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01.05.2000 Feature Article

Introducing the Ghana Steel Fund....

Introducing the Ghana Steel Fund....
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The level of industrialization in any country is the most important indicator of her economic development. It is the key determinant in the classification of countries into the so-called 1st, 2nd, and 3rd worlds. Ghana remains a third world country precisely because of the very low level of industrialization in an economy where manufacturing constitutes about 3% of a Gross Domestic Product (GDP) that is among the lowest in the world. Ghana's initiatives at industrialization since the attainment of independence have never advanced past constricted import substitution supported by imported raw or semi- processed materials, capital equipment and technical personnel. Although the food processing industries utilize local agriculture materials, they also are heavily contingent upon the availability of imported capital equipment, and, in most cases, foreign technicians. Such initiatives have merely sustained the essentially extractive nature of the economy, and fueled a vicious cycle which sends our governments in search of foreign exchange to finance the burden of essential imports that, in turn, maintain the economy of primary production, and result in a loss of national income. This principally extractive economy engenders a low level of capital accumulation because very little value is added to the gold, bauxite, timber, manganese, cocoa, and other agricultural produce that are the main stay of Ghana's export driven economy.

National income has two components; the social and accumulation funds. The former furnishes the populace with social and public services while the latter is reinvested for the purposes of economic development. The achievement of adequate accretions of both is predicated on a nation's success in increasing the value of its natural and agricultural products and processes through the application of science, technology, and labour. In other words, the more a country processes its natural products into finished goods, the greater its capacity to grow national income, which can in turn be reinvested as social capital. In Ghana, competing against investment in industrialization from our meager capital accumulation are the prodigious demands of social and public services like education and health, which leaves very little funding available for true economic development. To further exarcebate the situation, the profligacy of high government officials in the use of public funds relegates industrialization to a low priority on the national agenda, even though it is a favorite topic in government propaganda.

The danger of an extractive economy with such a high reliance on imports is that whilst prices of capital, manufactured goods, technical expertise, and energy rise steadily, the prices of our cocoa, gold and other primary products labour under the unfavourable caprices of the world market, further decreasing the accumulation funds available for national development. Progressively, more of our exports are required to purchase the same quantity of imports. For example, in 1957, when Ghana attained independence, a ton of cocoa beans could purchase about 110 barrels of crude oil. By 1963, when the rumblings of economic crisis became evident in Nkrumah's regime and world cocoa prices had plummetted, the same ton was only worth 60 barrels of crude oil. Three years later, when the crisis had precipitated the fall of the regime, the ton was equivalent to less than 40 barrels of crude oil. In 1975, as world cocoa prices soared, , a ton of Ghanaian cocoa could buy 148 barrels of crude oil. By 1981, a ton of cocoa could purchase only 63 barrels of crude oil. Today, after about a decade of unstable but often gradual increases in cocoa prices, and still precarious oil prices, a ton of our cocoa beans is worth about 34 barrels of crude oil. Such unstable prices obviously have serious implications on our economic planning.

Our economies have therefore become hapless victims of a Sisiphian diktat parading under a specious political and economic independence, that limits our economic actions to borrowing money for the purpose of mining and tapping our agricultural resources in order to sell them cheaply to richer countries, which in turn manufacture products for sale to Ghana at exhorbitant prices. We do not deny that foreign aid and investment, when utilized appropriately, could be a significant factor in a nation's economic development, but in our country, as in many others in Africa, foreign investment has ensured that the economic value of our natural resources and labour, accrue to investor countries instead of Ghana. From the Kwame Nkrumah regime through to Jerry Rawlings' NDC, our initiatives at industrialization reflect this vicious cycle of dependency. The Nkrumah regime had by far the most ambitious 'industrialization program' with a structural coherence inherent in its visions of future integration of industry, agriculture and natural resources. At independence, Nkrumah's access to a large reserve fund accumulated from the sale of cocoa beans during the colonial era, became his means for executing this scheme. Yet implementation of the plan, except perhaps for the Akosombo dam and power plant, amounted to nothing more than a massive importation of industrial plants, technicians, raw and semi-processed materials to create a state sector of import substitution industries. Eventually these industries would be sold to private foreign and local investors, and since then, many have beaten the path to obsolescence for lack of spare parts, qualified technicians, raw materials, and efficient management. What Jerry Rawlings lacked in reserve funds, he more than made up in huge injections of foreign aid that have flowed into the country during his regime, all to maintain the same extractive economy, leaving a trail of debt, a polarized society of rich and poor, mass unemployment, hoards of emigration, and quite little in terms of improved standards of living.

But, industrialize we must! The way to economic independence lies in the achievement of self-reliant and self-sustaining development. This not to say that we must exist in a state of autarky. Rather it is to suggest a path of development that gives us the capacity to secure the peace and prosperity of our peoples, and to exercise choice in external affairs. Industrialization is the means to this prosperity. The development of mining, the processing of some local raw materials such as cotton, fruits and vegetables, and the building of import substitution industries to help the balance of payments situation all help a country's industrialization efforts but do not by themselves constitute industrialization. Similarly, the importation of industrial plants, tools, and gadgets to provide services in construction and communications and the extension of power supply to rural areas all contribute to the process of industrialization, but again, by themselves, do not constitute industrialization. At the core of any successful industrialization program is the possession of machine building capability. Herein lies the spring and path to effectively generate new processes to add value to our current production methods, and by implication, to increase the share of our national income that is reinvested in economic development.

Apart from directly impacting on our adverse balance of payments by limiting the importation of capital equipment, machine building capability will greatly expand the economy in agriculture, transportation, construction and infra structural development, energy production and processing of agricultural and mining raw material, for the quite obvious reason that the tools to greatly expand production in these sectors will reside within Ghanaian control. It is indeed a telling indictment of our lack of commitment to industrialization that, in an age when humanity rides the crests of the waves of breakthroughs in science and technology, in communications and information, in manufacturing and transportation, our governments go cap in hand to the Chinese government for funds, technicians, and equipment to build a monument as culturally important as our National Arts Centre, and as fundamental as a road ramp at Kejetia in Kumasi. Machine building capability in Ghana will make it technically feasible to quadruple our earnings from cocoa alone, for example, because local industries will be proficient at fabricating the equipment and processes that transform cocoa beans into the manifold consumer goods that emanate from cocoa, both for local consumption and export. Of course, this technical feasibility must accompany a resolve to ensure competitive quality products and winning marketing strategies. The material foundation of any program to acquire machine building capability is the availability of iron, steel and a metallurgical industry. Indeed the history of industrialization in the advanced countries is essentially the history of the development of steel and other metallurgical industries. Traditionally, the amount of steel produced or available to a country has been a measure of the level of industrialization of the country, and the per capita steel consumption of a country, a measure of its relative level of industrialization. Table 1 shows the pig iron production for Britain, France and Germany before the first World War when European industry was experiencing breakthroughs in manufacturing and metallurgical technology. It is salient to note that 20 years prior to this, German steel production lagged behind that of the UK, but by 1910 when Germany had become Europe's main industrial power, her steel production had outstripped that of Great Britain. In 1964, during the Nkrumah 7 year development plan, Ghana had a steel production of 30,000 tons, most of which was produced from recycled scrap. Clearly, Nkrumah's initiatives in industrialization were rather ineffectual in comparison to those of the industrial countries. Sadly, nothing more has been done in Ghana to improve on our steel capacity.

Table 1: Iron Production in Selected European Countries in 1910 (millions of metric tons) United Kingdom 10.2 Germany 14.8 France 4.0

Table 2: Per Capita Steel Production of Selected Countries

USA 685 kg West Germany 650 kg Sweden 623 kg Zambia 10 kg Ethiopia 2 kg Ghana 7 kg

Such stark statistics of our underdevelopment should jolt our national consciousness into the need for and urgency of a viable program of industrialization.

The scenario, thus far painted of the industrial scene in the country, is notintended to discount the efforts by local Ghanaian scientists and engineering firms at machine building. Notable among these is the Technology Consulting Centre, in Kumasi, which has led much of the pioneering work in the design, fabrication, and limited production of small scale agricultural and industrial machinery and processes. A common shortcoming of these firms, however, is a handicap engendered by a lack of suitable steels for fabrication and a dependence on importation of most of the core components of the machinery they design and build, resulting in low productive capacity. We do not dwell under the illusion that the mere possession of steel by a state will lead to economic development. Equally crucial is the availability of abundant energy resources, other essential metals, coupled with technical know-how and access to other strategic minerals in the region. Ghana does not lack metals and energy resources. The Akosombo dam and power plant, the Volta Aluminum Company (VALCO) and the country's and region's natural endowment in bauxite, manganese, limestone, coal and iron ore offer a secure material base for the establishment of a metallurgical industry. To date, however, these endowments have not been ultimately salutary to our economic development. The bulk of the electricity produced by the Akosombo plant is consumed by the Aluminum Company which exports almost all its products in aluminum ingots. Other major users of Akosombo HEP, like the gold, bauxite, manganese, and diamond mines all export their products in raw forms which, as discussed earlier, constitutes a loss of national income to the country. This loss of metals and raw materials is the extractive economy's most debilitating blow to the survival of present and future generations of Ghanaians, for these resources are unrenewable and their wholesale exportation with little benefit to the nation is a flagitious denial of the means of existence to Ghanaians yet unborn. Our bauxite resources - which are quite substantial and should form the basis of an aluminum industry - are exported in the form of ore. Even though Ghana does not process its ore into aluminum, an asinine but supposedly economically viable scenario exists where VALCO imports alumina (an intermediary stage in the bauxite to aluminum conversion) from Jamaica to smelt into aluminum, using Ghana's cheap electricity.Although various governments and political parties have expressed their intentions to process local bauxite into alumina for the VALCO plant, our governments preoccupation with foreign exchange and the lack of investor interest in developing our bauxite resources into an integrated aluminum industry, means that, only lip service is paid to this backward integration. But aluminum remains an important metal in industry, second only to iron and steel. It is a key component in the manufacture of automobile engine blocks, pistons, in ship and boat building, airplane construction, in the building construction industry, in the fabrication of cooking utensils, high-tension electrical cables and, of course, in the canning industry. It is, therefore, imperative to build an integrated aluminum industry in the country to halt the continued bleeding of our bauxite and electricity resources and loss of national income to foreign nations.

Two known major iron ore deposits with fair grade ore exist in Ghana. These are the Oppong-Manse deposits in the Western region, and Twelaba in Gonja. Fortunately for us, the glut in world steel production and the relative accessibility of known deposits in other parts of world have kept foreign investors away from Ghanaian deposits of iron ore. It is feasible, however, that a future government will sell off these deposits to earn foreign exchange, a prospect that will damage immensely, and perhaps irrevocably, any future industrialization programs. Manganese, a metal essential to the production of certain steels and of which Ghana is a major world producer, has been exported to develop the metallurgical industries in Europe for more than fifty years. If we do not halt this process, a time will come when this resource will be depleted and we may become importers of manganese for any future local steel industry.

Except for the Akosombo and Kpong power plants, the only initiatives so far undertaken by our governments in the fields of energy and power generation, are the costly explorations that have still not yielded the proverbial stash of oil', and recently the building of thermal plants which burn natural gas to produce electricity as a supplement to Akosombo and Kpong power. Our reliance on imported fossil fuel to run automobiles at a cost that seems to adversely affect our balance of payments situation continues to undermine any economic development plans because of the sporadic increases in the world prices of crude oil. Presently fossil fuel and products constitute about 16 % of the import bill representing about $600 million annually. This adverse balance of payment situation would be alleviated if local renewable alternate energy forms could be substituted for gasoline. Renewable energy resources abound in the country. The use of alcohol or alcohol blends with gasoline to fuel automobiles is gaining increasing credibility all over the industrialized world, firstly because alcohol is a cleaner burning fuel with performance yields comparable to gasoline, and secondly, gasoline blends make a better octane booster. Currently most of the gasoline sold in industrial countries contain 5-10 % alcohol. Ford Motors recently unveiled a car which uses an 85% -15 % alcohol - gasoline blend. This shows the potential of alcohol as a mainstream automobile fuel, especially, as petroleum reserves around the world dwindle and the world approaches the twilight of the gasoline age. Ghana's major staples, corn and cassava are excellent feed stocks for the production of fuel alcohol. A program to produce enough cassava and corn for the production of alcohol whilst satisfying local food needs could within five years drastically reduce gasoline imports and lead conceivably to a complete substitution of alcohol for gasoline as automobile fuel. The benefits of this are manifold. Not only would Ghana save $600 million in foreign exchange annually but an equivalent amount in productive economic activity in the country will be generated. At the same time a cassava based fuel -alcohol program will guarantee more stable prices for feedstock farmers thereby motivating productive capacity beyond their present subsistence levels.

Further, a by-product of alcohol production from corn or cassava is the silage, rich in protein and an excellent animal feed that would be an incentive for animal farming and meat production. Another by-product is carbon dioxide which possesses many industrial uses such as in the bottling and refrigeration industry. Cassava, therefore, has great advantages in the development of energy resources. Its cultivation is widespread. It thrives well even in marginal soils and still yields great amounts of energy from the break down of the starch molecules into fuel alcohol. Many countries have benefitted from the use of cassava as an industrial crop. Thailand earns an average of $750 million annually from the export of cassava chips, an amount almost equivalent to the combined proceeds from Ghana's export of her two principal commodities - gold and cocoa beans in the year 1999. Cassava, therefore, has the potential to outstrip cocoa as the major component of our GDP with less acreage under cultivation and more income to the farmers. Typically 700 acres of cassava has a theoretical yield of 20,000 litres of alcohol, 11,000 kg of CO2 and 16,500 kg of animal feed per day. At a pump price of even 50 cents per litre, the annual value of 700 acres of cassava put to alcohol production is almost quadruple that of the same acreage under cocoa cultivation. Clearly, cassava possesses great potential for economic development. But the development of an iron, steel and metallurgical industry and the development of renewable energy resources are quite massive financial undertakings. Presently, it seems beyond the intentions of any of our governments to pursue such an audacious program and, in self defeat we continue to appeal to foreign investors, governments, and international organizations for development funds. This appeal has not achieved its intended goals because the interests of the investors are generally at odds with the aspirations of our peoples. Their interests have channeled funds into spheres of quick return on investment as in the extraction and marketing of gold, telecommunications installations, tourists facilities, oil explorations and in the general import/export business. If foreign exchange is not available for a genuine industrialization program and our cash-strapped economy, saddled with social responsibilities in education and public services, are unable to sponsor such a program, then the onus falls on Ghanaian citizens to fund their own industrial development. There are no shortcuts to economic development; it is imperative that Ghanaians find a way to organize the necessary financial resources and technology needed to undertake our own development programs. The lack of a significant risk taking capitalist class in Ghana has also contributed to the slow pace of industrial development. It is encouraging that a nascent millionaire class in Ghana is emerging as a result of the massive injections of foreign aid from multilateral organizations and the trade liberalization policies of the Rawlings government. This is a development which is interesting for its ramifications on the role of private Ghanaian investment in any future industrialization program. An important but, as yet insufficiently tapped source of funding for an industrialtake off in the country, is the large Ghanaian population that exists in the western world. We say insufficiently tapped' because there has been very little organized accumulation of investment funds from these sources. Most of the flow of funds into the country from the diaspora has been in the form of remittances to family members and relatives, for the start up and operation of small scale businesses and in the form of "band aid' solutions undertaken by ethnic and alumni associations such as the shipping of medical supplies to hospitals and books or equipment to schools and universities in Ghana. These remittances, a veritable lifeline for many Ghanaian families at home, are estimated at over $500 million a year, quite a staggering amount, but not surprising given that over 2 million Ghanaians live outside the country. A strategic fund raising campaign in the diaspora must be the springboard for that needed jump start into industrialization. Diasporas have always been an important source of investment funds for the home country. Israel, Pakistan and Sudan (before the civil war) are examples of countries that benefit immensely from repatriated funds from their nationals in foreign lands. In the case of the Sudan, annual cash remittances for investment totaled some half a billion dollars and constituted a significant component of the GDP. This, in essence, is the mission of the Ghana Steel Fund - to organize fund raising campaigns among Ghanaians in the diaspora for the initiation of a program for the development of steel and metallurgical industries, machine building capability, and renewable energy resources in Ghana as the underpin of her industrial development.

There is an urgency to this mission because the rate of extraction of the country's unrenewable resources like gold, timber (Ghana's forests in the last twenty years have dwindled from 8.1 million hectares to 1.6 million hectares), manganese and bauxite and the prospect of future governments selling of more of these resources to raise foreign exchange, pose a clear and present danger to any future efforts at industrialization. If we do not act now to reverse this trend, the next generations of Ghanaians will inherit a country totally bereft of any natural resources. For this reason alone, the Ghana Steel Fund becomes imperative for the future of the country.

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