Evolution of Industrial Development in Ghana - Session Overview and Analysis

Lecturer: Dr. Augustine Fritz Gockel Contact Information: fagoc12@yahoo.com College of Education School of Continuing and Distance Education 2014/2015 2016/2017

Session Overview Session Overview: This session chronicles the development of industrial sector in Ghana, analyses the trends in Ghana s industrial sector and sets out the prospects for Ghana s industrial sector. Goals/ Objectives: At the end of the session, the student will Be able to appreciate the evolution of industrial development in Ghana. Analyse the performance of the industrial sector in Ghana Know the Ghana s implementation plan for the industrial sector. Slide 2

Session Outline The key topics to be covered in the session are as follows: Topic One: Evolution of Industrial Development Topic Two: Performance of Industrial Sector in Ghana Topic Three: Outlook for the Industrial Sector Slide 3

Reading List Refer to students to relevant text/chapter or reading materials you will make available on Sakai Slide 4

Topic One EVOLUTION OF INDUSTRIAL DEVELOPMENT Slide 5

Pre- Independence Industrial Development Manufacturing and for that matter industrial development in Ghana is a phenomenon of the second half of the 20th century. Although, some of the firms were established during the first half of the century, most of them came into being after 1950. The absence of serious effort by the colonial masters to develop the industrial base of the economy especially manufacturing at that time could be attributed to the interest that the government showed in the extraction of raw materials and minerals in exchange for manufactured goods from United Kingdom in order to reduce the excess capacity existing in UK firms. The manufacturing establishment that were run by the government were mainly for the maintenance of infrastructure such as roads, railways and harbours, telecommunications and electricity generating plants. Thus, the colonial government did not establish manufacturing concerns neither did it encourage the private sector to develop industries. Slide 6

Pre- Independence Industrial Development Cont d The setting up of an Industrial Development Corporation (IDC) in 1947 by the colonial administration can be seen as the emergence of the idea to industrialize, although the allocation of 0.8% of development expenditure in the Guggisberg ten year development plan of 1919/20 1929/30 to political and industrial maps might be taken to indicate that Guggisberg might be thinking about industrialisation in 1920s. The IDC was established to formulate and carry out projects for developing industries in the then Gold Coast. It was responsible for all government investment in manufacturing and offering small loans to individual proprietors or industries until it was dissolved in 1962. Slide 7

Pre- Independence Industrial Development Cont d The five- year development plan of 1951 perceiver(perceived) the development of manufacturing as a measure to reduce imports and diversify the economy modeling it along the lines of Canada, Denmark and New Zealand based on backward and forward linkage between agriculture and manufacturing. However, the allocation of funds for manufacturing as a percentage of total for development was just 4 % of a total of 220 million cedis. Available data shows the annual rate of growth of manufacturing output between 1950 and 160(1960) averaged 4.6% share of GDP. Thus, in all, concrete attempts were not made in the first half of the century to place the country on the industrial map of the world. This forced the country to remain import dependent and an exporter of primary commodities. Slide 8

Post independence industrialisation (1960 1982) Post- independence economic policy in Ghana was concerned with inter alia the promotion of industrialisation based on the belief that it would provide more productive employment relative non-industrial sectors and offer more self-sustained growth through profit re-investment. Increase in industrial output was expected to provide backward and forward linkages to stimulate production in other sectors of the economy that feed manufacturing with inputs or use manufacturing products. Generally, to Nkrumah, the first Prime Minister and President of Ghana, the only way to break out the poverty trap was through industrialisation and which would also change the colonial structure of production, reduce economic dependence as well as reduce the unemployment problem. Slide 9

Post-ERP Industrialisation in Ghana Following the dismal performance of the Ghanaian economy in the second half of 1970 and 1980s, the Provisional National Defence Council (PNDC) government in April 1983, launched the Economic Reform Programme (ERP) to arrest and reverse the rapid deterioration in all sectors of the economy. Thus, the ERP was meant among other things, to revamp/reconstruct all sectors of the economy to enable them contribute positively to the overall development of the economy. Since the introduction of the ERP, there has been a major shift in industrial policy in Ghana from import substitution and over protected industrial strategy to an outward oriented less protected or liberalized industrial strategy. The objectives of the liberalised industrial strategy emphasised among others: The development of more internationally competitive industrial sector with emphasis on local resource capacity/potential for export and efficient import substitution. i. based industries with Slide 10

Post-ERP Industrialisation in Ghana Cont d ii. Generation of employment with emphasis on job creation in small and medium scale enterprises thereby contributing to the absorption of redeployed from the public sector and new entrants to the labour market. These objectives among others were to be achieved with the adoption of trade and industrial policies including the restructuring of the tax and tariff system. The ERP also aimed at removing most constraints in the mining sub-sector for it to become one of the driving forces behind the Ghanaian economy. Slide 11

Industrial Sector Support Programme (2010-2015) (ISSP) The Industrial Sector Support Programme (ISSP) is the implementation arm of the Industrial Policy. The ISSP is made up of eighteen (18) carefully designed projects with detailed implementation plans with corresponding budget, logical framework and the management and coordination responsibilities of key stakeholders. The ISSP is expected to be implemented over a five-year period: January 2012- December 2016. The success of the Industrial Policy and the ISSP would be measured by the extent to which they empower the manufacturing sector particularly Small and Medium Enterprises (SMEs) to expand and create opportunities for employment as well as the reduction in poverty and spatial inequalities in Ghana. In order to increase local content in the manufacturing sector, measures will be implemented to encourage increased private sector investment in commercial agriculture to expand the cultivation of selected agriculture raw materials for agro- industry. This will be complemented with measures to enhance productivity through improved agronomy, input supply and access to irrigation facilities. Slide 12

Topic Two PERFORMANCE OF THE INDUSTRIAL SECTOR IN GHANA Slide 13

Overall Performance of the Industrial Sector The growth rate of the industrial sector in 2014 was 0.8%. This growth was the lowest of the three sectors of the real economy with the service and the agriculture sectors growing at 5.8% and 4.6% respectively. Despite the poor performance of the industrial sector, it remained the second largest sector after the service sector accounting for 26.6% of GDP in 2014 compared to 21.5% and 51.9% for agriculture and service sectors respectively. The performance of the industrial sector was similar to the situation that occurred in 2007 when the country was also hit by an electricity energy production crisis. In 2014, the industrial sector was worth 8,542 million cedis in real 2006 (constant monetary values) compared to 8475 million cedis recorded in 2013. The corresponding sizes for the agriculture and services sector in 2014 were 7362 million cedis and 16,679 million cedis respectively. Slide 14

Performance of the Mining, Quarrying and Oil Sub-sector In 2014, the Mining, Quarrying and Oil Sub-sector recorded a growth of 3.2% compared to the high growth rates of 11.6% and 16.4% in 2013 and 2012 respectively. The relatively low growth rate was the combined result of several factors. These include the intensive electricity rationing and the low world oil prices both occurring during the second part of 2014. Considering only the gas and oil industry, the sector grew by 4.5% in 2014 which was also substantially lower than the rates of 18.0% and 22.6% recorded in 2013 and 2012 respectively. Despite the low world oil market prices in 2014, the oil and gas industry was still the major contributor of the output of the Mining, Quarrying and Oil sub-sector. Slide 15

Performance of the Mining, Quarrying and Oil Sub-sector Cont d The production of the four main minerals in Ghana over the period, 1993 to 2014 are presented in Table The production of gold declined by 13% from 4,396,987 fine ounces in 2013 to 4,341,607 fine ounces in 2014. The other commodity that had a decline in production in 2014 was manganese. The production of this commodity fell by 6.1% from 1,724,417 metric tonnes (MT) in 2013 to 1,619,577 metric tonnes (MT) in 2014. Concerning diamond, there was a reversal of decline in production of the commodity that was observed starting in 2005. In 2014, the production of diamond increased by 50% in 2014 compared to the 2013 level. For bauxite, the production of the mineral increased by 5.8% in 2014 continuing the positive growth for this commodity that was observed since 2012. Slide 16

Performance of the Manufacturing Sub-sector Total manufacturing output declined by 0.8% in 2014 similar to the 0.5% decline recorded in 2013. In 2012, the sub-sector grew by 2.0%. After a generally impressive growth recorded in 2010 and 2011, the manufacturing industry continued to perform dismally with negative growth rates as occurred in 2007 and 2009. The impressive growth in 2010 and 2011 was linked to the beginning of oil exports from offshore fields which required some increase in activities sourced from locally-based small scale and large scale manufacturing industries. The performance of the manufacturing sub-sector in 2014 was adversely affected by the national electricity rationing that occurred during the second half of the year. This resulted in reduced output in some factories and the laying off of workers in some plants. Slide 17

Performance of the Manufacturing Sub-sector Cont d Small and Medium enterprises were particularly hit as they could not afford the required generators and oil inputs necessary to grow their businesses. Another cause of the poor performance of the Manufacturing sub- sector was the depreciation of the local currency, the Ghana cedi. The rapid depreciation of the currency made imported inputs expensive for the sub-sector which is largely import-dependent. Not surprisingly, consumer inflation increased in 2014 partly fuelled by the prices of non-food items which were dependent on imported inputs. Slide 18

Performance of the Electricity Sub- sector The electricity sub-sector grew by an annual rate of 0.3% in 2014 far lower than the growth of 16.1% in 2013 and growth of 11.1% in 2012. It is not surprising that electricity shortages were observed during the year, particularly the last half, as the demand for electricity clearly outpaced its supply. The low growth of the sub-sector was due to several factors including the reduced volumes of water in the catchment basins available to the Akosombo, Kpong and Bui hydro-electric dams due to reduced rainfall patterns. With the reduced volume of water, only three out of the six turbines at Akosombo Dam were operational during the year under review resulting in about 450 MW shortfall in electricity supply. Slide 19

Performance of Construction Sub- sector In 2014, the construction sub-sector barely grew at all recording a growth rate of 0.0%. The real size of the Construction sub-sector was 2887 million cedis in 2013 and it increased to 2888 million cedis in 2014. This was an increase of a very small sum of just one million cedis which could be within the margin of statistical error related to the computation of the value added to GDP by the Construction Sub-sector. The stagnant growth of the Construction sub-sector was one of the major reasons leading the decline of the overall growth rate of the real economy from 7.3% in 2013 to 4.0% in 2014. Slide 20

Performance of the Construction Sub- sector Cont d As shown in Table 7.1, the Construction Sub-sector grew at annual growth rate of 14.5% over the eight year period, 2007-2014 and was a major driver of the Ghanaian economy over this period. The overall high growth rate of this sub-sector was driven by governmental infrastructure projects. The stagnant growth of the construction sub-sector was due to the fiscal consolidation of the government, the energy production crisis, the rapid depreciation of the cedi, which made imported inputs expensive and the completion of major private sector investments in the earlier years, (2011-2013). Slide 21

Table 7.1: Annual Growth Rates of Real GDP, industrial Sector and its Five Sub-Sectors, 2007-2014 based on 2006 Constant Values (%) Year Real GDP Industry Manufacturing Min& Quarry Electricity Water& Sewerage Construction 2007 4.3 6.1 -1.2 6.9 -17.2 1.2 23.1 2008 9.1 15.1 3.7 2.4 19.4 0.8 39.0 2009 4.8 4.5 -1.3 6.8 7.5 7.7 9.3 2010 7.9 6.9 7.6 18.8 12.3 5.3 2.5 2011 14.0 41.6 17.0 206.5 -0.8 2.9 17.2 2012 9.3 11.0 2.0 16.4 11.1 2.2 16.4 2013* 7.3 6.6 -0.5 11.6 16.3 -1.6 8.6 2014** 4.0 0.8 -0.8 3.2 0.3 -1.1 0.0 Avg.(2007-14) 7.6 11.6 3.3 34.1 6.1 2.2 14.5 Slide 22

Performance of the Water and Sewerage Sub-sector In Ghana, there are two agencies which are responsible for the production and distribution of water to the public. These are the Ghana Water Company Limited (GWCL) and the Community Water and Sanitation Agency (CWSA). GCWL(GWCL) is mainly concerned with the production and distribution of water to urban communities and specialised areas whilst CWSA is in charge of the production and distribution of water to the rural areas and some selected urban areas especially those within proximity of major cities such as Accra and Kumasi. In 2014, the Water and Sewerage sub-sector declined by 1.1%, similar to the negative growth rate of -1.6% recorded in 2013. The 2014 growth rate was lower than the average growth rate of the sub-sector of 2.2% over the 2007-2014 period (Table ). The sub-sector s share of GDP has steadily fallen since 2006 when it was 1.3%.Its share of GDP fell to 0.5% in 2014 compared to 0.6% in 2013 and 0.5% in 2012 (Table 7.1). Slide 23

Topic Three OUTLOOK FOR THE INDUSTRIAL SECTOR Slide 24

Outlook for Industrial Development The transformation of the industrial sector will be based on a vibrant and competitive light manufacturing sub-sector. The focus will be on supporting the establishment of strategic import substitution industries in agro- processing; building and construction; health and pharmaceutical products; petrochemicals; metal fabrication, foundries and agriculture tools; minerals processing including jewellery production. Other industries include automobile parts including air cleaners, filters, bolts and nuts; everyday consumables including chalk, safety matches, toothpaste and toiletries; packaging materials including bottles; energy and water consumables including transformers and meters; non-metallic products including limestone, cement, ceramics, glass, bricks and tiles; leather and footwear; and textiles and garments. A strategy will also be developed to increase the production of salt for industrial use especially in the oil and gas industry. Slide 25

Outlook for Industrial Development Cont d The industrialisation effort is achievable through accelerated technology-based manufacturing. This is however constrained, among others, by: limited supply of raw materials from local sources for local industries; inadequate and unreliable energy supply; weak linkages between agriculture and industry; obsolete and inefficient technology; and limited access to long-term finance. Government, in the medium-term, will fully implement the Industrial Sector Support Programme (ISSP) through the development of a strong local raw material base for industrial development; link industrialisation to Ghana's natural endowments - agriculture, oil and gas, minerals and tourism; and create appropriate environment to encourage financial institutions to provide long-term financing. Slide 26

Outlook for Industrial Development Cont d In the medium-term, special initiatives will be undertaken in the following areas to accelerate industrial development: Integrated Aluminium Industry Initiative: Facilitate the rehabilitation of VALCO as the off-taker for the upstream and downstream integration of the aluminium industry including alumina production. This has the potential to create millions of direct and indirect jobs. Industrial Development Fund (IDF):The IDF is to support the indigenous manufacturing sector by providing funding support for potential winners which can be grown into national private sector champions in targeted areas of the economy particularly agroindustry, agro-processing and light manufacturing. This will also help to reduce the constraint on access to adequate finance and capital experienced by SMEs. Slide 27

Outlook for Industrial Development Cont d Construction Industry Scheme (CIS):Re-organise the regulatory and financing regime to supportindigenous firms and SMEs for major national contracts. This will hugely increase their capacity to generate decent jobs and compete successfully, both locally and internationally in the three key areas of construction namely housing, roads, and railways. Light Manufacturing: The potential for light manufacturing is immense and has the addedadvantage to draw on the pool of trainable labour. International experience points to the importance of imitation, emulation and adaptation of existing technologies in ways that can eventually support large-scale job creation. Where the export potential is limited in the short run, low-technology labour- intensive light manufacturing will provide the basis for effective competition with imports and eventually create a niche in the domestic market. Many value addition opportunities exist in cocoa, cotton, fruits, and oil palm, rubber, kenaf/bast fibre, and wood processing. For each of these, winners will be identified at each stage of the value chain, on the basis of the viability of their operations and ability to create employment opportunities, for support. A key intervention will be the provision of adequate protection against unfair competition from subsidized and sub-standard imports including dumping Slide 28

References Slide 29