Can CFTA revive Ghana’s ailing manufacturing sector?

After almost six years of emotions-laced negotiations and tedious ground work, the Africa Continental Free Trade Agreement (CFTA) came into force in May this year, when The Gambia emerged the crucial 22nd member of the African Union (AU) to ratify it.

By that gesture, the originators of the agreement, the AU, have successfully created a single market, call it the ‘African market’, that comprises more than 1.2 billion people, boasts of about US$3 trillion of income and is available to millions of goods and services from the 55-member States.

When fully implemented, Ghanaian manufacturers and traders, like their counterparts elsewhere in the continent, will be allowed to export their goods and services to other African countries without paying duties or being restricted on a quota basis.

Thus, on paper, the union has done what its founding fathers – our own Dr Kwame Nkrumah, Emperor Haile Selassie of Ethiopia, Jomo Kenyatta of Kenya and Alhaji Abubakar Tafawa Balewa of Nigeria, among others – envisaged when they laid the cornerstone for the establishment of the Organisation of African Unity (OAU), now the AU, in 1963.

In reality, however, it has opened a new chapter in the history book of the continent. That chapter, which is full of opportunities and challenges, is capable of booming or drowning the economies of member countries, including Ghana’s..

Relevance of manufacturing

For countries to be able to enjoy the full benefits of the CFTA, their manufacturing sectors must be robust, competitive and innovative to be able to churn out the goods that will be traded.

This is because trade, which is the driving force of the agreement, is a function of manufacturing.

As buyers and sellers of goods, traders survive on manufacturers. Therefore, in countries where manufacturing is booming, traders play a critical role in sustaining that growth by finding markets for the goods and in the process, freeing manufacturers to concentrate on their core jobs of value addition.

However, in countries where manufacturing is ailing, traders equally play a critical role in impoverishing the value-addition business the more.

They do this by flooding the local economy with imported substitutes. These imports drown the few locally produced goods, strangle the manufacturing sector further and lead to loss of productivity and jobs. Ultimately, the imports expose the economy to the risks of import dependence, among them being a volatile exchange rate regime.

It is worth noting that imports, rather than industrial goods, are necessary only to the extent that there is a supply deficit fuelled by price, quality and taste in the local economy.

State of manufacturing

Sadly, that is the state of Ghana’s manufacturing subsector.

After a sensational start in the years following independence, the fortunes of the manufacturing business have been at the mercy of cheap imports, erratic and costly power, weak policies and pricey credit.

Fuelled by a sheer taste for foreign brands at a time when a myriad of challenges has stifled innovation in domestic manufacturing companies, imports have now displaced local products, resulting in the crumbling and fizzling out of giant local firms such as the Appiah Menkah Complex and its flagship product, the Apino Soap, the BA Mensah Group of Companies, the Nsawam Cannery, the meat and tomatoes processing factories and the textile manufacturers nationwide.

But for the history books, nobody would have believed that Ghana was once a producer of electronics and electrical gadgets such as pressing irons, television sets and electric bulbs.

The sorry state of the manufacturing sector is further amplified in the annual rate of growth and its share to total productivity, measured by gross domestic product (GDP).

Data from the Ghana Statistical Service show that the manufacturing subsector’s share of GDP averaged more than 30 per cent per annum in the early 2000s but has been on a consistent decline.

From 13.2 per cent of rebased GDP in 2013, it fell to 12.2 per cent in 2018 as growth and momentum in the subsector waned.

How CFTA can help

While various measures have been instituted to help reverse the situation, not much has been achieved.

This makes the coming into force of the CFTA a dicey situation for the country.
 
On paper, it opens countless opportunities for manufacturers.

In reality, however, it could further flood our economy with imports, this time round, from peer African countries, and that can easily result in the drowning of our largely weak manufacturing companies.

To avoid this, the private sector needs to first whip up the government and later partner it to draw up a comprehensive policy on how the country can build the capacities of the manufacturing sector to benefit fully from the agreement.

That policy must incorporate SMART (specific, measurable, attainable, relevant and timely) objectives that all of us as a country will work to achieve.

It must also be apolitical and be made the foundation of every political party’s manifesto.

Unlike other policies on industrialisation and private sector support, this policy on how we can benefit fully from the CFTA must be implemented by a selected group of astute experts and funded by a sustainable funding source. In that regard, it will not be out of place to levy consumers and companies and use the proceeds to transparently resource a committee or a secretariat to build the capacities of manufacturers.

With majority of our manufacturing companies being small and medium enterprises, it goes without saying that they need hand-holding to be able to outcompete the imports that the CFTA will gush out into our economy.

We cannot do that with our usual lip service kind of supports.

This requires that we are deliberate, swift and tactful. Respectful private sector bodies such as the Association of Ghana Industries (AGI), the Private sector Federation (PEF) and the Ghana National Chamber of Commerce and Industry (GNCCI) need to lead that charge.

Beyond them being the most exposed to whatever benefits or negatives that will arise, posterity will not forgive them if they join the politicians to do business as usual with the agreement.

Double blessing

While at it, Ghanaians and Africans alike must relish this moment.

After almost six decades of political unity, African governments are now meaningfully knocking down trade barriers to make way for a liberalised trade system, which has long been viewed as a credible route to lifting millions of our people out of poverty.

With trade being a key solution to Africa’s bulgy unemployment situation (variedly estimated at 50 per cent), the CFTA’s ability to more than triple intra-African trade from the current 17 per cent to 52 per cent by 2022, according to the Economic Commission of Africa (ECA), could prove the best antidote to the tetchy poverty that joblessness breeds in the continent.
 
For us in Ghana, it should be a double excitement.

Beyond the pride and opportunities that a free trade area provides, Ghana being the host of the CFTA Secretariat is fulfilling for all the reasons.

For a nation that was a torchbearer of the African emancipation agenda in the better part of the 19th century, hosting the secretariat places us in the front role to further galvanise support for a meaningful economic independence.

To achieve that, however, we must first be sure that we are not neglecting the critical discourse, policies and structures that are needed to ensure that our economy fully reaps the benefits that the trade agreement promises.

That starts with a SMART blueprint on how we can support domestic manufacturers to build capacity and produce more for export.

Through this, we can make the CFTA a means to the revitalisation of our challenged manufacturing subsector.