Will Ghana get a factory in every district?

When Nana Addo Dankwa Afufo-Addo, announced a year ago, as the leading opposition contender for the presidency, that if elected to the highest office in Ghana he would ensure that a factory was established in every district, many Ghanaians dismissed his pronouncement as just another heady electoral campaign promise from a man desperate to win the support of the electorate, being that this was his last shot at achieving his ultimate political ambition.

One year on, his flagship one district one factory programme is up and running. Various key stakeholders, from both public sector institutions and private enterprise have expressed their commitment to seeing the initiative through successfully some publicly and some in closed door meetings with the government officials charged with responsibility for its implementation.. Over the coming months though, this commitment will be put to the test as government pursues ambitiously tight implementation timelines.

It is indeed instructive that despite all the interest generated by the initiative, no factory has had sod cut yet. In June, President Akufo-Addo will formally launch the initiative, but while this was originally planned to coincide with the commissioning of the first batch of factories, it appears that this will no longer be the case as none are ready yet.

The new government’s political opponents and several economic commentators as well still doubt the viability of the initiative. They point to issues of inadequate availability of long term funding as a major practical constraint. They also fret over the viability of many of the factories that government wants to see established on the grounds that their products may not be price and quality competitive against cheap imports, particularly those from Asia. There are also concerns as to the capacity of Ghana’s transport infrastructure to cope with the volumes of goods that would be manufactured in the districts but necessarily sold primarily in urban centres.

They insist that ultimately, despite the interest being shown currently, these worries will restrain investors from trying to set up factories in Ghana’s rural hinterlands.

Government however is undeterred by all this and indeed is working to overcome the challenges where this is possible. For instance it has made extensive arrangements for long term financing, both from its own coffers and through financial institutions on commercial terms, primarily in the form of finance leases of equipment so as to minimize the credit risk. Government is also looking to use as much of the products emanating from the district factories itself, as well as linking up the rural factories producing intermediate industrial inputs, with end-user manufacturing concerns.

If all goes according to plan – which admittedly is a big if – over the subsequent six months, at least 51 factories will be commissioned around the country, as the first phase of a three phase implementation programme.

The first phase has been designated as the immediate impact phase. The minimum of 51 factories targeted to come on stream are expected to involve a total investment, inclusive of both debt and equity from both the private and public sectors, of about US$110 million. This is expected to generate some 300,000 jobs and contribute about US$236 million to Ghana’s Gross Domestic Product.

During this period, the implementation secretariat and its collaborators from both the public and private sectors will seek to identify and push the 50 or so ongoing short term projects to completion, structure financing and investment options to investors for the rest of the enterprises to be established, and compile and categorize the projects themselves as well as begin initial matching of investors, both local and foreign.

There are already plenty to choose from. The secretariat has already received over 200 requests from potential investors for support. These requests have been evaluated and a list of 25 projects has been drawn up from which 10 are being imminently implemented. These will form models for the rest to follow and learn from.

According to the implementation plan, the second phase, dubbed bulk execution, will be carried out over 2018 and 2019. This will involve the establishment of at between 100 and 120 enterprises, which will require investment of some US$140 million a year for each of the two years. Expectedly, these will generate about 1.2 million jobs over the two year period and will contribute some US$944 million to Ghana’s GDP.

The work schedule for this phase includes the development of business plans for identified initiatives on a district by district basis. This would be followed by the finalization of comprehensive financing needs and projected returns, accompanied by matching of investors and the securing of the requisite funding, on a district by district basis. Also sustainability plans would be drawn up for each factory to ensure the long term sustenance of the factories established under the initiative.

The third and final stage is planned for execution in 2020 and is dubbed the commissioning stage. This is expected to see the establishment of the final 66 or so factories and true to its name would see the commissioning and launch of factories across all the districts, as well as the review and monitoring of all executed initiatives. This final stage would involve total investment of some US$170 million, which is expected to create about 700,000 new jobs and generate a US$520 million contribution to the country’s GDP.

The sheer amount of interest and support that the one district, one factory programme has generated among both local and foreign investors, as well as other key stakeholders such as financial institutions and civil society itself, creates cause for optimism and this in turn has encouraged government to set tight timelines for the commencement of the programme’s implementation.

The Minister for Trade and Industry, Alan Kyerementen, claims that by the end of May, his ministry had received more than 150 proposals from private investors, both local and foreign, to establish enterprises under the programme. These comprise an admixture of business plans, feasibility studies and expressions of interest.

But even this pales beside the interest being directed at the special government agency specifically set up to oversee the design and implementation of the programme. The One District One Factory (1D1F) Secretariat has been established under the Office of the President, with a mandate to fast track the initiative’s implementation by providing the presidency with direct oversight. Led by the National Coordinator, Mrs Gifty Ohene Konadu, the secretariat works with consultants, technical advisors and representatives of relevant stakeholder institutions to fulfill that mandate.

By the end of April, this secretariat had already received some US$3 billion in investment pledges, equity and debt financing inclusive. While some three quarters of this has been pledged by foreign direct investors, the indigenous investment community has committed to putting up huge quanta of funds as well. This continues to increase in leaps and bounds.

In mid May, GCB Bank, the second largest bank in the country, announced that it was committing a further US$1 billion to financing of enterprises under the initiative.

Just as instructive is the sheer number of enquiries the secretariat has been receiving. By the end of April it had received 310 enquiries from various investors and other potential participants in the programme and the rate of new enquiries had risen to an average of 30 a week by that time.

“There are a variety of publics who are interested in an opportunity such as this initiative offers” affirms Gifty Ohene-Konadu. “We have meet many of our primary stakeholders, including business leaders, political players and potential investors and they all express interest and their total support for the initiative we are implementing. We have met with entities from South Africa, India, China, Britain and Turkey, among others.”

Crucially, the secretariat has also won the committed support of a host of stakeholder institutions with which it is now collaborating as well. These include EXIM Bank, Ghana Investment Promotion Centre, Association of Ghana Industries, Ghana National Chamber of Commerce and Industry, Environmental Protection Agency, National Board for Small Scale Industries, Ghana Standards Board, Centre for Scientific and Industrial Research and, very importantly, the municipal and district assemblies themselves.

“With the establishment of stakeholder linkages, the one district one factory programme seeks to engage and align stakeholders with the programme’s vision, goals and activities,” explains Kow Sam, a Consultant to the secretariat. “We are seeking to use their core functions and mandates to compliment the activities of the programme and vice versa and at the same time establish an efficient institutional network towards accelerating the President’s national growth strategy. We are entering into service level agreements with the various identified stakeholders for the initiative. These service level agreements will be based on acceptable deliverables based on the institutional mandate and core functions of each stakeholder towards the programme.”

To be sure there is the genuine realization across all stakeholders that if successful, the one district one factory initiative would be the most important vehicle for Ghana’s economic growth and development since independence, 60 years ago.

While Ghana has been quite successful in its deliberate efforts, since the mid 1990s to become a leading emerging market destination for foreign direct investment – indeed the country has been the 5th biggest recipient of FDI on the continent since the beginning of this decade – these investment inflows, which have financed the larger manufacturing enterprises in the country, have been overwhelmingly concentrated in the biggest urban centres. Data from the GIPC, which registers all the formal FDI inflows, indicates that about 90% of it (excluding investment in the solid mineral mining and upstream oil and gas sectors) ends up in just three of Ghana’s 10 regions: Greater Accra, Ashanti and Western. Indeed most of that goes into the regional capitals of those three regions, namely Accra, Kumasi and Takoradi respectively.

The result is that Ghana’s industrialization is heavily skewed in spatial terms, which in turn leads to a deep concentration of job opportunities and ancillary business opportunities in just a handful of the country’s biggest cities. Little wonder that rural-urban labour migration has become a huge problem in Ghana, putting unsustainable pressure on public utility and service provision in the biggest cities.

Accompanying this problem is the consequent gross underutilization of Ghana’s generous natural resource endowment, especially agricultural resources and minerals that could serve as invaluable industrial inputs. But because of the spatial concentration of Ghana’s industrial sector in the biggest consumer markets, rather than close to local raw material sources, industrialists have tended to import their inputs rather than source them locally. This option is made even more attractive by the fact that two of the three biggest urban centres – Accra/Tema and Takoradi – are home to the country’s two sea ports and it is instructive that the third, Kumasi, will soon start being served by a nearby inland port.

“The one district one factory initiative will equip and empower communities to utilize their local resources in manufacturing products that are in high demand both locally and internationally” asserts Gifty Ohene-Konadu. “This will allow the country to reap the rewards of industrialization, increase agricultural and manufacturing output, reduce reliance on imports and increase food availability.”

This would allow for much more evenly spread economic growth and development across Ghana, giving economic incentive to offer both public and private sector economic and social services in districts hitherto considered too poor to afford them.

Apart from giving investors potentially lucrative business opportunities that will attract their investment capital, it is also expected that the proper exploitation of local raw materials and other resources will result in widespread import substitution, which ultimately would translate into sustained cedi stability.

But most importantly of all for Ghanaians in general, the new initiative is about job creation. A factory in each district is expected to employ millions of Ghanaians over the next four years and just as importantly, thus stem rural urban migration by creating employment opportunities in the hinterlands. The programme is expected to facilitate the creation of between 7,000 to 15,000 jobs per district and between 1.5 million and 3.2 million jobs nationwide by the end of 2020.

However while the concept of establishing factory in every district across Ghana is clearly an excellent idea, implementation will be a complex, arduous task, which is why the political opposition have resorted to questioning its viability, now that the new government has demonstrated its commitment to executing the programme.

The incumbent government is however undeterred by this. The programme is targeting investment in eight key sectors. The most obvious – and certainly the most dominant one – is agro processing and agro business. Indeed the first 10 factories, which will be commissioned over the next couple of months will be predominantly involved in this sector.

Agro processing has the most readily available raw materials and also offers the biggest job opportunities (utilizing out-grower farming) and has the best prospects for import substitution. For instance a pineapple juice factory to be established imminently at Ekumfi in the Central Region is expected to employ 5,000 farmers as out-growers and create another 1,000 jobs as factory hands, managerial and administrative staff, and in transport, logistics and other ancillary and support services.

The secretariat has identified agro processing activities that would be viable in each region of Ghana based on the agricultural resources most readily available in each. Greater Accra offers fish, mango and salt; Central offers citrus and pineapple; Western offers, glass, oil palm, bamboo, timber and coconut oil processing; Eastern offers gari, plantain, pineapple and black soap; while Volta offers cassava, honey, oil palm and vegetables.

Ashanti offers spices, plantain, poultry, citrus and oil palm; Brong Ahafo offers cassava, mango, and cashew processing; Northern Region offers soy, rice, maize and sesame processing; Upper East offers onion, cowpea and sorghum processing; and Upper West offers cotton processing.

Another major prospect is in industrial raw material and intermediate input production, using resources such as agricultural produce and industrial minerals. Expectedly, groups and cooperatives will be formed at the district level for this.

Then there are: textiles and clothing; ICT; pharmaceuticals and cosmetics; waste management; distribution and trading; as well as tourism, arts and handicrafts.

Actually, all these areas are not all inclusive. The Ghana Investment Promotion Centre, the state institution charged with responsibility for attracting, registering and assisting investors, both foreign and local, identifies nine priority sectors for investment. These include agriculture and agro-processing, manufacturing, financial services ICT, infrastructure and transportation, tourism, as well as both the education and health sectors. The other priority area is the energy sector, where the GIPC identifies opportunities for independent power producers in thermal, hydro and renewable energy generation. Importantly, notes Edward Ashong-Lartey, the Director of GIPC’s Investor Services Division, the establishment of factories across the districts located in the rural hinterlands will require new power generation for them to run on.

Several types of businesses are being targeted to participate in the one district, one factory programme. One type comprises new businesses that are ready to move into the districts and expand their operations. Another comprises new businesses that seek to operate within the districts and have the capability of sourcing for raw materials. Yet another type comprises businesses that have the capability of enhancing the operations of input providers and suppliers towards the demand from factories in the districts.

Then there are businesses whose operations focus on distribution and market access for goods produced in the districts. Add to all these, district-level businesses which have the potential to grow but need technical support, long term investment, standardization to cope with competition, brand improvement or market access.

Key to the success of the initiative of course is financing, especially since medium to long term financing is hard to come by in Ghana. The programme will be financed mainly by government and private capital from various sources. On the front line will be the local and foreign commercial investors themselves.

But also being courted – with great success so far – are financial investors such as private equity funds, banks and international pension funds, as well as development finance institutions and impact investors.

Government is putting up monies for on-lending to investors both through budgetary allocations to the secretariat itself (2017: GHc450 million) and through the newly established Exim Bank. Universal banks with state shareholding are coming to the table too. First off the block in this regard was UMB Bank which has pledged the cedi equivalent of US$100 million and says it stands ready to support deserving enterprises under the initiative with up to US$1 million each. Eligibility for accessing this derives from formal support from the Ministries of Trade and Industry and Business Development respectively, and the approval of UMB’s feasibility assessment process. A dedicated department has already been set up within the bank for all this.

More recently GCB Bank has raised the stakes with a GHc1 billion support pledge as well as a commitment to cover the cost of consultancy services for the initiative through partnering of business consultants for advisory services. The bank will also give pricing concessions for its products and services used by enterprises operating within the programme.

But the biggest source of financing is expected to be Ghana’s new Exim Bank which will offer medium to long term funding at below market interest rates and in large quanta too. For access to financing from public sector sources, the secretariat has categorized enterprises into four: Micro-enterprises with investment of at least US$50,000; small scale enterprises with investment of at least US$100,000; medium sized enterprises with investments of at least US$1.5 million; and large scale enterprises with investments of more than US$5 million.

While special incentives for participating enterprises are still being worked out, Ghana’s already operational investment incentives, applied by GIPC are generous enough to attract huge investment into the programme and ensure the profitability of the enterprises to be established. These include custom duty exemption on plant, machinery and equipment; guarantee against expropriation; accelerated depreciation allowance for plants and buildings; full repatriation of dividends and net profits; and transfer of funds in respect of servicing of foreign loans.

Most important for enterprises to be established under the one district one factory programme however are the locational tax incentives. After the five year concessionary period (1% for five years from start of operation) agro-processing enterprises which use local raw materials as their main inputs will pay considerably lower rates if they are located in the rural hinterlands than those applicable in the biggest urban centres. For instance agro processing enterprises located outside the regional capitals are only required to pay a 10% income tax rate and this is even lower, at 5% for enterprises in the Northern, Upper East and Upper West Regions.

Similarly, other manufacturing firms located outside the regional capitals can enjoy a 50% tax rebate.

However there are still doubts as to whether these tax rebates will be enough to persuade investors to risk their capital in the face of market access and transport logistics challenges. Most of the factories would engage in agro-processing, thus producing processed food products, fruit juices and the likes. Here they will face stiff price and quality competition from imports, especially from Asia.

Here, since the World Trade Organization’s global trading framework does not readily allow for outright protectionism, analysts are suggesting that Ghana invents an array of administrative measures that effectively make the importation of competing goods as difficult as possible, in the same manner that Japan became notorious for during the 1970s and 1980s.

Transport logistics is another disturbing challenge too. Despite considerable resources spent on roads over the past couple of decades, the rural road infrastructure remains poor, raising transport costs to prohibitive levels. There are plans to develop railway infrastructure that is relatively cheaper and moiré efficient but this is necessarily a long term initiative, while the factories tom be established in all the districts are under a short to medium term initiative.

All this means that the next stage of the one district one factory programme – translating all the enthusiasm being shown by the various stakeholders, particularly the investment community itself, into wealth, job and economic growth and development generating enterprises all around the country – will require intense commitment and a long term perspective from all the stakeholders involved. Which means that while the initiative is indeed viable, it is by no means a done deal yet.