Industrial Performance Disappointing - Reports

Two authoritative reports on Ghana's economy have concluded that the performance of the industrial sector in the past few years has been very disappointing.

The African Economic Commission (ECA) report on Ghana released last week says the contribution of the manufacturing sector in particular dropped from 15 percent of GDP in the mid 1970s to nine percent in 2001.

Earlier last month, the State of the Ghanaian Economy 2002 said output of Ghana's industrial sector has been inconsistent over the past decade. The report said after rising from 3.7 percent in 1991 to 6.4 percent in 1997, the trend of the sector's growth turned downwards, recording a mere growth of 2.9 percent in 2001.

Despite the slump in industrial growth in 2001, the sector saw an upturn in 2002 growing at 4.7 percent and indicating an increase of 62.1 percent over 2001, the single largest increase in output growth since 1997.

According to the State of Ghana Economy report the slight improvement of industrial performance in 2002 suggests a positive response to recent improvements on the macroeconomic front, notably the decline in the average yearly inflation and the lending rates to the sector. "However, these apparent improvements cannot hide the enormous challenges confronting industry in Ghana", says the report.

Giving reasons for the poor performance of the industrial sector, the ECA report said Ghana's industry was heavily protected under import-substitution policies after independence, coupled with the unbridled trade liberalization policy in 1984 which stifled local industries, especially those in the textile and garments sector.

The State of the Ghanaian Economy stresses that growth in the sector continues to be hampered by low investment in physical and human capital, overexposure to risks associated with foreign exchange volatility, dependence on obsolete equipment and machinery and high production cost.

Credit to manufacturing sector continues to drop by the year. Figures from the Ghana Statistical Service quoted in the report suggest that the amount of credit to the sector only grew slightly ?5.4 trillion to ?5.7 trillion (6.4 percent) within the year.

The ECA report, also identifies poor energy supplies as one of the most formidable constraints to industrial production caused by rising oil prices and low water level at the Akosombo Dam, which generates hydro power.

Since energy is the bedfellow of industry the unreliability of hydropower generation has compelled the economic managers to take to construction of thermal plants to increase power production.

Ghana is also partner in the West African Gas Pipeline Project a 600-km natural gas transmission pipeline from Nigeria through the Republic of Benin to Ghana at an estimated cost of $500 million to power thermal plants.

But the commencement of project has proved too painful and slow. It is hoped that manufacturing will assume its leadership when the project takes off in 2005 as projected. According to the state of the Ghanaian Economy report, prospects for the manufacturing sector have improved with the improved macroeconomic stability in the country. The report said the growth rate and relative contribution of manufacturing to GDP compares favourably with those of a number of African countries. However, the level is still far below those of the fast growing countries of the Association of South-East Asian Nations (ASEAN), where manufacturing contributes more than two-thirds of total GDP and has expanded at an annual rate of 19 percent since 1980.

Thanks to the trade liberalization, Ghana has been reduced to a net importer, importing more than 80 percent of industrial and consumer items. A stroll on the streets of Accra will confirm this assertion. Every space available in the central business area of Accra has been taken over by traders selling goods produced from ASEAN countries. Figures show that at independence Ghana was developing faster than many of the ASEAN countries. Today, the reverse is the case.

In the case of Ghana, there is low level of sophistication of production techniques and output. "Unlike South Africa, where about 60 percent of manufacturing output comprises high technology, high value added products, Ghana's manufacturing sector produces largely low technology products', says the State of the Ghanaian Economy report.

Ghana's industrial exports are not doing well either. Trade statistics show that the composition of Ghana's exports has not changed much. Even though non-traditional exports are generating additional income to supplement cocoa, gold and timber, the share of total mechandise exports remain relatively small compared to other African countries. Besides, Ghana's processed and semi-processed goods are concentrated in the wood sector, in contrast to what pertains in Kenya, Zimbabwe etc.

The under performance of the industrial sector is attributed to poor funding of research and development and the unwillingness of authorities to implement research findings. Quite recently, a National Science and Technology Policy was put in place to increase public funding of scientific and industrial research from 0.3 percent of GDP to 1.0 percent. Some ASEAN countries spend as much as 30 percent of GDP on research and development.

Under the policy the Council for Scientific and Industrial Research will spearhead the country's scientific and technological advancement. Already the Cocoa Research Institute of Ghana is propagating new agronomic technology that would boost production from 400 kilograms per hectare to 1,350 kg per hectare.