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close this bookThe Courier N 127 May - June 1991- Dossier 'New' ACP Export Products - Country Reports Cape Verde - Namibia (EC Courier, 1991, 104 p.)
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View the documentGhana - diversifying the export base problems and strategies
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Ghana - diversifying the export base problems and strategies

by Della K. BEDI-BELLA

The economy of Ghana, like that of most developing countries, particularly in sub-Saharan Africa, is characterised by a narrow export base made up of a few primary commodities. The heavy dependence on earnings from these products both to finance development and to service debt has exacerbated the vulnerability of these economies to excessive price fluctuations in those same products.

Over the past two decades, there has been no remarkable improvement in the performance of Ghana’s traditional export sector comprising cocoa, timber and minerals which account for about 95% of foreign exchange earnings. The two commodities of greatest importance to Ghana, cocoa and gold, which account for about 65% and 25% of foreign exchange earnings respectively, have suffered severe price falls over the years, thus counteracting significant increases in production.

The production of cocoa, which fell from around 400 000 tonnes in the early 1970s to a low level of 158 000 tonnes in 1983-84 due to inappropriate domestic policies and natural disasters like drought, recovered to 170000 t in the 1984/85 season and to over 200 000 t in 1985/86. By the end of 1989, cocoa production had soared to 300 000 t. Gold production had risen also from 235 000 ounces in 1987 to 272 000 ounces by the end of 1989. This represented an increase of 30% over the figures for the three previous years. These increases in production were the result of a number of policy measures which were initiated under the country’s Economic Recovery Programme (ERP), launched in April 1983 with the support of the International Monetary Fund and a number of bilateral and multilateral agencies, like the World Bank.

While on the supply side the country has increased the level of production of traditional exports, on the demand side, prices have remained depressed. The international price of cocoa, Ghana’s major export crop, has been so unstable that export revenue has fluctuated widely. For instance, the price of cocoa dropped consistently since 1984: from $2396 per tonne to $2300 per tonne in 1987 to $1800 in 1988 and $850 in December 1989. Indications are that prices have continued to fall.

The loss of revenue has been substantial. In 1989 alone, Ghana lost $200 m in export earnings because of the drop in the price of cocoa. The country earns less money now from her exports than she did 10 years ago.

Ghana’s problem has been compounded by a mounting debt burden which has imposed severe pressure on the country’s balance of payments position. Debt servicing alone is consuming 60% of the country’s export earnings. Recent increases in the price of crude oil in the world market as a result of the Gulf crisis have further aggravated the problem. Of the estimated $1304 million import programme for 1990, oil import was expected to take about $170m 13% of export earnings. That estimation was based on oil prices remaining at $ 18 per barrel. But it is now obvious that the actual price has been considerably higher.

Promoting non-traditional exports

It was against the background of declining earnings from traditional exports, that the Government of Ghana adopted a policy of diversifying exports by focusing attention on the production of non-traditional items such as fresh fruits and vegetables including bananas, pineapples, avocados, ginger, copra and spices; processed marine products such as shrimps, prawns, lobsters and tuna; furniture and other wood products; aluminium products; chocolate; common salt and handicrafts, and exotic items like snails, grasscutter, aquarium fish and pests.

Port returns, released by the Ghana Export Promotion Council (GEPC), show the value of the export of these nontraditional products (excluding residual fuel, liquefied petroleum gas, veneer, plywood and transfers due to invisible exports) between 1986 and 1989, to have amounted to $128.6 m.

There was a drop in export earnings for the selected products in 1989. However, port returns by Customs, Excise and Preventive Services (CEPS) for the first quarter of 1990 show that the country earned $10.2 m from non-traditional exports as against $7.3 m for the first quarter in 1989. This represents a 38.9% increase over the same period. Prospects for a further substantial increase in the value of non-traditional exports in 1990 are therefore bright.

Two items which have become very important to the country in terms of foreign exchange earnings are electricity and receipts from the operations of Foreign Exchange Bureaux. In 1989 Ghana earned $82 m from the export of electricity to neighbouring countries while the operations of the Bureaux de Change which were established in 1988 yielded $89 m. Total receipts from what could be described as the non-traditional export sector in 1989 (excluding receipts from non-residual oil, liquefied petroleum gas, veneers and plywood and transfers due to invisible exports) amounted to $205 m. Compared with the figures for traditional exports, namely, cocoa - $407.8 m; gold - $ 159.9 m and timber - $80 m for the same year, one could say that the country’s non-traditional export sector has considerable growth opportunities.

The number of non-traditional exportable products is increasing every year. For instance, in January 1990, the Food Research Institute of the Council for Scientific and Industrial Research (CSIR), with the support of the GEPC, initiated a project to cultivate mushrooms for local consumption and for export. A recent addition to the list of exportable items is charcoal which is said to be in great demand in various overseas markets. According to a report in a Ghanaian weekly paper, a number of companies are exporting charcoal to various countries. One company has received orders to supply about 500 metric tonnes of charcoal valued at $7.4 m to some states in the Gulf.

One sector of great potential in terms of foreign exchange generation is tourism which now enjoys priority status in the national economy. However, due to a lack of adequate infrastructure, the country has not been able to take advantage of its potential.

Problems

In spite of the fact that the nontraditional export sector had demonstrated a potential to generate foreign exchange to improve the country’s balance of payment position, there are a number of problems which hinder the development of the sector. Among these are weak or inadequate production bases, uncompetitive prices due to high domestic production costs, poor marketing infrastructure and non-availability of ready finance. Others are inadequate incentives, bureaucratic and cumbersome procedures or lack of adequate knowledge about export procedures and weak institutional support.

To cite just a few examples, a major bottleneck in the development of the sector is the lack of easy access to finance. Ghanaian exporters cannot be competitive when they have to pay no less than 30% interest on borrowed funds. Besides, the demand for physical collateral by the banks, which most small-scale and new exporters cannot provide, has made it difficult to have access to credit. A recent report in a Ghanaian daily revealed that a $28 m fund provided by the World Bank to the Ghana Government to assist the development of small-scale enterprises has remained unutilised since the contract was signed in 1989. According to the report, only five applicants, out of total of 200, have so far benefited from it. The inability of the small and medium-scale enterprises to meet the condition of contributing at least 25% of the cost of the project and the reluctance of the commercial banks to support the enterprises by contributing 10-15% of the investment needed from their own resources have impeded access to the facility.

A major complaint by exporters is about difficulties they encounter in processing export documents. This situation has been attributed to bureaucratic and cumbersome procedures. There are at present as many as nine documents which exporters are required to process in order to fulfil export orders. Besides these, there are so many agencies involved in export documentation to the extent that a lot of time is wasted by exporters in shuttling from one office to another in order to process their documents. These and many others militate against the development of the sector.

Strategies

Under the Economic Recovery Programme, the Ghana Export Promotion Council has drawn up a 5-year (19881993) Export Development Programme (EDP) with the aim of boosting, in the short term, the production of nontraditional exports, and, the long-term, the relative share of non-traditional exports in the total export earnings of the country, i.e. from 5% to}5%. This, it hopes to achieve by adopting policies and measures which will remove constraints on the development and expansion of the sector.

The main components of the EDP are as follows:

Strengthening and building the institutions

A number of institutions are involved in the promotion of non-traditional exports in Ghana. At the top, is the Ghana Export Promotion Council (GEPC) which was established in 1972 and charged with the responsiblity of obtaining information on all exportable products and determining the extent and location of any market for these products outside the country. The GEPC also liaises with a number of government ministries, departments, financial institutions and business and trade associations in the promotion of non-traditional exports.

Other institutions are the Ghana Export Company (GEC) which was established in 1969 to market made-in-Ghana goods outside the country, the Ghanaian Enterprises Development Commission, formed in 1975 to assist in the promotion of Ghanaian businesses; the National Board for Small-Scale Industries (NBSSI) established in 1985 and given the responsibility for the development and support for small-scale industries in the country; the Department of Rural Housing and Cottage Industries (DRHCI) and the Ghana National Trading Corporation (GNTC).

Under the programme, existing institutions are to be strengthened and new ones established at the regional, district and village levels to provide extension services to exporters.

Finance and incentives

New measures relating to tax, tariff and financial reforms have been introduced to assist exporters to expand production of non-traditional exports. Among these are:

a) Financing development and investment fund

Under this facility which was established in 1989 by the Bank of Ghana and GEPC with the support of nine insurance companies, a limited liability company, the ‘Export Finance Company’, was formed to facilitate the flow of funds into the non-traditional export sector. This includes a pre-shipment scheme to enable exporters to pay for the cost of packaging and packing materials, transportation, warehousing, post and telecommunication services. It is, how ever, too early to access the impact of the scheme.

b) Export retention scheme

This scheme, introduced in 1981, allows exporters to keep 35% of their net export earnings in a special foreign exchange account. This is designed to enable non-traditional exporters to have access to foreign currency to finance both the import of essential inputs like machinery, equipment, spare parts and raw materials and the payment of related services such as foreign business travel expenses, participation in trade fairs, medical and educational bills and salaries of expatriate staff.

c) Duty drawback

This procedure enables a trader to reexport certain duty-paid goods and claim from customs part or all of the duty paid. It also applies where imported materials form part of the local manufactures which are eventually exported.

Export production villages (EPV)

As part of Ghana’s strategy to increase the production of non-traditional exports, the GEPC has initiated moves to establish EPVs to tap currenty uncoordinated rural production activities. Under the plan, selected commodities such as coconut, cashewnut, yam and oil-seeds will be cultivated. Producers will also be encouraged to form companies which will be registered under the Companies Code as limited liability companies.

To improve the country’s productive base, GEPC also plans to engage consultants to assist companies to improve their production, planning, design, quality control, foreign purchasing of export inputs, costing and pricing

Export school

Plans are also underway to establish an export school to educate the exporting community in export management and administration at the levels of both the enterprise and the institution.

Tax incentives on exports

The Ghana Investment Code, PNDC Law 116 of 1985 provides numerous tax incentives and benefits for companies engaged in investments in declared priority areas of the economy, namely, agriculture, manufacturing, construction and tourism.

Under the Code, a person or company engaged in the priority industry is entitled to a rebate on his tax liability for any year of assessment if during this period he exports a percentage of his total production for the period.

The percentage of products exported and the corresponding percentages in rebates on tax liability are as follows:

Per Cent of Total Produce Exporterd

Rebate on tax liability



5-15%

5-30%

15-25%

33-50%

25% or more

50-60%

Other incentives and benefits include the following:

a) requisite permission for importing essential machinery and equipment required for the enterprises;

b) exemption from the payment of customs/import duties in respect of plant, equipment and accessories imported specifically and exclusively to establish the approved enterprise;

c) for agriculture:

i) a corporate income tax rate of 45%
ii) depreciation and accessories to the extent of 100% and iii) investment allowance of 10%

d) for manufacturing industries:

i) investment allowance of 7 1/2 % and
ii) depreciation or capital allowance of

40% in the year of investment and
20% in subsequent years.

Conclusions

The central policy issue affecting prospects in the non-traditional export sector is that Government should provide a favourable climate to increase export volumes to their full potential. The role of the private sector in this development cannot be over-emphasised. There is, however, a broad consensus that private sector development in Ghana is still constrained by the regulatory and incentive framework despite government’s efforts to encourage the sector. For instance, complex regulations administered by multiple agencies are a particular constraint. There is therefore the need to review legal provisions that regulate private investment, and to streamline them to get rid of duplications, inconsistencies and administrative barriers that are so harmful to private sector development.

The Government’s tariff and tax reforms have created a structure of protection that is now more conducive to efficient import substitution and export promotion than it was formerly. The restructuring of import duties, sales taxes and excise duties has led to the unification of sales tax rates across most local and imported goods, reduction in import duty rates and the rationalisation of sales tax.

Despite the appreciable progress in reducing tax rates, there remains a perception that Ghana’s overall burden of tax is relatively high, compared with neighbouring countries which are often competing for the same types of investment. Government must therefore consider a fundamental restructuring and lowering of the country’s tax regime with a view to encouraging local production and attracting foreign investors. There is also the need to review lending rates (of interest). In this regard, a distinction should be made between interest rates on commercial loans and loans for investment in productive ventures.

The reliance on the export of primary products has exposed the country to fluctuations that characterise these products in the international market. Besides, a lack of appropriate storage and warehousing facilities has resulted in substantial losses to exporters. It is therefore important to place more emphasis on the export of processed products in order to maximise foreign exchange earnings. There is a need to inject appropriate technology into the operations of export industries to enable them to produce good quality products which can compete favourably in international markets. It is also imperative for the government to encourage intra-African trade in areas in which the country has a comparative advantage.

The urge to generate more foreign exchange by diversifying the country’s export base is a step in the right direction. It is, however, imperative to ensure that this policy is not pursued at the expense of the need to protect the environment. Problems relating to deforestation are already too well-known to Ghanaian officials to merit further elaboration. Recent revelations that the GEPC has authorised the exportation of charcoal is certainly not in the country’s interest. Already, woodfuels and charcoal account for an overwhelming proportion of domestic energy use in Ghana. The efforts being made by other government agencies like the Environmental Protection Council and the National Energy Board to reduce environmental degradation through the efficient use of the country’s forest resources will be thwarted if the policy of exporting charcoal is not reversed.

Export diversification must be pursued, but it is equally important to protect the nation’s depletable resources. Proper planning and coordination among all agencies involved are required if the nation is to achieve its goal of increasing its export earnings and at the same time living in a clean and healthy environment.

D.K. B-B.