Transcript Industrial Sector in Ghana Cont. - economics students` association

What is Industrialization?
It has been defined as a process in which there is
the transformation from the dependence on agrarian
and handicraft to the dependency on an industrial
sector driven economies.
Webster’s New World Dictionary- Industrialization
is the change in social and economic orgn resulting
from the replacement of hand tools by machine and
power tools and the devt of large-scale industrial
prodn.
Industrialization is interpreted as a process whereby
the share of industry in general and manufacturing in
particular, in total economic activity is increased.
Why Study Industrialization
Industrialization is at the centre of devt. Since
the industrial revolution in Britain in the
eighteenth century, industrialization has been
perhaps the single most profound change to
the social and economic make-up of societies.
For instance, Japan has industrialized with
startling speed with it consequences for the
world economy. It is therefore important to
understand the process of industrialization if
the country is to develop rapidly.
Industrialization and Development
There are two theoretical perspectives that
dominant in the study of development
namely:
• Structuralist Approach to
industrialization−linked to more protective
policies to nurture the growth of industry.
• Neo-Classical Approach to industrialization −
linked to more market-oriented policies.
These two macro theories of eco devt can be
directly related to strategies or models of
industrialization
Differences b/w Structuralist Approach and Neo-Classical Approach
Structuralist Approach
Neo-Classical Approach
They argue for state intervention
industrialization, be it regulation of
tariffs or direct prodn by state
companies
They argue for the importance of
greater self-reliance of developing
countries
They argue that the mkt left to its
own devices is a far more efficient
arbiter of eco devt
Self-reliance leads to policies of
import substitution
industrialization. This can only be
achieved if local prodn is protected
from outside competition, at least
in its initial or infant industry
phase.
Integration into the world economy
implies an emphasis on exportoriented industrialization. They
argue that exports can only
compete with world mkt prices if
prodn is not hindered by price
controls such as trade tariffs.
They put emphases on integration
with the world economy
Industrial Sector in Ghana
The industrial sector in Ghana broadly consists
of manufacturing, mining and quarrying,
construction, electricity and water subsectors.
But, the sector is dominated by the
manufacturing sub-sector which presently
account for abt 60% of the total industrial
output/GDP.
The manufacturing sub-sector include the iron
and steel sub-sector (largest), cement subsector (second largest) and beverages subsector.
Industrial Sector in Ghana Cont.
The industrial sector could further be sub divided into
groups such as:
• Food processing- meat, diary products, vegetables oil,
canned fruits, breweries, and soft drinks, tobacco and
miscellaneous.
• Chemical industries- pharmaceuticals, perfume and
cosmetics, paint, soap, bitumen and plastic products.
• Processing of raw material- saw milling, furniture,
typing and painting.
• Light machinery- non electric and metals
• Vehicles and motor bicycles assemblies
• Construction including bricks and tiles, cement and
concrete products
Industrial Sector in Ghana Cont.
The major public and private institutions involved in the
industrial devt include:
• Ministry of Trade and Industry (MOTI)
• National Board for Small-Scale Industries (NBSSI)
• Ghana Regional Appropriate Technology Industrial Service
(GRATIS)
• Ghana Investment Promotion Centre (GIPC)
• Council for Scientific and Industrial Research (CSIR)
• Ghana Exports Promotion Council (GEPC)
• Divestiture Implementation Committee (DIC)
• Private Enterprise Foundation (PEF)
• Association of Ghana Industries (AGI)
• State Enterprise Commission (SEC)
• Rural Enterprise Project (REP)
Characteristics of the Industrial Sector
• The key sub-sectors are highly import-intensive i.e.
over dependent on imported raw materials. E.g. an
average of 45% of inputs used by these firms is
imported.
• Low capacity utilization of installed plants, as a
result of outmoded plants and machinery,
inadequate raw materials, and high cost of locally
produced raw materials.
• Predominantly small scale or at best medium sized
industries employing in most cases a handful of
workers (less than 50). Hence, enable to enjoy
economies of large-scale prodn.
Characteristics Cont.
• High labour usage as compared to capital
utilization since many of them was
established as avenue of employment.
• Low level of indigenous ownership and
controls.
• Low level of applied research, inadequate
qualified managerial staff and low level of
training of entrepreneurial staff.
Importance of the Industrial Sector
• The sector is a contributor to GDP. The sector’s
total industrial output as a percentage of GDP
peaked at 28% in 1997 but decline to 22.1% in
2004.
• A source of employment. B/w 1975 and 1982 total
formal industrial employment was b/w 68,000 and
158,500. By 1991 it has decline to 47,200.
• A source of foreign exchange earnings. Exports
earnings from the sector come from the minerals
mainly gold and diamonds. Revenue more than
doubled from US$ 246.98m in 1990 to US$ 494.37
in1993.
Challenges and Constraints
• Inadequate finance for working capital,
rehabilitation and modernization
• Rapid depreciation of the cedi
• Tight monetary policy pursued by govt has
increased the cost of credit
• Some of the enterprises operating under high
protective barriers are now finding it
extremely difficult to cope with the liberalized
and more competitive mkt environment
Challenges Cont.
• Low utilization of installed capacity as a result
of;
Obsolete plants and machinery
Inadequate raw materials inputs and high cost
of locally produced raw materials.
Increased competition from imports
associated with trade liberalization
Inadequate infrastructure, power, transport,
etc.
Key Interventions
Pre-ERP Industrialization
• Industrial policy strategy after independence
followed three major patterns.
• First, there was a strong emphasis on import
substitution to reduce economic dependence and
reduce the pressure on BOP caused by rapidly
increasing imports and stagnant export earnings.
Import substitution industrialization was to be
achieved via high levels of effective protection and
quantitative restrictions.
Key Interventions Cont.
Second, administrative controls were relied
upon to determine incentives and resource
allocation rather than the market force.
Govt licensing set the imports of equipment
and industrial inputs and outputs were
controlled. The system of control provided
complete protection to domestic firms.
Tax holidays, import duty exemptions and
subsidized credit determined the investment
incentives of these firms while imports
licensing restricted competition.
Key Interventions Cont.
• Lastly, there was dependence on largescale public sector investment for
industrial devt. The rational of which was
to provide sufficient investment in order
to jump to a high growth path and to
break the political and economic
concentration of power in the hands of
foreigners and take our economic destiny
into our own hands.
Achievements
• The policies adopted during this
period stimulated rapid growth of
the manufacturing output
(averaging 13%) and employment
(average 8% per annum). Total
industrial output as a percentage of
GDP peaked at 21.5% in1977.
Constraints
• However, form1977 the industrial
sector began to lose its momentum.
B/w 1975-1979, the manufacturing
sector declined at an annual average
rate -2.5%. The decline in growth rate
was serious during the period 198182 with total industrial output
declining by 23% with manufacturing
declining by 36.3%.
Constraints Cont.
• The serious rapid decline in industrial
performance was due to domestic
mismanagement and BOP problem.
The external shocks: severe droughts
(1975-77, and 1982-83) and oil
shocks (mid-70s) and unfavourable
prices for cocoa, timber and
especially gold. This resulted in
shortage of foreign exchange.
Key Interventions Cont.
Post-ERP Industrialization
• The launching of the ERP in April 1983 changed the
macroeconomic and incentive framework within
which industry had to operate.
• After the introdn of ERP there was a major shift in
industrial policy in Ghana from import substitution
and over protected industrial strategy to an
outward oriented less protected or liberalised
strategy.
• Under ERP, the private sector was seen as the prime
mover of industrialization.
Post-ERP Cont.
• These objs were to be achieved with emphasis placed
on:
 Reconstruction of the industrial sector and
rehabilitating major industries including expansion,
diversification and modernisation of existing viable
enterprises and enhancement of their competitiveness.
 Promoting the est. of new industrial capabilities and
environmentally sound industrial operations, including
increased investment and devt and acquisition of
appropriate technologies.
 Promoting the local indigenous private sector and
involving both local and foreign private enterprises to a
greater degree in industrial devt of the economy.
Post-ERP Cont.
These objs and strategy were to be
adopted within the broader specific
economic policy reforms initiated under
the SAP, which include:
• The introdn of mkt determined exchange
rate
• Liberalisation of interest rate and
financial system in general
• Removal of price and distn controls
Post-ERP Cont.
• Revision of the investment code to make it
more attractive to investors. This led to the
promulgation of a new investment code
(PNDC L. 116) and the est. of Ghana
Investment Centre
• Restructure the tax system to ensure reduced
duties on imported inputs, reduced excise
taxes as well as corporate taxes
• Initiation of the SOEs reform programmes
Achievements
• The industrial sector responded strongly
after the implementation of ERP
particularly during the early part. B/w
1984 and 1987, the average annual
growth of industrial output stood at
12.2%. However, there has been a
considerable slow down in the growth of
the industrial sector since 1988. The
average annual growth rate was 4.5%
b/w 1988 and 1999.
Achievements Cont.
• Formal empt in the industrial sector rose from
91,700 in 1983 to 131,600 in 1987and also
formal empt in manufacturing increased from
43,00 to 78,700 in the same period.
• There was an increase in capacity utilisation.
E.g. capacity utilisation in manufacturing
increased from a low of 18% in1984 to 46% in
1993. Industries which are local resource
based such as tobacco, beverages wood and
food processing also showed remarkable
increase in capacity utilisation.
Constraints
• The achievement of ERP was short-lived after
1987. This was the result of the problems that
accompanied the rapid liberalisation of trade and
exchange rate coupled with financial reforms and
its attendant high interest rates.
• Also, the manufacturing sub-sector had to
contend with debilitating problems of rapid
depreciation of the cedi, high rate of inflation and
high cost of credit which increased prodn cost.
Constraints Cont.
• Again, the sub-sector was made to
compete with the influx of cheap
imported goods.
• Other problems include inefficiency of
import substitution manufacturing subsector and the lack of effective linkages
b/w manufacturing and other major
sectors especially agric.
Achievements
The above problems do not suggest that
the other sub-sectors were not
responsive to the ERP. The construction,
mining, and quarrying, as well as
electricity and water responded
positively registering output growth of
5.9%, 13.5% and 43% respectively in 1984
compared with -14.5%, -14.4% and 38.9% in1983.
Key Interventions in Current Years
In 2002 with the govt determination
to work toward its vision of golden
age of business, the presidential
initiatives were launched to boost
industrial output and exports through
agric-processing and also to exploit
opportunity arising from preferential
access to US and European Union
mkts.
Interventions in Current Years
Some of the key interventions during this period
include the following:
• The free zone and the gateway programme, which
are attracting investments into the country.
Promoting exports processing, increasing exports
and accelerating eco growth.
• Est. of the procedures and mechanism for
implementing the purchasing of made in Ghana
goods by public sector orgns to support local
industry and promote local prodn of quality
goods.
Interventions in Current Years
• Rationalisation of tariff regime to be
supportive of industry; including introdn of
20% special tax on frivolous imports and
goods for which local prodn capacity exist.
• Completion of the groundwork for the
commencement of the integrated programme
for industrial devt.
• Est. of Export Devt and Investment Fund
(EDIF) to support the expansion of nontraditional exports.
The way forward
• The main policy thrust is to develop a
more competitive industrial sub-sector
driven by the private sector, and with
potentials to make inroads into the
international mkt with value-added
products derived from local resources,
through the application of science and
technology and in an environmentally
sustainable manner.
The Way Forward Cont.
Other suggestions include:
• Promotion of joint ventures by
Ghanaians/international partners
• Enhance access to the mkts of the developed
economies for locally manufactured products.
• Human resource devt and institutional capacity
building for key stakeholders in the public and
private sectors, including attachments, study tours
etc.
• A well functioning infrastructure (good roads, ports,
telecommunications, energy etc)
The Way Forward Cont.
• Strengthening industrial support institutions
(universities, technical and vocational institutions,
NBSSI, AGI, Ghana Chamber of Commerce etc) to
enable them provide more effective management and
advisory services, including the orgn of management
training Programme.
• Strengthening the links b/w industry and other sectors
of the economy.
• Support for the mobilization of long-term investment
capital for rehabilitation/modernization and start-ups,
particularly in the priority areas of food processing,
textiles, garments, wood processing and packaging etc.