Introduction

Ghana, like most developing countries is caught in a vicious cycle of underdevelopment, principally caused by the nature of its integration into the world economy. Ghana's export economy is composed mainly of primary products: agriculture and minerals. These commodities are susceptible to pervasive external trade shocks, also the economy as a whole is characterised by low domestic savings, investment and Foreign Direct Investment (FDI). These factors have invariably had an effect on the level of unemployment and for that matter poverty in the country. In the face of these realities, what can a developing country like Ghana do to diversify its primary export-oriented economy? Can Ghana design an industrial policy that seeks to shift its exports into high technology based manufacturing goods such as software development? And if so what should be the role of the state?

Also historical and empirical evidence have shown that countries which have attained high levels of development in the last half-century did so mainly through high technology based industrialisation.

The contention therefore is not whether Ghana should diversify its export orientation or not, but rather who strategy will best lead to accelerated development: an FDI led high technology export growth or growing the domestic private sector or a combination of both. Underlying all these is the role of the state in the high technology industry. Market fundamentalists believe that FDI is the way to go. Thus the argument follows: for developing countries such as Ghana, diversifying its export base, means creating the enabling environment that allows FDI to thrive in a country.

A purely market led approach to export diversification in Ghana will fail. Some form of state and market interaction is needed to create a high technology industry.

This paper will however argue that whilst FDI indeed plays a tremendous role in accelerated growth as the East Asian Miracle shows, the current trend of FDI inflows into Africa, does not suggest that an FDI lead industrialisation is the best route towards accelerated diversification in the Ghanaian economy. In fact contrary to the popular call for FDI lead industrialisation, this paper makes the case that FDI will follow a fast growing domestic industrial market. Thus the central economic argument of this paper is that a purely market led approach to export diversification in Ghana will fail. Some form of state and market interaction is needed in creating a high technology industry in Ghana. The paper will argue that markets are prone to failures and government intervention in solving the sources of market failure is key to any attempt at using ICT as an engine of accelerated development in Ghana. The paper therefore argues that, FDI will follow domestic growth and not vice versa. The paper will use the Information and Communication Technology (ICT) Sector as the basis for export diversification of the Ghanaian economy.

This paper is structured as follows: Structure of the Ghanaian economy; Diversifying the Ghanaian Economy; Global Trends in FDI; FDI and Economic Growth in Ghana; Creating a BPO/ IT Industry in Ghana; Learning from Asia; Human Development and R&D; Infrastructure and Credit and the Conclusion.

The Structure of the Ghanaian Economy

Ghana is an archetype of the Washington Consensus. Beginning from the early 1980s Ghana restructured its economy by opening up the hitherto closed economy that relied on Import Substitution Industrialisation (ISI) strategies.

Beginning from the early 1980s Ghana restructured its economy by opening up the hitherto closed economy that relied on Import Substitution Industrialisation (ISI) strategies.

Since then Ghana has liberalised its trade regime by reducing tariffs and abolishing quotas; introduced a market exchange rate policy; stringent monetary and fiscal prudence and an overall emphasis on improving the macroeconomic environment as a stimulus for investment and economic growth.

The result is that today, the Ghanaian economy is characterised by a real GDP of 5.8 percent, an average inflation of 12.6 percent, Inter-Bank interest rates of 16.23 percent (MOF, 2005:17-23).

Whilst still a far cry from the 8 % GDP growth rate needed to move Ghana into a middle-income country by 2020 (CDDGhana, 2005) these figures are an improvement on the abysmal performance of the 1970s and early 1980s. To be sure, there is still massive poverty in Ghana, 78.5 percent live on less than $2 dollars a day, 45.9 percent adult illiteracy rate and 25 percent of children below five are under weight for age (UNDP 2005:228).

The structure of the Ghanaian economy has also not changed much. Agriculture remains the dominant sector, contributing to 46.7 per cent share of total GDP in 2004, with cocoa alone accounting for 17.9 percent of total GDP growth in that year. The industrial sector contributed a 22.1 per cent share; whilst the services sector remains the second biggest contributor to total GDP, accounting for about 24.3 per cent in 2004 (MOF, 2005:20).

In the export sector gold, cocoa and timber remains the largest contributors to GDP. Thus an improvement in the volume or world market prices of these commodities directly affects GDP growth. In 2002 for example, the total value of exports rose by 1.3 per cent as a result of favorable international prices for Ghana's major exports commodities (OECD/AFDB, 2003:170). Conversely in 1999 Ghana suffered a massive trade shock as a result of low international prices for its major exports and at the same time a steady rise in price of major imports as oil (IMF, 1999). This oscillating trend together with the increase in imports that has accompanied trade liberalization has lead to a continuous increase in the trade deficit. In 2003 the trade deficit stood at an estimated 11.3 per cent of GDP (OECD/AFdb 200:170).

Thus the current structure of the Ghanaian economy can be described as a test of David Ricardo's comparative advantage theory. The theory states that under free trade a country can increase its national income by moving resources into sectors in which its opportunity cost of production is lower than its trading partners. Ghana's comparative advantage therefore has been seen to be in the agriculture and the natural resource sector. The illogical nature of this economic argument is becoming increasing clear. According to a study by Imbs and Wacziag (2003 cited in Rodick 2004:6), "as poor countries get richer, sectoral production and employment becomes less concentrated and more diversified". This is further supported by Succar (1987 cited in Pack and Saggi, 2001:10) who argues that "…the comparative advantage theory is a static construct that ignores forward linkages exist between present choices and future production possibilities." The importance of such findings is critical in understanding why David Ricardo's comparative advantage does not hold ground for developing countries such as Ghana.

This oscillating trend together with the increase in imports that has accompanied trade liberalization has lead to a continuous increase in the trade deficit.

It is thus clear from the above that the current structure of the Ghanaian economy cannot lift it from the doldrums of poverty and underdevelopment in which it finds itself. For the country to gain from the benefits of its trade liberalisation policy therefore, there is a need to diversify the export sector.

Diversifying the Ghanaian Economy

Various suggestions have been made about how Ghana should diversify its economy; the emphasis has been on improving agriculture and diversifying from traditional crops such as cocoa to the non-traditional crop sector such as horticulture. Writing in 1993, the World Bank predicted that Ghana would enter the middle-income country status with a per capita income of US$611 in 2003. This it said will only happen if Ghana implemented an accelerated growth strategy (World Bank, 1993:29). At the heart of this accelerated growth strategy is to be a rapid integration of the Ghanaian economy into world markets. Ghana was to use its "comparative advantage in horticulture and (potentially) in fruit and vegetable processing industries… nontraditional exports (coffee, sheanuts, cotton)" to accelerate it growth (World Bank, 1993:40). In the same vein Ghana, was to focus on labour intensive manufacturing activities in the agro processing sector through assembly and light manufacturing activities (World Bank, 1993:44).

Most of these policies have been implemented and 2003 passed with Ghana still in the low-income bracket of countries. The above clearly illustrates the folly of the agricultural diversification argument; the overemphasis on agricultural growth will only lead Ghana into a cul de sac of predictable consequences: underdevelopment and poverty.

Trade liberalisation has lead to adverse effects for several farmers in Ghana; the case of tomatoes and poultry farmers is well documented.

To be sure, there is wisdom in improving agricultural productivity, diversification and agro processing. After all 60 percent of the Ghanaian labour force is involved in agriculture (MOF, 2005:112). There is also a growing body of evidence on the link between agricultural growth and poverty reduction (Klasen, 2001:8). However the unfair nature of the current world trading system, together with Bank and Fund policies on agriculture subsidies in developing countries, make the pursuit of such policies unreliable. Trade liberalisation has lead to adverse effects for several farmers in Ghana; the case of tomatoes and poultry farmers is well documented. At the same time, subsidies on fertilisers and other agricultural inputs have been halted in Ghana (Christian Aid, 2003). To add salt to injury dumping practices of the western nations are adversely affecting both the agriculture and manufacturing industries in Ghana. Market access to western markets is still heavily restrictive, and agreement is far from being reached at the World Trade Organisation (WTO). It therefore looks unlikely that any form of agricultural based export oriented growth will accelerate economic growth in Ghana.

On the other hand manufactured products are fast becoming a major component of international trade, accounting for a major part in the global export expansion, "growing nearly three times faster than primary products" (Chang, 2003:279). At the same time high technology products are the fastest growing exports. What then is the wisdom in the continuing emphasis on agriculture and resource based exports by Ghana. No matter the nature of diversification of the export economy so long as the major focus is on linking exports to agriculture, Ghana cannot expect to make any significant gains from diversification.

There is therefore the need to move into higher technological areas such as the growing Business Processing Outsourcing and Information Technology (BPO/IT) industry. Ghana can create both acompetitive advantage in this area and set the stage for a massive accelerated growth rate that is premised on sound human development.

It . . . looks unlikely that any form of agricultural based export oriented growth will accelerate economic growth in Ghana..

The argument is however made that if Ghana is to make any progress at high technology based industrialization, this process must be lead by FDI as the case in Singapore and to some extent Malaysia shows. A few obstacles however make such an approach a difficult undertaking.

Global Trends in FDI

To begin with, FDI is still highly concentrated in a few western countries and emerging markets in Asia. According to the 2005 World Investment Report (WIR 2005), "the United States retained its position as the number one recipient of FDI, followed by the United Kingdom and China" (UNCTAD, 2005a:19). The report further shows that Africa's share of world FDI inflows was only 3% in 2004 (see Figure 2 below), and over the past ten years this share has risen by less than one percentage point (UNCTAD, 2005a:72).

In the same vain, the high technology industry around the world is heavily dominated by Trans National Corporations (TNCs), which are highly concentrated in small pockets of the world. For example whilst global Research and Development (R&D) expenditure has grown rapidly over the past decade to reach some $677 billion in 2002, ten countries led by the United States, account for more than four-fifths of the world total. Thus 91% of all R&D expenditure is in the developed world, with Asia accounting for 6%. In Africa, with the exception of Morocco and especially, South Africa, R&D by TNCs is virtually non-existent (UNCTADa, 2005:XXV).

At the same time FDI inflows into Africa are highly tilted towards natural resources, particularly in the petroleum industry. The share of this industry exceeded 60% of total inflows in Angola, Egypt, Equatorial Guinea and Nigeria, four of the five largest host countries in Africa (UNCTADa, 2005:73).

The begging question then is: In the face of such low FDI inflows into Africa, will Ghana be able to attract FDI into high technology sectors such as software development? If not, what can industrial policy do to grow a domestic ICT export economy? In the sections that follow I will argue that FDI in high technology industry will not arrive in Ghana only through sound macroeconomic policies or tax holidays to investors. On the contrary FDI into the high technology sector will arrive if there is an already growing domestic ICT industry. The World Bank itself acknowledges this when it says "…foreign investment usually follows domestic investment rather than leading it…" (World Bank 1993:49).

FDI and Economic Growth in Ghana

The outcome of Ghana's economic restructuring has resulted in some measure of macroeconomic stability together with a stable democratic environment. This puts Ghana into the good books of global capital. Its global competitiveness was given a further boast in 2003 when Standards and Poor gave Ghana a B+ rating (OECD/AFDB, 2003:172). Despite this however, FDI inflows into Ghana like the rest of Africa has been insignificant and have largely not contributed to the growth of its economy.

Following the general trend in Africa, the bulk of FDI inflows has been in the natural resource sector, especially in mining... the nature of the Ghanaian economy does not make it possible for the mining sector to create the necessary linkages that could spur the growth process.

Efforts to attract FDI began in the early 1990s, when Ghana undertook a comprehensive drive towards attracting FDI into the country. Numerous trade missions has been sent abroad, a massive privatisation programme of state own enterprises have also been embarked on, and new investment laws that are tailored towards encouraging foreign investment have been passed (GIPC) Act, 1994 (Act 478) (Abdulai, 2005:6). On the export front, Parliament in September 1995 promulgated the Free Zones Act to accelerate the exploitation of the country's general export potentials (Abdulai, 2005:8). These Act gave massive exemption to investors from income or profit tax for up to ten years; income tax after the ten years tax holiday was not to exceed a maximum of 8%; exemption from withholding taxes on dividends emanating from free zone investment; freedom of foreign investors to hold a 100% share in any free zone enterprise and various guarantees in respect of repatriation of profits and against an unreasonable nationalisation of assets (Abdulai, 2005:8).

Despite these initiatives investment has not followed FDI policies in Ghana. By June 2002 total FDI flows amounted to a paltry US$1.72 billion (Abdulai, 2005:7). An even more worrying challenge is the negative correlation between FDI inflows and economic growth in Ghana. Contrary to the mantra that FDI is good for economic growth, as the Figure 3 below shows, FDI has not had a systematic positive effect on the growth of the Ghanaian economy. This can be attributed to the nature of FDI inflows into Ghana. Following the general trend in Africa, the bulk of FDI inflows has been in the natural resource sector, especially in mining. According to Abdulai (2005:13) the nature of the Ghanaian economy does not make it possible for the mining sector to create the necessary linkages that could spur the growth process.

Thus as Willem te Velde (2002:4) succinctly puts it "the key is not the quantity, but quality of FDI" that a country can attract. As mentioned earlier for Ghana to grow, its export economy must move from its natural resource orientation to high technology products. FDI attraction will therefore have to be channeled towards the high technology sector where it "can lead to further innovation, exports and high-skill job creation" (Willem te Velde, 2002:3). Yet the current trend in FDI inflows does not suggest that Ghana can attract this kind of FDI in the short to medium term without any deliberate government intervention to create a domestic high technology industry.

Creating an ICT Industry in Ghana

According to Castells (2000:1) the last quarter of the 20th century witnessed a "technological revolution centered on information technologies [which] began to shape at an accelerated rate the material basis of society".

For Ghana to grow, its export economy must move from its natural resource orientation to high technology products.

A direct corollary of this revolution is the growth of a $2 trillion dollar Business Processing Outsourcing (BPO) and Information Technology (IT) sector, (Mainsah and Ikezi 2004:11). The BPO/IT sector includes: data transcription services, data transaction processing, call center services, software development, computer manufacturing and various computer peripherals. In many parts of the developing world the BPO/IT sector have been responsible for massive increases in GDP growth. In Taiwan (China) the growth of the IT sector accounted for the "doubling of GNP per capita in just over a decade-from $6,333 to$13,235 (Saxenian, 2000:3). In India software exports alone accounts for 10 percent of total exports bringing in some $3.6 billion in 1998 (Pack and Saggi, 2001:36). In Thailand the share of manufactured exports (mostly IT ) as a percentage of total exports increased from 5 percent in 1970 to 74 percent in 2001 (UNCTAD 2005b:1).

These facts are not lost on developing countries such as Ghana, who are seeking the silver bullet to transform its agro-based economy into high technology industrialisation. In his 2005 budget statement the Ghanaian minister of finance said;

The Government will begin in 2005, its programme to build a knowledge-based economy over the next generation and to concretize the President's

Government intervention is needed in steering FDI into specific areas as was done in Singapore, whilst at the same time developing an industrial policy that supports local entrepreneurs...

vision to develop human capital as an important tool for national development for accelerated growth, and job creation with high productivity. (MOF, 2005)

The current policy towards receiving a share of the ICT pie however is tilted towards attracting FDI much to the neglect of the domestic market. Indeed, some strides have been made in this direction. By 2003, some 10 BPO/IT firms were operating in the country, with one firm (Affiliated Computer Services) alone, employing 1,400 workers in 2004 (Mainsah and Ikezi 2004:12). Thus it appears that Ghana may be on course to becoming the next Bangalore of Africa. However for the reasons outlined earlier it looks unlikely that FDI alone can make this possible. Government intervention is needed in steering FDI into specific areas as was done in Singapore, whilst at the same time developing an industrial policy that supports local entrepreneurs in the areas such as software as was done in Taiwan (China).

Developing an industrial policy for a ICT market in Ghana however brings the important issue of the market versus state to the crux of the discourse. Whilst many centuries have passed since Adam Smith developed his invisible hand theorem the debate still rages as to whether markets work without any interference from the government. A growing body of literature both old and new: Keynesian (digirist) and Information economics point to the fact that markets don't always work. There is no perfect competition or perfect information. What Stiglitz calls "asymmetries of information between those governing and those governed" (Stiglitz, 2001:461).

It is the existence of market failures therefore which makes the design of industrial policy imperative. According to Rodrik (2004:1) industrial policy must therefore aim to "embed private initiative in a framework of public action that encourages restructuring, diversification, and technological dynamism beyond what market forces on their own would generate". Three main arguments are made for industrial policy: knowledge spillovers and dynamic scale economies, coordination externalities and informational externalities (Rodrik 2004:5, Pack and Saggi, 2001:4).

What these market failures suggest is that governments must intervene in the process of economic restructuring in order for industry to grow. In the case of knowledge spillovers and dynamic scale economies, the infant industry argument has been advanced as the solution. As a result governments in order to cushion domestic firms in the process of learning by doing have used tariffs and quotas on imports, whilst at the same time undertaking industrial targeting policies. This intervention is becoming increasing impossible in the wake of WTO rules and the harmonisation of the global trading system. In dealing with informational externalities ex ante subsides has often been used by governments to encourage the process of self-discovery which is needed for diversification. Rodrik (2004:11) for example suggests a ‘carrot and stick' strategy where the government picks winners by providing them carrot-subsidies and punish losers through a stick-redrawal of subsidies. In the same vain, governments have intervened in solving coordination externalities by providing: production subsidy, export subsidy and trade protection (Okuno-Fujiwara cited in Pack and Saggi, 2001:14).

Valuable time and scarce Ghanaian taxes is spent on chasing the FDI mirage.

In designing an industrial policy for Ghana therefore, there is the need to clearly identify the sources of market failure and the factors hindering the growth of the ICT sector. To be sure, there is an already growing local ICT industry especially in the software development sector (Zachary: 2002:11). The inability of this local sector to grow can therefore be linked to the lack of a specific industrial policy that seeks to deal with the coordination and other externalities that is crippling the industry. Industrial policy as Rodrik (2004:3) rightly points out should be about a:

"… strategic collaboration between the private sector and the government with the aim of uncovering where the most significant obstacles to restructuring lie and what type of interventions are most likely to remove them".

Thus without collaboration between state and private sector to address the sources of market failure, the Ghanaian BPO/IT sector will remain stagnant, whilst valuable time and scarce Ghanaian taxes is spent on chasing the FDI mirage.

Learning from Asia

The success of a few countries in Asia to move their economies from natural resource based to one of high technology industrialisation has been well documented. Whilst the "Bretton Wood twins" will like us to believe that such success was the direct result of lassire faire market economies. Growing evidence points to the contrary.

Take Taiwan (China) for example, in a space of less then twenty five years this small island country has moved from being a primary based economy to the third largest producer of IT hardware, following only the United States and Japan (Saxenian, 2000:2). This great feat was achieved through a concerted effort of state and private intervention aimed at growing the local IT industry using local entrepreneurs. The Taiwanese government intervened by improving the skill-base; the technical infrastructure, providing low interest loans and subsidies to foreign and domestic electronic firms. To be sure, Taiwan (China) was still a very poor country when it embarked upon its industralisation drive. In 1962 its GNP per capita was at par with Zaire and Congo at US$170 (Wade 1990 cited in Saxenian, 2000: 6). Also from a graduate turnover of 10,000 in 1961 it produced 200, 000 graduates in 1996, of which 40 percent were in the area of engineering ( Saxenian, 2000: 6).

In the case of India for example, its software industry grew by more than 40 percent a year from $0.5 billion in 1993 to $12.5 billions in 2002.

A major contributing factor to the fast rate of high technology industrialisation was the emphasis on state funded research and development, the results of which was shared with the private sector. As a result, today Taiwanese patents rank among the highest in the US market. The government solved the coordination externality problem by investing in a huge technology park—Hsinchu Park. The winning strategy for the Taiwanese industrial policy was therefore "systematically encouraging new market entry and the growth of SME" ( Saxenian, 2000: 7). Other factors also accounted for the growth of the IT sector, such as the high number of returnees, which lead to a reversal of the brain drain. However it is clear that without government intervention Taiwan (China) will not have reached where it is now.

Two other Asian countries whose growth in the BPO/IT sector has been phenomenal are India and Thailand. Whilst the experiences of these two countries are somewhat different from that of Taiwan (China), they exhibit some similarities. In the case of India for example, its software industry grew by more than 40 percent a year from $0.5 billion in 1993 to $12.5 billions in 2002 (Arora&Gambardella, 2004:10). Market fundamentalists attribute this growth to FDI, to them all the Indian government did was to build the human capacity needed for take off (Pack and Saggi, 2001:38 ).

Yet if one carefully looks at the ownership structure (see table below) of the Indian software industry, the domestic sector owns a much larger share than foreigners. This can't possibly be described as FDI.

Why is this so? The answer lies in the very nature of India's industrial policy in the 1970/80s. ISI strategies laid the grounds for a domestic software industry that was just waiting to expand. Also as a major consumer of software, the government helped in fostering the expansion of skills (Pack and Saggi, 2001:3). Thus one cannot look at the mere growth of the accredited engineering capacity in India around, 340,000 in 2003, (Arora&Gambardella 2004:11) as just something, which occurred overnight. It had its genesis in a growing software industry under ISI. Whilst not glorifying the nemesis of ISI, it had some positive spin offs. To be sure, the Indian government did not intervene as much as its Taiwanese neighbors however; certain fundamental foundations that were laid earlier prepared the software industry for the massive expansion it is now enjoying today.

Similarly Thailand within a pace of 30 years shifted its economy from an agrarian sector to a high technology export economy. In 2001 it's manufactured exports accounted for over 74 percent of total exports and Thailand is among the top five exporters of computer related products (UNCTAD 2005b:4). Here also the market fundamentalists have claimed victory for FDI. Yet others factors such as government intervention in building the necessary skills, establishment of incubators and science parks and the provision of grants (UNCTAD 2005b: 5) played an important role in the growth of the high technology industry.

The evidence as discussed here clearly shows that FDI indeed follows domestic growth. Ghana must learn from history, it can only shift its integration into the world economy based on the growth of a domestic BPO/IT sector, whilst at the same time luring FDI.

Thailand within a pace of 30 years shifted its economy from an agrarian sector to a high technology export economy.

Human Development and R&D

Ghana is a country of 20.1 million people, literacy rate stands at 54.1 percent (UNDP 2005:221) and 10,000 tertiary graduates are produced each year (Mainsah and Ikezi 2004:12). Thus Ghana's university graduate output is the same today as Taiwan (China) had in 1961. Doubters will say this means, Ghana cannot create a competitive advantage in the high technology sector due to a low level of human resource. However evidence shows that it took Taiwan (China) with a GNP per capita of US$170 in 1961 to increase its university output to 200,000 by 1996. What therefore stops Ghana with a current GNP capita of $380 (World Bank, 2005) from pursuing a massive drive towards increasing the quantity and quality of tertiary education?

Another disadvantage identified has been the small size of Ghana's population, coupled with its current low graduate output, which has been used as a reason for Ghana to focus on the low end of the BPO/IT industry (Mainsah and Ikezi 2004:18). However it is this very composition of the Ghanaian society, which rationalizes the need for entering the high end of BPO/IT industry. With such a small population Ghana must rather be seeking to increase the quality of its technical education so as to create a niche market in the high end of the industry. Ghana cannot have a competitive advantage over say India or Philippians in the low end of the industrial chain in areas such as assembling due to its small population size. Industrial policy should therefore seek to direct both public and private resources into technical education in the areas of software development and computer hardware training. Research and development should also be at the center of innovation. The UNDP points out that the "innovative capabilities of a country are directly relevant to its attractiveness as a host country for R&D by TNCs, as well as to its ability to benefit from such R&D" (UNCTAD 2005:25). If this is true then it makes little sense to focus on the low end of the BPO/IT ladder, if the focus is to create a long term high technology industry. Thus Ghana must take the first step by increasing budgetary allocations for R&D and joining forces with the private sector to finance R&D projects.

Finally an often forgotten element of human development is the role of nationals leaving abroad. As shown earlier, a significant factor in the fast industralisation of the Asian tigers is the contribution of the large pool of returnees and nationals leaving abroad. According to a new report on international migration and brain drain, 46.9 percent of Ghana's skilled labour force is residing outside the country (World Bank, 2006:175). Here again there is a tremendous opportunity to use the growth of a domestic BPO/IT sector as a means of attracting skilled Ghanaian labour residing outside the country.

No industry can take-off without infrastructure and credit. Currently Ghana has challenges in both.

Many of such emigrants will undoubtedly have developed skills in the BPO/IT sector. Thus industrial policy should also focus on a means of reversing the brain drain.

Infrastructure and Credit

No industry can take-off without infrastructure and credit. Currently Ghana has challenges in both. However the infrastructure challenges facing the development of a high technology industry in Ghana is not significantly different from what exists today in India for example. The BPO/IT hub of India, Bangalore is still faced with major energy and other infrastructure problems (Economist, 2005). However the industry still thrives mainly due to the availability of high communications infrastructure and the technical skills needed. Thus whilst not undermining the importance of energy and other infrastructure bottlenecks, the major infrastructure challenge should be on building a sound communication backbone and a fair regulatory environment

Ghana is currently lucky to be part of the African Sat-3/WASC/SAFE - a 28,000 km Undersea Optical Fibre Cable Network- (Okpaku, 2002:7) also has inland fiber cables in the southern portion of the country. It can therefore leverage this infrastructure to the advantage of the BPO/IT industry.

Also following the example of countries like Taiwan (China), India and Thailand, Ghana can develop together with the private sector technology parks which will serve as the centre of technological innovation. This initiative is definitely more economically wise than Export Processing Zones (EPZs) where government get no return in revenue for their investment. Ex ante and post ante subsidies can also be provided to encourage domestic private capital to co-finance such projects. Also a range of financing mechanisms should be explored in order to make the initial high investment need possible.

Firms ‘learn-by-doing' and the dynamic scale economies that come with this processes can be costly if not probably coordinated. Ghana cannot expect to go it alone, effective collaboration with technology centres of the world such as in India or Taiwan (China) should be fostered in order to ensure that technology transfer and innovation does not become a costly exercise. The success of the Taiwan (China) technology park was also linked to its effective linkage with Silicon valley (Saxenian, 2000: 5).

Ghana cannot expect to go it alone, effective collaboration with technology centres of the world such as in India or Taiwan (China) should be fostered in order to ensure that technology transfer and innovation does not become a costly exercise.

It is therefore important to underscore the need for effective collaboration between the state and the private sector in this process. As Rodrik (2004:3) aptly describes:

"the right model of industrial policy is not that of an autonomous government applying pigovan taxes or subsidies, but of strategic collaboration between the private sector and the government with the aim of uncovering where the most significant obstacles to restructing lie and what type of interventions are most likely to work."

Conclusion

This paper has tried to problematise one of the major causes of Ghana's underdevelopment: the natural resource base export economy. In order to lift itself from the abyss of poverty that it currently finds itself, this paper has suggested the need for a diversification of the export base of the economy. Export diversification must be focused on high technology products instead of agro processing. The paper has used the BPO/IT sector as the sector for propelling growth. Using various examples from Asia the paper has tried to show how countries with relatively the same conditions have been able to advance their pace of development. It is the view of this paper therefore that, in a fast growing global knowledge economy, Ghana can only have an accelerated growth through an increase in high technology exports. However FDI cannot be the major option for such a diversification activity. The paper has shown how markets are prone to failures and how governments have intervened to make markets work better as in Asia. It therefore argues that Ghana must design an industrial policy that focuses on growing a domestic BPO/IT industry which has an outward orientation. This is the first and most important step towards attracting FDI. In the end the main argument of this paper is not to replace FDI with ISI or redundant state enterprises, but rather to create a synergy between a growing domestic export industry as a way of attracting FDI. Whilst at the same time maximising the economic impact of such growth on the local economy. It is important to note that in the long trajectory of human development, there is no magic pill or silver bullet to accelerate development. What is needed is a concerted effort to advance bearing in mind that we can only learn by doing.




Contributed by Kofi Mangesi, coordinator of the Ghana Information Network. Reprinted with permission from Imani Ghana.

To read another Global Envision article about the Ghanian economy, see Extraordinary Chocolate and Economic Change in Ghana.

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