PSI: Misconception, Potential, Hurdles and Reality

I believe the Presidential Special Initiatives is among the most reported agenda of the current administration and evident of that is over 150 PSI articles reported on Ghanaweb per year. Most, of course, have been issued by the Government touting its achievement and hurdles while a dozen or so has touched on personal attacks from the vibrant press and few others on substance. I intend to shed light on the another angle, angle yet to be explored, angle that will throw light on the misconception, potential, hurdles and reality of the PSI with particular emphasis on Textiles

I am not sure the birth of PSI can be attributed to “Alan Cash” as reported in some circles; then again I do not have the cell phone of the president on speed dial to confirm. The program began with the Textile initiative which I believe was in direct response to the African Growth and Opportunity Act (AGOA) of the Bill Clinton administration. The act as most of you already know, allows importation of over thousands of product classification into the USA provided the exporting country is shown to be practicing the rule of Law, in short Anti-Boom!!!

This instantly opened the $10 billion a year apparel industry to 33 or so African countries to exploit in great magnitudes. Our president saw the opportunity and quickly created special office to facilitate Ghana’s readiness. Major apparel producers were gathered and a facility was purchased from the Akosombo Textile to start vigorous training of the workers with promise of jobs upon completion. Consultants were brought in, speeches flew left and right, promises and Sod cutting, Sampling and investor courting etc (you get the picture)

How does AGOA stark in? Let’s say you are a Jeans factory in China and produce for the USA market. At the beginning of each year you will be allocated a quota by the Government of China due to restriction from the USA. Most factories run out of quota by Mid-spring. For the factory to continue producing they will have to buy quota from another factory with less orders (very expensive proposition) Quotas can run from a few cents to in the case of a jeans about $3. This means the factory in china before even cutting the fabric will have a cost of $3 to start from. Then upon completion the importer in the USA will also pay duties of about 19%. This can create an artificial cost of $5 per jeans. A cost a factory in Ghana will not have to incur. And trust me folks, that makes a huge difference. In fact buyers will switch from one factory to another if they can save 20 cents per Jeans. So you see why the President felt we could compete.

Misconception:

The General public’s idea of the PSI has always being a Government project not a Government sponsor one. The role of the PSI secretariat to my understanding was to create the necessary frame work for the stakeholders to operate. This includes facilitating trade mission, cutting through Red Tape, technical assistance, training and even to some extend financial assistance. I believe that was achieved to some extend. There are currently over 15 factories on the ground with various capacities and success stories. Most if not all was financed with assistance, financial and technical from the PSI, the Government still staffs well knowledgeable folks to man the secretariat and frankly speaking I believe they are doing a fine job given the circumstances. The private sector has failed to latch on to these great incentives and the Government should not be blamed for any shortcoming of the project.—well to the extend it has been.

Potential:

In a nut shell Textile business is very labor intensive and to my assertions an industry that can employ Ghanaians in uncharted proportions. The mid size factory with 200 machines working two shift can employ directly over 500 young folks with also 400 being women. With a market of billions of dollars in the USA I am sure 100 factories in Ghana will not make dent. The call to the private sector was made and only a few chose to respond. This will also improve the balance of trade with the USA. Although the wages are not much to write about the annual salary currently exceeds the per capita by a third.--- call the PSI secretariat in Accra. A good example is Lesotho, overnight they took over from Kenya as leading exporter of Textiles to USA with just a major single Jeans Factory by a Taiwanese investor. They more than tripled they balance of trade with the USA in a positive way.

Hurdles:

One of the biggest hurdles was to overcome public misconceptions; the PSI on textile never had the opportunity to take off before the critics took a front seat. This bad press was the first in the series of hurdles. I will attempt to outline a few that are purely related to the economics. Next came the big elephant in the room, money, money more money. The Government’s “dream” was to build 100 factories, information obtained from the 100s of press releases and sod-cutting. The cost was over $70 million in shell buildings and millions more to stock them with machines and millions more to train and million more …for logistics improvement. The total project in my estimation had a price tag of $200 million but the returns will have being even more enormous and long lasting.

Next came the reality of a starting industry, although the factories in Ghana had a comparative advantage in theory, the level of efficiency was so low. Although workers in Ghana and China were paid the same, the Chinese produced three times more than the Ghanaian on average. This increased production cost for the Ghanaian factories and eroded the advantage they had in the quota free and import duty free.

Another big hurdle was virtually all raw inputs was coming from outside. This has various implications and the biggest of all was time! Importers in the USA cannot afford to raise LCs for more than 60 days. The stores cannot afford to wait for stuff ordered more than 60 days ago…the industry in cutting cost removed warehousing as well thereby limiting the time from factory to shelf. Ghana had to import the fabric from China, a 45 day freight time and sew and then export to USA through Europe. Total time of 120 days in most cases. This is a no-no for most importers, our true around time was way higher than the industry standards are.

Reality: I will end by saying the reality is what you make it. I believe the program needs rejuvenation. Government need not do much more than it has done or is doing but rather the private sector should take advantage. One product that can be sourced from Ghana are uniforms since they are relatively less complex and the fabric is consistence hence one can cut down on delivery time by stocking fabric locally in Ghana.

In conclusion as I all always say, never believe any thing on face value. If the subject is of interest to you please find time to research the sector. Call the PSI secretariat in Ghana, speak to factory owners etc

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.