Tuesday, Jun 28

The ‘MIRE’ of Ghana’s Industrialization

The ‘MIRE’ of Ghana’s Industrialization

Industrialization is recognized as a shift from agriculture to manufacturing which is a key to development: hardly any country has developed without industrializing. This phenomenon has been so striking as to induce some economists to hypothesize that the manufacturing sector is the ‘engine of economic growth’. Development analysts have linked many developed countries to the boom in industrialization in those countries.

The emergence of manufacturing led to dramatic changes in the structure of the world economy and to sustained increases in the growth of labor productivity and economic welfare (Maddison, 2001 and Maddison, 2007). In fact, the industrial revolution started in Great Britain and the country became the technological leader in the world. It was the exemplar for other countries.

Manufacturing became the main engine of accelerating economic growth in the nineteenth century. In Ghana, there are still very strong proponents who believe industrialization still holds the key to the country’s development, even though many industries have collapsed after the reign of Ghana’s first President Dr. Kwame Nkrumah, who believed in industrialization as the gateway way to economic development.

In recent times, various economic activities have influenced the crippling of many manufacturing firms in the country and as a result, the Association of Ghana Industries (AGI) has renewed its calls on the need to develop Ghana’s industrial sector, citing it as one sure way to address the numerous challenges confronting the economy.

According to the association, successive governments, have over the years done little to improve upon the industrial policies and initiatives instituted by the first President of Ghana, Dr. Kwame Nkrumah. President Mahama, at the 2016 State of the Nation Address on the floor of Parliament, on February 24, 2016, highlighted some government interventions to develop the private sector.

One key intervention is the establishment of an EXIM Bank to provide funding to exporting businesses. But the President of the AGI, James Asare Adjei reveals that the lack of clear-cut policy guidelines toward meeting the objective of improving economic growth was conspicuously missing.

“We had wanted to see specific action plans or initiatives which were either undertaken previously or to be undertaken to ensure that we achieve that level of industrialization that we are yearning for as a country.

But it looks like there were no clear cut action plans or detailed strategies which would really let us know that we are moving from point A to point B within this specified period of time and I think it is necessary for private-sector growth”.

The AGI President in acknowledgment of the President’s effort to have given support to certain sectors of the economy– the pharmaceutical and the poultry, believes that some support could have been extended to other key sectors of the economy like the aluminum industry, textiles and of course agriculture which is the backbone of the economy.

He noted that, though certain areas of the economy were touched it was too narrow broadly spread and he felt that this should be expanded in the very short term.

James Asare Adjei, on the issue of manufacturing industry’s contribution to GDP, assented to the continuous decline the industry is experiencing and attributed it to the collapse of State-Owned Enterprises.

Furthermore, he also noted that there are myriad of other problems that are contributing to the industry decline such as energy unavailability, high cost of credit, unavailability of the market, technical challenges, etc. which all counts to the bleak nature of the manufacturing industry in the short term.

Notwithstanding these challenges, he disclosed the opportunities that abound in the medium to long term by virtue of the availability of raw materials in the country, the availability of skilled and cheaper human resource and the establishment of the Ghana Export and Import Bank stated by the President of the Republic in the State of the Nation address.

He also cautioned that for the manufacturing industry to gain its desired momentum, the government and populace must be able to curb the influx of cheap products penetrating into the country.

The Scope OF Ghana’s industrial Policy

Like any other country across the globe, Ghana also has an industrial policy which has been instituted for about five years. The question that begs to ask is: what is the scope of Ghana’s Industrial Policy? He explains “Ghana has an industrial policy which was launched in 2011 and was supposed to be implemented over a five-year period which will then create the enabling environment for businesses particularly industry and manufacturing to be robust.

There are about four thematic areas where the policy will enhance productivity– increase production particularly in the productive sectors of the economy, create market access, make funds available for local businesses to retool and expand.

There is also what is referred to as the private sector support program which is to be the rolling mechanism by which the industrialization policy will be implemented. It is also in the policy that there should be a one billion Ghana cedi fund set up to roll out the industrialization policy.

As we speak now, probably six years into its launch, we have not seen much activity targeted at implementing the policy. Although certain areas of the Industrial Policy have been implemented, we have not seen a full rollout of the policy.

Let me also mention that, the policy gave birth to EDAIF which is meant to support companies that are into exports, and of course, there have been a number of streamlining which are all geared towards supporting the full implementation of the Ghana Industrial Policy.

If we had really seen that consistent roll-out of the entire four thematic areas which will culminate into actually providing the needed conducive environment for industrialization, then we would have seen its effectiveness but at the moment, we cannot see its full effect on the Ghanaian economy.”

The Minimal impact of the Services Sector despite the boost in growth

Current surveys suggest that Ghana is churning out about 200,000 graduates every year from all the tertiary institutions within the country. The bitter truth is that the majority of them do not get jobs at least in the first two years after graduation and this has continuously generated heated debate among Ghanaians; educationists, employers, and others.

The Institute of Statistical Social and Economic Research (ISSER) for instance says that the country is sitting on a time bomb following the alarming unemployment rates. Some have also described the situation as a security threat to the economy.

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But it appears little has been done by successive governments regarding the need to improve the industrial base which will ultimately reflect in other critical sectors like agriculture. Although the Services sector is seen to be booming, its impact is not sustainable as the needed channels for job creation are unavailable– the industries.

To make the services sector more viable, we need to develop the chains of production: agriculture – manufacturing – services. But in the absence of these processes, the boom in the service sector would be referred to as a leap-frog investment approach. “I refer to the boom

as leapfrogging into services instead of going through the normal process of agricultural to industrialization or manufacturing then into service.

Now, what we have done is we have moved from an agricultural-based economy straight into a service-based economy. Well, one will say once we are getting the level of growth or the employment creation in the service sector, there shouldn’t be any problem.

But the challenge is the service sector cannot create the needed employment.” He further observed, “Services account for about 52% of the GDP in the economy while Agric.

has also dropped drastically from over 50% to about 18% (which it is expected to be the backbone of the economy).

Such sort of reduction should have been complimented or traceable to the growth of the manufacturing industry but that is not really what is happening.

So, what we are looking forward to is a systematic and conscious effort to grow the Industrial base of the economy such that as our Agric. products are harvested, we will be able through processing, to add value and then also make sure that we can gain a lot more from our activities”.

Why the Boom in the Service sector and Decline in the industrial sector?

It is not far-fetched to notice the reason for the boom in the services sector as about 66% of tertiary intakes study humanities leaving just a handful of the remaining intake pursuing technical education to become the manpower for the industries. It is noticed that the main cause of this decay is the education system which has lost its primary focus of positioning and training the right manpower for the sector.

Also, job rewards and satisfaction have skewed towards the service sector as graduates within this sector in the shortest possible time take home huge returns as compared to their counterparts in the technical environment and as a result most of the youth are all desiring to venture into more appealing, comfortable and attractive job markets such as the service sector.

This issue needs to be carefully addressed to rebalance the career pursuit of the upcoming generation to curb the preferential selection of careers else a time will come when middle manager manpower for the industry will be no more and all products shall be import-dependent.

“I think that the government of the country should have a very consistent deliberate policy direction in trying to build technical competencies of our higher education that is why AGI was very much in support of government’s initiative in converting polytechnics into technical universities– that is probably a very high form of training for middle-level manpower”.

In converting the Polytechnics into Technical Universities, he cautions government not to convert all Polytechnics at once but should do them systematically and in stages and moreover, government should consider building capacities, both technical resource; by way of laboratory and equipment’s and also in human resource; in terms of lecturers who have industry experience.

Once all these things are in place, the institutions will run effectively and not be mere masquerades.

Strategic Positioning of Local Industries

In spite of all these challenges, local industries also face stiff competition from other competitors outside of the West African sub-region as well as the global market. Recently, industries involved in the production of cement, rice, poultry among others have raised huge concerns at the impact of foreign companies who are exploiting the Ghanaian market as a result of ECOWAS or World Trade liberalization policies.

An example not far-fetched is Nigerian cement manufacturing firm, Dangote Cement which is giving local manufacturing firm such as Diamond cement a stiff competition both in the wholesale and retail space.

This, James Asare Adjei believes, is, however, surmountable if local manufacturers could hinge on some of the opportunities available to them as local industrialists; import substitution, efficient operations, synergistic decisions as well as bilateral trade conditions. According to him, “All is not lost. Hopefully, as we look beyond the challenges existing, we should be able to make some in-roads.”

He suggested that what industrialists needed to look out at was import substitution; if the raw materials can be gotten locally, there’ll be no need to import them. For that matter, if raw materials can be obtained locally, the government should slap deterring tariffs on those who import such materials. Continuous use of the local raw materials, in fact, will enhance the local content initiative.

Secondly, he informed that it is also very important that businesses needed to be efficient in their operations. He advised that where one found himself in a high-cost environment, what is very important is the efficiency of operation and then also being able to take advantage of economies of scale because the higher the production output the lower the cost and hence one can then compete effectively.

The third suggestion he proffered, is the synergistic approach where businesses can come together to perform bigger tasks together. He admonished that autonomous operations aren’t doing the industry players any good when they can capitalize on synergistic approaches such as joint venture, collaboration alliances, etc. to form bigger alliances and fight the competition.

He acknowledged that Ghana holds that opportunity especially considering the country’s location. Lastly, he added, “Ghana and for that matter industries in the country, can take advantage of a lot of the bilateral and multilateral agreements that are available to the country.

For example, the Economic Partnership Agreement (EPA) which offers a huge market for Ghanaian products provided these products can meet the various quality requirements and standards. Also, there are ECOWAS protocols such as the ECOWAS Trade Liberalization Scheme (ETLS) being one of such instruments that Ghanaian industrialists can take advantage of.

So, all these schemes are available to us such that we can leverage such opportunities for us to be able to grow our businesses.”

Empowering the SME sector for explosive growth

The industrial economy equally comprises Small and Medium Enterprises. It is acknowledged worldwide that Small and Medium Enterprises (SMEs) are the engines of economic development and industrial growth, solving the twin problems of unemployment and poverty. They are said to account for about 90 percent of all the companies in the world.

SME’s cut across various sectors including the manufacturing, service and business enterprises among others. They also contribute immensely to innovations, productive employment including self-employment and optimum utilization of latent resources. They usually operate on a relatively small scale and as such, hire from as low as three persons to as high as about a hundred staff.

In Ghana, nonetheless, this sector plays its vital role as an important economic dispenser. SMEs in Ghana have also been noted to provide about 85 percent of manufacturing employment, contribute about 70 percent to Ghana’s GDP, and therefore have catalytic impacts on economic growth, income, and employment. This reveals that if this sector is supported and well streamlined, it will grow phenomenally to become the engine of growth as expected. “The SMEs can really spur economic growth when given the necessary support.”

Aside from being important sources of employment and income in the country, SMEs with their flexible nature has better adaptability to changing market conditions, making them better suited to withstand cyclical downturns.

Challenging business climate for SMEs

Despite their immense contribution to the economy, SMEs are faced with some challenges which impede their ability to record the impressive performances expected of them as players of Ghana’s economic development. Key among these challenges is the high-interest rates. This has and continues to be the bane of quite a number of SMEs.

Not only are they unable to access credit, but the huge interest is equally a “turnaway” for them. The worst “culprits” of the high interests are definitely not commercial or traditional banks but the Microfinance industries that promise unrealistic interests on deposits and yet slap customers with high compound interests on credit they offer.

Also, the volatility of the cedi for a greater part of 2014 through to 2015 impacted adversely on operations of most SMEs. This was evident as the cost of imported raw materials, for instance, went up making it difficult to plan and prepare for the growth of one’s business.

“I think the challenges faced by the SMEs are no different from what other businesses are facing. SMEs are very vulnerable and for that matter are unable to really stand the shocks of economic turmoil.

They also cannot stand the shock of depreciation because as an SME, it is impossible to access bank hedge for your transactions and as a result may have to contend with the challenges of unpredictable currency. So anytime there’s depreciation, especially those SMEs whose activities are import-based, they lose a lot”.

He also added that SMEs faced the challenge of succession planning such that if the owner ‘manager’ is not there that becomes the end of the business. Solving these issues will definitely require commitment from both government and the business or industry players.

While the commercial banks or financial houses ought to diversify their portfolios to ensure easy, hustle free access to loan by SMEs, the government should also revise its taxation regime and allow for incentives such as Free Zone Board, operating duty-free ports, as well as reducing the bottlenecks in the clearing processes.

Potentials of the SME Sector

The SME sector of the economy holds a huge potential for the economy. Currently, studies show that this sector contributes about 22% or more of the total employment in the economy. Countries like India and China have a well-developed SME sector and as a result, that sector generates massive job opportunities for its populace.

“Well, the SMEs hold a huge potential for the economy as they account for about 92% of the entire economy of businesses in the country and studies show that SMEs contribute to about 22% or more of the total employment in the economy and that is huge. So, if we can nurture SMEs and support them, they are going to be phenomenal and then really be growth-oriented.” Mr.

Asare Adjei in acknowledging the huge potential the SME sector possesses proposed that the support that should be extended to this sector shouldn’t be skewed to only finances but also technical to aid them to acquire the right governance structure, develop a good succession plan and resource prudency planning to enable them to grow into bigger corporations.

Achieving the industrial goal… way forward!

Industrialization is a core function of development and must be the priority of any government. It may appear that the battle is not yet over in attaining an industry-driven economy as Ghana traps itself in another wavering sector that is tagged: the Dutch disease– where its current development is hinged on the oil and gas discovery. This may be another regrettable strategy for developing the economy.

To reconnect to industrialization, there should be a deliberate and concerted effort on the part of the government to support the manufacturing sector to grow. The respective roles of the government, relevant institutions, business organizations, etc. should be brought to bear in achieving this feat.

Role of Association of Ghana Industries…

This private-sector advocacy group made up of over 23 sectors plays a strategic role by connecting prospective investors to entrepreneurs and business opportunities in Ghana.

Being in existence for about 58 years, the AGI has and continues to provide technical and financial support to its members to spur economic growth. “The AGI has developed a strategic plan over a 5 year period, 2016-2020, such that we will look at key thematic areas of the economy trying to link up with international institutions, to make sure we strengthen our advocacy drive and create development in terms of solving some of the problems we are experiencing.”

In addressing issues of funding for its members particularly those in the manufacturing sector, the Association is setting up an Industrial Development Bank which will provide access to credit at very concessionary rates of not above 10%.

Nonetheless, AGI says it intends to roll out programs it refers to as “competency-based institutions” which aims at bringing industry close to academia so that graduates will not be found wanting upon completing their education.

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Role of government on industrialization

Although, we practice a democratic system where governments are changed every four or eight years (depending on the number of times being re-elected into government), industry growth cannot be an area that can be compromised.

Every government in power should focus on industrialization by making industry development a priority on its agenda such that it can be able to select champions in the economy, look at key sectors in the economy and support and grow the economy. James Asare Adjei believes that for industrialization to kick in, the input of the government plays an important role.

He considers the government to play the lead role in providing the needed mechanisms for industrialization to private players. Moreover, he desires government to focus on a plan that tackles each sector per time to provide adequate maximization of resources. For example, Malaysia focused on oil palm and we can testify to that.

We have economies like Ivory Coast focusing on cocoa and coffee and they are doing marvelously well. At the moment, they are doing soya beans and they are making a lot of in roads. “So, what are we focusing on? The government needs to focus on key industrial sectors and grow them and I think as we do that we will have a resilient economy.”

Opportunities for existing businesses and budding entrepreneurs

The cedi volatility, high cost of credit, among other pertinent challenges, may be opportunities for enterprises to take advantage of and realize their full potential.

These could involve resorting to the stock market to raise equity or equally visit the alternative stock market where businesses can list and be able to raise interest free capital. For the youth and new entrants, “The worse risk you can take is to take no risk at all… There are a lot of funds available for youth empowerment that they can tap into and start something on their own.

They should not be too much fixated into getting the non-existent jobs but be able to create something and then be proud to be an employer through the efforts of their ingenuity.”

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