COUNTRY BRIEF Leveraging industrialization for inclusive growth November 2020

explore – compare – analyse – iap.unido.org Leveraging industrialization for inclusive growth

With an average GDP growth rate of over six per is of minor significance Ghana currently ranks 109th out of 128 countries cent per annum between 2000 and 2019, and to the Ghanaian economy in the SDG-9 Industry Index (Figure 1). In two not a single year of negative growth recorded out of five indicators—share of manufacturing since 1983, Ghana’s economic development has value added in GDP and share of manufacturing been significant.1 Posting GDP growth figures of The Ghanaian economy has defied the traditional employment in total employment—the country COUNTRY twice the world average and pushing ahead of model of development by jumping straight outperforms both the African average and that other sub-Saharan economies, Ghana became a from being agriculture-led to services- driven, of Nigeria, the selected comparator country BRIEF supported by a natural resources boom. The lower middle-income economy in 2010 and cut in Western . Regarding CO2 efficiency of its national levels in half between 1992 fact that Ghana has not experienced strong production, Ghana is more successful in the Index GHANA and 2013.2 However, these macro-level indicators industrialization in the past could have negative than the average African country, but does not do not show the deep structural changes that consequences for its prospects in the medium reach the level achieved by Nigeria. With respect Over the last decades, have occurred at the sectoral level over the past to long term. The announcement of the ten- to manufacturing value added per capita and the Ghana has achieved decades. Services now generate the majority point Industrial Transformation Agenda by share of medium- and high-technology (MHT) the government in 2017, however, shows that 5 sustained growth of total revenue, while agriculture—the driver industries, the levels attained by Ghana fall below of growth since the country’s independence—is the country stands ready to give industrial both Nigeria and the African average. without accelerating losing ground, and manufacturing remains only development another push in the coming years. industrialization. While of limited importance to growth performance.3 By the country has met contrast, non-manufacturing industry exhibited with remarkable success strong growth after the start of oil production in 4 in reducing extreme December 2010. poverty, the adverse consequences of the service- and resource- led growth can be seen in rising inequality and unemployment. Aiming to redress the imbalance, the is leveraging industrial development to build a more inclusive economy. Ambitious industrial policy initiatives are mobilizing investment to expand manufacturing capacity with a strong focus on mitigating existing inequalities.

02 UNIDO | Industrial Analytics Platform | Country Brief – Ghana Figure 1: SDG-9 Industry Index for Ghana in comparison to Nigeria and Africa (UNIDO IAP) 03 Taking a closer look at two of the indicators Due to declining revenues from cocoa and of structural adjustments, manufacturing growth used in the SDG-9 Industry Index, a mixed picture considerable increases in government spending, dropped once again. In its place rose the services of Ghana’s industrial performance emerges. the country soon faced macroeconomic instability. sector, together with non-manufacturing industry, According to data based on the National Accounts Political turmoil followed as Ghana experienced providing the boost that has led the country on the Main Aggregates Database maintained by the UN multiple military coups between the mid-1960s steady growth path it has tread ever since. Statistical Division, the share of manufacturing and early 1980s. In this difficult environment, and value added in Ghana’s GDP has been sinking, from suffering the impact of disinflationary policies Another change in policy direction occurred in 16.4 per cent in 2000 to 12 per cent in 2017 (Figure implemented in an attempt to stabilize the 6 the early 2000s. The three Poverty Reduction 2). Starting out with a significant edge over other economy, Ghana’s structural transformation came to Strategies initiated at that time with generous developing economies and the African average, a halt. Between 1960 and 1983, labour productivity 8 support from international financial institutions— the country lost most of its advantage over this recorded negative growth rates. the Poverty Reduction Strategy Paper (PRSP), the period. The case of Nigeria shows that this negative Ghana Poverty Reduction Strategy (GPRS I) and the trend was not common to all countries in Western The programmes Ghana Growth and Poverty Reduction Strategy (GPRS II)— Africa. had entered into by the mid-1980s helped have all focused on poverty reduction via private stabilize the macroeconomic environment, but sector development, with a focus on micro-, small- For most of this period, data based on ILO modelled presented a challenge for the manufacturing and medium-sized enterprises (MSMEs). Industrial estimates suggest a similar negative trend for the sector. In a complete reversal of the state-led policy measures that targeted larger-scale share of manufacturing in total employment (Figure import substitution strategy for industrialization, companies to enhance industrial capacity received 3). Since 2014, however, Ghana has recorded Ghana entered a phase of market liberalization little attention compared to those reforms aimed at a higher manufacturing employment share, and the privatization of state-owned enterprises. improving the investment climate.11 accounting for 15.4 per cent of total employment Freed from the constraints imposed by the public 7 in 2017. sector, Ghanaian firms were expected to operate The oil-fuelled economic boom of the 2010s again successfully in global markets. Figure 2: Manufacturing value added, 2000-2017 shifted the economic policy agenda in favour of (UNIDO IAP) A glance at the structure of Ghana’s manufacturing supporting oil production and related industries, exports shows the dominance of one particular Local manufacturers now had to compete with such as the petrochemical industry. The latest industry: basic metals. In 2018, more than 80 per cheaper and more productive firms from Asia, which blow to Ghana’s manufacturing sector was dealt cent of all manufactured goods exported were ultimately proved impossible for many companies. by the 2012-2015 electricity crisis, during which produced by the metals industry (Figure 4). The Moreover, liberalization of the financial sector regular blackouts and energy rationing disrupted importance of metals (such as aluminium and steel) resulted in higher borrowing costs.9,10 Therefore, production and pushed many companies to the in the country’s exports has increased steadily after some initial expansion following the adoption brink of collapse. during the past years. This demonstrates that Ghana’s strong reliance on its favourable natural resource base expands beyond , oil and gas production, deep into the manufacturing sector.

A long history of experiments in industrial policy

Historically, Ghana has faced many difficulties in developing its manufacturing sector, which have led to frequent changes in strategy direction — alongside corresponding changes in political power and broader trends in industrial policy.

Briefly after the country’s independence in 1957, the new leadership under President started an initiative for the industrialization of the country by supporting the establishment of a local manufacturing sector through import substitution policies. These efforts led to a moderate expansion Figure 3: Manufacturing employment, 2000-2017 of manufacturing’s share in the economy, with (UNIDO IAP) Ghanaian firms starting to produce simple consumer goods for the domestic market. These achievements, however, turned out to be relatively Figure 4: Industry share of total manufacturing exports (%), 2018 short-lived. (UNIDO IAP)

04 UNIDO | Industrial Analytics Platform| Country Brief – Ghana 05 EXAMINING THE CHALLENGES OF GHANA’S GROWTH MODEL

© Virgyl Sowah via Unsplash

Since Ghana has managed to generate Limited job creation and high informality Rising inequality impressive growth without major progress on industrialization, one could be easily tempted While Ghana’s growth in economic output over Simply put, Ghana’s economy has worked to disavow the importance of industrial the past decades has been impressive, the better for those able to profit from the booming development for sustainable economic growth. country’s limited job creation is more sobering. industries (i.e. the high-productivity end of the However, when analysing the performance of The sectors behind the economic boom exhibit services sector, mining) than for other groups of the Ghanaian economy in greater detail, several either low average productivity (services) or are workers. While major achievements have been problems become readily apparent: capital-intensive (mining, construction). As a made in reducing extreme poverty, income result, these activities have proven unable to inequality has been rising since the early 1990s, Increasing dependency on resource- generate enough jobs for a growing population. as documented by a study from 2016.15 A more Consequently, Ghana’s unemployment rate has recent study, from March 2020, reports the based exports been rising, from 4.2 per cent in 2010 to 5.8 per correlation between rising income inequality cent in 2017—even against the backdrop of a during the period 1990 to 2010 and falling While gold and cocoa have always comprised growing economy.13 shares of manufacturing in total value added and a large share of Ghana’s exports, employment.16 Meanwhile, rising shares for non- has joined the group of key exports (since the Due to the lack of industrialization as a driver of business services were associated with higher beginning of oil production in the country in growth, low-skilled workers from the declining inequality. 2010). Taken together, these three commodities agricultural sector have not been able to switch 12 made up over 80 per cent of all exports in 2018. to an expanding manufacturing sector, often Inequality in Ghana also has a geographic While the boom in oil exports has generated only finding employment in the informal services dimension, which is closely connected to valuable income for the national economy, it has sector. Informality is a pressing challenge in the economy’s regional structure. The 2015 also heightened Ghana’s susceptibility to the Ghana and has been on the rise throughout the Integrated Business Establishment Survey ebb and flow of globally determined commodity boom. From 1988 to 2013, the informal sector’s found that over 70 per cent of all revenues prices. With Ghana attempting to use the oil share of the working population increased are generated by businesses in the Greater boom to develop related industries such as from 80.5 per cent to 88 per cent. In 2015, an Accra Region.17 Stimulating economic activity petrochemicals, diversification of the economy— astounding 90.5 per cent of all enterprises and creating jobs in other parts of the country particularly of exports—is still a work in progress. were found to be informal.14 This hampers is therefore important to ensuring equal A growing, competitive manufacturing sector productivity growth, while limiting the potential opportunity across the country and mitigating could support this endeavour by broadening the for enterprises to upscale. social tensions. country’s export base. © Eva Blue via Unsplash © Eva

06 UNIDO | Industrial Analytics Platform | Country Brief – Ghana 07 Industrialization as a means to achieve inclusive growth

Given these trends, it is encouraging that ensuring inclusive growth has been placed at the top of the Ghanaian government agenda, as demonstrated in key policy documents such as the Medium-Term National Development Policy Framework (2018-2021) and the Ministry of Trade and Industry’s Industrial Transformation Agenda. Industrial development is seen as a key enabler of national prosperity that is shared more equally. The Medium-Term National Development Policy Framework recognizes that the government plays a crucial role in addressing bottlenecks reported by the country’s manufacturers:

One District, One Factory (1D1F) Access to land and finance attraction. To alleviate funding problems for aims to reorganize the technical and vocational initiative small and medium enterprises, the government education and training (TVET) infrastructure, Low levels of land title registration generally aims to leverage existing institutions, such as currently dispersed over a plethora of private present a challenge for commerce. If a large the , as well as new and public providers. To move away from the Under the slogan “One District, One Factory”, share of landowners (estimated at around 61 sources of funding, including a more targeted current status quo whereby young people the Ghanaian government aims to establish per cent in 201118) do not formally own their Industrial Development Fund. often acquire skills in the informal economy, at least one medium- to large-scale factory property, tensions arise whenever transactions new apprenticeship and skills development in each administrative district of the country, take place, e.g. when land must be acquired for Besides these measures mainly targeting centres are foreseen to complement training taking into account respective comparative 21 larger investments. These create unnecessary the business environment for existing and offered by private sector enterprises. advantages and resource endowment.23 costs and slow down economic dynamism new manufacturing enterprises, Ghana By providing opportunities in rural areas, in the country.19 Intensifying already existing is also conducting more activist forms Ghana is attempting to slow down rural- Electricity supply efforts to simplify bureaucratic procedures of industrial policy that directly address urban migration and raise living standards and improving centralized management can existing inequalities, such as the One District, outside the country’s economic centres. free up important resources for productive One Factory (1D1F) initiative. Leveraging One major issue in the recent past has been the Ideally, these initial investments should activities. the potential of manufacturing to create continuous problems with electricity supply. trigger further investments at the selected inclusive and sustainable growth,20 Ghana Although some efforts to improve the reliability locations and help the country boost can modernize its economic structure to of supply have been made, more investment For industrial development, the efforts in power transmission and distribution is its export performance. With a view to required to secure larger tracts of land are thrive under the challenges posed by new attracting private sector participation, the technologies and the accelerating transition to necessary to alleviate this constraint. A 2017 particularly problematic. The government study estimated that reducing the average government is offering special incentives therefore aims to designate land in each region renewable energies. such as tax holidays, preferential interest number of days per month without electricity 24 of the country for the establishment of large from ten to zero could boost the productivity rates and exemptions from import duties. industrial parks. This should motivate foreign Skills development The government estimates that over 350,000 of small and medium manufacturing firms by investors to enter Ghana’s manufacturing 22 jobs will directly or indirectly be created The limited skill base provided by the domestic 10 per cent. 25 sector and provide much needed capital and through the initiative. know-how. To optimize resource mobilization, labour market is another challenge that needs the Ministry of Trade and Industry has defined to be addressed. A significant number of strategic anchor industries, among them both working-age Ghanaians lack the skills required established and new potential industries that by employers, such as technical training. Under should feature at the centre of investment the new strategic framework, the government

08 UNIDO | Industrial Analytics Platform | Country Brief – Ghana 09 References

1 , 2020. World Development Indicators 15 Cooke, E., Hague, S. and McKay, A., 2016. The Ghana (Indicator ID: NY.GDP.MKTP.KD.ZG). Available at: http:// Poverty and Inequality Report. Using the 6th Ghana Living datatopics.worldbank.org/world-development-indicators/. Standards Survey. Geneva: UNICEF. 2 Telli, H., 2018. SDGs on Prosperity: Goals 7-11. Paper 16 Osei, R.D., Atta-Ankomah R. and Lambon-Quayefio, for the Ghana Academy of Arts and Sciences Public Forum 2018. M., 2020. Structural Transformation and Inclusive Growth in Ghana. WIDER Working Paper 2020/36. Helsinki: United Nations 3 Ghana Statistical Service, 2017. Integrated Business University World Institute for Development Economics Research. Establishment Survey Phase II. Summary Report. Accra: Ghana Statistical Service. 17 Ghana Statistical Service, 2017. Integrated Business Establishment Survey Phase II. Summary Report. Accra: Ghana 4 Osei, R.D., Atta-Ankomah R. and Lambon-Quayefio, Statistical Service. M., 2020. Structural Transformation and Inclusive Growth in Ghana. WIDER Working Paper 2020/36. Helsinki: United Nations 18 USAID, 2016. USAID Country Profile. Property Rights University World Institute for Development Economics Research. and Resource Governance. Ghana. Available at: https://land- links.org/wp-content/uploads/2016/09/USAID_Land_Tenure_ 5 Since the latest update of the SDG-9 Industry Index, Ghana_Profile_0.pdf. the data series on ‘Proportion of medium and high-tech industry value added in total value added’ have been revised based on 19 Telli, H., 2018. SDGs on Prosperity: Goals 7-11. Paper the 2015 Integrated Business Establishment Survey. However, for the Ghana Academy of Arts and Sciences Public Forum 2018. the change is not yet reflected in the current edition. 20 UNIDO, 2020. Industrialization as the Driver of 6 UNSD, 2020. National Accounts Main Aggregates Sustained Prosperity. Vienna: UNIDO. Database (GDP and its breakdown at constant 2015 prices in US 21 Government of Ghana, 2017. Medium-Term National Dollars). Available at: https://unstats.un.org/unsd/snaama/. Development Policy Framework. An Agenda for Jobs: Creating 7 This break in the data can—at least partly—be explained Prosperity and Equal Opportunity for All (First Step) 2018-2021. by the 2015 Labour Force Survey, which allowed updating of the Accra: Government of Ghana, National Planning Commission. data reference for employment estimates. 22 Abeberese, A.B., Ackah, C.G. and Asuming, P.O., 2017. 8 Osei, R.D., Atta-Ankomah R. and Lambon-Quayefio, How Did the 2012-2015 Power Crisis Affect Small and Medium M., 2020. Structural Transformation and Inclusive Growth in Manufacturing Firms in Ghana? Policy Brief No. 33305 (August Ghana. WIDER Working Paper 2020/36. Helsinki: United Nations 2017). London: International Growth Centre. University World Institute for Development Economics Research. 23 Dzansi, J., Lagakos, D., Otoo, I., Telli, H. and Zindam, 9 Ibid. C., 2018. Manufacturing Capabilities in Ghana’s Districts. A Guidebook for “One District One Factory”. London: International 10 Owoo, N.S. and Page, J., 2017. Industrial Policy in Growth Centre. Ghana. From a Dominant State to Resource Abundance. In: The Economy of Ghana Sixty Years After Independence, eds. 24 GhanaWeb, 2018. Government Has Comprehensive Aryeetey, E. and Kanbur, R., Oxford: Oxford University Press, pp. Incentives for the 1D1F Initiative - Alan Kyeremanten. Available explore – compare – analyse – iap.unido.org 176-191. at: https://www.ghanaweb.com/GhanaHomePage/business/ Government-has-comprehensive-incentives-for-the-1D1F- 11 Ibid. initiative-Alan-Kyeremanten-686067. 12 The Observatory of Economic Complexity, 2020. 25 Oxford Business Group, 2018. Decentralisation Ghana. Available at: https://oec.world/en/profile/country/gha. Campaign Under Way in Ghana’s Industrial Sector. Available at: https://oxfordbusinessgroup.com/analysis/strength-numbers- 13 Telli, H., 2018. SDGs on Prosperity: Goals 7-11. Paper current-administration-has-embarked-decentralisation- for the Ghana Academy of Arts and Sciences Public Forum 2018. campaign-drive-economic-growth. UNIDO’s Industrial Analytics Platform 14 Ibid. The UNIDO Industrial Analytics Platform (IAP) is a data-driven knowledge hub which provides novel insights into industrial development around the world. The online platform combines state-of-the-art data visualisation tools with policy relevant expert analysis.

The SDG-9 Industry Tracker helps monitor and benchmark countries’ performance and progress towards SDG-9 industry-related targets. The Tracker is build upon UNIDO’s SDG9 Acknowledgement Industry Index, a novel composite index describing different dimensions of inclusive and sustainable industrial development. This country brief has been developed by UNIDO’s Industrial Analytics Platform team. To learn more about the tool visit iap.unido.org/data. It has benefited from valuable inputs from James Dzansi and Henry Telli, Country Economists at the International Growth Centre (IGC) in Ghana. You can contact us at [email protected].

We thank Joseph Twomey and Niki Rodousakis for their editorial guidance.

© UNIDO 2020. All rights reserved. This document has been produced without formal United Nations editing. The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. Designations such as “developed”, “industrialized” or “developing” are intended for statistical convenience and do not necessarily express a judgement about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not constitute an endorsement by UNIDO.