Industry has been a significant source of economic growth for Ghana in recent years, a trend that continued in 2020 and 2021 despite widespread disruptions associated with the Covid-19 pandemic. The sector accounts for a large portion of both employment and exports, underscoring its importance as the government seeks to bolster value-added activities’ contribution to the economy and attract investment into emerging segments.
The manufacturing base is supported by government efforts to leverage the country’s abundant natural resources to diversify the economy and attract foreign investment. Cocoa production, mining and crude oil have traditionally driven Ghana’s rapid economic growth, and in the past industrial development has been tied to resource endowments. However, further developing and diversifying the industrial sector has been a priority of the government since 2017, when President Nana Akufo-Addo took office. In the years since, the government has implemented a series of reforms and fiscal measures aimed at tackling structural challenges and improving investor confidence.
Structure & Oversight
The Ministry of Trade and Industry (MoTI) is primarily responsible for formulating and implementing industry policy with a view to establishing Ghana as a competitive manufacturing and trading centre in Africa. Other key agencies include the Ghana Export Promotion Authority, responsible for the facilitation, development and promotion of exports; and the Ghana Free Zones Authority (GFZA), tasked with supporting the development and regulation of free zones – many of which are focused on industry.
The newly formed Ghana Enterprises Agency (GEA), established in 2020, is responsible for administering and facilitating the development of micro-, small and medium-sized enterprises (MSMEs). In December 2021 the GEA disbursed GHS8.9m ($1.5m) to 120 small businesses in segments including agro-processing, food and beverages and manufacturing. The disbursement was part of the GHS145m ($24.8m) Ghana Economic Transformation Project aimed at supporting operational costs and cushioning the impact of the pandemic on MSMEs.
Performance & Size
Ghana’s industrial sector has expanded in recent years, supported by concerted government efforts to bolster the segment, and support private sector participation and investment. The industrial sector contributed GHS140bn ($23.9bn) to GDP in 2020, or 34% of the total, according to the World Bank. Manufacturing, the country’s second largest industrial activity after mining, accounted for approximately GHS40.2bn ($6.9bn) of economic output in 2020, up from GHS36.2bn ($6.2bn) in 2019.
In 2018 and 2019 manufacturing output grew by 4.2% and 6.1%, respectively. Output continued to grow in 2020 – albeit at a slower pace due to lockdown and other measures imposed in response to the pandemic – at 1.4%. Manufacturing remained the main industrial driver of GDP growth in 2021, supporting Ghana’s wider economic recovery. Indeed, the subsector grew by 6.1% in the first quarter of 2021, before accelerating by 8.3% in the second quarter of the year. Throughout the first half of the year the segment outperformed industry overall, which expanded by 1.3% in the first quarter and shrank by 4.3% in the second. The subdued performance of the industrial sector was largely attributed to mining contracting by 11.2% and 18.9% in the first and second quarters, respectively.
According to the most recent Integrated Business Establishment Survey, published by the Ghana Statistical Service (GSS) in 2018, the largest activity within the manufacturing subsector by revenue, as a percentage of total sales and receipts in the industry sector, is coke and refined petroleum products (25.7%), followed by food products and beverages (9.1%), basic metals and fabricated metal products (3%), rubbers and plastics (3%), and chemicals and chemical products (1.8%).
Productivity & Capacity
Manufacturing is the largest employer in industry, and the government has prioritised its development as a way to bring informal workers into the formal economy. In turn, the government hopes to boost productivity and economic growth. Manufacturing accounted for approximately 92% of establishments active in industry in 2018, when the segment employed 18.6% of the country’s total workforce. The latter figure has steadily ticked upwards since 2013, when manufacturing employed around 8.9% of the workforce. The proportion of the workforce employed in industry similarly rose, from 14.1% in 2012 to 21.1% in 2019.
The country’s labour productivity stood at $13,300 per worker in 2019, above the regional average of $10,200 for sub-Saharan Africa, according to the International Labour Organisation. Ghana has shown steady growth in output per worker since 2010, and in 2019 the figure expanded by 3.9%, while the continent’s average contracted by 0.2%. Higher levels of productivity have been supported by human capital and skills development. Skilled workers constitute 78.4% of those employed in Ghana’s economy, while nearly 72% of employees in industry are skilled, according to the most recent National Employment Report published by the GSS in 2015.
Ghana has also made substantial progress since 2005 to incorporate technology, and produce more medium- and high-tech manufactured goods, according to the UN Industrial Development Organisation (UNIDO). In 2005 medium- and high-tech manufacturing constituted 0.7% of value added to GDP in Ghana, with the figure increasing to 10.8% in 2018. While the country’s capacity to produce more advanced goods has improved, the import of machinery – which can serve as a partial indicator of the country’s capacity for value-added industrial output – slowed in recent years. The value of machinery imports declined from $2.8m in 2018 to $664,300 in 2019, according to the World Bank.
Costs
The inflation rate of Ghana’s producer price index (PPI) rose, from 8.1% in November 2020 to 13.6% in November 2021, according to the most recent PPI bulletin published by the GSS. Rising costs in manufacturing accounted for the majority of the increase, with the segment’s PPI rate measuring in at 20% compared to 1.8% for mining and quarrying, and 0.2% for utilities. By comparison, in November 2020 prices rose by 34% in mining and quarrying, while manufacturing and utilities prices rose by 4.8% and 0.3%, respectively. “Ghana is becoming a centre for supplying West Africa’s steel industry,” Mukesh Thakwani, CEO of local iron and steel manufacturer B5 Plus, told OBG. “The government’s policies have helped to fuel this boom, but competition from Asian markets continues to be a challenge, especially because of higher costs of electricity in Ghana.”
Exports
The value of Ghana’s exports has risen since 2014, although the rate of increase has slowed. Total goods and service exports reached GHS133.5bn ($22.8bn) in 2019 before falling to GHS132.6bn ($22.7bn) in 2020, equalling 37.5% and 32.2% of GDP, respectively. Manufactured goods accounted for 63.7% of Ghana’s total merchandise exports in 2019, higher than the average for Africa, which stood at 52.3%, according to UNIDO. The majority of manufactured exports were mid-tech products, reflecting Ghana’s industrial development. Low-tech exports made up 14.4% of total exports, while high-tech exports accounted for 2.7% of the total. In 2019 basic metals accounted for 79.5% of total manufactured exports, followed by food and beverages (11.4%); chemicals (1.7%) and wood products, and rubber and plastic (1.4% each).
Investment
Ghana has made notable strides in improving foreign direct investment (FDI) inflows in recent decades. In 2000 FDI net inflows stood at $165.9m, rising to $2.5bn in 2010, reflecting an increase in the number of foreign subsidiaries and projects operating in Ghana. While this upwards trend continued until 2019, reaching $3.9bn, the strains of the pandemic caused FDI inflows to decline by 5.2% to $1.9bn in 2020. Stringent lockdown measures in the first half of the year contributed to the investment decline, with the country among the first on the continent to impose mobility restrictions. Even as overall FDI declined, half of the FDI received in 2020 was in manufacturing, whereas the services sector and mining subsector accounted for 25% and 16% of foreign investment, respectively. The main sources of investment were Australia, China, the Netherlands, South Africa and the UK.
The Ghana Investment Promotion Centre (GIPC) reported that in the first half of 2021 there were 122 investment projects across the country. There were 63 projects in the services sector, 24 in manufacturing, and five in oil and gas. According to the GIPC, these projects attracted total investment inflows of $874m, $829.3m of which was from FDI and $44.7m from local investment. While services attracted the bulk of FDI, at $597.6m, manufacturing came in second ($98.7m), followed by oil and gas ($64.4m). Similarly, services accounted for the largest portion of local investment, with 12 wholly Ghanaian-owned projects valued at $645.7m. Meanwhile, manufacturing came in second, with seven projects valued at $16.1m. GIPC-registered projects created 1925 jobs in the manufacturing sector. While the projects are reported to the GIPC and do not represent total FDI flows for the period, the estimated value of these projects represented a 26.9% increase year-on-year. This indicates a strong indicator of a rebound in FDI inflows in industry and the wider economy as Ghana and the international community recover from the disruptions associated with the pandemic.
Development Finance
A notable development in the country’s industrialisation efforts is the establishment of the Development Bank of Ghana (DBG). The bank will focus on mobilising private capital from domestic and international markets to support MSMEs in the manufacturing, agriculture, agro-processing, ICT and real estate sectors, among others. The DBG will provide medium- and long-term support through wholesale credit lines and qualified credit guarantees, partially de-risking investment and lowering the cost of finance for projects that may otherwise be considered too risky for commercial or private finance providers.
In October 2020 the World Bank approved $250m from the International Development Association to support the establishment of the DBG through a scheme that would include a partial credit guarantee facility and a digital financing platform. The European Investment Bank formally agreed to €170m backing in May 2021, while the African Development Bank approved grant funding of $40m for the project in November of that year.
Free Zones & Incentives
The MoTI has prioritised the establishment of free zones and sector-specific industrial parks as part of the government’s Industrial Transformation Agenda. The ten-point agenda, introduced in 2017, aims to stimulate local production capacity and position the country as a centre for manufacturing in the region. Ghana’s free zone facilities include four export processing zones (EPZs): Ashanti Technology Park, the Tema EPZ, the Sekondi EPZ and the Shama EPZ. These areas allow for the import of machinery and equipment without duty payments. A 2021 report from the UN Conference on Trade and Development found that Ghana’s special economic zones created 30,000 direct employment opportunities in 2019, constituting around 1% of the national total.
Free zones are managed and licensed by the independent GFZA, and are regulated by the Free Zone Act of 1995. Incentives under the free zones scheme include no import licensing requirements; full exemption on direct and indirect duties, and levies on exports from the zone and imports for production; and reduced Customs formalities. Importantly, the zones allow 100% ownership by any investor, foreign or Ghanaian. Moreover, free zone developers and enterprises are exempt from income tax for the first 10 years of operation, with the rate increasing to 15% thereafter.
Companies are offered an exemption of withholding taxes from dividends, and no restrictions apply for the repatriation of dividends, net profit, servicing foreign loans, payments related to technology transfer agreements and remittance of the proceeds arising from the sale of any interest in a free zone investment. 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.
As part of the industrial development programme, the government aims to establish special economic zones (SEZs) in each of Ghana’s 16 regions. Under the industrial transformation programme, SEZs will be wider in scope than EPZs, with industrial and other related infrastructure built for and in partnership with the private sector. The newer SEZ policy would build upon the successes of the Tema EPZ, a 4.9m-sq-metre zone located 6 km from Ghana’s largest seaport. A key component of SEZ development will include government support for land acquisition, and the provision of off-site and last mile infrastructure to crowd in private investment. It will focus on attracting investment for pharmaceuticals, automobile assembly and component manufacturing, textiles and garments, petrochemicals, machinery and equipment, electronics and other industries.
Supply Chains
As in many African countries, Ghana’s supply chains continue to face challenges arising from infrastructure deficiencies. Limited access to formal training in supply chain management and development has also resulted in high costs and transport inefficiencies. These challenges were highlighted during the pandemic as medical and food supply chains came under pressure to deliver speedily and effectively.
For industry specifically, challenges include a lack of infrastructure to extract and export resources. Logistics-related issues include variable lead times, and challenges arising from poor road and rail networks. These issues are reflected in Ghana ranking 106th place out of 160 countries in the most recent Word Bank Logistics Performance Index published in 2018. That year the country received a score of 2.57, down from 88th place and a score of 2.66 in 2016.
Disruptions such as production delays, substandard packaging and products, delivery delays and logistical issues could be improved by reducing human error and prioritising improved quality over cost. Other problems – including inadequate supply of materials, goods and services, as well as supply chain integration issues – similarly require improved capacity of managers to identify and address difficulties that arise. Towards that end, in July 2020 US International Development Agency announced a $15m package to support the establishment of a supply-chain management training centre through a partnership between Arizona State University and the Kwame Nkrumah University of Science and Technology in Accra. The Centre for Applied Research and Innovation in Supply Chain-Africa, which opened its doors later that year, trains researchers and relevant players, while applying best practices from around the world in the local supply chains. The skills and capital investments generated from the project are expected to bolster supply chains across the economy. The USAID package follows a $2bn infrastructure deal concluded between China and Ghana in 2019 that provides China with access to Ghana’s bauxite reserves in exchange for investment in rail, road and bridge networks that could address supply chain infrastructure needs.
Outlook
Ghana’s manufacturing sector has in place the right macroeconomic fundamentals to support long-term growth and industrialisation. The sector has continued to attract investment despite a challenging year in 2020. The country’s efforts to address infrastructure and supply chain challenges, improve the ease of doing business and provide attractive incentives for players in its free zones could attract further investment to spur productivity improvements and higher-value manufacturing.
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