The history of mankind is dotted with remarkable achievements. For example, the pacesetters in ocean voyage threw themselves into the deep end, into the mysterious and unknown by sailing to lands and seas they had no prior information and knowledge of. The technology in use at the time was primitive but they had courage, determination and most important; skill. Today, we enjoy the benefits of those hitherto dangerous voyages which were the foundations of maritime knowledge and helped the world globalize trade that has undoubtedly improved the living standards of mankind.
Likewise, the industrial revolution could not have taken place without first inventing railways. Indeed, the invention of railways ensured that journeys that had hitherto taken days or weeks could now be made in a few hours. Constructing railways brought communities, countries and continents together. It also fostered trade and financial linkages that have now become the bedrock of globalisation with its concomitant improvement in living standards as goods and services could now be transported over long distances.
Furthermore, until the Wright brothers flew the first powered flight in 1901, the general belief amongst naysayers and worrywarts was that human beings can never fly! Due to their perseverance, courage, determination and skill, human beings, goods and services can now be transported between continents. And a similar story goes for the first landing on the moon by Neil Armstrong. These are a few examples but it is clear that what these inventors and pacesetters had in common was determination, perseverance, courage and skill.
Now, coming on to economic matters. The Second World War wrought massive devastation on the cities and people of Europe. Such was the economic devastation that by the time Japanese emissaries signed the surrender documents on 2nd September 1945, the European economy had collapsed with over 70% of European industries and its infrastructure destroyed completely. Entire cities and towns were reduced to rubble. For the human cost: your guess is as good as mine. That said, today, the European economy (Eurozone), is the largest in the world with a GDP of €14.3 trillion and €12.7 trillion at purchasing power parity (PPP) and a GDP per capita of €25,000 for each of its over 500 million inhabitants. And it has been only 70 years since the second world war. Their success story lies in the Marshall Plan and I will explain how.
The Marshall Plan formerly known as the European Recovery Program was $12 billion ($120 billion in today’s money) aid money given to 18 Western European countries by USA to rebuild and raise the standard of living amongst Western European countries after the economic devastation of the second world war. The aid money was in operation for only four years. In fact, the economic impact of the aid program has never been in doubt and in 1991, economic researchers from the National Bureau of Economic Research, USA, found that the aid money played a major role in setting the stage for the rapid economic growth seen in Europe after the Second World war.
Indeed, the consensus among prominent economists is that the rapid industrialization of Europe after the second world war could not have been possible without the Marshall Plan and the period 1948-51 was regarded as the golden epoch of economic action and rewards. For example, the import of raw materials under the Marshall Plan accelerated the recovery of West German manufacturing after the Second World War.
Let’s turn our attention to Ghana. Between 1957 to 2009 first quarter, the entire debt stock of Ghana stood at GH₵ 9.5 billion. This increases by over 800% to GH₵ 90 billion (over $23 billion) in 2015 representing almost 80% of GDP as is shown in the chart below; with over 55% of this debt held by Ghanaians. From an economic standpoint, it is impossible for anyone to say that Ghana is a country that has been transformed economically since 2009.
Yet, from the data, the amount of money that has been spent by central government since 2009 is almost double of what 18 European countries received between 1948-51. Indeed, assuming that amount in today’s dollars means that Ghana would have received $6.7 billion if it were part of recipients of the Marshall Plan today. Compare that with the over $23 billion spent and one gets a sense of what Ghanaians should be expecting from the government in terms of economic development. If other countries have been able to do more with less, then surely Ghana should be able to do more with more.
In econ 101, we were taught that government expenditure is a component of gross domestic product which is a measure of all the final goods and services produced in a country in a specific period. It can therefore be safely deduced that if government expenditure has skyrocketed by over 800% in 8 years then GDP should be growing by more than 2-4%. And my back-of-the-envelope calculations show that GDP should be growing at an annual pace of more than 10% based on the amount spent. Once again, the data tells us this is not the case.
216 factories in Ghana, one in each district is not over ambitious. In fact, current economic circumstances as discussed in this article show that Ghana has the ability and capacity to internally generate the funds required for such a project. What the country needs to do is to plug the ‘leakages’ in government finances. We also know that other countries have successfully done this some 70 years ago. So evidently, it is not beyond the wits of man!
All the goods that will come out from the 216 factories need not be final goods. Some of these can be intermediate goods. And in econ 101, we know that manufacturing and trade in intermediate goods is an effective way to plug into the global value chain while firms that produce final goods consider relocating to countries that have a comparative advantage in producing these intermediate goods.
The effect on employment will be positive and highly significant. This is because while the factories generate employment in the districts, for those factories that produce intermediate goods, not only are they going to generate employment locally, but low unit labour costs and a policy of truly free and QUALITY education up to the secondary level that ensures a constant stream of educated and highly skilled workforce, will deepen Ghana’s comparative advantages.
These comparative advantages tend to draw firms that buy intermediate goods for production of final goods to locate in countries that produce the intermediate goods. Such a process will ensure that Ghana is recipient of technological transfer that enabled a small trading post like Singapore to transform into an advanced economy that produces both intermediate and final goods for the world.
One of the surest ways of dealing with the persistent exchange rate instability and depreciation of the cedi is to reduce imports and export more. When we start manufacturing goods such as toothpicks, safety matches and many other basic goods for which the technology required is not complex, then we can expect a stable currency and inflation that enables governments and other economic agents to plan.
Planning to build 216 manufacturing factories means that the country will need a rethink of agricultural policies that ensure raw materials for some of the factories. In doing so, we can also grow enough rice and wheat to eliminate their importation. With improved road networks that facilitate the transport of agricultural produce from supplier villages and towns to demand areas, prices of agricultural produce will drop significantly. This will quicken the pace of Ghana’s industrial revolution as cheap agricultural produce that ensures raw material used as inputs are cheap, is normally the first step in the process of industrialization. This is not beyond the wits of man and Ghana can do this.
In a nutshell, the plan to build 216 factories should not even be a party political issue. It is the first step to get out of the economic mess Ghana finds herself in at the moment. It should rightly be a national economic policy. It is clear that any opposition to such an economic policy is motivated by politics and not economic feasibility. If the Marshal Plan could transform Europe’s economy, then $23 billion if well spent should transform our beloved Ghana. That is why it’s my firm belief that at this stage of our economic development, Ghana needs a leader who is BIG on ideas and BIG on delivering them. 216 factories in Ghana should just be the beginning!