macroafricaintel | Ghana – Assessing the ‘one district, one factory’ policy

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Nana Akufo-Addo, the president of Ghana, is a great speaker. English audiences listen in awe to his speeches, marvelling at his mastery of their mother tongue. His fellow citizens did not stand a chance against his charm. He defeated an incumbent to the coveted position he now occupies with relative ease. His oratory was not all that won the votes of the majority of his compatriots. He sold a dream of an industrialised Ghana that would look beyond aid to development. At the time, during the campaigns and almost momentarily after he was sworn into office, analysts wondered about the realism of pursuing such adjudged follies as his “One district, One factory”, “One village, One dam” proposals. Still, as highfalutin as they sounded, the citizenry drank the Kool-Aid with relish. And to his credit, he was not just selling a dream. He meant to realise it. Bear in mind, this is not the first time such an experiment would be attempted in Ghana. And even for planned economies in the East like China, which underpinned the failed first trial, the authorities there have since learnt the wisdom of allowing market forces to determine certain things. Clearly aware of the scepticism, Yofi Grant, chief executive of the Ghana Investment Promotion Centre, told the Financial Times, a British newspaper, in September 2017, that “this time around it’s going to be private-sector driven, with government only playing a facilitatory role.”

Slow progress
Has this been the case more than a year afterwards? There has not been as much progress as envisaged by the authorities. Speaking to the Financial Times in October 2018, Joyce Awuku-Darko Osei, head of the transformation unit at the finance ministry, which prepared the current government’s “Ghana Beyond Aid” development framework, avers poor co-ordination is one reason why progress has been slow. “Only 600 of more than 1,000 factory proposals have been evaluated,” she tells the Financial Times. And she refutes the populist garb put on her prinicipal’s intentions. “The idea…is that private businesses can request government assistance (feeder roads, power supply, access to credit, etc) to make factories viable”, she adds. Still, how likely is it that there would be an industrial venture worthy of investors’ capital in every district? What do analysts think? Malte Liewerscheidt, Vice-president for West Africa at Teneo Intelligence in London tells New African that “at about half-time of Akufo-Addo’s first term, the ‘1 district 1 factory’ policy has still to get off the ground. As of October 2018, a mere 18 factories of varying size have been built in the 216 districts. The sluggish progress on one of the government’s flagship policies makes it rather unlikely that the stated target will be achieved by 2020. Teneo’s Liewerscheidt actually questions “whether [this] ‘shotgun approach’ to industrialization will yield sustainable results”. In the view of Verner Ayukegba, principal analyst for sub-saharan Africa at IHS Markit in London, the desirability of industrialisation to tackle such social challenges like high youth unemployment is not the subject of contestation but rather the somewhat impracticable approach. For instance, “factories need support infrastructure and other support services which is impossible to have in all districts”, says IHS Markit’s Ayukegba, reckoning “the concentration in Accra, Tema, [and] Takoradi is likely to continue.

There is also the issue of affordability. With public debt at more than 60 percent of gross domestic product (GDP), can Ghana afford more indebtedness in pursuit of these ambitions? Mr Ayukegba is unequivocal: “No! They’ve had to display immense creativity to get the Chinese to finance key projects with strong IMF [International Monetary Fund] opposition.” China has agreed to fund various infrastructure projects to the tune of $19 billion, in a deal signed during a state visit by President Akufo-Addo in early September, ahead of the Forum for China-Africa Cooperation (FOCAC) meeting in Beijing. More significant for the Chinese, though, is the estimated 960 million metric tonnes of bauxite reserves worth about half a trillion dollars when processed into aluminium that they hope to exploit in the 26,000 hectare Atiwa forest in southeastern Ghana. In a first phase, Sinohydro Corp Ltd paid the authorities $2 billion in November as part of a barter deal to fund road projects in exchange for refined bauxite. The authorities also plan to tap the eurobond markets for as much as $5 billion to $10 billion before end-2018; being the first tranche of its proposed century bonds of $50 billion, an amount almost equal to the current size of the economy. The government is probably banking on crude oil revenues to meet its debt obligations. But at an expected production level of 250,000 barrels per day by 2020, that is even as twice as much could be added soon after, it is unrealistic for the administration to bank its hopes on oil in this regard. That said, there are early indications of interests by foreign manufacturing capital allocators. In early September, the government signed a memorandum of understanding with Sinotruck International, a Chinese maker of heavy-duty vehicles, to build an assembly plant, which would initially produce about 1,500 trucks annually, with room for further expansion. The deal was struck not too long after Volkswagen, the German automaker, announced it was in talks with the government to build an assembly plant in the country as well.

Refine policy, set realistic targets
Without a doubt, there is a strong imperative to grow the manufacturing base. That is, even as crude oil production is expected to boost growth for a while, with the IMF projecting an average growth rate of about 6 percent in 2018-22; after an average acceleration of about 7 percent over the past decade. And even after the review of the base year of the country’s gross domestic product (GDP) data to 2013 from 2006 in September, which increased the size of the economy by about 25 percent in 2017, industry is still about a third of output; despite growing the highest at about 16 percent. Services, which is not as labour-intensive, takes the lion share at about 40 percent. As industry creates more jobs, the issue is not so much about the need for boosting the sector as it is about the approach. But what is the alternative, especially as the country’s increasing oil wealth may weigh on progress before too long if momentum towards an industrialised Ghana is not built right now. “There is no alternative than for government to keep that narrative at least from an aspirational standpoint”, IHS Markit’s Ayukegba opines. But the authorities could also “focus more on regionally-focused clusters to create economies of scale, which countries such as China have pursued with sometimes remarkable success,” avers Teneo’s Liewerscheidt. In any case, “automation in agriculture and industry [would erode] the benefits of such policies for employment [over time]”, adds Ayukegba. What can the government do then to make the policy better so that it achieves the objectives of industrialisation? “Power and other infrastructure investment to make the cost of production and doing business cheap”, is one way, according to Ayukegba, and a boost of the services sector is another. The authorities’ 5-pillar “Ghana Beyond Aid” development framework of wealth creation, inclusivity, sustainability, empowered Ghana, and resilient Ghana (WISER) already incorporates these considerations. So the issue is not so much about policy objectives as it is about a practicable, optimal and sustainable approach.

An edited version was published by New African magazine in January 2019

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