Industrial sector in distress; records 5% in second quarter
The country’s industrial sector is in a dire situation as figures from the Ghana Statistical Service (GSS) show that it recorded a -5percent growth in the second quarter, reflecting the draining impact of the long-drawn power crisis, free inflation and high interest rates on the sector.
As recently as 2011, the industrial sector, as compared to agriculture and services, was the largest contributor to the country’s Gross Domestic Product (GDP), as it grew at a rate of 19.2 percent in the first quarter of that year.
This was significant because the sector had been recording single digit growth rate from 2009 until it hit 10.3 percent in the last quarter of 2010.
It is also important to note that it was around the same time that the country begun production of crude oil in commercial quantities.
Hopes were high then that industry would continue to be the largest contributor to GDP and continue to record a positive growth.
As envisaged, the growth rate of the sector skyrocketed to 42.5 percent in the second quarter of 2011 and further jumped to 54.4 percent, making it one of the highest rates ever recorded for the sector.
The beginning of the decline
However, in the fourth quarter of 2011, growth begun to decline, as it came down to 50.7, and worsened to 28.7percent in the first quarter of 2012, and further down to 2.3 percent in the last quarter.
In 2013, hope was restored somewhat as growth doubled from 8.2 percent in the first quarter to 16.6 percent in the second quarter. However, in the third quarter, the sector’s growth took a sharp nosedive again to 1.7 percent, which continued to 0.5 in the last quarter.
The declined continued in 2014, reaching -1.8percent in the quarter, but inching up to 4.6 in the third quarter, and reversing again to -0.1 in quarter four.
Industrial growth was nothing to write home about in 2015 as the second and third quarters recorded negative rates. Things, however, improved a bit in the fourth quarter as growth inched up to 6 percent.
This year has been no different; the sector’s growth dropped from the 6 percent to 1.4 percent in the first quarter and has seen its worst drop so far to -5 percent in the second quarter.
What experts say
Experts, both in industry and academia, describe the situation as worrying, warning of dire consequences for the country if immediate measures are not taken quickly by policy makers to revive the industrial sector.
Professor Ebenezer Oduro Owusu, the Vice Chancellor of the University of Ghana, said in an exclusive interview with the B&FT that, agriculture needs propping up so it can in turn support industrial growth.
“The services sector is the highest growing in the economy, followed by the industry sector and the agriculture sector. If you analyze the model, it stands in the form of a pyramid. And in our terms we will say that, that model has turned into an inverted pyramid.
The Japanese realised that they had that pyramid so they turned things around. So you need to have a pyramid where the base will be agriculture. Then agriculture will drive industry, and industry in turn will drive services. That is the model that we must adopt.
One of the reasons why Kwame Nkrumah was able to roll out a couple of initiatives is that he saw education and agriculture as the foundation stone for the country. These two will roll into industry and services,” Prof. Oduro Owusu said.
Another expert in finance and economics and CEO of Progeny Ventures, Dr. Kofi Amoah, also proposes a close alignment of agriculture, manufacturing and finance policies, as a proper mix of the three has helped once poor countries to be counted among developed countries.
It is the close alignment of finance with agricultural and industrial policy objectives that has facilitated the unprecedentedly rapid economic development of north-east Asia, he said.
In Ghana, finance policy of government must recognize the need to support small, high-yield farms in order to maximize aggregate farm output, Dr. Amoah said during a public lecture at Regent University in Accra, last Friday.
“It will be better to keep the financial system on a short leash and targeted for a considerable period of time and make it serve industrial policy development purposes,” he said.
“This logic, and the precise financial policy it entails, has been one of the anchors of the development successes of almost all rich nations at the initial stages of their development.”
Also commenting on the woes of the industrial sector, the President of the Association of Ghana Industries (AGI), James Asare-Adjei, told the B&FT that enough has not been done to solve the main challenges industry is going through which has resulted in its dwindling performance.
“We know industry has been faced with many problems for some years now. If you talk about depreciation in 2014 and 2015, the energy crisis that we faced, the cost of power after the power crisis, which is coupled with the high cost of credit, and not to talk about market access.
All these are major challenges that industry has to grapple with and for that matter production output has reduced. Some manufacturing companies have folded up or are producing below capacity,” he said.
The key to overcoming these challenges, he said, lies in properly coordinated policies that will focus on happenings in the sector and closely monitored to ensure they are working.
“The whole issue has to do with policy consistency, policy coherence, and then the targeted effect of the policy that we are experiencing in the country. Then more importantly, it involves managers of the economy understanding the dynamics of national growth.
If we don’t do that then we will have so many policies but they will not be effective. And the effect will be that the industrial sector will continue to decline into the negative, which is a worrying trend for this economy,” Mr. Asare-Adjei said.