Saving the dying textile industry…the Indian way

For over a decade now, the once vibrant textile industry in Ghana, has been on life support and is on the verge of taking its last breath.

The industry used to employ over 25,000 people in the early 1990’s; but today, the industry is said to only employ about 2000 people, representing a 92 percent drop since 2005.

Players in the industry have largely blamed the situation on government’s lack of commitment to protect the industry from ‘dumping’, as fake textiles from, mainly China, flood the market and consumers rush for them due to their cheap prices.

Marketing Director at GTP, Stephen Badu, reportedly said that out of 15 textile companies which operated in the country some 20 to 30 years ago, only three are standing.

“In the 1980s and 1990s we had over 15 textile companies. Currently just three of us are now in active business: Tex Styles Ghana limited, which is GTP, Printex and ATL. Now if you put the staff of the three companies together, we are less than 3,000,” he said.

So, the question is: what can government do to support and save this all-important industry which has the potential of creating thousands of jobs to partly address the high unemployment problem in Ghana, especially when all the three regions of the north have good weather for cotton cultivation?

If government cannot offer the protection industry players are asking for, what can it do to make them competitive to compete with cheap Chinese textiles on the market?

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The Indian way

This analysis takes a critical evaluation of what the Indian government is doing to boost its textile industry; and what the Ghanaian government can also learn from it.

India practices a federal state system of governance. It has 29 states, with a central government as head. Each state has its own scheme for developing its industries. This analysis centres on the Gujarat State, together with the central government’s schemes to boost the textile industry.

Under the Gujarat state Subsidies and Incentives Scheme, there are three main interventions, namely: Capital Subsidy, Interest Subsidy, and VAT Concession.

If a company wants to enter the textile industry as SME and goes for loan at the bank, the government provides a capital subsidy of 15 percent of the amount taken as loan to the business to use as capital.

For example, if the loan from the bank is US$50,000, the state government will support the company with additional US$7,500, subject to conditions. This doesn’t end here.

The state government, again, provides a 7 percent subsidy on the interest payable on the loan. What it simply means is that, the Gujarat state will pay 7 percent of the lending rate which currently is in the region of between 9-11 percent for five years for the company. So, ideally, the company pays just between 2-5 percent interest on the loan per annum.

Central government support

This is an incentive given by only the state government, before the central government also comes in with its own ‘goodies.’

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The central government, also, under what is known as the Credit Linked Capital Subsidy Scheme, will provide that SME with another 15 percent capital subsidy of the amount borrowed from the bank, subject to some conditions.

So, in all, the two governments—state and central— pay 30 percent of the amount the textile company borrowed from the bank, of which the company will not have to pay back to either governments.

And if the company is under the Textile/Technical Textile Policy, it gets a 6 percent interest subsidy from the state government per annum unlimited.

That is not all. That same company also enjoys a VAT concession (one-eighth) up to the amount of capital it has invested in plant and machinery for a period of eight years.

What it means is that the company will retain one-eighth of the VAT payable to the government for a period of eight years.

Goodies from Central bank

Under the Technology Upgradation Funds Scheme (TUFS), the central bank also provides 15 percent capital subsidy unlimited for investment in plant and machinery.

With the incentives provided above, if a company is able to satisfy all these conditions and gets the aforementioned support, why can it not compete with foreign products.

And what is more, if that industry is also protected by government, how can it collapse?

This is no rocket science. The government of Ghana can learn from its developing partner—Indian — and offer similar support to the country’s dying textile industry if it cannot grant it protection from unfair foreign competition.

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