Not long after the 2016 Flag bearer of the NPP, Nana Akufo Addo announced his intention to industrialize the Ghanaian economy through what he described as “One District One Factory” strategy.
I was invited for a panel discussion on Obonu FM business program, Changing Trends with Dr. Mensah Ashley, a financial consultant and Gideon Amissah, Head of policy and economic analysis at the Institute of Chartered Economists of Ghana (ICEG) to analyze the feasibility of the promise.
In fact, the promise by Nana Addo to the good people of Ghana triggered a lot of controversy and debate among the political elite, political commentators as well as those in academia.
The purpose of this article is to have an in-depth analysis of how we can promote industrialization in Ghana. To understand the issues very well, there is the need to understand the whole concept of industrialization.
What is Industrialization?
Industrialization basically is the process by which an economy is transformed from primarily agricultural to one based on the manufacturing of goods. It involves:
- The use of technology and technological innovation
- Efficient use of division of labour
- Production of goods making use of mechanical advantage
Industrialization therefore refers to the shift in the pattern of a country’s output and workforce toward manufacturing or toward secondary industry.
According to Sutcliffe, 1971, a country is deemed industrialized if “a country’s 25 percent of whose GDP arose in the industrial sector, of which at least 60 percent was in manufacturing, and which had at least one-tenth of its population employed in industry” It is interesting to note that in 2006, a number of low-income and low-middle –income countries met at least one of Sutcliffe’s tests, that of having 25 percent or more of output from industry. According to the World Bank (WBR 2008, pp.333, 340-1) the countries includes Brazil, China, Colombia, Bangladesh, Egypt, India, Indonesia, Pakistan, the Philippines, Thailand and Vietnam.
In 1987, an industrialization study was conducted by Warwick Armstrong: The study focused on Germany, Japan, Sweden and USA. Armstrong concluded that:
- The State was instrumental in promoting industrial class to control and promote conditions of growth
- Institutional support provided by Investment Banks is key to promoting industrialization
- Warwick also find out that Germany, Japan, Sweden and USA have strong technical education system
- Effective labour control with respect to monitoring labour productivity and labour pricing was one of the key propelling machinery
- Borrowing and adaptation of new technology for further domestic innovation was available.
“One District One Factor” How feasible?
Personally, I believe in the land of possibility. Recourse to history revealed that, most of the greatest inventions the world ever witnessed were initially considered “impossible” and “unrealistic” yet it became reality.I wish to state that my position on this issue is not intended to endorse a political promise from the NPP but to analyze its practicability and possibly recommend its implementation for the next government being it NDC, NPP, CPP, Independent Candidate etc.
The Analysis
Having factories in every District will be fantastic. This is because it will
- Create jobs for the people
- Minimize Rural-Urban Migration
- Bring about rural development
- Boost economic activities
- Increased agricultural productivity provided its agro-based industries
- Enhance standard of living
- Drastically reduce poverty
- Increase in Government revenue through taxation
Potential Benefits: Critical Review
As much as I strongly believe that “One District One Factory” theoretically sounds great and has the potential to stimulate economic growth and development and create wealth for the citizens, one critical element is missed in the equation. Which is, the cost of such an enviable project and how the NPP Government will fund such projects. I will be very grateful if Dr. Bawumia and the economic team of the NPP can throw more light on the questions raised.
My Perspectives: Recommended Business Model
For the effective implementation of such a project, I hereby recommend the following actions for consideration.
- There should be a sectorial analysis of the Districts in terms of raw material potentials
- Such analysis will reveal that, three or more Districts sharing boundaries with similar raw material potential can share just one agro-based industry. This will ensure production efficiency
- The Industries should be linked to agricultural sector other than that, the productive youth will resort to working in the factories at the expense of agricultural productivity
- Technical institutions and the polytechnics should be resourced to assist in the adaptation of technology to ensure innovation and maintenance support for the industries
- The private sector should be involved to ensure sustainability and growth.
At this point, it is equally important to note that, three key and critical factors are necessary for the smooth implementation of either revamping old industries or establishing new ones:
- Business Value: This is a leadership philosophy based on the principles of value orientation. The objective of such industries should increase the business value in the long term and to guarantee continuing satisfaction and sustainability of tax payers.
- Business Model: There should be the development of a well-rounded strategy to ensure effective implementation of the establishment of the proposed factories.
- Implementation process: The implementation process should examine the factors of opportunity, risk, strength and weakness in order to create a strategy to avoid underperformance of such industries.
Financing Industrial Growth
For industries to develop, investment funds are needed. They can be financed in four (4) main ways:
- Surplus generated funds within the industrial sector
- Surplus funds diverted from other sectors of the economy, especially agric sector.
- Funds obtain from abroad at a competitive rate .ie Loans, Eurobonds, and Grants etc.
- Direct or indirect investment by foreign investors or investment from Nationals living abroad or both.
Apart from the four ways of financing the proposed “One District One Factory” agenda, Nene BanksManagement Consult wishes to recommend the following:
- Channel about 85% of Oil revenue into the project
- Channel about 60% of proceeds from the sale of Cocoa beans
- Government savings, especially in the medium terms.
- Borrowing from the domestic capital market ( long-term Bond Issuance)
- Public-Private partnership Agreement
- 2% of the COMMON FUND
How Do We Propel Industrialization?
It is expedient to recognize the efforts made by government over the years to ensuring that growth in the industrial sector was enhanced. Notable initiatives were introduced by government:
- National Industrial Policy
- The private sector development strategy
- The national Export strategy
More importantly, speeding up industrialization must be done by the state driven policies. That is;
- Policies that accelerate investment
- Policies that will supply well-qualified and highly skilled labour
- Design Investment program that takes the growth of the industrial sector into consideration
- Develop financial systems that will support industrial development.
- Fiscal incentives to encourage investment of small and medium enterprises in manufacturing.
The full implementation of the above policies will lead to an increase in productivity and hence job creation will be enhanced, it will also trigger productivity of labour thereby leading to an increase in incomes. The African Alternative framework for Recovery and transformation suggests the main elements of an industrial strategy (ECA, 1989; Thisen, 1991). The main elements of stimulating industrial production include:
- Administering imports to allow existing industries to survive by ensuring their vital imports needs
- Lower interest rates for industrial production than other purposes
- A system of selectively used multiple exchange rates
- Better access to credit and legal enfranchisement for informal enterprise
- Promotion of small-scale, easily mounted industries manufacturing essential goods through appropriate investment codes and national credit policies
- Creation of special funds for loans at subsidized interest rates to strategic enterprises.
- Better forward and backward linkages between industry and agriculture should be encouraged.
Conclusion
In promoting industrialization in Ghana, it will be necessary to focus on technological capacity, small-scale industries and protection of existing industries. According to Pact(1993(, building on the available skills and further developing the skills base through technical training, improving total factor productivity and attracting foreign investment by multi-National will enhance industrial development.
The writer is the Chief Economists at ICEG and Country Director, Institute of Financial Consultants.
He is also the Lead Consultant at Nene Banks Management Consult.
Tel 0244476376
animamateye@yahoo.com
Nenebanks976@gmail.com