Industrial Transformations for Growth and Development
Even with Ghana’s impressive economic growth in recent times, the country’s industries still lag behind the services sector in its contribution to both GDP and employment. Ghanaian manufacturers struggle to overcome the difficulties posed by infrastructure problems, informality, and the lack of skilled labour and good management practices. Financial constraints, high cost of doing business, and difficulties to access credit also make growth harder for companies of all sizes.
Ghana needs to build up its industry to promote overall growth for the long term. The government can help catalyze this transformation, but public resources are limited, and it is often difficult to assess where increased spending would do the most for overall development and wellbeing.
Ghana Priorities, a collaboration between the National Development Planning Commission and the award-winning think tank Copenhagen Consensus, commissioned 28 teams of renowned economists to find out which policy proposals will do the most good for every cedi spent. With the support of numerous experts across all levels of society and government, the researchers studied the most cost-effective measures to improve lives and boost growth. The results of this project are now published for all Ghanaians.
To transform Ghana’s industrial sector, Prof. Peter Quartey, Dr. Festus Ebo Turkson, Daniel Chachu and Mawuenyega Makafui Butu from the University of Ghana together with Emmanuel Abbey from the African Universities Alliance analysed a series of interventions designed to improve profitability, economic growth, and employment.
Improving management is one solution. A survey of 33 nations finds Ghana’s average managerial score close to the bottom. But several studies show that if government pays for consulting services, it can significantly improve factory operations and processes in areas such as quality control, human resources, inventory, and sales. The average costs and benefits for medium-sized companies are based on a randomized controlled study in Kumasi, and for large companies it relies on similar data from India. The cost for management consulting is GH¢ 1.6 million per large company and GH¢ 7,000 for medium-sized companies. But such management training can help businesses to grow and become more profitable. It can increase Ghanaian profits in larger companies by GH¢ 10.5 million for the initial 6 years. For medium-sized companies, the benefits of consulting in the first year alone were estimated at GH¢ 71,000. Every cedi spent by the government on improving management practices would thus bring a return 6 times higher than the original investment for large enterprises, and almost 10 times higher for medium-sized companies. Consulting could also have a spillover effect on other local firms that would see their growth and productiveness increase by implementing these improved management practices.
Access to credit is another crucial factor for private businesses and economies. Financing for companies could be promoted in Ghana by ensuring better surveillance of the credit referencing system, better address systems, improving the quality of information available to lenders and enforcing a rewards and sanctions regime. Better information reduces risks for lenders, and as a result more credit becomes available at a lower interest rate. This would help Ghanaian companies make the necessary investments to grow and improve. The researchers discovered that the provision of better information in the credit system would cost GH¢ 6 million per year, but the benefits in credit availability and cost could reach GH¢ 70 million per year. Every cedi spent would create nearly 12 cedis worth of benefits to society.
The researchers also looked at doubling public spending dedicated to research and development from 0.4% to 0.8% of GDP, or by GH¢ 1.2 billion. Investment in R&D has been one of the most important sources of economic growth in many developed countries in recent times, and it could have a big impact on Ghana’s industrial sector. Every cedi spent could generate benefits worth 1.5 to 1.75 cedis, boosting economic growth by at least 0.6 percentage points per year if spending on R&D is doubled.
The manufacturing sector could also receive a significant boost from grants to small businesses and from reducing the cost of electricity for industries. The researchers found that subsidies for electricity could create profits for the companies worth 1.8 times the original investment, while providing capital grants to selected microenterprises were estimated to generate a benefit of 7 cedis for every cedi spent.
In conclusion, industrial transformation has been the main source of growth and employment creation for many advanced economies. In order to maintain and increase the promising levels of growth of recent years and provide wellbeing for all its citizens, Ghana needs to transform its industrial sector structurally. These interventions could point the way to the implementation of Ghana’s current 10-Point Industrialization Strategy which when well implemented, could provide the much-needed development for the long term.
This article was originally published in Ghana's newspaper of record - The Daily Graphic.