7 12.7 24.4 197

South Africa 12.2 31.0 19.8 13.2 23.9 197

Sudan 43.2 33.6 8.0 4.8 10.4 250

Zambia 29.6 36.2 18.9 8.2 7.1 196

Total (%) 25.7 34.2 16.0 10.9 13.1 100

Total number 490 652 304 208 250 1,904

Source: Barry Sautman and Yan Hairong (2009: 738) Viewed in contrast to the neoliberal reforms prescribed by the Washington Consensus, China’s stated policy of noninterference has great appeal throughout much of Africa, as recently noted by scholars such as Wei Liang (2008)93 and Chris Alden (2007). As opposed to the policy prescriptions demanded by Washington and IFIs, the “Beijing Consensus” argues that there is no universal blueprint for economic development. States should instead follow a course of “groping for stones to cross the river,” taking a pragmatic, independently determined path that evolves amidst changing circumstances.94 The Beijing Consensus involves innovation, chaos management – maintaining social and political stability by emphasizing equality and sustainability, and self-determination – the use of asymmetric power to counter hegemonic

93 Wei Liang, “New Africa Policy: China’s Quest for Oil and Influence,” in Harmonious World and China’s New Foreign Policy, ed. Sujian Guo and Jean-Marc Blanchard (Lanham, MD: Lexington Books, 2008), 162.

94 Ramo (2004), 4. 85

power and maintain independence in decision-making.95 African ruling regimes can appreciate that China presents a model of development focusing on maintaining social stability and economic growth without necessitating rapid democratization or the reform of political or economic institutions – moves that are perceived as contributors to social and political dislocation.

4.2.2. The Advantage of State-directed Capitalism

In the international economic sphere, the model of state-directed capitalism has been useful in countries of Asia, Africa, and Latin America. This has been so as states in these regions have been active economic actors, engaged in various forms of state intervention. In some developing countries, the state’s economic role has come has come to be recognized with both rapid industrial transformation and enhanced equity. In other cases, by contrast, the state becomes an instrument for the elites to exploit the wealth, failing to convert these resources into economic well being for its people. Furthermore, in other cases state intervention is associated with mixed outcomes (see Kholi, 2004). With the potency of the state in directing development, the state-directed capitalism among the varieties of capitalism well describes China’s outward FDI flows. In this case, the state-directed capitalism refers to one in which government set industrial policies and directs investments.

As part of China’s “Go-Out” (zou chu qu) strategy which is meant to send Chinese enterprises and companies globally, Chinese businesses are supported by the Chinese government. In relation to FDI in Africa, the Chinese government often bundles low-interest loan and aid offers with investment projects handled by Chinese firms and woos African state leaders with goodwill projects such as hospitals and schools. Also with the promise of noninterference, Chinese companies have entered economic sectors and states long neglected by Western investors, who are deterred by regional instability and recalcitrant governments.96 In Ghana, the Chinese government is supporting its major state oil companies to bid for stakes in

95 Ibid, 11-12.

96 Barry Sautman and Yan Hairong, “Friends and Interests: China’s Distinctive Links with Africa,” African Studies Review, Volume 50, Number 3 (December 2007), 80. 86

the newly discovered oil fields.97 The terms, the conditions and arrangements, of such state- directed capitalism give Beijing a distinct edge over Western competitors. State subsidies to Chinese firms provide the incentive needed to pursue overseas projects that may not necessarily accrue the needed profits, but which accomplish Beijing’s long-term strategic investment and resource access goals. For instance, the United States Congressional Research Service reports that beyond the persistent problem of bribes paid by both Chinese and Western firms, state- backed Chinese firms have paid above-market prices for shares in African state energy firms in order to guarantee access to oil supplies; in some cases, these firms have also entered unprofitable bids on projects to pave the way for future contracts and closer bilateral ties.98

Moreover, China's political system provides a further commercial advantage over rivals in the United States, Europe, and Japan. Liberal democracies must deal with powerful domestic interest groups in business and the legislature. The absence of domestic political obstacles enables Chinese companies and government actors to forge agreements much more rapidly than their Western counterparts (see Kurlantzick, 2007:49, 96).

4.2.3. Importance of South-South Cooperation

…the spirit of Bandung still lives.

Mitchell and McGiffert (2007:) At the Bandung Conference in 1955, the delegates from the twenty-nine Asian and African countries (which include Ghana, then known as the Gold Coast) affirmed their commitment to the Five Principles of Peaceful Coexistence, which would later shape the agenda of the emerging Non-Aligned Movement (NAM). At the Bandung Conference in the week of April 18-24, 1955, Japan was the only First World country to attend the conference, and even

97 Deepening Chinese Stakes in West Africa: The Case of Ghana http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=36051 (accessed February 10, 2010)

98 US Congressional Research Service, China’s Foreign Policy and “Soft Power” in South America, Asia, and Africa,” (Washington, DC: US Government Printing Office, 2008): 117 87

though it was not part of the NAM, it supported the tenets of the organization.99 The Bandung Declaration served as a turning point for the two continents, initiating and strengthening the South-South allegiances which still serve as a formidable foundation of the non-aligned world, and in turn revolutionized relations between China and its neighbors as well as other members of the NAM, who all adopted the Five Principles to guide their foreign relations.

In 1955, Zhou Enlai (China), Nehru (India), Sukarno (Indonesia), and Nasser (Egypt), who were instrumental in decision making at the Bandung Conference, all helped to start a dialogue for South-South cooperation, and this was reflected in their words at the conference. President Sukarno stated, “This is the first intercontinental conference of the so-called colored people in the history of mankind.”100 Nasser also re-echoed similar sentiments in his closing speech when stated that “We are brothers not only because we are Asians and Africans….” Ghana’s (Gold Coast) relations at the conference preceded its political self-determination in 1957 and its “political champion” Kwame Nkrumah occasionally implored for the support of the South hemisphere. Since Bandung, China has been part of other conferences with similar themes. Taylor (2007) asserts that these conferences were the avenues by which Beijing attempted to develop linkages with Black Africa. Some of these included the first Afro-Asian People’s Solidarity Conference held in Egypt in 1957, and followed by the first Conference of Independent African States in Ghana in 1958.

Another instance that depicts China’s emphasis on South-South cooperation was in April 1974 when Deng Xiaoping, then Chairman of the delegation of the PRC to the Sixth Special Session of the United Nations and Vice Premier of the State Council of the PRC, presented an address in which he identified “three worlds” in the international system, of which the developing countries of Asia, Africa, and Latin America were the Third World. Referring to Russia and the U.S. as the two superpowers that threatened the independence and security of nations through control, subversion, interference or aggression, Deng Xiaoping said China was a

99 Pozeb Vang, Five Principles of Chinese Foreign Policies (Bloomington, IN: AuthorHouse):1-2

100 “Bandung Conference,” Keesing’s Contemporary Archives (May 7-14, 1955), p.14182. 88

socialist country, a developing country and also belonged to the Third World. He then categorically stated that “China is not a superpower, nor will she ever seek to be one.”101

From the Bandung Conference, which represented a watershed event for initiating and strengthening South-South Cooperation, China has emphasized the Five Principles as a cornerstone of this relationship, in almost every interaction with other developing states. After 1976, the Five Principles appeared in over 90 documents jointly released by China and other foreign states, framing the official foundation for China’s diplomatic relations with over 100 countries.102 In recent years, the Five Principles have uniformly appeared in the official language of the Chinese government, such as Sino-African declarations at the Forum on China-Africa Cooperation (FOCAC),103 China’s White Paper on African Policy (2006),104 and also the preamble of the Chinese Constitution.105 On June 28, 2004, the 50th anniversary of Zhou and Nehru’s meeting, Premier Wen Jiabao asserted China’s half-century as “a faithful practitioner” of the Five Principles, which had “long been held as the cornerstone of China’s independent foreign policy of peace.”106 Some argue that although China accompanies its commercial activities in Africa with declarations of its collegiate developing world status and talk of South-South allegiances, these notions probably have a minimal influence in attracting African leaders to China. Rather, it is China’s seat among the five permanent members of the UN Security Council, and the veto power that this brings seems to provide a greater incentive for African leaders to continually engage with China (Raine, 2009). Even though both factors engender and facilitate relations between China and its African counterparts, the South-South allegiance is more influential, especially when it comes to comparing Chinese influences to that of the West. As bluntly put by a guard securing the construction site of Ghana’s newly Chinese constructed Ministry of Defense, “even

101 “Chairman of the Delegation Teng Hsiao-Ping’s Speech,” Peking Review 17:16 (19 April 1974):pp. 6-11. 102 “The Five Principles of Peaceful Co-existence,” People’s Daily. 103 “Addis Ababa Action Plan,” Forum on China-Africa Cooperation, September 20, 2006, http://www.focac.org/eng/wjjh/t404123.htm (accessed January 27, 2009). 104 “China’s African Policy,” Ministry of Foreign Affairs of the People’s Republic of China, January 12, 2006, http://www.fmprc.gov.cn/eng/zxxx/t230615.htm (accessed January 27, 2009). 105 Constitution of the People’s Republic of China, preamble. 106 Wen Jiabao, (2004). 89

if they (Chinese) are corrupt, they are closer to us than the Americans.”107 This is a certain reminder that the bond created by this South-South link is real and does show up at different levels.

4.2.4. The Environmental Disengagement

China’s economic engagements in SSA have not been without several issues of concern and contention. One of such issue is that of China’s disregard of the environmental impacts of its activities. This criticism is further helped by the fact that many of the Chinese economic engagements are in areas such as oil fields, mining centres, timber extraction, and several manufacturing processes that utilize materials that require care in their use and disposal. An African Union task force recently raised concern over China’s disregard for environmental preservation in its investment practices. Of particular concern to the task force is the Merowe Dam project in Sudan, which is one of the largest hydropower projects currently under construction, with a planned capacity of 1250 megawatts. The Chinese Exim Bank is providing support for half of the total of 1.4 billion dollars as a multinational project funding. With a 174- km long reservoir and a surface area of 476 km square, the project will have severe social and environmental impacts, and already more than 50 000 people are being displaced from the fertile Nile valley to other arid desert locations.108 The same attention has been drawn to the construction of the Bui Hydroelectric Dam in Ghana. The dam is to generate 400 megawatts with a cost of 622.0 million dollars. The construction of this dam has had wide ranging environmental and social impacts. Based on an Environmental and Social Impact Assessment carried out by ERM Consultants of the UK in October 2006, the construction of the Bui Dam will displace over 1185 people who live in the project area; about 21 percent of the Bui National Park taken will affect some of the rare fauna and flora in the area – especially the hippopotamus population; and endangering the lives of the people as wildlife is displaced into habitable areas.109

107 During a familiarization tour of the newly Chinese constructed Ministry of Defense in Accra, Ghana, July 2009 108 M. Chan-Fishel, (2007) “Environmental Impact: More of the Same”, in Manji and Marks (eds.), African Perspective on China in Africa, pp 139-52.

109 Bui Power Authority documents on the Environmental/Social issues on the Bui Hydro Power Plant (HPP) 90

In spite of the destructive effects of these investment activities, Chinese companies have an undue advantage over other investors, particularly from the West, as they de-emphasize environmental destruction issues. This situation is further facilitated by the willingness of the Chinese state to fund and Chinese companies to engage in projects that hitherto will not be taken by other investors especially ones from West where funds for projects are laced with clauses to protect and preserve the environmental resources. Ghana’s Bui dam was supposed to be funded by the World Bank which withdrew its funds from the project after an Environmental Impact Assessment revealed the damage that the construction of the dam will cause to the environment and the human populations residing within the area.110 China is not a member of the OECD and has not agreed to observe the guidelines for export-credit agencies laid out in the organization’s Recommendation on Common Approaches to the Environment. As a result its banks such as Exim China can and do lend to projects that have been refused funding by OECD countries on environmental grounds.

110 Gathered in an interview with the Communications Officer of the Bui Power Authority in Ghana, July 2009 91

Table 4.2 - From the Washington to the Beijing Consensus: What are the consequences?

Consensus Characteristics Washington Beijing Dynamic: gradual Static: reforms once and for series of reforms Long-term Vision all A certain degree of Large determinism of change unpredictability Aim: attract foreign capital Aim for social and through finance political stability Cutting-edge Adopted the outdated technology reduces technology of developed the cost of transition economies and autochthonous innovation Reform and First growth, then social and A sustainable and Development political progress equitable development model Accept the rules of the game Self-determination set by the hegemonic powers and bargaining power in defining the rules National development without international tensions and war Through international Chinese imports from organizations the most advanced countries and primary Diffusion and global exporters impact Mainly during times of severe economic and financial crises Ad hoc development Conditional development assistance assistance Source: adapted from Joshua Cooper Ramo, The Beijing Consensus, The Foreign Policy Centre, 2004

4.3. Conclusion

It was fairly commonplace in the 1980s and early 1990s to come across reports and documents that commend Ghana’s economic growth achievements. In some cases, Ghana was perceived as a frontrunner in the economic reform process, and the World Bank, IMF, and other institutions in Washington regularly put Ghana forward as a showcase of economic success in Africa (see Leechor, 1994). These commendations came at a time when Ghana had started seeing some gains resulting from the reforms, even though there was still a larger proportion of the

population who still showed little appreciation of that growth achievement since economic hardships were still a norm (Aryeetey and Tarp, 2000). Ghana subscribed to the prescriptions of the SAP and other advice from the Washington institutions because like most SSA weak and struggling economies, the options available to it were very limited. Hence the country had to plough through layers and layers of bureaucratic reforms which came with both negatives and positives and, in effect, the SAPs representing the Washington brand of economic reforms characterized Ghana’s political economy. Some weaknesses in the SAPs such as the overdependence on the traditional primary products like cocoa for exports still affects the economy amidst the call for diversification of export commodities. To sustain the growth and stability that Ghana chalked after the SAPs, there was a need to increase investments and further open up the economy. This need is what the engagement with China hopes to fulfill.

Beijing’s economic approach is mindful about the benefits of privatization and free trade. However, it encourages other nations to fit into the global system ‘in a way that allows them to be truly independent, to protect their way of life’ (Ramo, 2004:4). In its economic engagement with Ghana (as seen in Chapter 3), China benefits from Ghana’s open economy as a result of the liberalization policies within the Age of Business. Thus, China engages with both advanced economies and primary exporters in the global economy (see Table 4.2), in the bid to build and sustain its economy. In the process of these engagements with Ghana and other SSA countries, China has held on to some major characteristics which have together played to its advantage in competition with Western enterprises who in most cases are guided by the ideals and conditions largely projected by the West – democracy, human rights, preservation of the environment, just to mention some. Mainly through China’s doctrine of noninterference, Chinese companies are gaining access to markets and resources; by de-emphasizing environmental concerns, they are entering investment terrains that hitherto were uncharted; with state-directed support, these Chinese investors can take huge economic risks as well as maneuver to achieve set objectives; and finally, to sustain the economic engagement, a tinge of South-South allegiance matters. China is obviously engaging Ghana economically, similar to what the West does, except that in this case, Beijing guarantees a non-conditional or a ‘noninterference’ relationship coupled with a state-supported approach, and its South-South allegiance to the country.

Chapter Five: Discussions, Suggestions, and Conclusions

One of the most defining developments in post independent Africa is the evolving relationship between China and Africa. This development has taken shape in the past two decades and attracted lots of attention. The transformative nature of the China’s engagements in Africa has undoubtedly placed relations with selected African countries in the lime-lights, about the nature of the relations and the impact that it is having on these countries. In this case, the evolving economic relations between China and Ghana in particular has not received the needed attention that it deserves and thus a study of this nature could provide the needed nuance that this emerging field requires in African studies.

Ghana’s relations with China dates back to its pre-independence days and to the Bandung Conference in 1955. However, this study’s focus on the contemporary phase of this relations enables it to fit into the general discussion of Sino-African relations. The case of Ghana is particularly interesting as it offers a background to explore the differences that exist between two well-known economic approaches – the Washington Consensus which represents the approach of the World Bank and the IMF; and what has come to be known as the Beijing Consensus as an alternative approach. Even though the Washington Consensus has had wide ranging impacts on the economy of Ghana, Beijing’s recent “economic charm” on SSA countries is having a greater impact on trade, investment, and aid. The preceding chapters have been discussing the nature of the relation between Ghana and China; the differences between the Washington and the Beijing Consensus; and finally how the Beijing Consensus has influenced our understanding of economic liberalization. Based on the findings presented in other chapters in this study, this chapter will start by making a brief reference to the contextual contribution of the study, and then present and discuss the findings. This will be followed by some suggestions for further research; and a final conclusion.

5.1. Providing the needed context

As Sino-African relations broaden and deepen over time, Africanists and other scholars attempt to provide a more nuanced discussion of the various perspectives that have emerged. Some (see Large, 2008; Yu, 1968) have called for a more serious culture of research into Sino- African relationship that has gradually become a mainstream issue in African studies. This study 94

attempts to contribute meaningfully to the current increase interest in Sino-African relations as it endeavors to look at the issue of economic liberalization in an era of China-Africa discussions, and in comparison with the Western neoliberal efforts. China’s remarkable economic transformation has come, as it liberalized its markets for products, labor and other materials needed for economic development and this feat has become noticeable in the developing world. Ghana, like many SSA states, has made varied attempts at learning from China’s economic experiences as they perceived China as the fellow developing country which shares some common characteristics and concerns, with little to no interference in domestic affairs. With its history of economic liberalization, Ghana’s experience with the West – countries like the US and UK, and institutions like the International Monetary Fund (IMF) and the World Bank – provides a useful context with which to perceive and analyze China’s approach to economic development. This study contributes to our understanding of some unique characteristics that China brings to bear on the liberalization discussion.

Furthermore, the engagement with China has added to Ghana’s political economy discussions. This includes attempts to shape policy interests as well as institutional and interactional spaces in Ghana’s politics and economics.111 Thus a careful look at the evolution of the Sino-Ghanaian relations and manifested interactions it has had in both economics and political (policy) realms, provide the African studies with insightful background knowledge on the different path China is charting in its engagement with African countries.

Another contextual contribution of this study is the connection of cases in SSA to a broader discussion within the field of international political economy. As put by John Cooley (1965:3),112 “a new Wind from the East is blowing across Africa” and is attracting

111 Given that scholars like Alden (2007) China in Africa: African Arguments, London: Zed Books raises the threefold perspective of China in its relationship with Africa. Beijing’s relationship is perceived as partnership with its allies when it is one that is driven by economic needs and the commitment to transmit its development experience. Second, as a competitor, when China challenges Africa’s development by grabbing its resources under every condition to its advantage and to the disadvantage of Africa. The third perspective is when China is perceived as a colonizer as it attempts to rival the Western influence in Africa, through entering into a south-south relationship in which it is the most powerful.

112 Cooley John (1965) East Wind over Africa: Red China’s African Offensive (Walker and Company, New York):3.

unprecedented attention. This is driven in part by the broader resurgence of China as a global economic power, as well as a major player in world affairs, but much is also the result of the visibility and interest in the growing presence and impacts of Chinese actors throughout the continent. The evolution of China in the world economy has been characterized by some scholars as “revolution” (Cook and Murray, 2001; Harding 1987; Lardy, 1998; Wang 1994) or a “transformation” (Chow, 2007; Garnaut and Song, 2004; Guthrie, 2006), and most importantly as “globalization” (Guthrie, 2006; Wei et al, 2002) which has also been defined as liberalization – “the process of removing officially imposed constraints on movements of resources between countries in order to form an ‘open’ and ‘borderless’ world economy” (Scholte, 2005: 56). Ghana’s attempts at liberalization have been well documented, and thus presenting the connections that exists between these two subjects is very much needed in an emerging intellectual debate such as China-Africa relations.

5.2. Discussions

Beyond the general attempt to provide context and other materials related to a study which explores the economic relationship between China and Ghana within the broader framework of relations between China and SSA, there are some major discussion points that can be highlighted from this study.

• Keeping pace with changes in the global economy, China’s relationship with Ghana has metamorphosed from a more diplomatic phase to a predominantly economic relationship. Given China’s growing role in the global economic community - its current status in the WTO, its drive to compete for crucial resources like oil and gas, and its desire to secure markets for its manufactured goods, China’s interest in SSA is to develop dependable economic relationships – its interests have become more economic. This study reveals that Ghana’s exports to China are not as impressive as its imports from China. With an over 100 percent increase in imports between 2007 and 2008, it is not surprising that Ghana is one of the top ten importers of Chinese products in Africa. This predominantly economic relationship has come with problems. As a market for Chinese exports, de- industrialization which has been problematic in countries like Nigeria and Zambia is very much emerging in Ghana. The economic woes of the textile industry attest to this fact. 96

Another trajectory that is revealing Beijing’s plan to engage economically is Ghana’s investment sector. With a tremendous increase in Chinese investment projects, currently over 300 and counting, various sectors have witnessed incursions by Chinese enterprises, thanks to Ghana’s attempts at liberalization. Major policy and legal arrangements such as the GIPC Act, 1994 have made it possible for the Chinese and other investors to invest in Ghana with less bureaucratic hassle. In line with Ghana as a big market for Chinese products, the general trade sector has recently overtaken the manufacturing sector as the country sees an increase in Chinese owned businesses. As the adage goes “too many cooks spoil the broth”, the recent increase in Small Chinese Enterprises have led to intense friction between the local investors who accuse the Chinese investors of flouting the investment laws and regulations and engaging in illegal business deals. Finally, the economic nature of this relationship is signified by the increase in Chinese technical assistance to the country. The technical assistance range from construction of road networks by Chinese construction enterprises, to the building of a 400 megawatt hydroelectric dam. There is a sense that these Chinese infrastructure are geared towards making Ghana a viable global economic partner.

• In Ghana, China finds itself competing with the West which has been the major traditional economic partner. This competition that exists at the global level plays out in China’s relationship with most SSA countries, especially the oil endowed nations. As stated by Ngozi Okonjo-Iweala, Managing Director of the World Bank, “China should be left alone to forge its unique partnership with African countries, and the West must simply learn to compete.”113 This relationship must be particularly unique in a country like Ghana with very deep political and economic ties with the West such as Ghana. China seems to be making a dent in the reshaping of the Ghanaian psyche to embrace the Beijing approach of doing business. The first evidence to that is in Table 5.1 which is based on a study by the Pew Research Center. The study shows glimpses of Ghana seeing

113 N. Okonjo-Iweala, “Viewpoint: China Becomes Africa’s Suitor” (BBC News, 24 October 2006). http://news.bbc.co.uk/1/hi/business/6079838.stm

China’s influence as largely positive as opposed to that of the United States, an emblem of the Western approach. Ghana is engaging Beijing differently from that of the West. This is a somewhat “defiant shift” from the condition-based economic reform and development to non-condition based approach to development. One instance that supports this shift is the current Chinese construction of the Bui hydroelectric dam which was rejected by the World Bank based on an environmental assessment report. However, one feature that

Table 5.1 – China’s Influence More Positive Than America’s

China’s influence America’s Country influence “Good” good bad good bad difference thing thing % thing % thing % % Kenya 91 6 74 16 +17 Ivory Coast 90 6 80 12 +10 Ghana 90 5 79 13 +11 Senegal 86 6 56 23 +30 Mali 84 7 63 25 +21 Nigeria 79 12 58 27 +21 Tanzania 78 13 36 52 +42 Uganda 75 13 65 24 +10 Ethiopia 61 33 34 54 +27 South Africa 49 32 55 24 -6

Source: Pew Research Centre, “Global Unease with Major World Powers,” 47-Nation Pew Global Attitudes Survey, Pew Global Attitudes Project, Washington, DC, June 27, 2007, 45, http://pewglobal.org/reports/pdf/256.pdf.

is not captured by these statistical study is the general mood towards Chinese economic investments in Ghana. As shown in Chapter 3, the increase in Chinese trading activities and investment in some sectors of the economy is generating some discontent among the business population who sees Chinese economic incursions as an “economic threat.” This mood is sometimes associated with the unfair competition that is caused by the sponsorship that Chinese enterprises receive from the Chinese state – another different

move China uses to out-compete its Western counterparts. State subsidies of Chinese firms provide the needed incentive to pursue projects that are risky and may be unprofitable. This becomes the double-edged knife that cuts both ways – challenging local enterprises while favorably competing with the West. Finally, this study also states the advantage that China has with South-South allegiance. With Ghana’s relationship with China dating back to the Bundung Conference, a watershed for the development of South-South solidarity, this remains the influence that is less talked about but does show up in discussions, and engagements at different levels. The case of Ghana clearly unearths some major and subtle differences that exist between the Washington or Western approaches and that of Beijing.

• Ghana’s attempts at economic liberalization are well documented and referenced. In an era of business that peaked with the erstwhile NPP government introducing strategies for making the private sector the bedrock of economic development and for opening up the country to attract more investors, liberalization has been identified as a driving factor. In its relationship with the IMF and World Bank, Ghana instituted economic reforms which were geared towards stabilizing the economy and further opening it up to attract foreign investments. Thus economic liberalization has been characterized mainly by fiscal reforms; public sector and civil service reforms; divestiture and privatization reforms as well as other reforms mostly embodied in the SAPs. As much as these reforms came with some positive and negative impacts on the Ghanaian economy, China’s engagement with Ghana identifies two major facts. First, China takes advantage of liberalization policies that have been put in place to attract foreign investment. The increase in Chinese enterprises in Ghana have been as a result of policies and institutional arrangements which have gradually eliminated some major bureaucratic barriers which have allowed for a more facilitated path for investors. Thus, in spite of its skepticism about the benefits of privatization and free trade, Beijing will acquiesce to the demands of a liberalization agenda if need be. Secondly, our understanding of liberalization has been widened to include some unique characteristics of the Chinese. By invoking some key principles

which guide China’s engagements with its developing partners, China offers a different perspective on liberalization. Hence, economic liberalization, like any Chinese economic policy toward Africa, mainly features the noninterference doctrine, as well as other remote features like the South-South allegiance, and the state-directed capitalism.

5.3. Suggestions for Further Research

This study combines a conceptual focus with meaningful empirical analysis to serve as a good background for further research on economic liberalization vis-à-vis China’s relations with SSA in general, and Ghana in particular. I have therefore identified a number of potential areas for further expansion of this research. The suggestion of further studies will be categorized in two: first will be further research for Ghana, and then second will be for SSA in general.

5.3.1. Ghana

• China’s Strategic Efforts to Tap the Untapped Oil Reserves – This study will examine the politico-economic calculations of the Chinese to reach Ghana’s new found oil in the era of economic liberalization. Given Ghana’s discovery of oil along its coast, the competition for this important resource has already begun with Western as well as Chinese oil companies trying to secure and buy off some concessions. Within the context of economic liberalization in Ghana, it will be interesting to see how Western companies that support the ideals of democracy, human rights and environmental preservation compete with the Beijing approach which will give less attention these ideals in their business dealings. The major question will be whether China’s oil Diplomacy (see Taylor, 2009) will help in the oil fields of Ghana.

• The Role of Asia in Ghana’s Attempts at Economic Self-Determination – With China, India and South Korea as well as other Asian countries all fully engaged in the Ghanaian economy, it will be insightful to further explore the role that Asian economic powerhouses are playing in reshaping Ghana’s economic future.

100

Currently, Ghana is one of the stable political economies in Africa, and as it attracts economic investors, it will be particularly important to combine conceptual and empirical approaches in the study of the effects of Asian economic ideologies on an economy that engaged difference economic ideologies since independence from the British. Thus in its quest to achieve and sustain economic growth and development, what lessons is Ghana learning from its Asian counterparts?

• Applying Lessons From the Washington Consensus – In the past, research has been done on the effects of the policies that emerged from the Washington Consensus. For instance there is abundant literature on the Structural Adjustment Programs and the lessons that were learnt. Ghana is a good case to further explore these lessons and see how it influenced Ghana’s relationship with other investors particularly the Chinese. This study projects the differences that exist between Washington and the Beijing Consensuses; however, whether Ghana’s lessons from the Washington Consensus affects its efforts at developing a relationship with Beijing still remains unexplored and thus will be a good analytical study.

5.3.1. Sub-Saharan Africa

• African Response to China’s Economic Engagements – In almost a decade, China’s influence has enormously increased in SSA economies with investment in both the exports and import sectors of these economies. China has also redefined aid and technical assistance to African countries through its construction of infrastructure that Africa needs so badly. Even though these influences are reshaping the political economy of African countries, there is not clearly a formidable response that lays out an economic blueprint to help African countries respond to these influences in a more uniform and analytical way. As this study reveals the differences in Western and Chinese economic approaches in the case of Ghana, it could contribute to the thought process of formulating an African response to China’s relations in Africa.

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5.4. Conclusion: A Watershed, not a Sea Change

This study is a good starting point to examine the changing nature of African countries as they engage China. Over time, China’s efforts in Africa will need more rigorous research to equal what has been done about Western economic efforts in Africa. With such a big need, country studies like what this study embodies will provide the needed nuances that these future studies should incorporate. China’s re-entry into Africa is a momentous change for the entire continent, with astronomical increases in investments and with business cultures that defy the traditional way of doing business. However, for smaller economies like Ghana, this is a watershed to achieving economic sustainability in the very near future. By juxtaposing these two influential economic approaches in Ghana’s political economy, one thing has become evidently clear - Ghana like the rest of Sub Saharan Africa has options to economic growth and wellbeing. These options must be positively brought to bear on the economic development process.

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APPENDICES

Appendix 1

Informed consent

Dear ------, I am a PhD Candidate from the Department of Political Science at Miami University, Oxford, Ohio. I am currently conducting a research into Chinese political and economic engagements in Ghana. The main purpose of my study is to examine the evolution of the economic and political relations between Ghana and China in an era of global economic integration. The implications of this relationship are crucial as China’s momentous surge in economic investments around the world has engendered a discourse which has gained currency due to the political as well economic implications in the global political economy. The study considers the reactions of Chinese and Ghanaian businesses, and contributors to political decision making as well as other actors related to China’s growing presence in Ghana. During the interview I will ask you a set of questions about your knowledge and perspectives of Chinese engagements in Ghana (Sub-Saharan Africa in general). It will take 30 to 45 minutes, but should you feel uncomfortable with divulging any information, you may halt the interview or request that direction be changed. With your permission, the interview will be tape-recorded or notes taken. If tape-recorded, you have the right to request a copy of the conversation once transcribed. In addition, your responses will be kept private and confidential. All information collected for the sake of this academic exercise will be discarded after the research. A summary or parts of the research will be made available to you or your institution upon request. If you agree to participate in this study please read the following statement and check- mark the appropriate box.

I grant the researcher permission to tape-record this interview Yes No I grant the researcher permission to use my responses in the study Yes No

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Signature of Participant Date

Signature of Researcher Date

Interview Schedule

NATURE OF CHINA-GHANA ENGAGEMENT

• How is China engaging Ghana in this relationship?

• How is Ghana engaging China in this relationship?

• How different is this relationship from past relationship (s)?

• What is (are) the role(s) of the politicians in this relationship?

• What is (are) the role(s) of civil society in this relationship?

• What is (are) the role(s) of the businesses in this relationship?

• Which are the benefits/problems for Ghana?

• Which are the benefits/problems for the Chinese? GHANA’S POLICY INTERESTS – CHINA vs. WEST WEST

• Which sector(s) of the economy are the West still engaged in?

• How is trade, aid, and investment with Europe and America faring?

• Is there a Washington Consensus? If so, what is it?

• Are policies by the West and other International Financial Institutions (IFI) still in place?

• How popular have IFI policies such as Structural Adjustment Program (SAP) been?

• What do Ghanaian business enterprises, and politicians think about the conditionalities that come with Western economic policies toward Ghana?

• Is business with the West tied to Ghana’s colonial past?

• How has Western political aid affected democratic and hence economic development in Ghana?

• What have been the objections to the Western economic policies in Ghana?

104

CHINA

• Which sector(s) of the economy are the Chinese engaged in?

• How is trade, aid, and investment with China faring?

• Is there a Beijing Consensus? If so, what is it?

• Are policies by the China and its financial Institutions like the Export Import (Ex-Im) Bank present in Ghana?

• How popular has China’s pragmatic approach to investment and aid been?

• What do Ghanaian business enterprises, and politicians think about China’s momentous engagement with Ghana (and Africa in general)?

• Is business with the Chinese connected to Ghana’s past experiences with China?

• How has China’s aid and investments in Ghana affected its democratic culture and development

• What have been the objections to the Chinese economic policies in Ghana?

THE FUTURE OF CHINA-GHANA ENGAGEMENT

• What does Ghana expect to see from this relationship in the next 50 years? 1. effect on aid for infrastructure and development 2. effect on debt forgiveness 3. effect on the export/import industry 4. effect on solidarity/friendship

• What does China expect to see from this relationship in the next 50 years? 1. effect on resource acquisition

2. effect on China’s politics

3. effect on China’s image in global economy

4. effect on the solidarity/friendship

• What factors will hinder any of these scenarios?

105

Appendix 2 Executive Instrument for the Acquisition of Land for the Bui Dam

106

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