Thursday, March 27, 2008

Thinking Outside The Box

For Ghana to achieve middle-income-status by 2015, there is an urgent need to diversify the economy. As a nation, we need to go beyond the restrictive confines of Ghana’s traditional exports namely cocoa, gold and timber by creating new opportunities and markets which will radically diversify and transform the economy. New export opportunities and markets could help grow the economy in the same way as cocoa, timber and gold have done over the last decades as far back as the colonial days. As a proviso, the best way to achieve economic progress within an economy is through diversification.

After 51 years of independence, Ghana has made little progress in economic diversification and there is still heavy dependence on raw materials such as cocoa, timber and gold. For example, cocoa accounts for about 35 percent Ghana’s export value. The dependence of a nation on three commodities gives cause for concern especially, when all three commodities are primary products. It is a well established fact that, the prices of primary commodities are volatile and susceptible to exogenous shocks hence; a downturn in prices can adversely affect Ghana and significantly thwart our development efforts.

Currently, Ghana’s economic growth is being driven by the agricultural sector due to higher prices on the international market for cocoa and gold rather than the manufacturing sector. Last year, cocoa production was down due to lack of adequate rain. Question is, if world prices for our main three export commodities are to fall, will we as a nation be able to insulate the economy from such severe exogenous shocks? Dr. Kwame Nkrumah attempted to use our wealth in raw materials as a springboard for the country’s overall economic development and industrialisation, and when commodity prices fell, accumulation of exorbitant external debt became the order of the day and has continued till today.

For sustained economic development, it is necessary to have multiple sources of export revenue so that a temporary disruption in one product or service does not jeopardize the funding of the country’s development efforts. For the vision of achieving middle-income-status and industrialisation to become a reality, the manufacturing sector which is a more efficient vehicle for rapid and sustained economic progress is the best way forward but, has yet to attain a large scale in Ghana.

For example, in 1958 if my history serves me right, Malaysia’s main export items were rubber, which contributed almost 60 percent to the total export value, and tin, contributed about 12 percent. The government of Malaysia after independence, made a strong effort to diversify not only the agricultural sector but, branched out and made great inroads into manufacturing. Rubber’s dominance at independence has been reduced to about one percent of Malaysia’s total export value.

Manufacturing products have overtaken agricultural products as the main foreign exchange earner. For example, Malaysia has become one of the largest producers of semiconductors devices in the world. I am a fervent believer of the school of thought that says that, only a robust, competitive, innovative, creative and technologically driven manufacturing sector can take Ghana to the promise land to achieve middle-income-status via industrialisation.

However, we need to develop a progressive, dynamic and viable agricultural economy which will form the basis of our industrialisation in order to ensure food self sufficiency, food security, increased foreign exchange earnings through diversification of export crops and production of raw materials to feed our industries.

Presently, China is roaming Africa like a lion with an FDI budget totalling about $200 billion dollars seeking to devour and exploit Africa’s raw materials and natural resources into oblivion and extinction in order to feed its incessant quest and drive towards industrialisation. Adding value to primary commodities forms the basis of industrialisation.

The thrust of my article is to advance a case for the diversification of our export commodities by exploiting our comparative advantage in palm oil, salt and cassava. This article will specifically deal with the issue of palm oil. Elsewhere in the world, palm oil is big business that earns massive foreign exchange for the interested countries. Palm oil which is called “Red Gold” is one of the most widely used industrial raw materials in the world today. It is found in at least 10 percent of supermarket products. It is a well known fact that, palm oil from Ghana has been described as being of the highest quality and allegedly, the Malaysians like the three wise oriental Kings followed the scent of palm oil to Ghana to learn the fine art of palm oil production. As the saying goes “the rest is history”.

Unfortunately, Ghana has failed to exploit the great potentials of palm oil and as a nation, we have thrown away a great chance of earning an enviable place in the great economies of the world. However, it is never to late to make a fresh start. Currently, Malaysia which came to Ghana to learn about palm oil production is the world’s number one producer and exporter of crude palm oil closely followed by Indonesia.

Having discovered the unparalleled productivity and huge benefits of investing in palm oil production, reports indicate that currently almost half of Malaysia’s cultivated land consists of oil palm. Now the basic questions are; why has palm oil become the world’s number one fruit crop? Why the sudden surge in the demand for palm oil? How did something Ghanaians virtually threw away and failed woefully to exploit has become so valued in the world market today? Apart from being a major ingredient for food, palm oil has other myriad uses.

Palm oil is found in products such as ice cream, chocolate, biscuits, shampoos, tooth paste, paint, and detergents etc. Importantly, palm oil is one of the raw materials used in biodiesal production. As per experts, biodiesals are biodegradable and, when burnt, have fewer emissions than petroleum based fuels.

Malaysia currently accounts for 51 percent of world palm oil production and 62 percent of world exports. Last year, Malaysia’s export revenue from palm oil was $12.2 billion dollars, the biggest foreign exchange earner after manufacturing, tourism and petroleum and gas. The revenue earned by Malaysia through palm oil is nearly the entire total GDP of the Republic of Ghana.. Palm oil production can be an important factor in our current strives towards poverty alleviation.

Employment opportunities through palm oil production can offset the pressure on rural to urban migration. As a country, with a humid tropical climate with rich and fertile lands, Ghana has a great comparative advantage for developing an oil palm industry. Currently, palm oil production is characterised by low production. The role of oil palm in the agro-based industries in Ghana has a significant potential. As a nation, we definitely need to achieve agricultural diversification by making oil palm one of the crops for expansion.

Ghana needs to pursue new strategic pillars of growth if we are to transform the economy and palm oil production offers us a golden opportunity.
Potentially, Ghana can use palm oil production to create an alternative economic revenue base and laying a solid foundation for agri-business. We need to seize the opportunity and tap into the world demand for palm oil.

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