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27.06.2012 Business & Finance

Loosing the energy game

By Thebftonline.com
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It's been a long journey from the dark, power crisis-laden days of 2007 when poor quality and unreliable electricity supplies hit hard the bottom-line of many energy-intensive industries whilst devastating most marginal manufacturing enterprises.

Now the outlook is brighter, with Ghana poised to become a regional power hub…except for an emerging uncanny lethargy from government threatening to deflate the enthusiasm of local entrepreneurs.

Pragmatic measures, obviously driven by a sense of urgency and aimed at energy-use efficiency and energy conservation, taken by government which included the strict implementation of a raft of legislations banning the importation, distribution and sale of inefficient incandescent electric bulbs, as well as laws on standardisation of electrical products, led to stunning outcomes including savings estimated at US$38.6million annually; a peak electricity load reduction of 124 megawatts (MW)' and a reduction of 116,000 tonnes of CO2 emissions per annum.

But perhaps the most outstanding development was the opportunity identified and seized by some local entrepreneurs to move into the production of highly efficient compact fluorescent lamps (CFLs), a product promoted by the Energy Commission in its drive towards energy-use efficiency to complement increased investments in electricity generation and distribution capacity to ensure power supply security.

That, obviously, is the ultimate prize for all the efforts aimed at pushing the country into a commanding position in the energy industry of the West African sub-region -- a region notoriously deficient in electric energy supply and use.

Generally, local manufacturing creates more new job; perhaps more than any of the other broad economic activities.

Additionally, and more importantly, it provides an opportunity for the country to stay at the forefront of technological developments; as Ghanaian workers stay on the factory floor and hone their skills and gain more knowledge, they will drive innovations; they will be emboldened to explore new frontiers in value addition, and they will control the high value end of the industry.

Ghana, however, is on the verge of losing this ultimate prize to its neighbouring economic juggernaut, Nigeria, which incidentally is Ghana's most serious competitor in the race for dominance in the energy industry in West Africa.

Local producers of CFLs may soon move manufacturing operations to Nigeria, a country that hosts about half of the sub-region's 300 million people.

At least two major reasons account for this. Firstly, the Ghanaian market is increasingly being inundated by cheap CFL imports from China and elsewhere; and secondly, Nigeria has succeeded in effectively blocking its vast market to most Ghanaian manufactures. And worryingly, government's attitude toward these developments has not been aggressive and decisive enough to inspire confidence among local manufacturers.

Data from the GCNet shows that CFL imports have been growing significantly since 2008, following government's ban on the importation and sale of incandescent bulbs. The 2008 figure was 14.8 million pieces, increasing to 20 million the following year and rising to 35 million in 2010.

Currently, Ghanaian manufacturers supply to just over one percent of the domestic market -- though their products are of superior quality and their installed production capacity means they could do better.

Locally manufactured CFLS are designed to withstand a wide range of power fluctuation, between 110 and 270 watts, to accommodate the Ghanaian power situation; but most imports, even the good quality ones are manufactured to withstand only a narrow range of fluctuation.

Worse still, the inferior quality types from China are usually not certified and their labeling is mostly falsified. A lamp labelled 30W, for instance, could actually be only up to 10W -- thus not producing the luminescence expected.

To ensure that CFLs imported into the country are of the expected quality, the Ghana Standards Authority (GSA) has taken delivery of a test facility to facilitate enforcement of quality and standards regulations.

Either this is a bit late in the day, or unscrupulous importers have found a way around this measure as the local market is being flooded with sub-standard CFLs which get spent quickly.

Tellingly, consumers are beginning to complain about the wisdom in spending more on CFLs whose retail prices are about five times but last only as long as banned incandescent bulbs.

Even more worrying, the cheap imports are pushing local manufacturers out of the domestic market.

“Though our products are superior, long-lasting and come with a year's warranty -- which means any of our lamps would be replaced or repaired should it be spent within a year -- we're still disadvantaged,” says Mr. Raphael Felli, Managing Director of Wellamp, one of the two local manufacturers of CFLs.

This disadvantage stems from, first, price undercutting. Importers and distributors of cheap CFLs are able to retail at far lower prices than local products. Secondly, consumers of imported CFLs try to take advantage of Wellamp's warranty policy by submitting spent foreign CFLs as Wellamp products for replacement.

The second challenge confronting Wellamp is the difficulty that the majority of local manufacturers generally face in exporting to the ECOWAS market. An underdeveloped export infrastructure and especially cumbersome administrative procedures greatly hinder intra-West African trade.

For instance, Nigeria -- justifiably or otherwise -- has placed an import ban on more than 70 of Ghana's non-traditional export products, which include most of Ghana's manufactured products.

The Nigerians argue that most of those products are being dumped onto the West African market by Asian countries, notably China. While every possibility exists that some items could be exported to Ghana and re-exported to Nigeria as though they were manufactured in Ghana, provisions could and should be made to distinguish genuine Ghana-made products from those manufactured in Asia.

Of course, at the sub-regional level, measures have been instituted to address such challenges. Under the ECOWAS Brown Card scheme, which allows card-holding corporate bodies to export unhindered, Nigerian officials will have to come and inspect the local manufacturers' factories to ensure that they are not indeed importing but actually manufacturing what they supply to the Nigerian market.

This process is however fraught with administrative bottlenecks, making it almost ineffective practically.

Yet another bottleneck is the payment system within West Africa. The banks have difficulty coordinating their activities. The same bank operating in a number of West African countries see their country operations as independent of each other; therefore transactions by a Ghanaian exporter with a bank in Ghana, for instance, would not automatically be picked up by the mother company of the same bank in Nigeria, the destination of the Ghanaian exporter's products, and vice versa. For the exporter, therefore, transaction costs with the banks are escalated.

Now, beleaguered Ghanaian manufacturers, confronted with an ever-shrivelling domestic market may buckle under pressure from Nigerian businessmen seeking to partner Ghanaian entrepreneurs to relocate their manufacturing operations into Nigeria so as to have easy access to that country's huge market.

“Of course, as with most manufacturers in Ghana, we have been approached by Nigerians encouraging us to enter into joint ventures with the aim of moving our factory operations to Nigeria to enable us circumvent the export barriers encountered by most Ghanaian exporters to that market.”

“We would expect government to play a more meaningful role in preventing this from happening,” Raphael Felli said, explaining that government agencies need to stringently implement standard regulations to ensure that inferior products do not flood the domestic market and thus crowd out local manufacturers.

While at it, government should also use its procurement processes to purchase a substantial percentage of its CFL requirements for public organisations and institutions from local manufacturers.

“We're not asking to be pampered. We expect government to give us quality and price targets within which local manufacturers produce and sell to government and public institutions.

“Here, an added advantage to creating much-needed jobs and retaining wealth in the country -- as against encouraging the importation of energy-efficient lamps -- is that local manufacturers can give warranties that are otherwise not available, or difficult to obtain, with the imported products. Increasing local manufacturing could also help spawn a new industry of recycling, which is relatively more difficult with imported products,” Felli said.

Obviously Ghana, arguably West Africa's most efficient economy currently, has a lot more to do to ensure that it reaps the true benefits of its efforts by preventing the migration of its manufacturing enterprises from the country.

For while tackling the phenomenon of an influx of cheap, sub-standard products from China and elsewhere may indeed be daunting, allowing the few surviving manufacturing concerns to be persuaded to relocate outside the country would be suicidal to an economy that is battling with extremely high unemployment rates.

“Thankfully, Ghana enjoys a lot of goodwill in the sub-region. It is now imperative for government to leverage on that to open up the ECOWAS market to Ghanaian manufactures. Government needs to intervene and have bilateral arrangements to certify some Ghanaian goods that are easily taken into Nigeria,” Felli opined.

While this may be easier said than done, it is the growing belief among an increasing number of Ghanaian entrepreneurs that it is the logical step toward ensuring a thriving, efficient economy. It is time for Ghana to play hardball.


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