A way out of the economic entanglement
By Evans Ocrah
With the unending rounds of devaluation, import-restrictions, dwindling oil revenues and its attendant economic hardships, this correspondent reasons that it is about time economic development concepts in current use in West Africa were revised.It all went wrong for West Africa from the early days of independence when our new leaders went too aggressively too soon in their bid to transform their societies from poverty and backwardness to modernisa- tion. The strategy of import-substitution was envisaged to accelerate the pace of industrialisation, lessen dependence on the outside world, create jobs and conserve foreign exchange earned by exporting primary raw materials.
Economic development is not simply equal to industrialisation for several reasons. In the first place, without the harmonious development of agriculture and industry, neither can proceed very far. The concentration of a large percent- age of production in the primary sector is in itself not a cause of poverty; the cause is the low productivity in agriculture. Whenever the agricultural population is poor, the non-agricultural population serving the agricultural population tends to be small and also at a low level of living.
This explains why industrial workers in West Africa are no better than their counterparts on the land. Ghana shows a vivid illustration where industrial wages are so low that they cannot meet the high cost of living. Observations have revealed that progress in industrialisation will be severely handicapped.
Apart from mining and the production of a few cash crops for export, the primary sector has been neglected to the extent that raw materials which are producible at home are still on the import list of West African countries. Not all the industrial inputs can be imported sufficiently leaving the industries to operate below capacity or close down completely. Instances abound in Ghana and Nigeria where industries perform at less than 50 per cent capacity.
Thirdly, economic development is much more than the simple acquisition of industries. It should imply upward move- ment of the entire social system, i.e., the attainment of a number of ideals of modernisation. It must bring about increased productivity, social and economic equal- isation, modern knowledge, improved institutions and attitudes and a rationally coordinated system of policy measures that can remove the host of undesirable conditions in the social system that have perpetrated a state of under-development. Industrialisation therefore entails expansion of industrial output and improvement in the variety and quality of goods, not just expanding the number of factories only to become white elephants as we see in West Africa today.
I believe that is a vital distinction between initiating a development pro- gramme and the more difficult task of sustaining development over the long run. Over reliance on foreign raw materials, technology and finance makes develop- ment very difficult to sustain in West Africa. Research efforts need to be stepped up in West Africa to develop technologies more suited to our requirements. A primary aim should be to make available at the lowest possible cost the basic necessities of life for the mass of our people, utilising to the fullest extent the resource of manpower and materials available in the system.
1. It relaxes foreign exchange constraint; instead of saving foreign exchange as in the case of import substitution, export substitution earns foreign exchange.
2. The domestic resources cost of earning a unit of foreign exchange tends to be less than the domestic resource cost of saving foreign exchange.
3. To the extent that it rests on world demand, the process of initiating industrialisation through export substitution is not limited to the narrow domestic market of the import substitution type. The inflow of foreign capital to support export substitution isn't dependent on home market protection but is induced by considerations of efficiency on the side of resource cost.
4. Foreign investment for export substitution tends to have more linkages to agri- culture when it involves the processing of primary products.
5. More importantly, it contributes more than does import substitution to the objectives of greater employment and improvement in the distribution of income. 6. It aids employment creation in the urban industrial sector by avoiding an agricultural bottleneck that would otherwise handicap urban industrial employment.
Economic development is much more than the simple acquisition of industries. It should imply upward movement of the entire social system, i.e., the attainment of a number of ideals of modernisation. It must bring about increased productivity, social and economic equalisation...
Though there should necessarily be cooperation between West Africa and the international community in our develop- ment efforts, ideas borrowed from Britain, Russia or America wholesale have a lesser chance of survival than one borrowed from India or Brazil. Borrowing ideas should come from similar situations for obvious reasons.
Increasing number of development strategies today advocate industrialisation via export as the most suitable for a less developed country and for that matter West Africa. A strategy of export substitution must replace that of import substitution. By export substitution is the world market. meant industrialisation strategy emphasises the export of non-traditional exports such as processed primary products, semi-manufactures and manufactured commodities in substitution for traditional primary products hitherto exported in their raw states. It has some distinct advantages over the import substitution process:
The successful working of the export substitution process must be based on the consideration that West African countries have small domestic markets but they possess abundant natural resources. The contribution of export of primary pro- ducts to GNP is large and this should be incorporated into the industrial strategy by making a determined effort to break into the market for manufactured exports, mainly semi-processed raw materials.
Effective use must be made of the large pool of unutilised labour supply by opting for labour-intensive projects. Wage costs which also depend on productivity of labour, must be held to the minimum to allow our products to be competitive on
We need to make a more effective use of existing infrastructure, e.g., power and transport facilities, and concentrate efforts on new establishments in the rural sector to exploit the locational advantage. For instance, the present distribution of Ghana's hydro-electric power must be revised to benefit the wider industrialisation objective instead of giving such a large percentage to VALCO, whose operations have no serious linkage to the domestic economy.
The experience by the marketing boards in West Africa has been frustrat- ing, Cocoa-butter, i.e., semi-processed cocoa, exported from Ghana to the USA attracts more tariff value than Ghana's raw cocoa beans. Thus, it is argued that the developed countries which monopolise the manufactured export market would apply tariff escalation on West Africa's processed goods and make them uncompetitive. Yet it is abundantly clear export substitution is the only promising strategy to industrialisation open to West Africa. In fact, import substitution policy has been very disappointing in West Africa. It has intensified our foreign exchange constraint and failed in catering for the small domestic market causing shortage of basic commodities these industries were set up to produce. Ghana has taken a dangerous short cut by adopting a Special Un-numbered Licence policy which allows individuals to import goods with their own foreign exchange.
This has intensified currency trafficking in Ghana and for more than two years. the pound sterling exchanged on the open market at £1 to C200. Goods imported with blackmarket money sell at astronomical prices; well beyond the reach of most consumers.
Thus, import substitution policy has fuelled the inflationary spiral. The policy did not succeed in spearheading industrial take-off, neither has it succeeded in saving foreign exchange, but has worsened the balance of payments prob- lems, forcing West African countries to resort to yet another round of import restrictions to meet the balance of payments problems.
What West Africa needs today is a radical economic revolution primarily in agriculture and not a political revolution. There must be the avowed desire to remove mass poverty and diminish economic inequality by causing a rise in per capita real income at the same time reducing the absolute number of people below subsistence living conditions.
