Trade Liberalisation and Small Scale Industries in Ghana

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Development economists have, for long, disagreed on trade strategies that have enabled countries to attain higher growth and develop their industrial potential. Arguments concerning an appropriate trade strategy are based on inward looking (import substitution and outward looking (export promotion) orientations. Ghana, after attaining independence embarked on large scale import substitution industrialisation which was seen as a hope for achieving rapid economic development. In order to allow the infant industries enough time to grow, protective barriers like tariffs, import and export controls were used. These protective measures however led to inefficiencies and limited growth of the local industries. In 1983, the government of Ghana embarked on economic recovery programme (ERP) to resuscitate the ailing Ghanaian economy. One of the underlying principles of the recovery programme was the introduction of trade liberalisation (free market system) which aims, among others, at assisting the entire industrial sector to be vibrant and internationally competitive. The freer economy has led to inflow of all forms of goods leading to severe competition. The contribution of small-scale industries (SSIs) to the national economy is potentially very large. They contribute more to G.D.P. than their larger counterpart. Employment generation for instance stood at 364,000 for SSIs in 1978 as against 64,000 for large scale firms. SSIs also accounted for 25 percent of Ghana’s value added manufacturing in the same year. Inspite of the contribution of SSIs in employment generation and contribution to manufacturing, a number of constraints were identified as limiting their growth potential prior to the ERP. Among the constraints were lack of access to inputs, spare parts, and credit and limited market. This study assesses the performance of SSIs under the free market system to find out the extent to which the new trade policy has contributed to SSIs in terms of employment generation, output growth and marketing of products. The study was limited to small scale manufacturing firms in Ghana with reference to Kumasi and Takoradi within the time frame of 1975-1997. Revelations from the analysis showed improvement in output and employment but contraction in demand for products. Other problems revealed by the study included high input costs and inadequate access to credit. In the aggregate, this study revealed that trade liberalisation in the country is, on a balance, favourable to the needs and activities, growth and development of SSIs. Inspite of the favourable response, some form of “infant sector” protection for these firms is still necessary to ensure their sustainability.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirement for the award of the Degree of Master of Science in National Development Policy and Planning, 1998