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Opinions of Monday, 30 July 2018

Columnist: Sylvester Forson

1District-1Factory; A mirage until the drastic reduction in cost of energy

The 1 District 1 Factory policy is one of President Akufo-Addo's flagship programmes The 1 District 1 Factory policy is one of President Akufo-Addo's flagship programmes

The initiative by the present government to situate factories in the various districts in Ghana has been widely commended as a laudable initiative aimed at solving the unemployment situation in the country. This is because the alarming rate of joblessness among the youths in Ghana continues to pose a major threat to national security. Needless to say, unemployment serves as breeding grounds for the perpetuation of crimes by energetic youths.

As a consequence, people have argued that the One-District-One-Factory (1D1F) initiative, when implemented, would drastically reduce crime to the barest minimum in Ghana and set the tone for the potential development of the various districts which are currently in a deplorable state. This would subsequently reduce the massive rural to urban migration.

Another key contributing factor is that 1D1F has the potential of boosting Ghana’s economy by enhancing Ghana’s foreign trade deficit (import to export ratio) thus strengthening the cedi against international trading currencies such as the US Dollar and the British Pound Sterling.

Whiles we continue to trumpet the ‘almost becoming’ cliché that Ghana is the gateway to West Africa and the preferred destination for the investor [blessed’ with natural resources like gold, diamond, bauxite and now oil in commercial quantities coupled with other factors like the relatively high quality agricultural raw materials, affordable labour, a relatively stable democracy and the fact that Ghana has enjoyed relative peace since independence et cetera et cetera] our high cost of energy which has a direct impact on production and industrialization automatically becomes the key turn-off for foreign investors and Ghanaians in the diaspora who may want to harness business prospects in Ghana, thus, 1D1F.

Cost of energy is one of the most important factors that managers and decision makers consider when setting up factories for their operations. It is therefore not surprising that businesses have either shut down their plants or relocated from Ghana to other countries including neighbouring Cote d’Ivoire where they can take advantage of low energy costs.

According to a 2016 statistical report on electricity, Ghana was ranked third in Africa for countries with the highest electricity tariffs, below is a chart of some high energy paying countries in Africa in US Dollars per kilowatt hour.

In spite of the Public Utilities Regulatory Commission’s (PURC’s) announced a reduction in electricity tariffs effective March 15, 2018, Ghana still remains comparatively high on the price index for electricity tariffs in West Africa. Commercial energy consumers are now required to pay $0.32 cents per kilowatt-hour while domestic consumers are charged as much as $19.28 cents per kilowatt hour depending on their rates of consumption. If you compare these rates to neighbouring Cote d’Ivoire who charge $0.13 cents (19cents less) for commercial consumers per kilowatt-hour and $9 ($10.28 less) per kilowatt hour for domestic users, you will immediately understand why industries are complaining, shutting down or relocating in some cases.

The tariff system in Ghana, where low power consumers pay less than high power consumers, is also another disincentive for potential manufacturers who consume high energy in their operations. Although the tariff system is intended to discourage careless consumption of electricity, the attempt to lump in industrial consumers to limit their energy consumption or pay more for extra consumption is frantically imprudent because it sooner or later limits production or results in losses or an eventual shut-down of industrial operations. Is it not ironical that whiles Ghana is exporting energy to Cote d’Ivoire and Burkina Faso, factories in Ghana are relocating to Cote d’Ivoire and we are importing foodstuffs and other items from Burkina Faso?

High Cost of energy leads to high cost of production and makes Ghana unattractive for the setting up of factories thus generating a consistent increase in imports. This significantly explains why locally produced goods end up becoming more expensive than their imported counterparts in spite of the high duty charges at our various ports of entry. Because of our high energy overheads, Ghanaian exporters find it very difficult to compete in the world market with countries whose energy costs are comparatively cheaper.

The high cost of energy is also linked to the reason Accra has become one of the most expensive cities in the world with the highest cost of living indices. This is because high energy outlays eventually reflect on every aspect of the economy thereby making the country expensive. Sadly, all this information is readily available on the internet for the benefit of prospective investors all over the world.

Why should the gateway to West Africa charge so much for energy?

The relocation or shut down of factories that could earn Ghana some foreign exchange has had adverse effects on the strength of the cedi, with $1 now going for ¢4.85 and still wobbly. In the 1960s & 70s, when we had the Komenda Sugar Factory, Tema Food Complex, Kumasi Shoe Factory, Aboso Glass Factory, Avehime Cattle Ranch, Saltpond Ceramics, Kade Match Factory, Kumasi Jute Factory, Pwallugu Tomato Factory, Nsawam Cannery et cetera, Ghana’s import on consumables was less than 30%. Today, upon the closure of all these factories and more, Ghana imports over 90% of its consumables. The question is: How can a nation strengthen its currency if over 90% of its consumables are imported?

With the recent approval by parliament for private sector participation in the management of the Electricity Company of Ghana (ECG) with Manila Electric Company of Philippines leading the bargain, it is expected that some changes may occur to guarantee efficiency in the service delivery of ECG, however if the outcomes of these changes do not lead to a reduction in tariffs to the industrial consumer, it would be an encumbrance towards the realization of 1D1F and a further deepening of the unemployment situation in Ghana.

There is a proposed power trading system within West Africa supported by World Bank with the aim of helping reduce or balance the cost of energy within the sub-region when implemented hopefully in 2020. This may have a plausible but unguaranteed resolution towards stabilizing energy supply and energy costs across the sub-region.

As a preamble to the pragmatic implementation of 1D1F, government must as a matter of urgency explore other cost-effective forms of energy like solar, bio-energy, nuclear and wind energy. Although these forms of energy may require huge investments at their initial stages of implementation, the consequential implication will be to enhance Ghana’s pedigree as the business destination for West Africa.

Considering all the other business niceties Ghana brags about, the fact still remains that until we are able to adopt realistic measures that will ensure a drastic reduction in our cost of energy which ought to reflect in tariffs to consumers, the ‘almighty’ 1D1F initiative will continue to be a vision yet to be achieved.