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Sunday, 28 April 2013

Economic Perspective: President John Mahama Launches 10 bn Rlg Hope city Project in style

This article talks about the Hope city project, an undertaking by the private sector of Ghana to construct six tall towers in the country. These six high rise towers will have a computer hardware assembly plant, ICT training centre, banks, shops, pleasure, sports, medical and educational facilities all occupying a 150,000 square meters of space at Kasoa.

The president of Ghana endorsed this move by the private sector in a country which still has a huge public sector spending. This investment in services and knowledge will add wealth and contribute to economic growth while reducing the dependence on oil, cocoa and other natural resources.

Economic growth is the increase in the quantity of goods and services that are produced in an economy over a period of time usually one year.  Advancements in technology will expand the economy’s production possibilities because it will encourage research and development and this will expand Ghana’s ability to produce goods and services, thus economic growth will increase. The outward movement of the PPC is illustrated in figure 1 below.


This construction is expected to house over 25,000 people and create over 50,000 jobs. This is a large investment that will increase the domestic demand through salaries earned from employment. This will increase consumption for all normal goods and thus government revenue from indirect tax will increase with an increase in the quality of life of the people. The increasing in the purchasing power in the short run will move people from absolute poverty to relative poverty. This is beneficial to firms because the demand for their goods will increase their revenue. These are the short term effects of the initialisation of this project.

In the long run however there will be an increase in the general price levels, inflation. This is because investors are going to buy property that is in proximity to this city and thus increase the demand for land here there by causing an increase in the prices. An increase in the prices will mean the cost of production for other business seeking this land will increase thereby increasing the price of their output. They will do this in order to obtain profits. This will lead to other firms that depend on these firms output to increase the value of their output and this general trend will be felt in the region.

This will lead to inflation.

A rise in the price of land will increase rent and people who were staying there in the past will be forced to move elsewhere if they cannot pay and some will be rendered homeless. The homeowners will benefit from an increase in the revenue from the housing. This will shift the demand for the goods produced here to the wealthier people and increase the divide between the rich and the poor. Some firms will be forced to lay off workers in order to reduce their cost of production to avoid economic loses and to be able to stay in business.