Transcript econ215session7slides

ECON 215
Introduction to Economy of
Ghana
Session 7 – Industrial Sector Part 2
Lecturer: Dr. Augustine Fritz Gockel
Contact Information: [email protected]
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:
i.
The development of more internationally competitive industrial sector
with emphasis on local resource based industries with
capacity/potential for export and efficient import substitution.
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 2012December 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 agroindustry. 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 subsector 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 Subsector
• 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 Subsector
• 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 Subsector 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 agroprocessing; 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 support indigenous 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 added advantage 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 labourintensive 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