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Opinions of Tuesday, 23 May 2017

Columnist: Ken Kweku Nimo

One district one factory: a holistic approach

President Akufo-Addo President Akufo-Addo

Ghana saw a regime change at the 2016 electoral poll. Against many odds, the opposition party took the mantle of leadership from an incumbent that had made significant contributions to the country's infrastructural landscape.

The winning formulae lays in the obvious inability of these high-end infrastructure developments to translate into tangible short-term economic benefits for the masses. The promises and prospects of the opposition sounded enticing and reassuring, with particular regard to the promise of job creation and economic transformation under the flagship One District One Factory Policy (1D1F).

The Government has indeed shown commitment to the implementation of this strategy, providing a roadmap for its implementation within its first 100 days in office. The policy has also been under scrutiny by various arms of society and received significant coverage in the media. However, it is common to have the media replete with much news on a topic without the depth of analysis as is expected in carefully researched reports or publications. This publication seeks to present a middle ground approach, offering just enough for public discourse yet just as poignant and factual.

The objective of this article is to appraise the 1D1F policy under prevailing national and international trade environment, identifying potential pitfalls, and offering recommendations to ensure its successful implementation. This comes on the heels of a national dialogue on strategies for its implementation, with stakeholder consultations between Government and the private sector today (Monday 22nd).

The initiative has received much interest with many private investors both home and abroad reportedly engaged with the special institution in charge of its implementation. It is critical to note, that just like many well-intended developmental agendas pursued by past governments, there remain significant challenges that require attention and careful redress.

Ghana's Industrialization; an abridged history.

It is important to revisit Ghana's attempts at industrialization in past decades to enable a dispassionate dialogue on the 1D1F policy. This is necessary as the past often provides a blueprint for the future either as a guide, in repeating past successes or avoiding mistakes.

Ghana, like many African countries in the post-independence era, adopted Import Substitution industrialization policies, remnants of these endeavors are scattered across the country in the form of numerous abandoned and diversified state enterprises. In the wake of trade liberalization under World Trade Organization (WTO) agreements, and the subsequent fatal experimentation under World Bank's Structural Adjustment Programs 1 and 2. Industrialization balked, giving in, to a flood of cheaper imports from Asia, particularly China. Various attempts have been made under successive governments to resuscitate the countries industry with little success.

Examples include the Presidential Special Initiatives (PSI) on garment, technology and agro-processing which were designed to create protected enclaves and export promotion zones in an effort to access opportunities under unilateral and multilateral trade Agreements such as the African Growth Opportunity Act (AGOA).

It remains regrettable that all of these failed in the face of daunting challenges to overturn the tide in favor of industrial and economic growth. It is in the light of this, that the current 1D1F requires critical assessment and iteration to succeed. The challenges of industrialization remains, they include; Challenges with energy, Low revenue generation with its resultant budget deficits and low investments in infrastructure, lack of data and statistical records to inform long-term decisions, low levels of skill and technology, volatility in the cedi's exchange rates, high cost of borrowing, corruption in public service and bottlenecks at ports that hamper supply chain and imposes constraints on logistics.

The list is endless the challenges grave, there is, however, the need to address the industrial needs of the country at any opportunity as the country strives towards a middle-income economy. The initiative is thus commendable and the enthusiasm appropriate.

The 1D1F and what needs to be addressed.
Commitment to infrastructure development:

The foundations of rapid industrialization and its attendant economic growth are infrastructure development. Foreign direct investments are courted with ease when adequate amenities including good roads, efficient transport systems, and well planned industrial zones are available. Accessory to infrastructure is an enabling business environment and access to reliable and affordable energy.

The challenge, however, is the lack of commitment to such investments since they require huge financial outlays and gestate over long periods in Return on Investments (ROI). Under the current short termed political dispensation, no government in its right disposition is willing to commit to such an endeavor, examples avail under the tenure of the then President Jerry John Rawlings when efforts at infrastructure development were labeled as futile with the opposition leader and subsequent president questioning whether we could "eat roads".

Ironically, the same slogan found space in the campaign of the opposition party in the run up to the 2008 polls when the late President J.E.A Mills rehearsed this question back to President John A. Kuffour. The question of infrastructure development remains a thorny issue in the body politic of the country making it a tough path to pursue by incumbent governments.

Nonetheless, it remains critical and a promise of industrialization may not be realized without a full-fledged attempt at infrastructural development.

More so, the nature and design of the 1D1F differ significantly from the PSI, while the later focused on establishing industrial enclaves within already industrial ready cities with the relevant infrastructure and easy access to ports, the former requires good linkages between supply and distribution chains which rely strongly on good road networks and rail services. Largely, a rapid implementation of this policy without a due recourse to providing this critical need will remain its bane.

Examples of critical linkages include the golden triangle, which spans the Greater Accra, Ashanti, Western, and Central Regions of the country, with further extensions up North, this proposed freeway with the potential to catapult the economy remains on the drawing board. There is also the rail transportation project, which saw some efforts under the previous administration with renovation works commencing on the Takoradi, Accra and Tema rail stations. The need for infrastructure cannot be overstated; it is key to the success of 1D1F.

It is recommended therefore that efforts at Private Partnerships also cover investments in public infrastructure to augment the industrialization drive and not only in the establishment of factories.

Import Substitution Industrialization and WTO challenges:

The 1D1F policy differs once again from the PSI in respect to markets. While the PSI was export oriented, the 1D1F is best tailored to the needs of local markets, making it another form of Import Substitution (IS) program. The challenge, however, remains with the current regime of World Trade Organization's (WTO) policies of trade liberalization as well as the re-introduction of economic reforms by the International Monetary Funds (IMF). The question remains, what forms of protection will avail to investments under the 1D1F policies?

In the absence of government subsidies, can local products compete favorably in price against heavily subsidized and cheaper imports? How can local industries cope with the current regime of high utility bills and inconsistent supply thereof? These issues need to be addressed to encourage and instill confidence in the investor community beyond mere rhetoric. There must be a policy framework addressing each conceivable challenge and providing alternate solutions to ensure long-term sustainability.

Strengthening Financial Sector:

Ghana's banking and financial sector is best described as risk averse. There is little or no commitment to investing in businesses due to high levels of risk associated with it. Interest rates are astronomical, and financial assistant often inadequate, setting up enterprises to fail and leading to high levels of repayment default.

The financial sector is the vehicle of industrialization; investments that make a strong impact require huge financial outlay often unavailable to entrepreneurs, thereby driving to financial institutions for assistance. It is heart warming that the government has included in the implementation plan of the policy financial training and business development services to enable the business community to develop bankable proposals. It remains to be seen if such training and monitoring are pursued to ensure the success of the policy.

In matters of internal borrowing by the government, which leads crowding out of the private sector, the NPP are no novices and have a good track record as was evident in the ex while Kuffour Administration. However, it is important to involve the private sector and financial institutions in developing a roadmap and establishing strategies to facilitate the successful implementation of the 1D1F policy.

Consumer Culture and Confidence in Local Products:

The campaign to buy local remains a paradox and a lip service rendered by successive governments. While charging the public to embrace locally manufactured goods, the formal president John DramaniMahama, revealed to parliament and the entire nation that he was adorned in a locally manufactured shoe.

News surfaced no sooner, of the government's expenditure on imported garments and shoes purposed for the free school uniform program. Another case of misdirected expenditure was the procurement of furniture and upholstery for the renovation of parliament house. This phenomenon is common in all fronts of government procurements, with greater preference accorded cheaper imports above locally manufactured goods. There is a looming danger in the implementation of the 1D1F if the focus is unilaterally at creating jobs and not developing markets for the products.

The campaign on buying local must be intensified with government leading by example and various public institutions, schools and private organizations following suit.

It is important to note, that while consumer perception of local products is the result of colonial orientation - which presents anything of foreign origin superior to local products, there remains a genuine concern on product standards of locally manufactured goods.

The contribution of Ghana in exports under AGOA is insignificant, often owing to poor product standards that fail to make it past custom checks in the United States. There is an ingrained attitude of mediocrity when it comes to product finish to otherwise good quality products. The current winds of ethical sourcing and supply ‘change' coupled with rising labor cost in China positions Ghana and other African countries advantageously to develop into alternative sourcing hubs for giant retailers across the World over.

The government must address this by increasing support to Technical Vocational Education Training; this must be made central in the implementation of the free Senior High School education program.

Industrialization is not possible with an army of unskilled workforce and the success of the policy rests heavily on the capability of the Ghanaian workforce, addressing both capacity and attitudinal change must be an over arching goal.

While the project stresses linkages between industry and organizations such as the GRATIS Foundation, it is unlikely such collaborations are possible immediately. This is due to the state of disrepair of technical facilities and infrastructure owing to lack of funding and prolonged neglect of these institutions. Funding must be sought and allocated to revamp and retool them to ensure their contribution to the policy.

The scope of Industrialization:

There are various levels of industry within the economy; the range includes light manufacturing through to heavy and highly technical forms. It is important to classify the scope of activities under this policy since each type of industry requires a different regime of policy interventions.

There is much ambiguity with references to factories when stated capital concessions by government range between $5000 and $10,000. It is important that various classifications are established with regards to the number of employees, level of automation and level of investment necessary to start and implement it.

The scope also identifies specific arrears of critical need to both local and export markets, for example, the Textile and Garment industry will require a significantly different approach and policy direction in comparison to the Agro-Processing industry. It is recommended that efforts are targeted at developing critical sectors of value addition to abundant raw materials and fundamental sectors with the greatest potential for low-skilled employment.

Once again, the focus need not be on starting entirely new ventures when there are enterprises with proven records of sustainability. It is important that government extends a helping hand to Micro, Small, and Medium Enterprises (MSMEs) by strengthening the operations of relevant institutions tasked to support them.

The danger of parallel Institutions:

Ghana's development under different political dispensations has been checkered. The greatest challenge to transitioning to middle upper-income status has been obstructions in projects and lack of continuity. While lips service is offered, no commitment is made in reality in continuing projects commenced by previous governments. The reason for this lies in disconnection between government initiatives and the mandate of implementation by statutory agencies.

Government policies of this nature are premised on rapid economic transformation and attended to with a sense of urgency. In an attempt to circumvent bureaucracy for rapid results, procedures that are critical to long term sustainability are sacrificed. In order for a policy of this nature to be adopted as mainstream national policy, parliament must debate and pass it as a bill after which the statutory government establishment is tasked with its implementation. However the president has prerogative to establish and implement such a policy without recourse to standard procedures under an executive instrument.

The later is the obvious choice in expediting the implementation of flagship policies; this leads to the establishment of implementation agencies with mandates that run parallel to that of statutory governmental institutions. Examples from past initiatives include the Presidential Special Initiative (PSI), Local Enterprise and Skill Development Program, Youth Enterprise and Skill Development Centre (YESDEC) and the more recent Youth Enterprise Support Fund (YES).

There are indications of a similar path in the implementation of the 1D1F, Government recently hosted a delegation from the Universal Merchant Bank (UMB) where it indicated plans to establish a Public Private Partnership Incubation Center tasked to provide soft services and technical support to aid investors interested in the policy.

The challenge with this approach despite its immediatebenefit is the likelihood of waste and duplication of mandate ascribed to statutory government institutions. These government institutions such as the National Board for Small Scale Industry (NBSSI) are under funded, while resources are allocated to recruit new staff, provide office facilities and vehicles for the new establishments. This approach is wasteful and largely unsustainable. There also exists a greater likelihood of abandonment by successive governments, an example of this is the YES project, which is currently in a limbo and will most likely be abandoned, leaving the beneficiaries stranded and disoriented to our loss as a nation.

Adapting 1D1F into mainstream policy:

It is recommended that government utilize the appropriate channels to debate, critically analyze, and consider inputs from both sides of the house before entrusting its implementation to a statutory government institution such as the NBSSI. The advantage of utilizing statutory agencies lies in nationwide reach and likelihood of sustainability beyond the term of incumbent governments. In circumstances where specific skills and training are required, such upgrades can be provided through seminars and refresher courses to upgrade the capability of these statutory bodies.

The NBSSI and other agencies such as the council for Technical and Vocational Education Training (TVET) must be resourced as a matter of urgency to effectively coordinate the implementation of this policy.

While the attempt to establish industrial enclaves across the country is laudable, the quest for decentralization must be pursued with rigor, to ensure access to tools, administrative support, and resources for an effective engagement with the private sector all over the country.

This document certainly fails to do absolute justice to this topic, it nonetheless, stirs further debate amongst a citizenry that chooses to act and not remain spectators.