Lecture 8 : The Industrial Development in Ghana.

Solomon Antwiagyei Kuffour

Department of Human Resource and General Studies

UCOMS, Kumasi Campus.

sakuffour@ucoms.edu.gh

July 31, 2021

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Outline of Lecture

The Concept of Industrialization

The Structure of the Industrial Sector

The History of Industrial Development in Ghana

Recent Developments of the Industrial Sector in Ghana

The Challenges of the Industrial Sector

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Introduction

The industrial sector is also one of the main sectors of every economy.

Similar to the agricultural sector, the industrial sector also contributes

greatly to the growth and development of every economy.

This contribution emanates from the employment it generates for citizens,

the goods and services it produces for consumption and further
production, the revenue to the government as well as the foreign exchange
to the state.

Notwithstanding the sector’s contribution, its success is impeded by some

challenges.

Ghana’s industrial sector continues to be a key sector for development.

I Hence there is the need to study the sector to better appreciate the role it
plays.

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The Concept of Industrialization
Definition of Industrialization

‘Industrialization’ is a generic name for a set of economic and social

processes related to the discovery of more efficient ways for the creation of
value.
Industrialization is defined as the degree to which an economy is
characterized by mechanized manufacturing processes;
I replacing simple tools with machines and improved technology.

Industrialization is the period of social and economic change that

transforms a human group (or an economy) from an agrarian society into
an industrial society.
I This involves an extensive re-organization of an economy for the purpose of
manufacturing.

It is the process whereby the share of industry in general and

manufacturing in particular to total economic activity(GDP) is increased.

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The Concept of Industrialization
Scope of Industrialization

The scope of industrialization covers the entire behaviour, economic

problems and policies of firms and industries and their relationship with
the society.

Scope of industrialization covers all other sectors. For example;

I In agriculture: Involves replacing cutlasses and hoes with tractors,
harvesters, etc.
I In manufacturing: .... (give an example depending on the company you
have in mind).

As industrial workers’ incomes rise, markets for consumer goods and

services of all kinds tend to expand and provide a further stimulus to
industrial investment and economic growth.

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The Concept of Industrialization
Industrialization and Development

Two theories or approaches that explain industrial development:

Structuralist Approach to industrialization:
I Linked to state protective measures.
I ... argue for state intervention by using protective policies to nurture the
growth of local industries.
F To protect the teething local industries from undue foreign competition.
I Protective policies include tariffs, subsidies and direct production by state
companies
I
Explained in the n book
Goals are to achieve greater self-reliance and hence an import substitution
industrialization.

Neo-Classical approach to industrialization:

I Linked to more market-oriented policies.
I ... argue that the market should be left on its own device for competitive
I ... places more emphasis on integrating the local industries with the world
economy to achieve an export-oriented industrialization.
I ... argue that removing price controls(trade tariffs) helps to achieve
efficiency as export prices compete with world market prices.
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The nature and structure of the Industrial sector in
Ghana

Classification based on ownership;

I Private Enterprises : Either local or foreign
I Joint State & Private Enterprises
I State Owned Enterprises
The sub-sectors of the industrial sector are;
I Manufacturing
I Mining and Quarrying
I Construction
I Electricity
I Water and Sewerage

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The nature and structure of the Industrial sector in
Ghana Cont’d...

The sub-sectors of the industrial sector are further divided into;

I Agro processing
I Breweries and beverages
I Construction
I Automobile
I Light manufacturing
I Electronics manufacturing
I Aluminum smelting
I Chemicals and Pharmaceuticals
I Textiles

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Introduction Cont’d...
The Current State of Industrial Development in Ghana

What idea do you have of current happenings in the Industrial sector in

Ghana regarding:
Ongoing Policies or Programmes in;
I

I Discuss this
I

Challenges

Any other information.

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The History of Industrial Development in Ghana
Introduction

Like all the other sectors, the industrial sector has gone through several
phases till its current state.

Through the years, varying policies and interventions have being carried
out to increase the performance of the sector.
Though these interventions achieved some results, several factors have
dwindled the realization of the full benefits of such interventions.
I For this reason, the industrial sector, despite its considerable development,
continuous to be a developing sector with many prospects of growth.

Let us begin to consider some of these policies and developments from the
period before independence till date.

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The History of Industrial Development in Ghana
Pre-Independence industrial Development

Although, industrial development has begun in the early 20th century

before the arrival of the Europeans, actual setting up of firms started
after 1950 in Ghana.
Little efforts were made by the colonial government to develop the
industrial base of the country especially the manufacturing sector.
I This could be due to their keen interest in raw materials and extraction in
exchange for the excess production in UK.
I The few manufacturing industries set up to maintain infrastructure like
telecommunications, roads and electricity generating plants.
I In 1947, the Industrial Development Corporation was set up to facilitate
the industrial process of the country.
F Enterprises set up included a distillery, a match factory, laundries, etc but,
F Their profit performance was poor and some made zero profits.

I Ghana’s industrialization drive may have started in the early 1950s with
Ghana’s first national party coming into power in 1951.

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The History of Industrial Development in Ghana
Post-Independence industrial Development: 1960 to 1982

Much emphasis was placed on industrialization as the only way to

transform the colonial structure of production in order to;
I reduce economic dependence,
I reduce unemployment and,
I break the poverty trap.
The government proposed to set up 600 factories and increase industrial
output by 83% by 1970.
Industrial Policies followed 3 major patterns;
1 Placing emphasis on import substitution industries to produce originally
imported goods under strict protectionism.
2 Employing administrative controls to allocate resources and incentive
rather than leaving it to the market forces
3 Large scale public sector industrial development;
F to provide sufficient investment to achieve higher growth and
F break the political and economic concentration of power in the hands of the
colonial masters.

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The History of Industrial Development in Ghana
Post-Independence industrial Development: 1960 to 1982 Cont’d...

Major Achievements.
A separate Ministry of Industry was created in 1961 to;
I implement government’s industrial programme and also
I to promote and develop both state and private large, medium and small
scale industries.
I The Capital Investment Board(CIB), now Ghana Investment and
Promotion Center(GIPC) was set in 1963 to assist in the;
F promotion of private investment and also
F encouraging, promoting and coordinating investment in the Ghanaian
economy.
F The National Investment Bank (NIB) was also set up in 1963 to extend
development finance to the industries in particular.
I But efforts and success were thwarted by the 1981-82 economic downturn
and economic mismanagement.
F For instance, the drought that hit the country affected most the electricity
and water sub-sector because of its hydro nature and hence driven by rain.
Major challenges included, political instability, shortages of raw materials,
worldwide recession, biased industrial policies against the industrial
sector, exchange rate problems, etc
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Characteristics of the Industrial in Ghana

Majority of the industries in all the sub-sectors depend on imported raw

materials.
I There is over reliance on imported inputs of raw materials and
intermediates
I It is estimated that about Raw Materials and Capital Goods (5%) and
Intermediate Products forms about(5%) and (10%) respectively. (GRA
estimates, 2018)
I But about 45% of the total raw materials used by most industries is
imported.

Prevalent use of obsolete technologies and production that is mainly

focused on the domestic market;
I This accounts for why most firms produce below their capacity.

Most of these firms do not depend on research and development.

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Characteristics of the Industrial in Ghana Cont’d

Majority of the firms in the industrial sector are predominantly small

scale or at best medium sized:
I Many employ a handful of workers relative o large scale firms.
I Hence they are unable to enjoy economies of scale that is associated with
large scale production.
There are high usage of labour as compared to capital utilization;
I This is because most of them are set up to create employment.

Most of these firms use more of apprentices and casual workers.

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Characteristics of the Industrial in Ghana Cont’d
Institutions and Sector agencies in the Industrial Sector

Several institutions and sector agencies have been set up to promote and
facilitate growth of the industrial sector.
Among them are;
Ghana Export and Import Bank (EXIM BANK) established by law on
October 4, 2000;
I provides funding as loans through 20 designated Financial Institutions
(DFIs) to producers and marketers of export goods and services,
I also provides grants to associations, institutions and groups to boost the
production and management capacity of such groups operating in the
non-traditional export sector.

Ghana Export Promotion Agency(GEPA) established in 1969 by Act 396;

I the development of Ghana’s export trade and the promotion of Ghana’s
exports abroad,
I by coordinating the various public sectors and other organizations involved
in trade facilitation.
I and organizes market and trade missions, trade fairs and exhibitions.

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Characteristics of the Industrial in Ghana Cont’d
Institutions and Sector agencies in the Industrial Sector

Cont’d...
Ghana Free Zones Board(GFZB)

Ghana Standards Authority(GSA)

National Board for Small Scale Industries(NBSSI)

Several other institutions render support services to the manufacturing sector.

These include:
1 The Association of Ghana Industries (AGI),
2 The Ghana National Chamber of Commerce and Industry (GNCCI),
3 the Private Enterprise Foundation (PEF),
4 Food and Drugs Authority(FDA),
5 Pharmaceutical Manufacturers Association of Ghana(PMAG) and
6 the Federation of Association of Ghanaian Exporters (FAGE).

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Characteristics of the Industrial in Ghana Cont’d
Investment Incentives and Guarantees in the Industrial Sector

Ghana is a safe investment destination.Guarantees against expropriation

of private investments provided under law are buttressed by the Ghanaian
Constitution.
Some investment guarantees are detailed below;
I Free transfer ability of capital, profits and dividends.
I Double Taxation Agreements(DTAs)–to rationalize tax obligations of
investors in order to prevent double taxation.

Registration with GIPC then entitles the Company to enjoy benefits such
as:
I Import duty exemption on certain equipment and machinery,
I Assistance in getting certain utilities such as: electricity, water, telephone
connections.
I Assistance in getting land.

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Characteristics of the Industrial in Ghana Cont’d
Investment Incentives and Guarantees in the Industrial Sector Cont’d...

Incentives enjoyed by registering with Ghana Free Zones Board:

Monetary Incentives:
I 100% exemption from payment of direct and indirect duties and levies on
all imports for production and exports from free zones.
I 100% exemption from payment of income taxon profits for 10 years which
will not exceed 8% thereafter.
I Relief from double taxation for foreign investors and employees where
Ghana has a double taxation agreement with the country of the investors
or employees.
Non monetary incentives:
I No import licensing requirements,
I Minimal customs formalities.
I There are no conditions or restrictions on repatriation of dividends or net
profit,
I Free Zone investors are permitted to operate foreign currency accounts
with banks in Ghana.
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Characteristics of the Industrial in Ghana Cont’d
Ghana’s Unique Attraction and Competitive Advantage

Stable Political Environment;

I Ghana is a politically stable country and is one of the longest traditions of
robust democracy on the continent.

Macro-economic Policies;
I The Government of Ghana has initiated a number of sound
macroeconomic policies designed to accelerate the process of growth and
transformation of the economy under competitive conditions,
I The rate of inflation is relatively stable around 9.4% as at December,2018
and 7.9% in December 2019.
I Management and access to foreign exchange in Ghana continues to get
better.

Allowance of 100% foreign ownership in the on-going privatization

program.
Access to International Markets;
I Ghana has easy access to the USA and European Union Markets.
I The flight time to almost all European Union countries is about 6 hours
and 9 hours to the USA.
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Characteristics of the Industrial in Ghana Cont’d
Ghana’s Unique Attraction and Competitive Advantage Cont’d...

Availability of Fund Sources;

I Ghana has a large number of fast developing institutions available to raise
long-term capital at competitive rates.
I These institutions include banks,insurance and venture capital companies
and a stock exchange market(Ghana Stock Exchange).

High Safety Standard;

I There are high standards of health and safety measures in the country.

Warm and Friendly People;

I Ghana is internationally acclaimed for her hospitality to her investors and
foreigners as a whole.
I Availability of Land;
F Ghana has a wide expanse of land that can be acquired with little difficulty
through appropriate agencies and owners for industrial purposes.

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The Performance/Role of the the Industrial Sector in
Ghana

How then does the industrial sector contribute to economic growth and
development of Ghana for which, considerable attention should be given to
the sector to harness the maximum benefit from it?

and

What are some of the factors that hinders its continuous growth and
successes?

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The Performance/Role of the the Industrial Sector in
Ghana
The contribution that the sector makes to the economy of Ghana can be
looked at from the following perspectives:

The overall contribution, as measured by the sector’s production and flow

of goods and services, i.e; Real GDP.

The employment the sector offers and hence its contribution to poverty
reduction.

The foreign exchange earnings accrued by the sector.

The sector’s contribution to diversification of the Ghanaian economy

The sector’s contribution to modernization of the Ghanaian economy.

The ability of the sector to generate further investments in the economy.

Contribution to government revenue; from taxes.

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The Role of the Industrial Sector in Ghana
Contribution of Industry to Ghana’s GDP

The second largest contributor to Ghana’s GDP; 13.68% in 2017 (WDI,

2018).
Contribution of the sector has considerably been increasing over time.
Share of industrial sector to GDP averaged 14.2% between 1987 - 2003
and 22.73% from 2003 to 2017.

Industry (including construction), value added (% of GDP)

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The Role of the Industrial Sector in Ghana
Contribution of Industrial Sector to Ghana’s Employment

Figure 1: Employment in industry (% of total employment) (modeled ILO estimate)

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 End of Lecture.

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In the Next Lecture...

To be considered...

Education and Health in Ghana

All the best and See you in the next Lecture.

Thank you

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