2009 Index of Economic Freedom

Quick Facts

Population:

• 23.0 million

GDP (PPP):

• $28.6 billion
• 6.4% growth
• 5.5% 5-year compound annual growth
• $1245 per capita

Unemployment:

• 8.0%

Inflation (CPI):

• 9.6%

FDI Inflow:

• $434.5 million

Ghana's economic freedom score is 58.1, making its economy the 96th freest in the 2009 Index. Its overall score is 1 point higher than last year due to improvements in four of the 10 economic freedoms. Ghana is ranked 12th out of 46 countries in the Sub-Saharan Africa region, and its overall score is just below the world average.

Ghana, one of the best-performing economies in the region, rates well in fiscal freedom, government size, and property rights. The top income and corporate tax rates are moderate, and the overall tax burden is not excessive as a percentage of GDP. Many of the 18 state-owned or state-controlled enterprises that the government identified for privatization in 2007 have already been divested. An expanding private sector, macroeconomic stability, and ongoing reform in the financial sector have contributed to relatively steady economic growth in recent years.

Ghana has room for further improvement in other areas such as investment freedom, labor freedom, and freedom from corruption. Commercial regulations are extensive, and rigid labor market regulations are a disincentive for job creation. Ghana restricts foreign investment in several sectors, and the weak rule of law is undermined by inconsistent judicial adjudication.

Background Back to the top

Ghana is rich in natural resources, including gold, diamonds, manganese ore, and bauxite. While the country's industrial sector, at about 25 percent of GDP, is somewhat more developed than those of many other African countries, agriculture is the key economic pillar. In 2006, agriculture accounted for 50 percent of employment, 36 percent of GDP, and 37 percent of exports (predominantly cocoa and timber). Significant oil reserves were discovered in 2007. Ghana has been a stable democracy since 1992, when a ban on party politics was lifted and multi-party elections were held.

Business Freedom 56.7 Back to the top

The overall freedom to conduct a business remains limited by Ghana's regulatory environment. Starting a business takes an average of 34 days, compared to the world average of 38 days. Obtaining a business license takes about the same as the world average of 18 procedures and 225 days. The government has been streamlining regulations, but bureaucratic processes remain slow.

Trade Freedom 63.0 Back to the top

Ghana's weighted average tariff rate was 11 percent in 2004. Special import fees and taxes, import bans and restrictions, some services market barriers, cumbersome and non-transparent standards and regulations, weak enforcement of intellectual property rights, non-transparent government procurement, export promotion schemes, and customs procedures that can be complex and prone to corruption add to the cost of trade. The government supports domestic private enterprise with financial incentives and tax holidays as part of its export-promotion policies. Fifteen points were deducted from Ghana's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 83.2 Back to the top

Ghana has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 25 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. In the most recent year, overall tax revenue as a percentage of GDP was 20.8 percent.

Government Size 65.7 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 33.8 percent of GDP.

Monetary Freedom69.6 Back to the top

Inflation is relatively high, averaging 10.4 percent between 2005 and 2007. The government influences prices through its regulation of state-owned utilities and controls the prices of petroleum products. Ten points were deducted from Ghana's trade freedom score to adjust for measures that distort domestic prices.

Investment Freedom50.0 Back to the top

The foreign investment code eliminates screening of foreign investment, guarantees capital repatriation, and does not discriminate against foreign investors. Certain sectors are reserved for domestic investors, and national treatment may be denied in banking, securities, fishing, and real estate activities. Foreign investors must register with the government and satisfy minimum capital requirements for investment. Residents may hold foreign exchange accounts, and non-residents may hold them subject to restrictions. Payments and current transfers are also subject to restrictions. The Bank of Ghana must approve most capital transactions. Foreign investors may lease but not own land.

Financial Freedom60.0 Back to the top

Ghana's growing financial system has undergone a process of restructuring and transformation in recent years. Five of the 20 commercial banks operating in Ghana are foreign-owned, and there are three state-owned development banks along with 100 rural banks serving the microfinance sector. As a result of recently improved macroeconomic conditions, bank credit to private institutions has increased. With the introduction in 2003 of a Universal Banking Business License intended to create more competition in the banking industry, the financial sector has continued to deepen its operations. The relatively developed insurance sector is dominated by two state-owned companies. The passage of the Foreign Exchange Bill in December 2006 resulted in partial liberalization of Ghana's capital account. Capital markets are developing quickly, and in 2007, the Ghana Stock Exchange had over 30 listed companies, with a market capitalization of more than $12 billion. Current regulations allow foreigners to invest in securities listed on the stock exchange without exchange-control restrictions.

Property Rights50.0 Back to the top

Ghana's judicial system suffers from corruption, albeit less than the systems in some other African countries, and is subject to political influence. The courts are slow to dispose of cases and at times face challenges in enforcing decisions, largely because of resource constraints and institutional inefficiencies. There are laws to protect intellectual property rights, but very few cases have been filed.

Freedom From Corruption37.0 Back to the top

Corruption is perceived as significant. Ghana ranks 69th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007, a slight improvement from 2006. A poll measuring public trust in the government found that the courts were one of the least trusted institutions, second only to the police.

Labor Freedom45.3 Back to the top

Highly restrictive labor regulations hinder employment and productivity growth. The non-salary cost of employing a worker is moderate, but dismissing a redundant employee is costly and difficult. The difficulty of laying off a worker creates a disincentive for job creation.