What is Industrialization?

1. What is Industrialization? It has been defined as a process in which there is the transformation from the dependence on agrarian and handicraft to the dependency on an industrial sector driven economies. Webster’s New World Dictionary- Industrialization is the change in social and economic orgn resulting from the replacement of hand tools by machine and power tools and the devt of large-scale industrial prodn. Industrialization is interpreted as a process whereby the share of industry in general and manufacturing in particular, in total economic activity is increased.

2. Why StudyIndustrialization Industrialization is at the centre of devt. Since the industrial revolution in Britain in the eighteenth century, industrialization has been perhaps the single most profound change to the social and economic make-up of societies. For instance, Japan has industrialized with startling speed with it consequences for the world economy. It is therefore important to understand the process of industrialization if the country is to develop rapidly.

3. Industrialization and Development There are two theoretical perspectives that dominant in the study of development namely: • StructuralistApproach toindustrialization−linked to more protective policies to nurture the growth of industry. • Neo-Classical Approach toindustrialization − linked to more market-oriented policies. These two macro theories of eco devt can be directly related to strategies or models of industrialization

4. Differences b/w Structuralist Approach and Neo-Classical Approach

5. Industrial Sector in Ghana The industrial sector in Ghana broadly consists of manufacturing, mining and quarrying, construction, electricity and water sub-sectors. But, the sector is dominated by the manufacturing sub-sector which presently account for abt 60% of the total industrial output/GDP. The manufacturing sub-sector include the iron and steel sub-sector (largest), cement sub-sector (second largest) and beverages sub-sector.

6. Industrial Sector in GhanaCont. The industrial sector could further be sub divided into groups such as: • Food processing- meat, diary products, vegetables oil, canned fruits, breweries, and soft drinks, tobacco and miscellaneous. • Chemical industries- pharmaceuticals, perfume and cosmetics, paint, soap, bitumen and plastic products. • Processing of raw material- saw milling, furniture, typing and painting. • Light machinery- non electric and metals • Vehicles and motor bicycles assemblies • Construction including bricks and tiles, cement and concrete products

7. Industrial Sector in Ghana Cont. The major public and private institutions involved in the industrial devt include: • Ministry of Trade and Industry (MOTI) • National Board for Small-Scale Industries (NBSSI) • Ghana Regional Appropriate Technology Industrial Service (GRATIS) • Ghana Investment Promotion Centre (GIPC) • Council for Scientific and Industrial Research (CSIR) • Ghana Exports Promotion Council (GEPC) • Divestiture Implementation Committee (DIC) • Private Enterprise Foundation (PEF) • Association of Ghana Industries (AGI) • State Enterprise Commission (SEC) • Rural Enterprise Project (REP)

8. Characteristics of the Industrial Sector • The key sub-sectors are highly import-intensive i.e. over dependent on imported raw materials. E.g. an average of 45% of inputs used by these firms is imported. • Low capacity utilization of installed plants, as a result of outmoded plants and machinery, inadequate raw materials, and high cost of locally produced raw materials. • Predominantly small scale or at best medium sized industries employing in most cases a handful of workers (less than 50). Hence, enable to enjoy economies of large-scale prodn.

9. Characteristics Cont. • High labour usage as compared to capital utilization since many of them was established as avenue of employment. • Low level of indigenous ownership and controls. • Low level of applied research, inadequate qualified managerial staff and low level of training of entrepreneurial staff.

10. Importanceof the Industrial Sector • The sector is a contributor to GDP. The sector’s total industrial output as a percentage of GDP peaked at 28% in 1997 but decline to 22.1% in 2004. • A source of employment. B/w 1975 and 1982 total formal industrial employment was b/w 68,000 and 158,500. By 1991 it has decline to 47,200. • A source of foreign exchange earnings. Exports earnings from the sector come from the minerals mainly gold and diamonds. Revenue more than doubled from US$ 246.98m in 1990 to US$ 494.37 in1993.

11. Challenges and Constraints • Inadequate finance for working capital, rehabilitation and modernization • Rapid depreciation of the cedi • Tight monetary policy pursued by govt has increased the cost of credit • Some of the enterprises operating under high protective barriers are now finding it extremely difficult to cope with the liberalized and more competitive mktenvironment

12. Challenges Cont. • Low utilization of installed capacity as a result of; • Obsolete plants and machinery • Inadequate raw materials inputs and high cost of locally produced raw materials. • Increased competition from imports associated with trade liberalization • Inadequate infrastructure, power, transport, etc.

13. Key Interventions Pre-ERP Industrialization • Industrial policy strategy after independence followed three major patterns. • First, there was a strong emphasis on import substitution to reduce economic dependence and reduce the pressure on BOP caused by rapidly increasing imports and stagnant export earnings. Import substitution industrialization was to be achieved via high levels of effective protection and quantitative restrictions.

14. Key Interventions Cont. Second, administrative controls were relied upon to determine incentives and resource allocation rather than the market force. Govt licensing set the imports of equipment and industrial inputs and outputs were controlled. The system of control provided complete protection to domestic firms. Tax holidays, import duty exemptions and subsidized credit determined the investment incentives of these firms while imports licensing restricted competition.

15. Key Interventions Cont. • Lastly, there was dependence on large-scale public sector investment for industrial devt. The rational of which was to provide sufficient investment in order to jump to a high growth path and to break the political and economic concentration of power in the hands of foreigners and take our economic destiny into our own hands.

16. Achievements • The policies adopted during this period stimulated rapid growth of the manufacturing output (averaging 13%) and employment (average 8% per annum). Total industrial output as a percentage of GDP peaked at 21.5% in1977.

17. Constraints • However, form1977 the industrial sector began to lose its momentum. B/w 1975-1979, the manufacturing sector declined at an annual average rate -2.5%. The decline in growth rate was serious during the period 1981-82 with total industrial output declining by 23% with manufacturing declining by 36.3%.

18. Constraints Cont. • The serious rapid decline in industrial performance was due to domestic mismanagement and BOP problem. The external shocks: severe droughts (1975-77, and 1982-83) and oil shocks (mid-70s) and unfavourable prices for cocoa, timber and especially gold. This resulted in shortage of foreign exchange.

19. Key Interventions Cont. Post-ERP Industrialization • The launching of the ERP in April 1983 changed the macroeconomic and incentive framework within which industry had to operate. • After the introdn of ERP there was a major shift in industrial policy in Ghana from import substitution and over protected industrial strategy to an outward oriented less protected or liberalised strategy. • Under ERP, the private sector was seen as the prime mover of industrialization.

20. Post-ERP Cont. • These objs were to be achieved with emphasis placed on: • Reconstruction of the industrial sector and rehabilitating major industries including expansion, diversification and modernisation of existing viable enterprises and enhancement of their competitiveness. • Promoting the est. of new industrial capabilities and environmentally sound industrial operations, including increased investment and devt and acquisition of appropriate technologies. • Promoting the local indigenous private sector and involving both local and foreign private enterprises to a greater degree in industrial devt of the economy.

21. Post-ERP Cont. These objs and strategy were to be adopted within the broader specific economic policy reforms initiated under the SAP, which include: • The introdn of mkt determined exchange rate • Liberalisation of interest rate and financial system in general • Removal of price and distncontrols

22. Post-ERP Cont. • Revision of the investment code to make it more attractive to investors. This led to the promulgation of a new investment code (PNDC L. 116) and the est. of Ghana Investment Centre • Restructure the tax system to ensure reduced duties on imported inputs, reduced excise taxes as well as corporate taxes • Initiation of the SOEs reform programmes

23. Achievements • The industrial sector responded strongly after the implementation of ERP particularly during the early part. B/w 1984 and 1987, the average annual growth of industrial output stood at 12.2%. However, there has been a considerable slow down in the growth of the industrial sector since 1988. The average annual growth rate was 4.5% b/w 1988 and 1999.

24. Achievements Cont. • Formal empt in the industrial sector rose from 91,700 in 1983 to 131,600 in 1987and also formal empt in manufacturing increased from 43,00 to 78,700 in the same period. • There was an increase in capacity utilisation. E.g. capacity utilisation in manufacturing increased from a low of 18% in1984 to 46% in 1993. Industries which are local resource based such as tobacco, beverages wood and food processing also showed remarkable increase in capacity utilisation.

25. Constraints • The achievement of ERP was short-lived after 1987. This was the result of the problems that accompanied the rapid liberalisation of trade and exchange rate coupled with financial reforms and its attendant high interest rates. • Also, the manufacturing sub-sector had to contend with debilitating problems of rapid depreciation of the cedi, high rate of inflation and high cost of credit which increased prodn cost.

26. Constraints Cont. • Again, the sub-sector was made to compete with the influx of cheap imported goods. • Other problems include inefficiency of import substitution manufacturing sub-sector and the lack of effective linkages b/w manufacturing and other major sectors especially agric.

27. Achievements The above problems do not suggest that the other sub-sectors were not responsive to the ERP. The construction, mining, and quarrying, as well as electricity and water responded positively registering output growth of 5.9%, 13.5% and 43% respectively in 1984 compared with -14.5%, -14.4% and -38.9% in1983.

28. Key Interventions in Current Years In 2002 with the govt determination to work toward its vision of golden age of business, the presidential initiatives were launched to boost industrial output and exports through agric-processing and also to exploit opportunity arising from preferential access to US and European Union mkts.

29. Interventions in Current Years Some of the key interventions during this period include the following: • The free zone and the gateway programme, which are attracting investments into the country. Promoting exports processing, increasing exports and accelerating eco growth. • Est. of the procedures and mechanism for implementing the purchasing of made in Ghana goods by public sector orgns to support local industry and promote local prodn of quality goods.

30. Interventions in Current Years • Rationalisation of tariff regime to be supportive of industry; including introdn of 20% special tax on frivolous imports and goods for which local prodn capacity exist. • Completion of the groundwork for the commencement of the integrated programme for industrial devt. • Est. of Export Devt and Investment Fund (EDIF) to support the expansion of non-traditional exports.

31. The way forward • The main policy thrust is to develop a more competitive industrial sub-sector driven by the private sector, and with potentials to make inroads into the international mkt with value-added products derived from local resources, through the application of science and technology and in an environmentally sustainable manner.

32. The Way Forward Cont. Other suggestions include: • Promotion of joint ventures by Ghanaians/international partners • Enhance access to the mkts of the developed economies for locally manufactured products. • Human resource devt and institutional capacity building for key stakeholders in the public and private sectors, including attachments, study tours etc. • A well functioning infrastructure (good roads, ports, telecommunications, energy etc)

33. The Way Forward Cont. • Strengthening industrial support institutions (universities, technical and vocational institutions, NBSSI, AGI, Ghana Chamber of Commerce etc) to enable them provide more effective management and advisory services, including the orgn of management training Programme. • Strengthening the links b/w industry and other sectors of the economy. • Support for the mobilization of long-term investment capital for rehabilitation/modernization and start-ups, particularly in the priority areas of food processing, textiles, garments, wood processing and packaging etc.