'Dynamo sector' facing problems

Twenty years ago, manufacturing accounted for around 14 per cent of GDP; today it is 10 per cent or less, reports Mark Turner

"In the 17th century, Ghana used to export gold, people, spices and some timber," says Jake Obetsebi-Lamptey, campaign manager for Ghana's New Patriotic Party, with a mischievous look in his eye. "On the eve of the 21st century, it exports gold, people, cocoa and some timber."

Even allowing for an element of poetic licence, it is a discouraging observation. Despite 15 years of structural adjustment, Ghana remains fundamentally a rural, commodity-dependent economy.

Twenty years ago, manufacturing accounted for around 14 per cent of GDP; today it stands at 10 per cent or less. Since 1989, the sector has grown at a mere 2-3 per cent a year, according to the Association of Ghana Industries (AGI), and underperformed the economy as a whole.

Manufacturers face high interest rates, infrastructural problems, a shortage of foreign exchange and aggressive competition from Asia. Medium-scale operations are struggling.

That is why Andrew Quayson, the AGI's new head, says it is time for the sector to start raising its voice. "When the economy was totally liberalised, we were flooded with imports from the east. This wiped out our medium-scale manufacturers, which could not compete. If we continue this way, even 2-3 per cent growth will be difficult to sustain," he says.

"To be competitive you need a level playing field. But Ghanaian companies borrowing at 32 to 38 per cent are competing with imports from Malaysia and C?te d'Ivoire where interest rates are a third of that in Ghana. It is difficult to get a phone line, we have problems with clearing goods from ports, and we face shortages in energy and water. Our labour cannot compare in technical competence.

"We say to the government: yes, we agree with a liberal trade policy, but you must take into account with whom you are asking us to compete."

It is a worrying analysis. Ghana remains one of Africa's leading advocates of free trade, and is still touted as an example to be followed throughout the continent. But the fairness of the rules are being questioned, especially given the levels of support other parts of the world have received during transition.

Despite pressure from some manufacturers, Mr Quayson is not yet ready to abandon liberalisation. He is convinced that protection helps little in the long term, and is against raising tariffs. But he does warn that his members face conditions under which even the most efficient companies would be hard pressed to compete. If the government does not offer more support (it budgeted 16.5bn cedis for the sector this year), and reduce borrowing, the next few years could be disastrous.

Not everyone shares his gloomy analysis, however. Girma Beganshaw, the IMF representative to Ghana, described manufacturing as "the dynamo sector" in 1999, due for growth of 6 per cent. He thinks that organisations such as the Centre for Policy Analysis, which charted only 2.7 per cent growth in industry last year, has been overly pessimistic.

Wilfred Okine, with PricewaterhouseCoopers, agrees, and sees evidence that competition is fostering the emergence of new, leaner operations - such as Ghana Textiles Printers (GTP). Brewing, in particular, was a success story in 1998, registering 15 per cent growth in volume, while multinationals such as Unilever have been performing well. "There is certainly growth in the well-run companies," said Mr Okine.

Meanwhile, banks are diversifying away from paper, following drops in T-bill rates, and looking towards industry. "We have been focusing on building our asset portfolio," said Vishnu Mohan, managing director of Standard Chartered. But it is notable that the banks are still chasing a relatively small pool of strongly performing blue-chip industries, as well as traders, and do not seem interested in the smaller operations.

There, says Mr Quayson, lies the problem. The large companies have been able to compete because they have financial support and have been able to upgrade their equipment, while the likes of GTP have benefited from outside investment.

But Ghanaian outfits without a big brother cannot afford the finance to keep apace - depriving the country of a significant engine for growth and employment. Compounding matters is the fact that foreign exchange is now in short supply.

Yaw Osafo-Maafo, the opposition spokesman for trade and industry, adds that corruption is having a significant effect. "These manufacturers are facing unfair competition from imports on which duty is not paid," he says. If he were elected, he promises he would put a far greater emphasis on primary product processing.

Overall it is a worrying picture, and one that is likely to get worse as low cocoa prices kick in. Perhaps, as the IMF suggests, the concerns about manufacturing are exaggerated, with Ghana breeding a new, leaner sector better able to operate in world markets.

But if, as the AGI believes, serious problems are beginning to emerge, the government's alleged unwillingness to address them may be an expensive mistake.