: Point of Divergence between Ghana and Côte d’Ivoire

1961: Point of Divergence between Ghana and Côte d’Ivoire

Jeffrey Ira Herbst wrote that “the modern economic history of Ghana began with the government’s response to the initial foreign exchange crisis in December 1961” (Herbst, 1993: 21). More accurately, however, Ghana’s modern economic history began with the government’s response to a reduction in cocoa prices that immediately rendered the country’s previous development plan redundant (Krassowski, 1974: 45). On average, world cocoa prices in 1961 were the lowest of the post-war period (see chapter supplement). The 1961 prices were approximately 52 percent lower than those in 1958, and 65 percent lower than those in 1954 (Scandizzo and Diakosavvas, 1987: 124; Fitch and Oppenheimer, 1966: 85). In addition, import prices rose sharply in 1960 and 1961, leading to a balance of payment deficit (Krassowski, 1974: 45). More importantly, however, the massive drop in cocoa prices had not been envisaged in the five-year development plan introduced in 1959. According to detailed readings of the plan, 80 percent of the overall capital requirement of £147 million was to be drawn from local resources, with the remaining £32 million to be raised through external borrowing (Krassowski, 1974: 41). The main sources of local financing were (1) the existing accumulated reserves of the central government and (2) the reserves of the Cocoa Marketing Board (CMB). Sums of £50 million each were obtained from these two sources. However, as Andrzek Krassowski observed, the feasibility of the CMB’s contribution was dependent on cocoa prices.

In addition, government reserves, the second source of domestic funding, were not completely unaffected by changes in cocoa prices. For example, government reserves decreased precipitously in 1960/61 due to the combined reduction in cocoa prices and increase in the cost of importation. The import bill rose from £95 million in 1958 to £163 million in 1961, while that of exports increased at a lower rate, from £110 million to £120 million, in the same period (Krassowski, 1974: 45). The slight increase in the export bill despite the reduction in cocoa prices was caused by an increase in the quantity of cocoa beans exported; for example, exports increased from 197,000 tonnes in 1958 to 405,000 tonnes in 1961 (Fitch and Oppenheimer, 1966: 85). As a result, planters were paid more and government revenue decreased. The balance of payment on the government’s current account dropped from more than £11 million in 1958 to a £52 million deficit in 1961. As a result, government reserves decreased sharply, and foreign-exchange reserves were also affected. The foreign-exchange reserves inherited at independence, which stood at £178 million in 1958, fell to £73 million in 1961. The Ghanaian government controlled the CMB, using it as a system of taxation and domestic price fixing. Therefore, the reduction in cocoa prices did not affect local producers, but decreased government revenue and social spending. According to Andrzej Krassowski, “had this rate of depletion [gone] unchecked, Ghana’s foreign reserve could have vanished in 1962-63” (Krassowski, 1974: 45). This estimation was made on the basis of the ongoing increase in the import bill and reduction in cocoa prices. The decision to halt the 1959 development plan was inevitable under these circumstances, and the decision to diversify that follows (see Ghana case study below) can also be read as inevitable given the sustained decrease in cocoa prices. But what really triggered the attempt to diversify away from cocoa beans after 1961 was the threat this crisis posed to Nkrumah and the ruling elites.

One might expect Côte d’Ivoire to have been more affected than Ghana by the crisis of 1961, because the price of coffee dropped even further than that of cocoa. But the ruling elites in Côte d’Ivoire negotiated with France (and letter EEC) to introduce a temporary trade system that separates its production from world-market prices. In 1961, the former colonial power offered to continue preferentially importing Côte d’Ivoire’s principal agricultural products—including cocoa, coffee and bananas—via a quota and a guarantee of prices higher than world-market prices (World Bank, 1963:10). In exchange, Côte d’Ivoire was required to guarantee the exclusive importation from France of certain industrial products; the importation of fixed proportions of other products; and the imposition of at least a 35 percent import duty on all non-French imports (World Bank, 1963: 11; Campbell, 1978: 84; Alschuler, 1988: 72). The details of the temporary trade arrangement were re-negotiated in 1962, after Algeria gained independence from France. Originally, France agreed to purchase 100,000 tons of Ivorian coffee annually (more than 70 percent of Côte d’Ivoire’s coffee production at that time), at prices more than double those of the world market (3.20 French francs per kg. c.i.f., compared with world-market prices of 1.40 to 1.60 French francs per kg, c.i.f.). The 1961 figures included Algeria’s yearly consumption of about 10,000 tons of coffee. Following Algeria’s independence in 1962, the quota was revised downward to 88,000 tons (Campbell, 1978: 80). Under the revised trade agreement, France paid more for Ivorian cocoa, coffee, bananas and pineapples.

More specifically, however, the Cooperation Arrangement included a clause that required Côte d’Ivoire to maintain its importation of French products at or above the 1960 level of 22-23 billion CFAF (Campbell, 1978: 84), even when these products were not particularly competitive in the world market (Alschuler, 1988: 72). The system of import quotas instituted in the 1961 agreement was even more demanding. Côte d’Ivoire was required to import all of its wheat and flour from France, as well as at least 70 percent of its wine and beverages, 70 percent of its printed cloth, 60 percent of its milk, 50 percent of its tractors and air conditioners, 30 percent of its household electrical equipment, and so on (Campbell, 1978: 84). In essence, therefore, France provided support for Côte d’Ivoire’s production system in exchange for a guaranteed market.

The 1961 agreement offers a useful framework for investigating the EEC’s subsequent trade system with West African States: the Yaoundé Convention, the Lomé Convention and the current Economic Partnership Agreement (EPA). All of these trade systems to some extent protected and promoted certain economic activities at the expense of change. Without the 1961 agreement the ruling elites in Côte d’Ivoire would have felt threatened, like the ruling elites in Ghana, and responded with a program for diversification to create new basis of stated rule. It might be argued that France (and the subsequent EEC trade system) was merely helping the region to avert a political crisis in response to the commodity crisis. Indeed, the commodity crisis did cause political disturbance in Ghana and Guinea and other non-affiliated countries. However, this argument is specious, as precisely such a crisis was necessary to alter the local production system as the Ghana post 1961 case study shows below.

So far, I have demonstrated the similarities between Ghana and Côte d’Ivoire prior to the 1961 commodity crisis in cocoa and coffee. The first case study below illustrates the threat posed by the commodity crisis (which amounted to a reduction in minimum economic performance) to the position of ruling elites and the coalition at large in Ghana, in the absence of the EEC trade system. To ensure their political survival, ruling elites instituted a diversification and industrialisation program. The first case study is an in-depth analysis of the threats to and diversification attempts made by Nkrumah’s administration and subsequent administrations in Ghana between 1961 and 1975. This case study supports the theoretical premise of threat-induced diversification and illustrates the political origin of industrialisation. The second case study shows how threat-induced diversification was thwarted in Côte d’Ivoire due to the presence of the EEC trade system, which created a platform for ruling elites to guarantee their survival.