This analysis assumes the production function of the economy as:
Y = f (N, K)
Where Y is the national output, N is the level of employment and K is the stock of capital assumed fixed in the short-run and variable in the long-run. From the production function, increase in output in the short-run would largely depend on an increase in labour productivity and also on the expansion in capital stock and technological improvement in the long-run.
In Ghana, labour productivity is very low, largely due to lack of skills and inadequate capital inputs. Skills which are very integral to labour productivity are acquired through education and training. Unfortunately, the standards of education have rather been deteriorating as the population of the country increases. More than 50 percent of basic school students are not able to enrol in Senior High Schools due to poor academic performance. So the nation annually produces school drop-outs virtually with no employable skills and training. They therefore lack the capacity to contribute meaningfully to the production process. Any country that does not develop its human resource and tap their skills for maximum productivity cannot experience much progress in its growth process.
The nation is endowed with abundant arable agricultural land which when fully exploited would culminate into the growth of the agricultural sector and ultimately growth in the economy at large. However, the vast agricultural land Ghana has been lying idle from time immemorial. Subsequent governments over the years succeeded largely by paying lip service to the cultivation of the idle land. The Accra plains irrigation project still remains in the political pipeline, pending to see the light of the day. The case is the same for all the other natural resource endowments on the nation. Even those that are exploited are in the firm grasps of expatriates who enrich their nations with gains from the exploitation. No economy under the sun would develop as expected when the bulk of its endowment of natural resources is lying idle and foreigners exploit the others to enrich their home countries.
Low level of consumption, i.e. insufficient demand is another explanation for the slow growth of the economy over the years. Income levels in Ghana are generally low. The PPP adjusted GDP per capita in 2010 was $2,200 compared to $8,288.818 for China. This means that the market for local production is very small, so the benefit from large scale production also eludes the nation. The problem is compounded by the insatiable taste for foreign goods by most Ghanaians, especially the higher income earners. This means that the meagre income generated in the country is handed over to foreign producers, leading to an increase in employment for their labour force as well as an expansion in their production sector to the detriment of domestic production.
Low level of investment cannot be excluded from the low growth equation of Ghanas economy. Investment generates employment and promotes production that finally results in growth. The level of investment is highly dependent on the level of interest rates. Interest rates in Ghana continue to remain very high over the years, discouraging investment in production activities. The Bank of Ghana over few years now tries to avert the phenomenon by reducing the prime rate to 12.5 percent but that yielded no much success. The commercial banks still keep their lending rates between 25 and 30 percent. These high interest rates compared to profits margins from production offers no economic incentive for productive investment. Economic growth would therefore persist at its low levels since the level of production is low as a result of low levels of investments culminating from productively unfriendly high interest rates.