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Opinions of Friday, 11 July 2014

Columnist: Appiah-kubi, K.

Economic transformation in the wake of rapid deindustrialization in Ghana

Economic transformation is the change in the structure of an economy over time from a subsistence econo¬my, through industrialisation, to an industrial or even post-industrial society. Available evidence suggests that all countries with high levels of economic and social development as well as low levels of poverty have achieved that on the back of economic transformation and industrialization. For this reason governments of Ghana have always regarded economic transformation as a way to change the structure of the country’s eco¬nomy and reduce poverty over time. There is, indeed, no budget or economic develop¬ment blueprint without lengthy justifications of the country’s need for economic transformation and industrialization. The medium-term strategy of the NDC government (the GSGDA 2010-2013), for instance, makes economic transforma¬tion and industrialization a pre-requisite for the attainment of its long term goal of a per capita income of at least US$3,000 by 2020. The GSGDA even sets an average annual industrial growth rate of 14.5% over the period 2010 – 2013 as a necessary condition for the achie¬vement of economic transformation and industriali¬zation. The 2014 budget statement, for instance, was presented to parliament as “... truly transformational”. The NDC government thus justified all policies and programmes contained therein as activities “ reinfor¬ce the foundation for economic transformation of the country”. However, despite all these ideals, economic transformation has not taken place in Ghana, because it has failed to achieve industrialization, the precon¬dition for a country’s economic transformation.
What is even more striking is that, despite the much touted economic transformation, there is little doubt that the Ghanaian industrial sector has rather experienced deindustrialisation in recent years. Indeed the economy of Ghana is rapidly losing industrial capacity in the face of governments having time and again paid lip ser¬vice to economic transformation and industrialization. The evidence appears to manifest itself in almost all measures of economic transformation. All available scientific measures of industrialization, including statis¬tical data on value added (output by sector), employment and investment trends, clearly show a generalized trend towards absolute and relative declines in industrialization and thus underscores the deindustrialization trends in Ghana, particularly, in the case of the manufacturing sector.
There is ample evidence that deindustrialization began to set in Ghana in the 70s and has since then acce-lerated in terms of production and employment. Between 1976-1982, for instance, industry’s share of GDP fell significantly from a peak of 21.4% to about 6.5%. The level of deindustrialization as eviden¬ced by the drop in manufacturing GDP was even more severe falling from 15.5% in 1975 to an abyss of 3.7% in 1982. Even though the situation improved somehow in response to the economic reforms of the 80s it is yet to attain the levels of the 70s. The manufacturing share of the country’s GDP, for instance, has continued to fall consistently from its height of 12.44% in 1985 to about 6.62% in 2012. According to Shafaeddin (2005) Ghana’s growth in manufacturing value added was significantly negative (-3.5%) dur¬ing the 1990s, imply¬ing severe de-industrialization.
Another evidence of deindustrialization is reflected in declining employment trends as an indicator mea¬sure. Available evidence indicates that employment in the industrial sector declined by 0.2 percent on average per annum during 1980-1991 and has worsened since then, declining annually by 4.6 percent on average. This rapid decline has been attributed to, among others, slow growth, shrinking manufacturing output by sector, employment freezes in the public sector and incessant lay-offs in employment intensive sectors including mining and textiles sectors. This has led to consistent declines in the proportion of eco¬nomically active population employed in the industrial sector from 19% in 1990 to about 15.4% in 2010. Experts estimate that overall employment and employment in the industrial sector have decreased by 0.3% and 0.2% respec¬tively on average per annum over the years. This has impacted negatively on the overall employment situa¬tion of the country, as evidenced in the overall decline of the share of economi¬cally active population in formal employment from 17.8% in 2000 to 12.8% in 2010.
Analysis of investment and gross fixed capital formation trends over time also confirm the increasing dein-dustrialization in the country. Even though the industrial sector appears to have benefited substantial¬ly from foreign direct investments in recent times, the bulk seems to have gone to the mining, oil and gas sectors with relatively little to show for employment generation. Information available from GIPC reveals that less than nine jobs were generated averagely from every million dollar foreign direct investment between 1994-2012, with less than six jobs being created in the manufacturing sector over the same period. According to ISSER the value of the manufacturing and construction sub-sectors as a pro¬portion of total investments from 2008-2012 as reflected in their gross fixed capital formation has been dropping consistently with increasing shares of total investments accounted for by investments in oil and gas production and exploration. Another indicator that underscores the rapid declines in the level of investments, particularly, the manufacturing sec¬tor is the consistent decline in the share of credit of DMBs to the sector from 21.4% in 2004 to 15.6% 2012. Similarly government capital investment spend¬ing, for instance, has since 2008 declined by more than 50% of total government expenditure from 36% in 2008 to about 17% in 2013. Thus in Ghana continued deindus-trialization has come to be associated with absolute decreasing total employment, shrinking manufacturing output by sector and falling levels of real capital investment spending.
Normally the process of economic development of a country follows that, first the share of employment and of the manufacturing sector in GDP increases till it reaches a certain level of development in terms of per ca-pita income (around US $12,000) before it declines. The difference with Ghana is that not only has the pro-cess of industrialization been slow, but deindustrialization has begun to set in much sooner with serious implications for long-term growth pros¬pects, poverty and inequality.
Globalization, economic liberalisation and stabilization, and trade openness have been identified to cause the rising deindustrialization trend in Ghana. Without doubt these factors have contributed to open dom¬estic less competitive low-valued labour intensive activities unfavourably to higher competitive less labour-intensive imports. But the major culprit for the rising deindustrialization trend is the worsening government policy shortfalls, which manifest themselves in lack of clear cut government Industrialization policy and prioritiza¬tion of government goals, lack of consistency and political commitment in the pursuit of government poli¬cies, constant shifts in policy directions, etc. These shortfalls seem to have been compounded by a never ending serious energy crisis, deterioration of the macro-economic environment, declining government investment expenditure in infrastructure, high costs of business credit and dwindling availability of long term financing, etc. These factors have contributed to a near strangulation of the industrial sector and a rise in the deindustrialization trend in the country and consequently a failure of all transformational efforts.
Apparently a major cause of the failure in achieving structural transformation can be attributed to the lack of continuity in policy planning for transformation, inconsistencies in the country’s approach to develop¬ment and lack of focus in policy implementation. For instance, after several attempts the country launc¬hed in June 2011 a new industrialization policy to promote a consistent and stable environment for accelerated structural transformation and industrial development. The implementation of the policy was to be effected through an Industrial Sector Support Programme, with a detailed action plan and budget specifying time-bound inter-ventions to be undertaken annually, to speed up the industrialization process over a five-year period from January 2011 to December 2015
The action plan included the establishment of an Industrial Development Fund to facilitate rapid develop¬ment of Ghana‘s industrial sector. Specifically the structural transformation of the manufacturing sector was to be accelerated with the creation of a ¢297 million fund to be disbursed in medium and long term loans and matching grants by 2015. An amendment to the Export Development and Investment Fund was also proposed to expand its mandate to provide financing for agro-processing as well as a proposed presentation of an Industrial Competitiveness Bill to Parliament for passage to provide incentives for the use of local raw materials and to increase domestic content in local industry. Other activities included the implementation of an Export Diversification Programme, the establishment of Enterprise Development Centres and efforts to give legal backing to the Local Content Policy. Ironically not only have these laudable measures remained unimplemented, the 2014 budget, which is to drive government industrialization policy implementation, does not even mention the national industrialization policy let alone allocate a budget line and make it a focus for policy pursuit. There is no doubt that the country currently faces two major challenges of unemployment and poverty that require urgent attention through the concerted efforts to transform the economy of Ghana via industrializa¬tion. This does not, however, require any new rocket science inventions but only the discipline and political commitment to implement the good plans and policies available in the country, i.e., do what we tell ourselves we want to do.

Appiah-kubi, K., PHD