Industrialising Ghana… the solution to Ghana’s economic problems

The notion that countries develop mainly by industrialising has made many underdeveloped and developing nations commit much resources toward industrialisation. Velde (2017) writes that a cursory look at national and Pan-Africa policy statements suggests that many African countries have a strong desire to industrialise. Also, Obinyeluaku (2017) reports that the former chief economist of the World Bank, Justin Lin, is reported to have said: “all countries that remain poor have been unable to diversify away from agriculture and the production of traditional goods into manufacturing and other modern activities”.

According to Asante, Nixson & Tsikata (2000), industrialisation is the development of a modern manufacturing sector which involves the organisation of production in business enterprises; specialisation and division of labour; and application of technology to supplement and replace human labour.

Industrialisation takes many forms and goes through different stages over time. Mokyr (1999; cited in Robinson, 2009) reports that sometimes industrial policies may have promoted industrialisation either inadvertently or deliberately. For example, the way that Joseph Stalin promoted industrialisation in the Soviet Union in the 1930s was completely different from the way General Park Chung Hee did so in South Korea in the 1960s. In the Soviet and South Korean cases, the governments overtly committed themselves to industrialisation.

In other cases, however, whether or not industrialisation occurred intentionally is not obvious. One example would be the Calico Acts passed by the British Parliament in 1701 and 1721 with subsequent amendments. These acts raised prohibitive tariffs on cotton goods imported into Britain from India, and even banned the wearing of garments made out of Indian fabrics (calicos). This led to development of the cotton cloth industry. A more positive explanation for the introduction of these reforms in the cotton cloth market was that they were advocated by the English wool and linen industries, which were suffering from Indian competition.

No matter how industrialisation has been promoted over time, there are several combined factors which promote its development and its eventual contribution to economic development. These factors include: population growth; availability of natural resources; overseas trade; potential domestic demand for goods and services produced; well-developed financial markets and availability of financial capital; adaptation and adoptability of the people; innovations; inventions, transportation; political stability devoid of partisan politics; political expediency; developing and implementing appropriate industrial policies; and availability of raw materials.

The role of industrialisation in economic development is traced back to Britain’s industrial revolution, which began in the 18th century. It was a period in which household craftsmen were moved to an organised system of production with the use of machinery in production (factory). It was a period when a lot of technological inventions and innovations took place, which gave much impetus to unearthing and developing the citizens’ ingenuity.

The two forms of innovation that contributed to Britain’s industrialisation were product innovation and process innovation. Product innovation occurs when an entirely new product is produced through the technical acumen of people or managers of business enterprises. Process innovation occurs when an existing product is transformed into a new look due to dexterity and division of labour.

The use of factories increased economic growth and facilitated economies of scale in mass-produced goods and the introduction of new technologies for accelerating production, which made many goods less expensive. Floud (1997) writes that the average person in Britain became so much better-off: people were healthier and longer-lived; their lives were better and they lived in better houses; their cities were better provided with roads, public buildings and transport; and they ate more of a greater range of produce, and could spend more of their time in leisure and less at work.

Over time, the British economy took centre-stage in the world’s economic system by supplying the rest of the world with goods, services, innovations, and inventions which other nations lacked in return for money. Rich British entrepreneurs owned foreign empires that brought development to the doorstep of many underdeveloped nations of the world. Since then, Britain’s industrial revolution and economic transformation have provided the blue-print for other developed, developing, and underdeveloped nations of the world. I believe that the souls of departed men and women whose sweat brought development to Britain, USA, France, Germany, Russia, Japan, Korea, China, etc. will look back at the fruits of their toil with nostalgia.

  • Benefits of Industrialising a Nation

Industrialising a nation provides numerous benefits, including the following:

  • Industrialising a nation will help create more well-paid jobs for the citizenry. The employed will earn incomes to feed themselves and their dependents. Social vices that occur due to unemployment, other things being equal, will reduce. In 1850, workers in industrial nations earned eleven times more than their counterparts in non-industrial countries (World Bank, 1995, p.53; cited in Encyclopedia of Sociology).
  • Industrialising a country will increase national income growth. For instance, during Britain’s industrial revolution total national income increased by more than 600% between 1801 and 1901 (Mitchell 1962, p. 366; cited in Encyclopedia of Sociology). Generally, it is said that industrialisation has a positive relationship with national and individual income, urbanisation, infrastructural development (e.g., communication and transportation networks, education, and health and welfare programmes), and the overall quality of life (Hedley 1992, pp. 133–146; cited in Encyclopedia of Sociology).
  • It is expected that industrialisation will increase governments’ tax revenues. Increased job opportunities have the effect of creating more income and corporate taxes for governments to embark on infrastructural development for further economic growth.
  • Industrialising a country will help it to develop its raw material base, add value to its products and to remain competitive on the international markets. This will promote the development of other sectors in the economy that feed or feed on the industrial sector. This, in turn, will create more jobs for the people. Foreign exchange will also be earned from the sale of locally manufactured goods, which will improve the terms of trade and bring about increased value of local currency.
  • The technological transfers for local companies’ development is worth noting. Foreign companies that establish branches in the domestic economy will come with foreign technologies which will promote the development of ancillary industries.
  • The volume and cost of imports will reduce drastically, because the demand for imported goods and services will reduce in favour of locally produced goods and services. Foreign exchange will be conserved for development, and will help raise the value of the domestic currency against the currencies of major trading partners.
  • The international relations between an industrialised nation and other countries will improve tremendously as countries attempt to create conducive environments to maximise the gains of international trade.
  • Ghana’s Quest to Industrialise
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The efforts toward industrialising Ghana began with Dr. Kwame Nkrumah after Ghana had obtained independence from the British in 1957.  The industrial objectives of the nation were characterised by import substitution (producing what were previously imported), government-owned factories driven by the success story of the Soviet Union (USSR), and government regulatory measures to determine resource allocation.

Unfortunately, many of those factories were not completed and others collapsed in the course of time after Nkrumah’s overthrow and demise. Others, too, were privatised by successive governments: because of non-performance; corrupt bureaucrats and politicians; political instability; negative attitudes of workers; inadequate domestic and external markets for the goods produced; lack of raw materials; and ineffective policy directions of the World Bank and International Monetary Fund (IMF).

Today, our quest to build a Ghana beyond aid; produce goods sufficiently to feed ourselves; earn enough foreign exchange for infrastructural development; have a favourable exchange rate; and the need to catch up with the rest of the world seem to heighten our desire to become industrialised. Myjoyonline.com (2019) reported that Ghana spends over US$2billion every year importing food. The country imports over a billion dollars of rice, US$320million of sugar, and US$374million of poultry products.

In the light of these, experts say that Ghana needs to industrialise so as to produce what its people eat and use as well as export its excess produce after value addition to earn and conserve foreign exchange for development. As an economist, I do not dispute the notion that Ghana needs to industrialise to meet its development aspirations, but I still believe that the solutions to our economic woes are multi-faceted in nature.

Asante et al. (2000) also reveal that: “It is generally accepted that industrialisation is a necessary, but not a sufficient, condition for the rapid and sustained development of poor countries”. Probably because the volumes and prices of our exports are determined by our major trading partners in developed countries, we are managerially inefficient; we are corrupt; and we are technologically inept – which all usually derail the efforts toward industrialisation and the gains of industrialisation in poor countries.

Furthermore, Asante et al (2000) add that, for most developing countries, the question is not whether to industrialise but how to industrialise. Therefore, as we strive to industrialise, the questions we may want to ask ourselves will include the following:

  • Should Ghana pursue import substitution industrialisation (self-sufficiency), having realised that it virtually imports everything its people eat or use?
  • Should Ghana pursue export-oriented industrialisation?
  • Should Ghana pursue both import substitution and export-oriented industrialisation?
  • Should Ghana pursue industrialisation dominated by foreign-owned manufacturing companies?
  • Should Ghana promote industrialisation dominated by Ghanaian-owned manufacturing companies?
  • Should government participate actively in the industrialisation process, by setting up factories or engaging in public-private partnerships with Ghanaian and foreign entrepreneurs?
  • Which sectors of the economy should government support for its industrialisation aspirations?
  • Does Ghana have enough bold leaders and strong policies to become industrialised?

The possible answers to the above questions will come from the industrial policies we develop as a nation; past experiences (both within and without); current trends in industrial and economic development; and the expected benefits and costs of each type of industrialisation agenda Ghana may want to pursue.

Ghana’s industrial sector contributes about 25.3% of total gross domestic product. The industrial sector is made up of five subsectors: namely manufacturing, construction, mining and quarrying, electricity, water and sewerage (Addo, 2017). The core of industrial development must be development of the indigenes’ ingenuity through innovations and inventions, with some reasonable amount of foreign assistance.

Thus, Ghana must not entrust its attempt to industrialise to foreigners, to the detriment of development for indigenous innovations and inventions – so that the country will not lose its national identity to foreign ownership and controls. In the event that foreign entrepreneurs decide to relocate their investments, the nation will be found wanting.

Developing national champions in the manufacturing or industrial sector will increase our national identity. National champions are companies which feed into governments’ strategic goals so governments support them by providing them with easier access to financing, giving preference in bidding for governments’ contracts, and sometimes giving monopoly status in protected industries. These give such companies a number of advantages over their competitors.

Graceffo (2015) reveals that in China, the majority of these ‘national champion’ companies are state-owned enterprises (SOE); and have grown in size and are among the largest companies globally. Obinyeluaku (2017) adds that the government of China developed a group of enterprises, called ‘pillar industries’, in automobile, machinery, electronics, petrochemical and construction, and invested directly toward these strategic areas.

In addition, foreign investors were invited to bolster domestic industries by expanding the domestic capital base and advancing the state of domestic technology. Ghana has a lot to learn from the Chinese experience, but must tread cautiously to avoid mistakes. “There is no quick approach to industrialisation except by going through basic processes. No matter how late a nation starts its development, it must repeat earlier stages to succeed. You cannot just skip it, jump forward directly from agricultural, primitive method of production to a modern automobile assembly line.(Wen, 2015)

In the light of these, I hope and pray that the New Patriotic Party (NPP) government led by Nana Akuffo-Addo will ensure there is a sufficient number of local entrepreneurs in ownership and management of the One District, One Factory initiatives for its numerous expected benefits. Since 2018, I have followed with keen interest government’s attempts to lure foreign automobile multinational companies such as Sinotruk of China, Volkswagen (VW) of German fame, Nissan of Japan, and Renault Group of France to set up assembly plants in Ghana (Nunoo, 2019).

Though the idea is laudable, we should not concentrate on the short-term benefits to allow those foreign companies to kill local automobile companies like Kantanka Automobile Company.  We can only encourage local capital and ingenuity to complement foreign ones for growth of the industrial sector and economy as a whole.

  • Measures to Reap Maximum Benefits from Industrialisation
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Among the measures to put in place to industrialise and to enjoy the full benefits of industrialisation are as follows:

  • There is a need to develop more indigenous manufacturing enterprises to solve the problems of our overdependence on imports. Government must deliberately assist local entrepreneurs to build factories with local technologies, inventions, and innovations that will lead to ‘national champion’ companies. Local entrepreneurs can enter into partnerships with foreign companies or government where they lack the wherewithal to be on their own.

The government of France is reported to own 15% shares in Renault Automobile Company. This creates a lot of stability in management of the company. With this, parts of the profits which are earned will stay in Ghana for the development of Ghana. It will help us avoid creating space and markets for other countries’ companies.

Structural change theorists are of the view that the only way capitalists contribute to economic growth and development is by reinvesting their profits back into the economy (Todaro & Smith, 2006). Mustapha (2019) reports that Ghana is projected to be one of the two fastest-growing economies in the world for 2019, with a growth rate of 8.8% according to World Economic Outlook published by the International Monetary Fund (IMF). The question one may ask is, what percentage of Ghana’s gross domestic product (GDP) is produced by indigenous Ghanaian companies? Unfortunately, most foreign businesses repatriate their profits back home; and by that weaken the value of our currency.

  • There must be a strategic national development plan infused with appropriate industrial policies for industrialising Ghana. Industrial policies are concerned with the policies which are intentionally adopted by governments with a view to influencing the development of particular industries, firms, and sectors of the economy (Nellis & Parker, 2006). Despite the problems that are associated with industrial policies, industrial policies impact on business structure and business restructuring. Sharkass (1979) writes that industrialisation of a country should be based on a long-term plan of development based on reliable data about the existing economic, agriculture, industrial, and infrastructure conditions. This analysis should cover availability of resources and problems associated with industrialisation in developing countries.
  • Again, there is a need for adequate potential domestic and foreign markets for goods and services that will be produced. The essence of production is consumption. The success stories of Britain’s industrial revolution, and the recent success of China, are hinged on large population growth that provided large domestic markets for the goods that were produced. The surplus goods are usually sold outside for foreign exchange. Ghanaians must be encouraged and educated on the need to buy made in Ghana goods and services. In the work of Obinyeluaku (2017), we read that Côte d’Ivoire and Ghana produce 53% of the world’s cocoa, but the supermarket shelves in their major cities are stacked with chocolates imported from Switzerland and the United Kingdom.
  • There must be availability and easy access to cheap financial capital for industrial development. Governments’ industrial tax incentive packages and subsidies will help promote local industrialisation. However, I do not subscribe to the NPP government’s decision to pay 10% of interest on loans that will be acquired by entrepreneurs of One District, One Factory projects. It would be better for government to use such amounts of money and more to own shares in these factories.
  • There must be vigorous effort to invest in other sectors of the economy to supply manufacturing companies with local raw materials, and in turn serve as markets for semi-finished and finished manufactured goods. This will form a very important raw materials base for industries and reduce the amount of foreign exchange spent on imported raw materials. Larger markets for local economic resources will be created to reduce costs of production and prevent closure of some businesses as has happened to the Komenda Sugar Factory.

Akwa (2019) and Gobah (2019) report that the Komenda Sugar Factory – built at a cost of U$35million from an Indian Exim Bank facility – with a capacity to crush 1,250 tonnes of sugarcane per day, was expected to change Ghana’s dependence on sugar imports; however, many challenges, including unreliable supply of sugarcane for continuous processing, led to its shutdown a few weeks after inauguration.

  • There must be appropriate means of protecting our infant industries. An infant industry is an industry that is in its early stages of development. The firms are usually inefficient, uncompetitive, and highly vulnerable to sudden market changes; and it is difficult for them to compete against foreign firms that usually have the advantages of economies of scale. New industries require protection to promote national security and reduce over-reliance on goods imported from abroad.

Infant industry protection encourages growth of local companies and the consumption of domestically produced goods. The protecting infant industries argument was initiated by Alexander Hamilton in 1791, when he argued for the protection of industries in the United States from imports from Great Britain (Peterson, 1984).However, Washington’s support for free trade started to wane when its industrial supremacy was threatened by Japan in the 1980s (Elliot, 2018).

  • Conclusions

Though there are common features of industrialisation, the differences in its introduction and adoption have produced inequalities among nations and among people. Again, industrialisation is a necessary, but not sufficient, condition for the rapid and sustained development of poor countries. Industrialising Ghana may not necessarily provide the magic wand needed for economic development.

Therefore, for Ghana’s industrialisation drive to solve its economic woes, managers of the economy must critically ensure that a large number of ‘national champion’ companies are developed and assisted by the state to become globally competitive. They must ensure that the companies set up are economically, technically, socially, allocatively, and productively efficient.

Attitudinal change in every segment of our society is also key to economic development. We seem to be overly-obsessed with industrialising for increased exports of our produce, though we have a huge problem of overdependence on imported goods. The negative effects of industrialisation and how it should be mitigated must be considered in all major policy decisions on industrialising Ghana. We must bear in mind that industrialising Ghana will only be one part of the multi-faceted solutions to Ghana’s economic problems.              

The author is a Senior Lecturer at Wisconsin International University College, Ghana

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