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On the 2012 Budget: Ghana’s manufacturing sector is failing

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Ghana’s real GDP growth rate (oil & non-oil) recorded for 2011 which was 13.6per cent puts Ghana ahead of its neighbours in the regional economic bloc, Economic Community of West African States (ECOWAS) and also fastest growing economy the on the Continent of Africa. It is therefore one the most attractive emerging market destination globally for FDIs.

2012 budget indications

The cedi traded weaker on both the Inter-Bank and Forex Bureaux markets during the nine month period of 2011. At the inter-bank market, the cedi depreciated by 3.2 per cent, 7.6 per cent and 8.9 per cent against the US dollar, the Pound Sterling and the Euro, respectively. Similarly, the Ghana cedi depreciated in the forex bureaux market by 6.2 per cent, 7.9 per cent and 8.7 per cent against the US dollar, the Pound Sterling and the Euro, respectively.

Merchandise exports totaled US$9,792.2 million compared with US$5,869.6 million in the corresponding period of 2010, indicating an increase of 66.8 per cent. The increase was the result of an additional boost of US$1,972.7 million of exports receipts from the emerging oil sector and improvements in earnings from the main commodities exported by the country, especially, gold, cocoa beans and cocoa products.
Merchandise imports in the first nine months of 2011 amounted to US$11,478.0 million indicating a growth of 45.6 per cent over the value of US$7,886.1 million for the corresponding period in 2010. The increase in imports was due to a 48.0 per cent growth in non-oil imports and 36.0 per cent growth in oil imports.

Of key interest is the Industry sector of the economy, which led the growth rate (recording 36.2 per cent) compared to the two other sectors, i.e. agriculture, which recorded 2.8 per cent and the services, which yielded 4.2per cent.

In 2011, the industry sector overtook the services sector in 2011 to lead the GDP growth rate in the economy.

Failing manufacturing sector

Regrettable though is that a closer look at manufacturing, one of the sub-sectors portray it performing well below expectation in 2011. Manufacturing grew by 1.7per cent compared to the target of 7.0 per cent.

The 2012 budget reveals the nation’s manufacturing sector which is dying and inconspicuous. Most factories have not witnessed growth in technology and failed to invest  in new and modernized equipment (which leads to higher electricity consumption). Job cuts and distress financial conditions have crowded out local firms to the advantage of foreign competitors. As a result, a third of locally located firms are shutting down their operations annually.

Government is aware and is attempting to do something about it in 2012. The introduction of the Industrial Competitiveness Bill that seeks “to facilitate the creation of a competitive manufacturing sector and the promotion of the use of local content,” couldn’t have come a better time. But industry think tanks ought to take matters more seriously to the industry. A good beginning is to engage government at all levels and also call for more R&D (Research & Development) budget. We believe this is where the Venture Capital Trust Fund (VCTF) should be more focused.

Trend

Records show that the nation’s balance of payments over the period 1996 and 2008 has usually been in a surplus, except for the years 1996, 1999, 2000, 2004, and 2008.

However, Ghana’s trade balance has consistently been in a deficit and these deficits have increased over the years. The trade deficit increased from about US$367 million in 1996 to about US$4,985.7 million in 2008 and then declined to almost US$2,207 million in 2009 and rising to US$1bn in recent times.

This is against the backdrop of significant increases in Ghana’s exports over the period, from US$1.6 billion in 1996 to about US$5.8 billion in 2009. However, imports over the period have increased relatively faster, from US$1.9 billion in 1996 to about US$10,261.0 in 2008 and then declined to US$8,046 in 2009.

The main components of Ghana’s exports remain cocoa and gold. Their joint contribution to total exports ranges from a high of 74% in 1996 to a low of 54% in 2001,information from Bnk of Ghana indicate. In terms of individual products, it is observed that gold remains the major export earner of the economy over the period with the only exception being in 2004 when it was overtaken by cocoa.

From government’s own archives, we find the following analysis; “The destination of exports from Ghana is fast changing. In 2000, about 72% of Ghana’s exports went to the industrialized countries. The share of exports to the non-industrialised European countries and the rest-of-the-world were about 11% and 17% respectively. This began to change in the last few years. By 2007, the rest of the world was taking almost 68% of the total exports of Ghana while the industrialized countries absorbed only about 25%.

China becomes major destination for Ghana’s exports

This was largely due to increased exports to China. The remaining 6.3% went to the non-industrialised European countries. Although exports from Ghana to the rest of the world have almost doubled since 2000, the increase in the share going to the rest of Africa has been marginal. The changing share of exports to the rest of Africa is mainly accounted for by a change in the share that goes to ECOWAS. Among the ECOWAS countries, Benin remains the major destination of exports from Ghana, a Bank of Ghana report has published.

The changing share of exports to the rest of Africa is mainly accounted for by a change in the share that goes to ECOWAS. Among the ECOWAS countries, Benin remains the major destination of exports from Ghana,” says a official document.

Conclusion

Exchange rate fluctuations experienced over the last half of the year, 2011, is exerting a major strain on the economy, and especially on local firms whose dependence on foreign raw material imports is high. With the rising rate suppressing Ghana’s imports, Ghanaian local firms manufacturing for the domestic market face bankruptcy as consumers are ultimately bound to find foreign goods cheaper.

Failing manufacturing sub-sector is not in the interest of the nation since it is expected to provide services, technological backstopping to other sectors of the economy, increase exports, and create jobs. Manufacturing also provides handson expertise to young professionals.

Growth in the manufacturing sub-sector is key indicator of openings and a competitive labour market, and government must create effective policies immediately to save the sub-sector.

Finally, we also consider macro-economic stability as a key economic and growth factor, and  with the upcoming general elections; we urge government to resist the temptation of paying less attention to monetary and fiscal prudence.

By Nana Mensah Emmanuel

Email : nana.mensah@brooksmoney.com

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