Jump to ContentJump to Main Navigation
Manufacturing TransformationComparative Studies of Industrial Development in Africa and Emerging Asia$

Carol Newman, John Page, John Rand, Abebe Shimeles, Måns Söderbom, and Finn Tarp

Print publication date: 2016

Print ISBN-13: 9780198776987

Published to Oxford Scholarship Online: August 2016

DOI: 10.1093/acprof:oso/9780198776987.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 30 March 2020

Industrial Policy in Ghana

Industrial Policy in Ghana

Its Evolution and Impact

(p.50) 3 Industrial Policy in Ghana
Manufacturing Transformation

Charles Ackah

Charles Adjasi

Festus Turkson

Oxford University Press

Abstract and Keywords

This chapter chronicles the evolution of industry in Ghana over the post-independence era from an inward overprotected ISI strategy of 1960–83 to an outward liberalized strategy during 1984–2000, and since 2001, to the private sector-led accelerated industrial development strategy based on value-addition. Industry in Ghana is mainly dominated by micro and small firms, privately owned and mainly located within urban areas in the form of industrial clusters. Patterns of labour productivity and wages indicate the food processing sub-sector, foreign owned and older firms as the most productive. The emerging policy issues from Ghana’s current industrial policy include how to empower SMEs to expand productive employment and technological capacity within a highly competitive manufacturing sector; how to promote agro-based industrial development to ensure value-addition to manufactures and Ghana’s exports among others.

Keywords:   Ghana, industrial development strategy, manufacturing sectors, exports, industrial policy

3.1 The Evolution of Industry

3.1.1 Historical Developments since 1965

Ghana has since independence undergone three major episodes of industrialization namely an inward overprotected ISI (import substitution industrialization) strategy (1965–83), an outward liberalized industrialization strategy (1984–2000), and since 2001 industrial architecture based on value-added processing of Ghana’s natural resource endowments through a private sector-led accelerated industrial development strategy. In Section 3.1 we describe in detail the dominating policies during the two first episodes and in subsequent sections we zoom in on the post-2000 episode. Pre-Economic Recovery Programme, 1965–83

Ghana’s industrial development post-independence has evolved from an ISI strategy to the current private sector-led industrialization programme. Prior to Ghana’s attainment of political independence in 1957, the industrial sector, a corollary of the colonial economic system, was a small sector (mainly made up of a domestic manufacturing sector) that contributed very little to economic growth. The industrial sector that was inherited from the colonial rulers was one that had been underdeveloped mainly because the regime was more interested in extracting raw materials from the Gold Coast (Ghana) while at the same time creating an economic system heavily dependent on manufactured products from Britain.

At the time that Ghana gained political independence from Britain, the Nkrumah led Convention Peoples Party (CPP) government viewed industrialization (p.51) as a key factor for modernization and development. The extensive industrialization programme, which emphasized import substitution, was pursued to transform the industrial structure and reduce the Ghanaian economy’s dependence for goods on colonial powers and other foreign economies. According to Killick (2010), the CPP government gave priority to import substitution because it was believed that it would help dispense with the distorting effect of the colonial system, escape from dependence on primary exports, and break the vicious circle of poverty.

At the centre of the ISI strategy was the development of large-scale, capital intensive state owned manufacturing industries. Government invested heavily in infrastructure and was involved in domestic production of previously imported consumer goods, processing of exports of primary products (agricultural and mining), and the expansion and development of building materials and electrical, electronic, and machinery industries. According to Steel (1972), the development of these industries was intended to serve as one that would provide the necessary inputs needed to expand the industrial sector in the near future. As noted by Steel (1972), it seemed that Nkrumah’s industrialization programme had been entwined with socialism and macroeconomic policy within the broader development plan of Ghana.

From the mid-1960s the ISI strategy was characterized by a strong reliance on import substitution through high levels of effective protection, to reduce economic dependence on imported goods and to resolve balance of payment difficulties arising from increasing import bills and stagnant export earnings. In addition, the government resorted to administrative controls in the form of import tariffs and licensing. As indicated by the World Bank (WB 1985), these direct controls were not successful in achieving their intended objectives but instead formed incentives that created excess capacity and inadequate linkages with other growth enhancing sectors.

The initiative to create a state managed ISI strategy through the development of large-scale, state owned capital intensive manufacturing industries did have the intended impact. From a contribution of 19 per cent to gross manufacturing output in 1962, SOEs (state owned enterprises) produced 32 per cent and 42 per cent of gross manufacturing output in 1966 and 1967 respectively. As indicated by Steel (1972), output in both the wholly state and state-private joint venture companies (JVCs) grew at rates over 250 per cent faster than the average for privately owned between 1962 and 1966. Over the same period there was a dwindling contribution from the predominantly non-Ghanaian privately owned enterprises to gross manufacturing output. This significant decline in privately led manufacturing was a direct result of the government strategy to take over the domain of many private enterprises, and as a result led to an uncertain climate for private investments (WB 1985).

(p.52) By the beginning of the 1970s, the ISI strategy began to face structural bottlenecks against the backdrop of a shift from a centrally planned to a market-based economy during the Busia-led government in 1969.1 However, as a result of the liberalization of imports and interest rates, high public expenditure, and a huge surge of imports which led the economy into severe balance of payment problems and to a 90 per cent devaluation of the cedi in 1971, the National Redemption Council, led by General Acheampong, overthrew the Busia regime in 1972, denounced its laissez faire policies, and reintroduced comprehensive import controls, price controls, a rent freeze, and a revaluation of the cedi (reversing the devaluation of 1971).

As indicated by the World Bank (WB 1985), by its nature the ISI strategy was self-limiting in two ways. By discouraging growth of exports and agriculture, the ISI strategy ensured that foreign exchange earned by Ghana could not keep pace with the need to import raw materials and spares for the many import substituting industries that had been set up. Second, the effective protection granted to the industries under the ISI strategy made such import dependent industries inefficient in utilizing domestic resources.

As a result of external shocks and inappropriate domestic policies during the period from the mid-1970s to 1983, the industrial sector and the Ghanaian economy as a whole suffered a severe worsening in economic and financial performance. According to the World Bank (WB 1985), the period 1975–83 was characterized by a decline in Ghana’s export earnings (estimated to be about two-thirds of imports), a significant reduction in capital flows, official aid, and lack of creditworthiness. In addition to these external shocks, there were a number of inappropriate macroeconomic policies pursued by various governments that negatively impacted on the industrial sector and the economy, including large fiscal deficits financed primarily by borrowing from the domestic financial sector leading to sharp increases in money supply and resultant inflationary pressures, an increasingly overvalued exchange rate, a high lending rate, and the crowding out of private investment.

These structural bottlenecks resulted in a decline in the growth of the economy throughout the late 1970s, with real GDP declining by an average of 2 per cent per annum between 1979 and 1982. Over this period the structure of production shifted away from industry to services and trade, while agriculture maintained its importance by contributing over half of real GDP.

(p.53) Post-Economic Recovery Programme, 1983–2000

The initiation of the Economic Recovery Programme (ERP) as part of the Structural Adjustment Programme (SAP) in April 1983 was intended to arrest and reverse the decline in all sectors of the Ghanaian economy and also to rehabilitate ruined productive and social infrastructure. The SAP/ERP sought to correct the structural macroeconomic imbalances that the Ghanaian economy faced by restructuring almost all sectors of the economy including the industrial sector.2 Important economic policy reforms under the SAP included: introduction of a market-determined exchange rate with minimal interventions; removal of price and distribution controls; liberalization of the financial sector and interest rates; abolition of the import licensing system; rationalization of import tariffs and the taxation system; promulgation of a new investment code (PNDC Law 116); establishment of the Ghana Investment Centre (GIC); and the privatization of the SOEs (Nyanteng 1993). In addition the SAP sought to initiate the SOEs’ reform programme in order to introduce more competition into state dominated industrial sectors. All these policy objectives had impact on the structure and development of the industrial sector.

Soon after the initiation of the ERP, the industrial sector in general and the manufacturing sector in particular responded positively to the reforms and this laid the foundation for Ghana’s industrial recovery after a decade of decline. Over the initial five-year period after the launch of the ERP (i.e. 1984–8), the industrial sector grew on average by 11.2 per cent annually, this coming from a negative growth spell three years prior to the launch of the ERP in 1984. This remarkable performance by the industrial sector was largely accounted for by the encouraging recovery of manufacturing and improved performance of the electricity and water sub-sectors. These improvements were largely due to reforms in trade policies, the provision of financial and technical assistance in the rehabilitation, modernization, and expansion of potentially productive and efficient industries, the improved utilization of installed capacity, and correction of price distortions that served as a disincentive to industrial production and the initiation of reforms in allied sectors.

Industrial Policy in GhanaIts Evolution and Impact

Figure 3.1 Growth rate of industry and sub-sectors, 1981–2000

Source: Authors’ illustration based on National Accounts, GSS (2002) and State of the Ghana Economy (SGER) (ISSER 1911–2011) data.

Growth in the industrial sector, however, slowed down from the late 1980s (Figure 3.1). The decline in growth rates was attributed to the slow response of the private sector (dominant in the industrial sector) to the economic reforms in the face of institutional and structural constraints, the adverse effects of (p.54) trade, exchange rate, and financial sector liberalization, the lack of effective linkages between manufacturing and other major sectors, especially agriculture, and increased investment in the other sectors at the expense of the industrial sector. Structural constraints including unreliable water and power supply, infrastructural bottlenecks, problems of land acquisition, an unstable industrial relations environment, and perverse bureaucracies at the ports combined to impede manufacturing and overall industrial sector growth. The lack of expansion within the electricity and water sectors, coupled with the over-reliance on nature to assure generation of electric power, led to a reduction in power supply and this adversely affected the manufacturing sector.

As a result of sluggish growth over the period 1989–94, the government in 1994 set up a committee to examine the constraints facing the domestic industries resulting from the ERP. The result was an identification of three ways in which the economic reforms had negatively impacted the industrial sector. First, it overexposed protected domestic industries to competition from imported manufactured inputs. Second, financial liberalization and exchange rate reform (which resulted in the rapid depreciation of the cedi and high costs of credit) led to increased production costs and production cuts within the (p.55) industrial sector. Third, the reforms did not allow most industries enough time to adjust and build the necessary restructuring that was needed after a comprehensive reform.

Based upon the committee’s recommendations the government introduced a number of measures to help the distressed but potentially viable industries to recover from the shock of the economic reforms. This included the setting up of the Business Assistance Fund (BAF), the Private Enterprise and Export Development Fund (PEED), the Trade and Investment Programme (TIP), the Fund for Small and Medium Enterprises Development, the Export Processing Zone (EPZ), and the Ghana Trade and Investment Gateway project (GHATIG). Although the industrial sector responded positively to the measures, there was only a marginal increase in growth rates.

Table 3.1 Relative contributions of industry to GDP, 1984–2000 (%), period averages


Industry (% of total GDP)

Relative contribution of industrial sub-sectors (%)

Manufacturing/ quarrying


Electricity/ water




















Source: National Accounts and State of the Ghana Economy (SGER) (ISSER 1991–2011).

One of the most remarkable features after the launch of the economic reforms was the change in the relative contribution of industry to GDP. Although the manufacturing sector remained dominant in the industrial sector its contribution declined over time following the launch of the ERP (Table 3.1). Over the same period, contributions from the construction and mining sector increased significantly. Especially the mining sector benefited immensely from exchange rate liberalization and inflows of loans to the economy in response to the comparably favourable investment climate. Various investment legislations passed during the period under consideration provided a clear framework for mining investment and contributed to the inflow of foreign direct investment (FDI) into the sector. The inflow of resources enabled the sub-sector to acquire the much-needed equipment and spare parts to boost mining production. The New Millennium, 2000–5

During the first half of the 2000s, there was a shift in the focus of Ghana’s industrialization strategy. The government’s broad policy objective was aimed at creating wealth by transforming the nature of the economy to achieve growth, accelerated poverty reduction, and the protection of the vulnerable/excluded within a decentralized, democratic environment. The emphasis over (p.56) that period was to stabilize the economy and lay the foundation for sustainable, accelerated, and job creation agro-based industrial growth. The focus of the WB-IMF sponsored Interim Poverty Reduction Strategy Programme (PRSP) (2000–2) and the Growth and Poverty Reduction Strategies, GPRS I (2003–5) and GPRS II (2006–9) was private sector-led industrial production through the application of science and technology.

Table 3.2 Industry share of GDP and sub-sector growth rates, 2001–5 (%)


Industry growth

Industry sub-sectors


Mining/ quarrying

Electricity/ water
































Industry (% of total GDP)

Share of total industry































Source: National Accounts and State of the Ghana Economy (SGER) (ISSER 1991–2011).

The policy strategies within the industrial sector were aimed at promoting agro-processing, facilitating the development of commercially viable export and domestic market-oriented enterprises in the rural areas, improving agricultural marketing and enhancing access to export markets, and improving the competitiveness of domestic industrial products, among others. The industrial sector responded positively to these initiatives (see Table 3.2).

The construction sector recorded relatively higher growth than the other sub-sectors. Notable developments within the construction sector that contributed to growth success were the government’s real estate developments in low-cost housing at various service barracks and selected communities in Ghana, road infrastructure developments (Accra–Kumasi corridor road, Weija-Cape Coast Road, Ofankor-Nsawan, etc.), the construction of the West African Gas Pipeline, and development of the Osagyefo Power Barge Plant. Interestingly, the strong growth experience did not transform into a higher industry contribution to GDP.

Despite improved performance, the industrial sector by 2005 continued to face challenges expected to continue to endanger its growth prospects in the future. High costs of credit (high lending rates), unreliable power supplies, and rising fuel prices continued to compel especially import dependent manufacturing firms to cut back production. In addition, the liberalization of external (p.57) trade continued to expose many vulnerable domestic manufacturing firms to severe competition from imported manufactured goods making the sector less attractive to potential investors.

3.1.2 Policies for Industrial Development (Historical Evolution) Post-Independence, Pre-ERP: Inward Overprotected ISI Strategy, 1965–83

Post-independence industrial policies were based on an ISI strategy through high levels of effective protection in the form of a highly restrictive trade policy regime. At the centre of the ISI strategy was the development of large-scale public sector investments as the leading edge in Ghana’s industrial development. The ISI strategy (introduced in 1962) relied on administrative controls rather than market mechanisms to determine incentives and resource allocations. The policies put in place to achieve government objectives were supported by (1) quantitative import restrictions; (2) foreign exchange rationing; (3) import licensing (despite high tariffs on imported consumer goods and domestic price controls in the form of administrative fixing of minimum wages, rents, and interest rates). Post-ERP: Outward Liberalized Industrialization Strategy, 1983/84–2000

The ERP introduced a paradigm shift in the industrial policy of Ghana from the traditional import substitution and overprotected industrial strategy to an outward liberalized private sector-led industrial strategy. The ERP industrial policies sought to develop a more internationally competitive industrial sector with emphasis on local resource based industries with capacity for export and efficient import substitution. A significant feature of the industrial strategy under the ERP was the shift from government as the main vehicle for industrial development to the private sector as the prime mover of industrialization. It also sought to generate employment with emphasis on job creation in small- and medium-scale enterprises. It was expected that this would contribute to the absorption of redeployed labour from the public sector and new labour market entrants.

Some of the specific initial ERP policies to achieve these objectives included: (1) introduction of a market-determined exchange rate with minimal interventions; (2) removal of price and distribution controls; (3) liberalization of the financial sector and interest rates; (4) abolition of the import licensing system and the rationalization of import tariffs; (5) privatization of the SOEs under the Divestiture Implementation Programme.

By the mid-1990s, additional policies were designed to assist the distressed but potentially viable enterprises that were finding it difficult to survive under (p.58) the economic reforms. These policies included: (1) the launch of the TIP in 1993; (2) tariff policy reforms in 1994; (3) the establishment of the Business Assistance Fund (BAF) in 1993, PEED policy in 1994, and the investment policy Fund for Small and Medium Scale Enterprises Development (FUSMED) in 1990 to provide the needed funds to boost industrial production; (4) the promulgation of a new investment code (GIPC Act of 1994 to PNDC Law 116) and the establishment of the GIC; (5) the Ghana Trade and Investment Gateway Programme (GHATIG) in 1996; (6) establishment of the Ghana Free Zones Board (GFZB) in 1995; (7) institutional and regulatory reforms in general.

3.2 The Current Structure of the Industrial Sector

3.2.1 Sector Composition

Table 3.3 Relative contribution of sub-sectors to industrial GDP, 2006–12 (%)


Industry (% of GDP)

Industrial sub-sectors (%)


Mining and quarrying


Water and sewerage



















































Source: State of the Ghana Economy (SGER) (ISSER 2010); GSS (2012).

Industry currently contributes to around 28 per cent of GDP, and is therefore the second largest sector after services (49 per cent). The recent improvement in the contribution of industry to GDP (see Table 3.3) can alone be attributed to the commencement of crude oil mining in 2010 that has resulted in the mining and quarrying sub-sectors’ contribution to GDP quadrupling from about 2 per cent to over 8 per cent since 2011.

Industrial sub-sector growth rates have been highly volatile recently, which reflects the fact that the industrial sector continues to be very event sensitive. For example improvement in the industrial sector’s performance in 2008 was driven by strong growth in the construction sub-sector in 2007 and 2008 due to massive infrastructural developments. Similarly, the downturn in 2009 was significantly affected by unreliable power supplies and rising fuel prices, and the 2011 surge was a direct result of increased production of crude oil and the commercial production of petroleum from the Jubilee Fields.

(p.59) In terms of the relative contribution from sub-sectors to total industrial sector output, since 2008 the construction sub-sector has overtaken the manufacturing sub-sector. The contribution from the construction sub-sector since the beginning of 2006 has increased consistently from 27 per cent in 2006 to 45 per cent in 2010. Over the same period the manufacturing sub-sector’s contribution has dipped consistently from 49 per cent in 2006 to 36 per cent in 2010. The massive infrastructural developments that have taken place since the mid-2000s as part of Ghana’s development agenda and the high production costs are challenges that confront the manufacturing sub-sector and can help explain this development.

3.2.2 Size Distribution

The number of establishments within the industrial sector has increased significantly from 8,640 firms registered in 1987 to 26,493 firms in 2003. Some 90 per cent of these were in manufacturing. This dominance by the manufacturing sub-sector in the distribution of firms may explain why industrial policies that have been pursued since independence have concentrated mainly on the manufacturing sub-sector.

For the purpose of this analysis, the size classification adopted considers an establishment that employs fewer than five people to be a micro-establishment; from 5–20 employees to be small establishments; from 21–50 employees to be medium establishments; and over 50 employees as large establishments. By this classification, the Ghanaian industrial sector appears to be primarily comprised of micro- (55 per cent) and small (39 per cent) firms who make up 94 per cent of the total number of firms. Medium firms on the other hand make up only 4 per cent with the remaining 2 per cent being large firms. As expected, within the manufacturing sub-sector, the size distribution follows more or less the same structure as the overall industrial sector. On the other hand, the size distribution in the more capital-intensive mining and quarrying, and electricity and water sub-sectors is skewed more towards larger firms.

3.2.3 Employment

Table 3.4 Employment in industry and sub-sectors, 2000, 2006, and 2012





Total number employed




Share of industry in total employment (%)




Sub-sector share of total industry employment (%)





Mining and quarrying




Electricity and water












Source: Ghana Living Standards Survey (GLSS) IV, V, and VI (GSS 2000, 2008, 2014).

The industrial sector provides employment and income for around 15 per cent of the country’s labour force. With respect to the distribution of employment across sub-sectors, evidence from Table 3.4 indicates that between 2000 and 2006, there was a significant increase in the proportion of total industry employment accounted for by the manufacturing sector. From a proportion of 69 per cent in 2000, the manufacturing sub-sector employed about 80 per cent of the total industrial sector in 2006. This was mainly as a result (p.60) of a decline in the shares of total industry employment by the mining and quarrying, electricity and water, and the construction sub-sectors. However, with the boom of the oil industry in 2010 and its related/linked sub-sectors the share of total industry employment by mining and quarrying increased to 11.1 per cent in 2012.

However, manufacturing remains the largest job creation industry sub-sector, and the recent low manufacturing growth rates signals that it is a sector whose policy should have continued to receive high priority.

3.2.4 Ownership

With respect to ownership, around 6 per cent of employees in the industrial sector are working in SOEs and 7 per cent are employed in joint ventures. The remaining 88 per cent are employed by privately owned firms. Not surprisingly a larger share of firms (41 per cent—2003 census numbers) within mining and quarrying are joint ventures, whereas most firms (97 per cent) within electricity and water are SOEs.

3.2.5 Spatial Distribution

Table 3.5 Selected clusters in Ghana



Firm size range

Industrial sector


Furniture cluster





Metalwork and machinery

Tema-Greater Accra

Tema industrial area Free zones enclave


All sectors

Spintex industrial area/Free zones enclave


All sectors

Accra-Greater Accra

North industrial area



South industrial area


Manufacturing and garages


Light industrial area


Manufacturing (mainly food processing and wood exporters)

Light industrial area


Garages—metalwork and machinery

Heavy industrial EPZ


Mineral processing for exports


Shama EPZ


Petroleum, petrochemical

Source: Authors’ research.

The regional distribution of establishments in Ghana as of 2003 reveals that the Greater Accra region has the largest number of establishments, followed by Ashanti. The two regions accounted for 50 per cent of the total number of establishments in industry. The Eastern (11 per cent), Central (10 per cent), and Western (8 per cent) regions together accounted for about 30 per cent of the total number of establishments (GSS 2012). This implies a concentration of establishments (about 80 per cent) in the major cities/urban areas of five out of the ten regions of Ghana. By their very nature these clusters are populated by establishments/enterprises that are engaged in similar productive or (p.61) commercial activities. Table 3.5 shows a list of some selected industrial clusters in Ghana.

Industrial clusters in Ghana have either grown spontaneously or have arisen in response to government/public interventions or policies. The Suame-Magazine and furniture cluster in Kumasi are examples of the spontaneous agglomeration of micro- and small enterprises that are confined in small areas as in many other places in Africa. Suame-Magazine, located in the Suame area of Kumasi, the second largest city in Ghana, is possibly the largest light manufacturing cluster in Africa with approximately 10,000 micro- and small enterprises and workshops. These enterprises and workshops are mainly engaged in automobile repair services (i.e. garages), automobile parts production and retail, and metalworking. Originating from the 1930s, it currently employs over 100,000 workers and spans an area of approximately 900,000 square metres.

In addition to the industrial clusters, there are four industrial zones that have been set up by the GFZB as EPZs. These include the Tema, Sekondi, and Shama EPZs and the Ashanti technology park.

Currently there are about 300 enterprises operating within Ghana’s free zone enclaves within the various sub-sectors of the industrial sector. Mainly within the manufacturing sub-sectors, these enterprises are involved in food processing, wood and veneer processing, production of consumable goods, processing of shea nuts/oil seeds, lubricants and biofuels, garment processing, food processing machines and spare parts, plastic waste recycling, data processing, telecommunication, software development, jewellery and furniture making, etc.

With the production and exploration of oil in the western region, the Shama EPZ is expected to attract petroleum/petrochemical sector enterprises (p.62) to the enclave. The GFZB has already indicated its intention to sustain its participation in Ghana’s oil sector by licensing and monitoring growing businesses in all the downstream and support services segments; the Shama EPZ will serve as the ideal industrial zone for those operations.

3.2.6 Sunrise and Sunset Industries Sunrise Sectors

Sunrise industries can be found mainly in the manufacturing and construction sub-sectors. This partly explains why the greater proportion of investment inflows have been directed towards these two sub-sectors. Information from the Ghana Investment Promotion Centre indicates that the manufacturing and construction sub-sectors attracted a total of US$10,179 million worth of FDI (about 72 per cent of total investment) between 1994 and 2010. Out of a total number of 413,603 jobs that were expected to have been created between 2001 and 2010, the manufacturing and construction sub-sectors were expected to create about 28 per cent. This has been as a result of the discovery and exploration of oil and gas in Ghana as well as the current industrialization strategy of encouraging agro-processed exports within the industrial sector.

Within the manufacturing sub-sector there has been an increase in the firms engaged in energy-related activities such as producing petrochemicals, fertilizer, and LPG (liquid petroleum gas) cylinders. Within the construction sub-sector, industries producing energy (oil and gas, and power) related infrastructure and real estate developments are expected to benefit largely from the expected increased real GDP growth because of oil exploration. Sunset Sectors

As a result of the ISI that was pursued after independence, Ghana established many light industries to produce imported goods locally. Some of the industries already established manufactured textiles and garments, soap, woodwork, aluminium, and metal, among others. According to Quartey (2006), for over two decades after ISI began, the textile sub-sector dominated the manufacturing sector and contributed significantly to livelihood. It employed about 25,000 of the labour force, accounted for 27 per cent of total manufacturing employment, and operated at about 60 per cent of plant capacity.

By 1982, the dominance of the textile and garments sub-sector within manufacturing had begun to dwindle as it began to operate at low capacity. This was as a result of a shortage of foreign exchange for importing raw materials. This situation was further exacerbated by the negative impact of trade liberation which formed part of the SAPs pursued in the 1980s and 1990s. The trade reforms led to increased importation of textiles and other used apparel, which facilitated the death and closure of many textile (p.63) industries in Ghana. As at 2002, there were only four major companies that had survived the turbulence in the sub-sector, namely, the Ghana Textile Manufacturing Company (GTMC), Akosombo Textile Limited (ATL), Ghana Textile Product (GTP), and Printex, with GTP maintaining the lead in the industry.

The decline in textile and garment sub-sector activity levels was also evident in the output and employment levels within the sub-sector. Although in 1977, Ghana’s textile industry had accounted for 27 per cent of total manufacturing, employing 25,000 people, by 1995, employment within the sub-sector had declined to 7,000, further declining to 5,000 by the year 2000. As at March 2005 the four major textile companies in Ghana employed 2,961 persons, and this accounted for less than a fifth of the employment level of 1977.

Major reasons accounting for the decline include: low demand for local textile products and influx of second hand clothing; lack of competitiveness of local textiles against imported textiles due to the high cost of local textiles and smuggling. Local producers of textiles and garments experience increased production costs due to obsolete plant and machinery, the high cost of local cotton and utilities, an unreliable supply of utilities, high interest rates/cost of finance, and overstaffing.

Given the decline in output, employment, and number of firms operating in the industry, the textile and garments sub-sector of manufacturing remains the major sunset sector within the industrial sector of Ghana. As indicated by Quartey (2006), the outlook for the textile and garments sector remains bleak, and therefore calls for pragmatic policies that will lead to both local and global restructuring of the industry. Locally, Quartey (2006) recommends that concrete steps are taken to address the problem of cheap imports, under-declared imports, wrongly described textile imports, and copied brands, markings, tickets, and labels including those of the Ghana Standards Board.

3.2.7 Patterns of Industrial Productivity

Industrial Policy in GhanaIts Evolution and Impact

Figure 3.2 Annual labour productivity growth, 2013

Source: World Bank 2014.

Figures 3.2 and 3.3 show the growth of labour productivity and employment across firms which were subject of the World Bank Enterprise Survey– Investment Climate Assessment 2013. The food sub-sector is the most productive and textiles the least productive. In addition, the recent 2013 survey shows that annual labour productivity growth rates are much higher in food processing (11 per cent) as compared to textiles and other manufacturing (2 per cent). Older firms are also found to be increasing productivity faster than younger firms, while foreign owned firms compared to domestic firms are increasing their labour productivity faster. Exporting firms are likewise improving productivity faster than firms only selling to the local domestic (p.64) (p.65) (p.66) markets. Whether this is due to self-selection of high productivity firms into exporting or learning by exporting is beyond the scope of this chapter. Figure 3.2 also shows that average annual labour productivity growth was higher in larger firms and surprisingly in the northern part of Ghana.

Industrial Policy in GhanaIts Evolution and Impact

Figure 3.3 Annual employment growth, 2013

Source: World Bank 2014; GSS 2012.

As expected, annual labour productivity is strongly correlated with average wages for individual workers (not reported). Moreover, Figure 3.3 shows that most of the differences between groups in annual labour productivity growth are not driven by differences in employment growth rates. As an example food processing in 2013 experienced very high labour productivity growth rates and at the same time the sector recorded the highest employment growth rates in the manufacturing sector.

3.3 The Industrial Policy Framework

Currently, Ghana’s new industrialization strategy is aimed at creating an industrial architecture based on value-added processing of Ghana’s natural resource endowments through the private sector-led accelerated industrial development strategy. Set within the context of Ghana’s long-term strategic vision of achieving middle-income status by 2020 the key development objectives of the industrial policy are to: (1) expand productive employment in the manufacturing sector; (2) create a modern productive economy with high levels of value added; (3) expand technological capacity in the manufacturing sector; (4) promote agro-based industrial development; (5) promote spatial distribution of industries in order to achieve reduction in poverty and income inequalities; (6) provide consumers with fairly priced, better quality products and services; (7) make firms within the industrial sector—especially manufacturing firms—competitive on both domestic and international markets (Government of Ghana, 2011).

Derived from the key development planning frameworks of the Government of Ghana, the industrial policy framework represents the set of specific policy instruments and measures to be applied to improve access to competitive factors of production within the economy, and to enhance the productivity, efficiency, and growth of Ghana’s industrial sector, especially the manufacturing sub-sector.

Although the full spectrum of industrial policy initiatives which cut across twenty-one policy thematic areas have been categorized into four main components, namely Production and Distribution; Technology and Innovation; Incentives and Regulatory Regime; and Cross-cutting Issues, this report discusses these policy initiatives under the following headings: (1) Macroeconomic Policies; (2) Trade Policies; (3) Institutional and Regulatory Framework; (4) Industry Sector specific policies.

(p.67) 3.3.1 Macroeconomic Policies

Ghana’s economic growth over the last decade has been among the most rapid in Africa and faster than in some high investment emerging market economies. The economy of Ghana has experienced moderate but consistent growth over the past twenty-five years, with the growth rate between 1990 and 2010 averaging 5 per cent. With oil and gas coming on stream, Ghana is well positioned to become one of Africa’s leading ‘commodities powerhouses’. Oil revenue is expected to eventually contribute an equivalent of about 20 per cent of total national revenue. The contribution of gold and other minerals, cocoa, and oil provides a diversified commodity backbone that will underpin the country’s rapid industrialization and sustained economic growth (Government of Ghana 2010).

The macroeconomic policies that have continued and continue to be pursued to ensure macroeconomic stability include: (1) rationalization of government sector expenditure and enhanced revenue mobilization to ensure fiscal consolidation so as to lower fiscal deficits and tone down the inflationary impact of unsustainable fiscal deficits; (2) reforms in public financial management with the aim of ensuring fiscal sustainability; (3) maintenance of a flexible exchange rate regime to enhance competitiveness of domestic firms; 4) continuous operationalization of the inflation targeting framework which aims at creating an enabling environment (keeping inflation low and easing access to low-cost credit) for the private sector to flourish.

3.3.2 Trade Policies

With respect to the industrial policy framework, the policy thrust of the external trade sector within the framework of trade liberalization is to use trade policy to promote the international competitiveness of domestic enterprises; improve export competitiveness of such enterprises; diversify markets and increase exports; and accelerate economic integration with other regional and/or sub-regional countries/states. The major trade policy initiatives include: (1) maintaining competitive real exchange rates; (2) improving the import/export regime; (3) establishment of the Ghana Competition Commission to deal with unfair international trade practices; (4) establishment of a National Agency for the Protection of Consumers; (5) promoting new goods and services; (6) taking full advantage of Preferential Access to markets such as Africa Growth and Opportunity Act (AGOA), European Union-African Caribbean and Pacific (EU-ACP), and sub-Saharan Africa (SSA) sub-regional trading blocs; (7) engaging fully in multilateral trade negotiations; (8) strengthening links between industrial and trade policies.

(p.68) 3.3.3 The Institutional and Regulatory Framework

In order to build a vibrant, competitive private sector strongly positioned for international and domestic competition, the institutional and regulatory policy effort seeks to tackle the core constraints inhibiting private-sector growth. The many barriers that confront investors and investments are being removed to make Ghana a more attractive investment destination necessary for enhanced industrial production.

The various business registration requirements, levies for business registration, and several investment legislations, are being rationalized while ministries, departments, and agencies (MDAs) that administer business regulations are being made to be more responsive to the needs and imperatives of the private sector. To enhance productivity and efficiency, and to reduce the cost of doing business, the government has put in place measures to remove value chain constraints to improve service delivery through urgent and aggressive investment in both physical and social infrastructure as a national priority to improve efficiency and reliability in the production chain.

A proactive local content policy is required for industrial development to translate into job creation at the level needed to change the economic fortunes of Ghanaians. This can be achieved only if the natural resources are applied locally along the industrial value chain. That means most of the value-added processing must be done in Ghana. Without a specific policy strategy to compel the direct participation and involvement of Ghanaians there will be little job creation.

The institutional and regulatory policies to boost industrial production include: (1) ensuring easy access to business registration and acquisition of permits; (2) strengthening the capacity of relevant institutions to deliver efficient services countrywide; (3) promoting harmonious labour and industrial relations in the manufacturing sector to increase productivity; (4) formulating and implementing appropriate laws to ensure that Ghanaians at all levels directly benefit from the industrialization process.

A key role in promoting industrialization in Ghana is the development and effective use of national standards (both voluntary and mandatory), based on relevant international standards. This assures consumers of the safety and suitability of products. While voluntary standards developed by consensus among relevant stakeholders essentially provide the basis for assessing the quality of products, processes, and systems, Technical Regulations (mandatory standards) are applied to protect the health and safety of consumers and the environment.

In view of the importance of standards, regulatory and institutional policies geared towards the development and use of standards in industry include government efforts to: (1) facilitate the strengthening of the links between (p.69) Ghana Standards Board and industry associations in the development of voluntary standards; (2) encourage the application of national standards in manufacturing; (3) support initiatives to improve institutional capacity of associations to develop standards of interest to their members; (4) facilitate coordination among the regulatory bodies in the development of Technical Regulations; (5) improve the institutional capacity of regulatory bodies to enforce the application of Technical Regulations in industry.

3.3.4 Sector Specific Policies

For the attainment of economic transformation as envisaged under the government’s medium-term agenda, the industrial sector, which is expected to play a pivotal role, is projected to grow at an average annual rate of over 20 per cent over the medium term. The main drivers expected to help achieve this target include: enhanced growth from the construction sector; infrastructure development in the oil sector; energy and water sub-sector growth in 2011 and beyond resulting mainly from the Bui Dam’s operations; production of gas to power thermal generation; and an increase in output from the mining sector, especially in salt production to meet industrial demand.

Under the National Industrial Policy, the industrial sector specific policies include measures to:

  • strengthen the links between industry, and research and development institutions;

  • decentralize industrial development to exploit the resource endowments of districts;

  • establish new and emerging industries such as petrochemicals, fertilizer, and LPG cylinders production on the back of the new oil and gas industry;

  • establish manufacturing enterprises to process agricultural produce, especially beans, fruits, and shea nuts;

  • exploit the limestone deposits in northern Ghana for the production of cement and for industry, as well as utilization of the significant clay deposits in the country for the production of bricks and other building materials to support the programme for the construction of affordable housing units;

  • rejuvenate the textile industry in an integrated manner, from seed production to spinning to ginning, and printing;

  • establish integrated shea butter processing factories in the three northern regions, targeting the processing of 50,000 tons of shea butter per annum for both local and international markets;

  • (p.70) rehabilitate abandoned but viable manufacturing enterprises, including the jute factory, tomato cannery, gold refinery, and ceramics production;

  • establish a second oil refinery in the western region to boost the production of petroleum products for exports and for national energy security;

  • review and implement plans for an integrated iron and steel industry;

  • establish Industry Support Centres to assist firms become internationally competitive;

  • seed and facilitate the creation of industrial anchors, and deploy the full benefits of existing free zone, export zone, and related investment laws to accelerate industrial development.

3.4 Emerging Policy Issues

The ‘top three’ issues that emerge from the industrial policy debate relate to the key developmental objectives of the current industrial policy. These include:

  • first, and most importantly, how to empower the private sector, especially small and medium enterprises to expand productive employment and technological capacity within a highly competitive manufacturing sector;

  • second, beyond expansion in a productive and technological capacity, how to promote agro-based industrial development to ensure value-added to manufactures and Ghana’s traditional and non-traditional exports;

  • third, to achieve poverty reduction and reduce income inequalities; how to promote the spatial distribution of industries away from the current situation of over-concentration of industries within urban areas.

These three issues are important because ultimately the success of Ghana’s industry policy will be measured by the extent to which it empowers the private sector (especially small and medium enterprises) within a highly competitive manufacturing sector to expand and create opportunities for employment and reduce poverty and spatial inequalities in Ghana.


We should like to thank John Rand, John Page, and Finn Tarp for valuable comments on earlier drafts of the chapter.

(p.71) References

Bibliography references:

Ghana Statistical Service (GSS) (2000). Ghana Living Standards Survey: Fourth (IV) Round, v. 2 Oct. 2008. Accra: Ghana Statistical Service.

Ghana Statistical Service (GSS) (2002). Population and Housing Census, Summary Report of Final Results. Accra: Ghana Statistical Service.

Ghana Statistical Service (GSS) (2008). Ghana Living Standards Survey: Fifth (V) Round, Sep. 2008. Accra: Ghana Statistical Service.

Ghana Statistical Service (GSS) (2012). ‘Provisional GDP 2012’. Accra: Ghana Statistical Service.

Ghana Statistical Service (GSS) (2014). Ghana Living Standards Survey: Sixth (VI) Round, Aug. 2014. Accra: Ghana Statistical Service.

Ghana Statistical Service (GSS) (various years) ‘Quarterly Digest of Statistics’. Accra: Ghana Statistical Service.

Government of Ghana (2010). ‘The Coordinated Programme of Economic and Social Development Policies, 2010–2016. Statement on the “Agenda for Shared Growth and Accelerated Development for a Better Ghana”’. Presented to Parliament by the President, Accra, December.

Government of Ghana (2011). ‘Industrial Sector Support Programme’. Accra: Ministry of Trade and Industry.

ISSER (1991–2011). ‘The State of the Ghanaian Economy’. Accra: University of Ghana, Legon.

Killick, T. (2010). Development Economics in Action: A Study of Economic Policies in Ghana, 2nd edn. New York, NY and Abingdon: Routledge.

Nyanteng, V. K. (1993). ‘Policies and Options of Ghanaian Economic Development’. Accra: University of Ghana, Legon.

Quartey, P. (2006). ‘The Textile and Clothing Industry in Ghana’, in H. Jauch and R. Traub-Merz (eds) The Future of the Textile and Clothing Industry in sub-Saharan Africa. Bonn: Bub Bonner Universitats-Buckdruckerei, 135–46.

Steel, W. F. (1972). ‘Import Substitution and Excess Capacity in Ghana’. Oxford Economic Papers 24(2): 212–40.

World Bank (WB) (1985). ‘Ghana: Industrial Policy, Performance and Recovery’. West Africa Region and Industry Department of the World Bank, Report 5716-GH. Washington, DC: World Bank.

World Bank (2014). World Bank Enterprise Survey data sets, available at: <http://www.enterprisesurveys.org/Custom-Query/ghana#hReprtpreview>, accessed December 2014.


(1) At the beginning of the Busia administration in October 1969, the National Liberation Council (NLC), which had overthrown Nkrumah’s CPP government in 1966, claimed that Ghana had achieved economic stability and restored the necessary conditions for economic growth (Killick 2010: 62).

(2) According to Killick (2010) it is conventional to split the SAP/ERP into two periods: 1984–6 and 1987–9, the former concentrating on macroeconomic stabilization and the latter on longer term and structural developmental issues. Specifically the latter phase involved restoring the infrastructural base of the economy, eliminating/reducing the remaining price distortions, and encouraging private sector development.