Ghana - Towards efficient self-reliance : the role of manufacturing

William F. Steel Report No. 465a-GH RM K-5003 Ph. 676-1928 World Bank, 1818 H, NW TO\VlA/nrrdSc rPffircint CZc.lf-RPolinrian Washington, DC 20433 The Rolie of IAvIdI1UIdLLUriII in Ghana A Report Prepared by The industrial Mission to Ghana October 25, 1974 Not for Pubiic Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Equivalents 01 U.S. $0.87 U.S in _z f - 4  The Industrial Mission to Ghana was composed of the following members: Keith Marsden, Chief of Mission Fateh M. Chaudhri, Economist Alfredo D. Gutierrez, Economist Walter H. Oettinger, Industrial Engineer (UNIDO) William F. Steel, Economist (Consultant).   TOWARDS EFFICIENT SELF-RELIANCE THE ROLE OF MANUFACTURING IN GHANA Table of Contents Page Preface Summary of Findings and Conclusions i - Policy Recommendations iv - Institutional Proposals vi - Investment Opportunities viii - International Aid viii I. Manufacturing Industry's Contribution to the Ghanaian Economy - In Broad Perspective 1 A. Industrial Development Strategy and Policies 1 B. Share of Manufacturing in GDP 2 C. Share of Total Employment 3 D. Personal Incomes 4 E. Share of Government Revenues 4 F. Foreign Exchange Earnings and Savings 5 G. Investment 6 H. Inter-Sectoral Linkages 8 I. Future Policy Directions 9 II. The Structure of the Manufacturing Sector in Ghana 10 A. Introduction 10 B. Growth Performance 1962-70 11 C. Structure of Manufacturing Sector 11 D. Employment 16 E. Cost Structure in Manufacturing 19 F. Regional Distribution 25 G. Structure by Ownershin and Nationalitv 29 H. Small-Scale Industry 34 III. Efficiency of Ghanaian Industry 41 A. Domestic Resource Cost of Foreign Exchange Saved or Farned L2 B. Profitability in the Manufacturing Sector 44 1. Pimic 1irnternrises (GTT.THOGn) 2. Other Enterprises 46 C. Canacitv Utilization L8 D. Performance of Ghanaian Manufacturing Comnared with Other African Countries 50  Page IV. Natural Resources and Material Supplies to Industry 53 A. Introduction 53 B. T. arAd Agricul'+ural Raw aeil 1. Cereals 55 2 . Meato U .d 3. Fish 60 4. DalX y 1roducts A 5. Sugar and Sugar Products 62 u * AJ.-LL)-LC d.ILU L!00A 1tI L.LO..i UJ.L0L a.I1' IJ.L.L ILo. .ALU U 7. Vegetables, Fruits and Other Tree Crops ard Soft' r iks 66 8. Rubber 68 9. T obacco 70 10. Leather 70 12. Cocoa and Cocoa Products 72 13. Overall Agricultural D-eveloppment Otrategy 1 4 C. Forest Products 78 D. Mineral Reso-urces anid rOiuucts 81 E. Conclusions 90 V. Foreign Exchange 91 A. Foreign Exchange Budgeting and Licensing Systems 92 B. Export Promotion 95 1. Ghana Exports and the EEC 96 2. Export Difficulties 96 3. Export Incentives 97 4. Institutional Arrangements 99 vI. Capital Constraints 101 A. Impact of Fiscal Policies on Industry 101 1. Company Tax 101 2. Excise Taxes and Local Duty 102 3. Sales Taxes 103 4. Import Duties 103 5. Conclusion on Fiscal Policies Affecting Industry 105 B. Overall Trends in Commercial Banks Loans to the Manufacturing Sector 105 C. Financial Instituticns and the Manufacturing Sector 106 1. Bank of Ghana (BG) 106 2. Ghana Commercial Bank (GCB) 112 3. The National Investment Bank (NIB) 117 D. The Capital Investments Board (CIB) 126  ITT TMn-owr 135 A. ~ ~139 A. - a.,ning, Institution 145 B. Managerial Rewards and Sanctions 146 D. Social Characteristics of the Ghanaian 153 V-4 - 153 Facto V.Ly WorkerV. 154 E. Wage and Salary Structure and Costs 154 F. LJ.~JJLWUM.power in Pi.nl-iL, U ANN1ErX i Food and Beverage Industries 1 A. Overall Trends 1 B. Material Inputs 5 C. Capital Intensity ANNEX 2 Cotton Textile Industry 1 ANNEX 3 Wood Products Industry 1 A. Ghana!s Timber Resources 2 B. Timber Marketing and Production Controls 2 C. Structure of the Wood Products Industry 3 D. Characteristics of the Major Sub-Sectors 3 1. Sawmilling and Plymilling A 2. Furniture Manufacturing 4 E. Management Structure in the ihdustry 6 F. Conclusions and Recommendations ANNEX 4 Building Materials and Metal Products 1 A. Cement Manufacture B. Cement Products 2 C. Low-Cost Construction Research D. Metalworking Industries (including engineering) 4 1. Construction Steel (Manufacture and Use) 6 E. Agricultural Equipment 6 F. Small Implements U G. Pots and Pans 9 H. Aluminum Products (excluding pots and pans) I. Electrical Goods 1 J. Vehicle Assembly K. Rehabilitation-of Heavy Equipment 13 ANNEX 5 The Structure of Employment in Small-Scale Manufacturing and Repairs in Accra, Ghana A. Introduction: Summary and Conclusions 1 1. Main Findings 2 2. Recommendations 2 B. Data: Sample Survey of Small Businesses in Accra  Page C. Small Business Employment by Sector and Industry 3 D. Distribution of Firms and Employment by Industry E. Distribution of Firms and Employment by Size Category 9 F. Problems of Operating Small Businesses 12 G. Policies to Help Overcome Problems 14 1. Manufacturers, Associations 1) 2. Credit Facilities 16 H. Appendix Tables 18 ANNEX 6 Infrastructure Facilities Available to Industry 1 A. Road Transport 1 B. Railway 3 C. Electricity 4 D. Water o E. Construction 10 1. Public Construction Industry 10 2. Private Construction Companies 11 ANNEX 7 Imported Inputs as a Proportion of Total Materials in Various Manufacturing Activities in 1966 1 ANNEX 8 Ghana's Investment Policy 1 1. First Schedule: Projects Which Are to be Jointly Owned by Ghanaians and Foreigners 1 2. Second Schedule: Full Ghanaian Ownership 2  Preface i. This report presents the findings of a World Bank industrial sector mission which visited Ghana between October 15 and November 10, i973. It analyzes data made available to the mission from official sources as well as information obtained during interviews with officials of government departments, research and training institutions and aid organizations, and the managers of some 70 manufacturing enterprises. It also draws upon previous studies, published and unpublished, relevant to an overall assess- ment of the situation and prospects of industry in Ghana. ii. The main aim of the report is to provide guidance on the policies, programs, investment opportunities and institutional arrangements which will enhance industry's contribution to Ghana's development goals. iii. Chapter I gives a broad perspective on industry's role in the Ghanaian economy, highlighting trends in output, employment, personal incomes, share of GDP, foreign exchange earnings, investment, government revenue and inter-sectoral linkages. iv. Changes in its structure, by product group, type of ownership, and regional distribution are reviewed in Chapter II. v. Chapter III examines some indicators of the efficiency of Ghanaian industry in meeting the government's priorities and objectives. vi. The next four chapters study in more detail the resource constraints which have affected the size, rate of growth and efficiency of the industrial sector and suggest ways in which these contrants could be eased. Chapter IV deals with natural resources and raw material supplies; chapter V with foreign exchange; Chapter VI with capital; and Chapter VII with manpower. Selected aspects of specific sub-sectors are discussed in Annexes 1-8.   SUMMARY OF FINDINGS AND CONCLUSIONS i. At first glance, manufacturing has been one of the most healthy and dynamic sectors in Ghana. Gross output from larger enterprises (30 or more employees) nearly tripled in constant prices between 1962 and 1970. Value added grew by 13% per annum on the average. Employment practically doubled. Labor productivity, expressed in value added per employee, reached almost US$3,000 in current prices in 1970. The share of large-scale manu- facturing in GDP went up from 3.8% in 1962 to 6.3% in 1970. ii. These figures reflect real progress in certain areas. Considering the lack of previous experience, the rapid growth of large-scale industry represents a considerable achievement in terms of skill acquisition and occupational mobility on the part of the 56,000 Ghanaians engaged in this sector. Ghanaians have increasingly taken over managerial and technical posts from expatriates. Good standards of quality and design have been attained in such products as textiles. furniture and beverages. iii. Closer scrutiny, however, reveals that the present government. which took office early in 1972, inherited an industrial structure and policy framework which had some serious weaknesses. These deficiencies, which reduced industry's effective contribution to the government's develop- ment obiectives. may be listed as follows: (a) Low valtie adAed at internatinna1 nrices. High tariffs {effective rates of protection above 100% were common), quantitative import controls, and restr1pt.. tnmestir competition have resulted in inflated output figures. Revalued at international prices, ar:1ue :added would be Rsustatimallyr less (b) qma ll fe,rva4. Aexcangea, snar4gsa .anan a. 4"..A-t- 4a 4 mport intensive. Eighty percent of materials inputs and almost all the equipmint coma farn,m a Three-quarters of a sample of enterprises were shown to be "inefficient" savers nf f^Voa4ryeg exchange, ^. * t-ha4 -r . ' A "ae4 r pea dvol allr of foreign exchange saved would have been too high to allow tham toen t cm a .protected against 4m.i-e ai, ever i-h a m -.8a-- - -..rs.&-O , - - a 50% devaluation. Under utilization of capacity due to foreign exchange con.straents has been a m.ajor c aue. (c Fe.w dome...st-i 14i--a T1s. Ir . ha dort little to ..i-4ate \L~ L~ UPfLA L.A.%- .JL4.r..0=a0 ~L&AtL&0 LL LLOSU UWLPLL= .~~~ ~ output and incomes in other sectors. Consumption goods pre- dL.MI-n ate . T."J.'ese were im port=reprooduucing rathLler thanL i..FL .pot substituting, using the same design and material specifications and' terchrIol1ogites as0 ovqers-eas marLu'Lacturers. Eroduction. o' indigenous consumer products and intermediates based upon local materia-Is had bUeen [Iarupered'f by; (i s UvCr-vaLueu currency; (2) lower duties on inputs than on final products;  (3) price controls making industrial crops unattractive to Ghanaian farmers; and (4) western-oriented consumer tastes, particularly among the educated, higher income groups. (d) Few jobs created. The unemployment situation is serious in Ghana. Large-scale industry has contributed very little to its solution. Factor price distortions (duty-free imports of machinery, interest rates of 6-10%) ! prestige considerations, extensive financing through suppliers' credits, and the licensing resource allocation system have resulted in a pronounced bias towards capital-intensive technology. The sector took 10% of total capital formation but provided iobs for only 1-1/2% of the labor force. The employment figure would be considerably less if controls exercised by the Ministry of Labor and Social Welfare did not make it extremelv r7iffitnilt fnr PntPrnr4lqP to relpaqp qitrnisu labor. (e) Unbalanced regional development. Industrial growth has been concentrated in t-he Greater Acrra area l-with nover S0T of value added but less than 10% of the population. Attempts to .Qito lsi-rcp nlntf-- in riirnl nrenas failpei hPev.seQP o.f difficulties in organizing supplies and distribution. (f) Ne&ligible export promotion. The inward-oriented indus- tr-iHlz4tion policies have blunted tih scopke for -.4ing Ghana's comparative advantages (e.g., low wages, tropical m-aterials) for expandir.g exports of m-an.ufacture-s. Ex_lu-' ding cocoa butter (which is a special case), exports of manufactures w-nounted to less than 2% of gross manufacturing output and just over 1% of total exports. Little practical action LlaU 'een talken to encourage interAfrican trde (though substantial smuggling does take place). (g) Low levels of efficiency in the public sector. State enrterprL ses were favored UurE Ug Ltle N'KrumLaUhi regre. LL e'ir share of total manufacturing output by larger firms reached 42% in 1967. Tney have proved to De less profitable than private enterprises because: (1) their initial capacity was often too large in relation to the market and avail- ability of material and skill inputs; (2) low capacity utilization has increased costs and squeezed margins; and (3) salary rates compare unfavorably, making it difficult to attract and hold the most able managers and skilled workers. In addition, there has been an absence of managerial and employee incentives related to performance. (i) Inadequate repair and maintenance capacity. Too much machinery and equipment has been lying idle, in all sectors, because of insufficient attention to maintenance and inadequate repair capacity and experience in the engi- neering industry.  (i) SamL -z-s cale LLindus try nreglected. t ranufactu-ving e-ntLe rprJiscs with less than 30 employees have been largely ignored, if not discriminated against, in development policies. Yet it is an important and in some ways vigorous sector. It may provide employment, at least on a part-time basis, for over 400,000 persons compared with 56,000 in larger firms. Most are self-employed or working in ramily units. Their premises are generally the home, a shack or the open air. Tneir equipment is often rudimentary. All but a few are denied access to institutional credit. Management training and advisory services cover only the modern, factory-type enterprises. Imported materials and equipment are difficult to obtain. Despite these handicaps they show ingenuity in resource utilization. They are often making the real indigenous substitutes for imports by meeting basic consumer needs in ways which better reflect Ghana's resource endowment. iv. Many of these weaknesses have been recognized by the National Redemption Council (NRC) Government. Its freedom of action to tackle these problems has been circumscribed by political considerations and economic realities, as well as by the fact that it was not starting with a clean slate. Nevertheless, vigorous steps have been taken on a number of fronts. These include: (1) simplification of the tariff structure by reducing the range and number of categories; (2) substantially increased allocations (through the Budget and development banks) to agriculture, to increase the availability of domestic raw material inputs to industry; (3) establishment of Regional Development Corporations to promote, inter alia, a wider diffusion of industry outside the major cities; (4) introduction of 20% bonus to encourage the expansion and diversification of exports; (5) formation of the Ghana Manpower Board to formulate plans and policies for the development, education, training and fuller utilization of Ghana's human resources; (6) discouraging excessive capital labor substitution by introducing a license levy of 20% on imported machinery and allowing the Capital Investments Board to grant employment tax credits as an investment incentive. (7) decision to establish the Small Scale Industries Develop- men;u BJ'oardl UtLU se-IC up organ 'iJ zaion.LUIIs 'rU Uand d Upw-up pIX)gL a,, that will provide technical, manag-rial and financial as- sistancu Uo aid thiUle deurelopmiuJ u oul s-uecI scable IndustUi-1Js.  - iv - v. The mission was unable to assess the impact of all these measures because of the paucity of data from official sources on the industrial sector during the past three years. Some improvement was evident at the factory level, but to some extent this reflected the easing of import restrictions made possible by higher cocoa prices. A more fundamental restructuring seems to be necessary in the longer term, if the Government's development goals are to be realized. vi. It is the mission's view, however, that all these measures can be expected to enhance industry's role within the broad strategy chosen by Ghana--efficient self-reliance. The mission suRgests that they may be complemented in the following ways: Policy Recommendations Chapter IV - Natural Resources and Material Supplies to Industry (1) Restrict backward integration into agriculture by industrial firms to nucleus farms and niantations which will act an demonMtration prn1p-ts for independent farmers. This investment should be accompanied by supportive extensi-on qsrv1res, guaranteed nrines and eexnnderd crpAi4t far4ilities fnor smallholders (para. 4.71). (2) Concentrate on industrial crops in which Ghana possesses the greatest comparative advantage rather than atremnting tn hbecnme sef-cuiff4cien1.t in all raw material inputs to industry. Comparative advantage should be deter- mined by thorough f-naCil4tv ast-,,4. of the C08atS an.d benefie of suggested programs for expanding or diversifying industrial crop production, using i-t-rn.ti 1 -4-^, 0_.- . nn .1n_. .& ^.k OI^ * A j&.&..^J r- fl- *'J'J *- *'.J *- J - Chapter V - Foreign Exchar.ge (3) Pxvse `the i ---- t 1icer.sing syster, to 1 -- ---- relisbule f-rwarl %I I %V.L 9 LtL &.AJIAjJL L LL)LZA5 . LLI LUV a