Budget Review: INDUSTRY– Can the 10-point pillars save ailing industrial sector?

The growth of industry is critical to every economy. In fact, all developed economies have industry as their main driver of growth, providing employment to large numbers of people. Industry adds value to a country’s raw materials, thereby raking in more revenue to government than any other sector.

But sadly, that cannot be said of Ghana. Industry has really been in distress for some years now, thereby, aggravating the country’s unemployment situation.

The highest contribution the sector has ever made to Ghana’s economy was in the first quarter of 2013 at 33.7 percent. Since then, its contribution to the economy has been below 30 percent, recording 24.2 in the second quarter of 2017.

Largely, as a result, a World Bank report in 2016 revealed that about 48 percent of Ghanaian youths are unemployed.

Data from the Institute of Statistics, Social and Economic Research (ISSER) of the University of Ghana, also shows that only 10 percent of graduates find jobs after their first year of completing school, whereas, it is estimated that about 70,000 students graduate from the country’s tertiary institutions.

This can be largely blamed on the country’s industrial sector’s abysmal performance, which has made it difficult for it to employ a chunk of the workforce.

Facts and figures

A look at the facts and figures make the situation more heart-wrenching.

As recently as 2011, the industrial sector, as compared to agriculture and services, was the largest contributor to the country’s Gross Domestic Product (GDP), as it grew at a rate of 19.2 percent in the first quarter of that year.

This was significant because the sector had been recording single digit growth rate from 2009 until it hit 10.3 percent in the last quarter of 2010.

It is also important to note that it was around the same time that the country begun production of crude oil in commercial quantities.

Hopes were high then that industry would continue to be the largest contributor to GDP and continue to record a positive growth rate.

As envisaged, the growth rate of the sector skyrocketed to 42.5 percent in the second quarter of 2011 and further jumped to 54.4 percent, making it one of the highest rates ever recorded for the sector.

However, in the fourth quarter of 2011, growth begun to decline, as it came down to 50.7, and worsened to 28.7percent in the first quarter of 2012, and further down to 2.3 percent in the last quarter.

In 2013, hope was restored somewhat as growth doubled from 8.2 percent in the first quarter to 16.6 percent in the second quarter. However, in the third quarter, the sector’s growth took a sharp nosedive again to 1.7 percent, which continued to 0.5 in the last quarter.

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The decline continued in 2014, reaching -1.8percent in the quarter, but inching up to 4.6 in the third quarter, and reversing again to -0.1 in quarter four.

Industrial growth was nothing to write home about in 2015 as the second and third quarters recorded negative rates, with the exception of quarter four when it recorded 2.2 percent.

In 2016, it grew by -11.2 in the second quarter but inched up in the third and fourth quarter when it recorded 3.5 and 4.8 percent respectively.

The abysmal performance of the sector has been attributed to three main factors, namely: energy crisis; high cost of power, even when it is available; and high taxes, with all having led to high cost of production which has suffocated many companies and led to the collapse of some.

On the power shortfall, in 2015 the Ghana Employers Association revealed that over 12,600 employees lost their jobs mainly due to power crisis.

The Industrial and Commercial Workers Union (ICU) also said over 560 jobs were lost between January and March 2015, also due to the power crisis.

Even though the power crisis eased in 2016, it came at a great cost to industry as the alternative sources government employed to augment the main hydro-electric source of power produced power at a higher cost (19 cents kw/h) – thereby leading to tariff increments.

The Public Utilities and Regulatory Commission (PURC), in January 2016, announced an upward adjustment in power tariffs of 59.2 percent, and water by 67.2 percent.

As if that was not enough, in 2015 the energy sector levies were introduced as part of measures to raise funds to settle the indebtedness of Volta River Authority (VRA) and Electricity Company of Ghana (ECG) to some commercial banks in the country.

The levies included a 5 percent rate for street light levy and another 5 percent levy for the national electrification charge.

A new hope

After such a disappointing performance, for the first time in four years, the industrial sector outshone the two other sectors, as it grew by 11.6 and 19.3 percent respectively in the first two quarters of 2017.

The reversing fortunes of the sector, according to AGI President, James Asare-Adjei, can be attributed to efforts by both the previous and current governments in addressing some of the major challenges that have stalled growth in the sector for some years now.

“We have in the past year or so seen marked improvement in energy supply to industry. Even though the cost of power is unreasonably high, we have made good progress from the time that power supply to industry was very challenging,” he told the B&FT.

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“Again, for close to a year now we have seen relative stability in the currency. We saw in the past huge swings in the cedi’s sustainability.

The current government also removed some taxes that we term nuisance taxes, and that has been very helpful. It has given some respite to industry players.

All these are key things happening in the economy that have brought some confidence into it. The last Business Barometer Survey Report we released indicated very much improved confidence in the economy.”

In line with its campaign promise, the NPP government abolished and reviewed some 15 taxes it calls ‘nuisance taxes’.

Some of them include: reducing Public Lighting Levy from 5 percent to 2 percent; removing import duties on raw materials and machinery for production within the context of the ECOWAS Common External Tariff (CET); abolishing excise duty on petroleum; and also reducing the special petroleum tax rate from 17.5 percent to 15 percent.

It has also promised to provide the right mix of power, so that businesses can have access to power at a relatively cheaper cost than they are currently bearing.

Above all, the Akuffo-Addo-led administration has launched one of the most ambitious programmes in the history of Ghana—the One District, One Factory initiative.

The programme, according to government, will be a vehicle to revive the country’s manufacturing sector, and add value to agriculture, thereby, addressing the troublesome youth unemployment situation in the country.

So far, some 185 business proposals have been cleared as ‘viable and bankable’, and have been lined up for roll out in 99 districts across the country under the programme.

Aside this initiative, government has said it will roll out a ten-point agenda for industrial transformation. This includes: a stimulus package to economically viable but financially distressed companies; development of strategic anchor industries towards diversifying the economy; establishment of Industrial Parks in all regions; development of small and medium-scale enterprises; and export development programme.

Others are: enhancing domestic retail infrastructure; improving the business environment through regulatory reforms; industrial sub-contracting exchange; improving public-private sector dialogue; and as mentioned earlier, the One District, One Factory.

Government is hopeful that with these interventions, it can overturn the less than satisfactory fortunes of the industrial sector and create enough jobs for the youth.

Again, government is hopeful that, with the plans it has already rolled out, industry’s target of 11.2 percent growth rate can be achieved. Are these measures enough to turn the sector around? Time, as the adage goes, is the best judge.

By Obed Attah Yeboah l thebftonline.com l Ghana

 

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