Ghana’s Struggle with Depreciation and Growth in the Solow Model

Ghana’s Struggle with Depreciation and Growth in the Solow Model

Ghanaians see the evidence of economic wear-and-tear every day. Potholes often appear soon after a road project is commissioned. Power plants operate below capacity within a decade. Irrigation projects are abandoned after only a few seasons. They are signs of an economy where capital depreciates quickly, slowing the path to long-term growth.

Economists have long studied this problem through the Solow growth model, a framework that explains how capital, labour, population growth, and technology interact to shape economic outcomes.

I’ll try to explain the Solow model in accessible terms and explore what it means for Ghana. We will examine how depreciation, capital and labour shares, population growth, and technology influence growth trajectories. Although the model can seem abstract, its lessons are highly practical: Ghana’s future prosperity depends not only on building more but also on ensuring what we build lasts, is inclusive, and is complemented by productivity gains.

The Solow Model in Plain Language

The Solow model, developed in the 1950s by Robert Solow, remains a fundamental part of growth economics. It explains how output in an economy is produced using capital (machines, infrastructure, buildings), labour (workers), and technology (the know-how that makes both productivity). A key idea is the concept of the steady state, which is a point where investment in new capital is just enough to replace the capital that depreciates each year.

In simple terms, think of a farmer with a set of tools. Each season, the farmer can save some harvest to buy or repair tools. But tools also rust and break down. If the farmer saves enough, they can maintain or expand their toolkit and produce more in the future. If not, output stagnates or even declines. Ghana’s economy operates on the same principle.

The Solow model helps us see three critical dynamics:

• Depreciation (?):Capital wears out over time. The higher the depreciation rate, the harder it is to grow.
• Capital and Labour Shares (? and 1–?):The economy’s total output is divided between capital (machines, buildings, land, financial assets) and labour (workers’ wages and salaries). The allocation of resources to each side influences both income inequality and the motivation to invest or work efficiently.
• Population Growth (n):More workers can increase total output, but unless savings and investment rise, capital per worker falls.
• Technology (A):In the long run, sustained growth comes from technological progress, not just more inputs.

With this framework, we can examine Ghana’s growth challenges.

Depreciation and Ghana’s Infrastructure Challenge

Depreciation is arguably the most visible issue in Ghana’s economy. In the Solow model, a higher ? (depreciation rate) raises the break-even line. This indicates that more of today’s investment is used solely to replace worn-out capital, leaving less room for expanding capital per worker. Consequently, the steady-state level of output per worker decreases.

In Ghana, depreciation is evident everywhere, from roads to transmission losses in the national grid to water and irrigation projects in decline.

High depreciation weakens fiscal planning. The government borrows heavily to fund new projects, but without proper maintenance, the growth benefits are short-lived. Instead of reinvesting in capital (machines, buildings, land, financial assets), Ghana finds itself in a cycle of rebuilding. The Solow model warns us that without reducing ? (depreciation rate), our economy risks stagnation.

Capital and Labour in the Solow Framework

The Solow model also reminds us that growth is not only about how much we produce, but about how the rewards are shared between those who own machines and money (capital) and those who do the work (labour). In simple terms, part of the economic pie goes to investors and part goes to workers. If more goes to capital, investors benefit more; if more goes to labour, wages improve.

In Ghana this balance matters. In sectors like mining or oil, much of the profit flows to capital owners, often abroad, while workers see relatively little. In the informal sector, many people work but earn very low and unstable wages. If the share going to labour keeps shrinking, inequality grows, and the wider society feels the strain.

The lesson is that Ghana needs growth that improves both capital and labour. Investment in machines and infrastructure should make workers more productive and better paid, not replace them or leave them behind.

Population Growth and Ghana’s Demographic Path

Population growth enters the Solow model through the break-even investment line: (? n)k. A higher population growth rate means more workers, but also more capital dilution. Investment must stretch further to maintain capital per worker.

Ghana’s population is growing at around 2% annually. This creates both opportunity and risk:

• Opportunity:A youthful population can drive a demographic dividend if young people are employed productively.
• Risk:If job creation lags, rising numbers of workers lead to underemployment, pressure on infrastructure, and slower growth per worker.

The Solow model demonstrates that when ‘n’ (population growth) falls, steady-state capital per worker increases, meaning each worker has more capital to utilise. In countries with declining populations like Japan, this has led to higher capital intensity but also ageing challenges. For Ghana, the question is whether we can leverage our demographic trend through education, job creation, and urban planning, or if it will surpass the current capital stock.

To put it more simply: if 10 workers share 10 tractors, each worker gets one. If 20 workers share the same 10 tractors, each worker gets half. Population growth without corresponding investment risks overwhelming the available tractors, machinery, and infrastructure.

Technology and the Missing Piece

Even if Ghana saves more, invests better, and manages its population well, long-term growth still depends on technology. Without new ideas and better ways of working, economies only climb to a certain level and then stall.

In Ghana, technology is both the weakest point and the greatest opportunity for progress. Mobile money has already transformed how people access banking services. In agriculture, simple tools like weather apps or small machines could increase crop yields. In industry, adopting cleaner energy sources and modern equipment could make factories more efficient.

The Solow model’s clear message is that without consistent improvements in productivity, Ghana risks becoming stagnant. Therefore, making technology adoption and innovation a national priority is vital.

Policy Lessons for Ghana

The Solow model offers Ghana some practical lessons.

First, we must take care of our roads, power plants, and schools so they last, because repeatedly rebuilding them wastes resources. Second, growth should boost workers’ wages along with investors’ returns. Otherwise, inequality will get worse. Third, our young population can be a strength if education and job creation keep up, but a burden if neglected. Fourth, more of our savings should fund our own growth to reduce reliance on external debt. Fifth, technology must go beyond being just a buzzword and be felt in everyday farming, trading, and industry. Sixth, better governance is needed to ensure that money is used for real development and not lost in waste. And seventh, trading more within Africa gives Ghana larger markets and spreads risk.

Taken together, these lessons show that Ghana’s future growth relies on durable infrastructure, fairer opportunities, and smarter innovation. Just spending more money will not work.

Key Takeaway

Ghana’s growth puzzle reflects the Solow model’s predictions. High depreciation means we are constantly rebuilding rather than increasing wealth. Unequal capital-labour relationships strain social unity. Population growth risks diluting capital, and slow technological progress limits our long-term potential. However, the model also suggests a way forward. By addressing depreciation, balancing returns, managing demographics, and embracing technology, Ghana can alter its growth path.

The lesson is simple yet profound: growth is not just about building more. It is about ensuring that what we build lasts, benefits everyone, and evolves with new knowledge. If Ghana can internalise this, the struggle with depreciation can be transformed into a springboard for sustainable growth.

I hope you found this article both insightful and enjoyable. Your feedback is greatly valued and appreciated. I welcome any suggestions for topics you would like me to cover or provide insights on. You can schedule a meeting with me through my Calendly at www.calendly.com/maxwellampong. Alternatively, connect with me through various channels on my Linktree page at www.linktr.ee/themax. Subscribe to the ‘Entrepreneur In You’newsletter here: https://lnkd.in/d-hgCVPy.

I wish you a highly productive and successful week ahead!

? —- ? —- ? —- ? —- ?

The author, Dr. Maxwell Ampong, serves as the CEO of Maxwell Investments Group. He is also an Honorary Curator at the Ghana National Museum and the Official Business Advisor with Ghana’s largest agricultural trade union under Ghana’s Trade Union Congress (TUC). Founder of WellMax Inclusive Insurance and WellMax Micro-Credit, Dr. Ampong writes on relevant economic topics and provides general perspective pieces. ‘Entrepreneur In You’ operates under the auspices of the Africa School of Entrepreneurship, an initiative of Maxwell Investments Group.

Disclaimer: The views, thoughts, and opinions expressed in this article are solely those of the author, Dr. Maxwell Ampong, and do not necessarily reflect the official policy, position, or beliefs of Maxwell Investments Group or any of its affiliates. Any references to policy or regulation reflect the author’s interpretation and are not intended to represent the formal stance of Maxwell Investments Group. This content is provided for informational purposes only and does not constitute legal, financial, or investment advice. Readers should seek independent advice before making any decisions based on this material. Maxwell Investments Group assumes no responsibility or liability for any errors or omissions in the content or for any actions taken based on the information provided.

The post Ghana’s Struggle with Depreciation and Growth in the Solow Model appeared first on The Business & Financial Times.

Read Full Story