Ghana’s industrial sector has emerged as a significant driver of growth in recent years as the country leverages its abundant natural resources to diversify the economy and attract investment. Industrial development and import substitution underscore major projects and initiatives throughout the sector, and the government has simultaneously implemented business reforms and fiscal measures in order to tackle structural challenges and improve investor confidence.
Structure & Oversight
Industrial development has been a central tenet of government policy since the start of President Nana Akufo-Addo’s term in office in 2017. The same year saw the launch of the Ghana Beyond Aid agenda, which aims to improve trade and investment competitiveness on a global and regional scale, while also ensuring the mobilisation of local resources through industrialisation and value addition.
The Ministry of Trade and Industry (MoTI), which oversees the sector, is primarily responsible for policy implementation. Through the 10-point Industrial Transformation Agenda introduced in 2017, the MoTI has managed several initiatives to stimulate local production, in cooperation with other agencies and government departments. In February 2019 the 13-member Ghana Beyond Aid Charter Committee delivered a policy document to President Akufo-Addo, setting out the four main priorities of the Ghana Beyond Aid strategy: industrialisation; raising agricultural capacity; reducing corruption; and improving education. In terms of industrialisation, the policy aims to reduce unemployment, poverty and reliance on foreign aid by harnessing the country’s vast natural resources – such as cocoa, gold, oil and bauxite – through various manufacturing and refining activities across the country.
Performance & Size
Manufacturing is Ghana’s fourth-largest sector, accounting for 11.3% of GDP in 2018. It contributed GHS31.4bn ($6.1bn) to GDP in 2018, up from GHS26.8bn ($5.2bn) in 2017, according to the African Development Bank (AfDB). The sector’s growth slowed from a rate of 9.5% in 2017 – the highest recorded over five years – to 4.1% in 2018.
Despite this slowdown, the AfDB predicted that the sector would expand by 9.8% in 2019 and 5.9% in 2020, as Ghana gradually builds industrial capacity. This sentiment is in line with the World Bank’s expectations of improved performance for the manufacturing sector, with industry projected to be the primary driver of the country’s GDP growth in 2019.
According to the World Bank, the industrial sector accounted for 18.6% of total employment in Ghana in 2018, remaining unchanged from 2017. Comparatively, employment in services grew slightly from 47.1% to 47.5%, while the agricultural workforce decreased from 34% to 33.8%. Labour productivity stands at 44%, slightly above the average for sub-Saharan Africa of 40%. The labour force participation rate remained constant, at 67%, between 2016 and 2018.
The business barometer published by the Association of Ghana Industries (AGI) in 2019 assessed the business community’s perceptions of current economic conditions, with a base index of 100. The results suggest a steady rise in business confidence between the last quarter of 2018 and the second quarter of 2019, with the country’s score rising from a two-year low of 99.8 to 103.5. Expectations of favourable reforms and policy reviews, coupled with a reduction in inflationary pressures, were cited as reasons for the more optimistic outlook. Similarly, according to OBG’s most recent Ghana CEO Survey, published in December 2019, 71% of executives described their expectations of local business conditions in the next 12 months as positive or very positive.
Although business confidence seems to be on the rise, the high cost of electricity and raw materials, alongside an influx of imported goods, remain key concerns for many local businesses. The AGI report found that high electricity tariffs were a problem for 41% of respondents, while unreliable power supply was cited as an issue for 47% of companies surveyed. The results came in the wake of an announcement of an 11.2% upward adjustment in electricity tariffs by the Power Utility and Regulatory Commission in June 2019. “The most significant challenge for manufacturers remains the high cost and unreliability of electricity. The rates are significantly steeper than in neighbouring countries such as Côte d’Ivoire, and power outages add to the cost of machinery due to more frequent wear and tear,” Hayssam Fakhry, managing director of plastic pipe producer Interplast, told OBG.
Although larger firms pointed to energy supply as a major limitation, the AGI found that smaller manufacturing companies reported challenges in accessing credit, which often comes at a high cost. Existing credit lines to the manufacturing sector accounted for 11% of the total credit issued by local banks in the first quarter of 2019, compared to the 25% share channelled to financial and commercial services.
In recent years the authorities have taken steps to improve business confidence by shifting to e-government services, advancing digitisation, introducing tax reductions, streamlining regulations, and reducing waste and corruption. To this end, the government launched the three-year Business Regulatory Reform Programme in 2018, which aims to establish Ghana as the continent’s most business-friendly nation by 2020 by improving efficiency and strengthening local industries. Targeted reforms include improving the country’s score in the World Bank’s ease of doing business index, developing an online registry of business-related regulations, assessing the impact of regulations, opening up channels for public consultation, and providing regulatory support for small and medium-sized enterprises.
The initiative has already seen promising results; in 2019 Ghana’s ranking in the ease of doing business index rose six places compared to the previous year, from 120th to 114th, making it the highest-ranking West African nation. Although its overall score improved marginally by 2.06 points to 59.22, the country saw a significant improvement in the “getting electricity” category, with its score rising from 56.81 in 2018 to 74.02 in 2019. The World Bank also cited advances in Customs clearance systems and access to credit reforms as factors improving Ghana’s business climate.
Relatively low export competitiveness has meant that foreign exchange earnings are primarily derived from a small basket comprising gold, crude oil, cocoa and tourism receipts. Consequently, demand for US dollars from importers and local businesses generally outpaces supply on the foreign exchange market, resulting in downward pressure on the cedi. Increases in manufactured exports, as a result of relatively low prices, are largely offset by a reliance on higher-cost imported materials. According to AGI’s business barometer, 33% of companies surveyed ranked currency depreciation and exchange rate volatility as one of their top-five challenges.
In response to the business community’s concerns about depreciation, President Akufo-Addo pointed to growth in local production and the expansion of exports as a long-term solution to Ghana’s unstable currency and reliance on imports in an address to the Ghana Bar Association in March 2019.
With industrialisation a core component of state policy, local manufacturers have received robust government support and benefitted from several public and private initiatives in recent years. In 2017 the MoTI launched the 10-Point Industrial Transformation Agenda, which aims to expand the manufacturing sector, reduce unemployment and accelerate socio-economic development. The programme seeks to drive investment in strategic industries such as automotives, iron and steel, pharmaceuticals, textiles, vegetable oils and fats, and industrial chemicals.
Specific programmes and initiatives have been implemented as part of the 10-point agenda. Most notably, the One District, One Factory (1D1F) initiative was launched in 2017 with the aim of decentralising manufacturing, supporting the development of local value chains, diversifying the economy and reducing reliance on imports (see analysis).
Another key focus of the MoTI’s drive for investment has been the establishment of special economic zones and sector-specific industrial parks. As of February 2019 there were 235 registered free zone companies in Ghana, 178 of which were actively operating. According to the Free Zone Act of 1995, at least 70% of production output must be exported to qualify for free zone benefits, leaving an allowance of 30% for sale on the domestic market.
Ghana is well positioned to expand its exports of manufactured goods, with growing demand from across West Africa. “Companies in Ghana are increasingly producing for the regional export market, in particular Togo, Burkina Faso and Benin,” Jean Paul Feghali, CEO of food and beverage distributor IMEXCO, told OBG. “This is driven both by high demand and low local production capacity in those countries”.
The Tema Export Processing Zone (EPZ), which spans almost 4.9m sq metres, was cited by the UN Conference on Trade and Development as the most successful EPZ in Ghana in its “World Investment Report 2019”. Regulated by the Ghana Free Zones Authority (GFZA), the Tema EPZ includes a free zone designated as a multipurpose industrial park, allowing for both free zone and non-free zone enterprises to operate within the enclave. It currently hosts manufacturing, service and commercial export activities. The Tema free zone offers links to nearby airports and seaports, and also hosts a dedicated electricity grid and water reservoir.
The construction of a 93,000-sq-metre bonded and managed warehouse facility and railway container terminal is currently under way within the Tema free zone. The project, developed by local construction conglomerate LMI Holdings and South Africa-headquartered Imperial Logistics, is estimated to cost $45m and is planned for completion in the first quarter of 2020. The terminal will be linked to the Dawa Industrial Park and the recently expanded Tema Port as part of a project being undertaken by South Eastern Rail, a subsidiary of LMI. The first phase of the project includes a 20-km line from the warehousing facility and terminal to Tema Port. This is expected to begin operations in 2020, following the opening of the expanded container terminal.
In June 2019 President Akufo-Addo inaugurated the Dawa Industrial Zone, located 25 km east of Tema. It forms part of the 8.1m-sq-metre Dawa Industrial Park designed to house industrial and residential developments. The zone, which was constructed by its owner LMI Holdings, is intended to support strategic industries, with talks ongoing to establish pharmaceutical, automotive and garment manufacturing enclaves within the area. At full capacity, it is expected to host over 100 companies and provide up to 15,000 jobs.
In order to address concerns about the availability and quality of electricity, the zone includes a privately owned and developed electricity substation. A concrete factory, a steel fabrication plant, an asphalt production facility and the country’s only railway sleeper plant have commenced operations within the zone to supply locally produced construction materials for the site.
According to local media, in May 2019 the GFZA announced its intention to establish EPZs and industrial parks in Shama and Takoradi, with the aim of attracting investment in the downstream oil and gas sector and encouraging petroleum companies to establish themselves in Ghana. US-headquartered logistics and infrastructure firm BlackIvy Group has acquired 1.6m sq metres to build an industrial park in Shama, and the government is seeking further investors for the zone.
The agro-processing segment is a major driver of industrial growth, accounting for 56% of the projects approved under the 1D1F initiative. The segment’s growth could provide a lifeline for the country’s agricultural production, which has gradually declined in line with trends seen across Africa. In 2009 agriculture accounted for 31.9% of Ghana’s GDP, but this figure had fallen to 15.3% in the second quarter Policies such as the Ghana Beyond Aid strategy aim to modernise the agriculture sector so that it can serve as the foundation for an integrated agro-processing industry. However, further investment is needed to ensure a reliable supply of raw materials and produce. “The agriculture sector is ripe for investment in developing skills and machinery and improving yields, which will be necessary to support agro-processing plants,” John Defor, deputy director of AGI, told OBG.
One particular segment that is well positioned to expand is cocoa processing. Ghana is the second-largest producer of cocoa in the world, and Tema EPZ has recently emerged as a strategic base for multinational cocoa processing plants, with global suppliers such as US-headquartered Cargill and Swiss manufacturer Barry Callebaut establishing themselves on the site. While estimates place local processing output at 30%, the country’s total installed processing capacity is slightly above 45,000 tonnes, providing impetus to the medium-term policy goal of ensuring that 50% of cocoa exports are locally processed.
In September 2019 Joseph Boahen Aidoo, CEO of the Ghana Cocoa Board, signed a memorandum of understanding (MoU) with the China Development Bank, the China International Development Cooperation Agency and UK-based IT services firm General Technology to build a cocoa processing facility in the Western Region. Once on-line, the $100m plant is expected to have a total processing capacity of 50,000 tonnes per year.
The alumina smelting industry is dominated by state-owned Volta Aluminium Company (VALCO), which relies entirely on imported alumina despite the country’s vast bauxite reserves. VALCO’s smelting capacity stands at 200,000 tonnes per month, through five port lines with 40,000 tonnes of capacity each. Its output is sold to Aluworks, the sole producer of aluminium flat hold products in the country, which markets 60% of its product internally and 40% to the West Africa region. In 2018 the industry’s production had fallen to around 30% of capacity, as it struggled to compete with imported products.
The industry is set to receive a boost with the proposed development of a new local bauxite refinery. The refinery’s construction is required under an agreement between the government and Chinese construction firm Sinohydro that will see proceeds of refined product exchanged for infrastructure. In November 2018 Chinese bauxite mining company Bosai Minerals Group announced it had commenced talks with the Ghanaian government to build a $1.2bn refinery to support the Sinohydro deal. If constructed, the plant will integrate the local value chain for aluminium production, potentially reducing the cost of inputs.
Meanwhile, the creation of the Ghana International Trade Commission (GITC) in 2016 has begun to show promise in supporting local production. In 2019 Aluworks petitioned the GITC to institute anti-dumping regulations against China. The GITC accepted the petition and is investigating the complaint with a view to potentially implement safeguarding measures as a means of reducing unfair competition from overseas.
In August 2019 the MoTI released a new industrial policy for the automotive industry, which includes tax breaks of up to 10 years for companies setting up local manufacturing plants. A five-year tax holiday is available for producers partially based in Ghana, while companies building complete vehicles in the country are eligible for the full 10 years. Meanwhile, import duties for new and used vehicles are expected to be raised from 5-20% to 35% to encourage the purchase of locally assembled cars. These reforms follow a series of MoUs signed between the government and several automobile manufacturers in 2018, and announcements from various foreign producers interested in establishing factories in Ghana.
In March 2019 Japanese car manufacturer Nissan confirmed that it will establish a production plant before 2022 to meet growing demand for its vehicles in Africa and the Middle East. The plant is expected to produce 50,000-60,000 vehicles per year at full capacity. In January 2019 French automobile giant Renault, which holds a 43.4% controlling stake in Nissan, expressed its interest in taking advantage of tax incentives in Ghana and gaining greater access to the growing African market. In August 2019, two other Japanese companies, Toyota and Suzuki, announced a MoU with the government to begin manufacturing in Ghana. Local media reported that production could begin as early as August 2020.
Following the policy changes in August 2019 Volkswagen South Africa announced that it would commence operations of a semi-demolished assembly line in November 2019 through a joint venture with Universal Motors, an authorised Volkswagen dealership based in Accra. This forms part of Volkswagen’s broader expansion strategy in sub-Saharan Africa, with the opening of assembly plants in Nigeria, Rwanda and Kenya. The Ghanaian plant has a capacity of 5000 units per year, which has the potential to increase to 30,000 units.
A longer-term vision for the automotive industry includes the development of an integrated local manufacturing value chain. In March 2019 the Parliament began debating the Iron and Steel Development Authority Bill, which would establish a body responsible for overseeing the extraction and local refining of iron and steel deposits. Output from refineries is largely intended for use in the production of automotive parts.
After several years of promising growth, Ghana has implemented wide-reaching policies to diversify its economy by expanding its local manufacturing capacity. Central to its industrialisation agenda is the mobilisation of natural resources to produce high-value products for the export market, while also localising manufacturing by developing new factories, industrial parks and free zones. These efforts should help address the structural challenges of reliance on imports, leading to improved currency stability.
At the same time, reductions in import duties and improvements in the ease of doing business have provided new opportunities to supply vital industries. As local value addition remains a top priority, the aluminium, agro-processing and automotive segments in particular stand to benefit from industrial development and the establishment of integrated local value chains.