The Manufacturer’s Dilemma (Part 1)
Manufacturing has become a household word across the globe and for Ghana it may seem like a rebirth. It seems generally accepted that, entrepreneurs are supposed to create businesses out of the many problems we face as a people. In doing this however, innovation and creativity is required since not all solutions create viable businesses.
Over the years, many manufacturing start-ups have collapsed before their 5th anniversaries. What is left at best in such situations are packing lines that succumb to outsourcing contracts from bigger multinationals. Indeed, the issues confronting the local manufacturer are many; some are self-inflicted whilst others emanate from poor government policies.
Manufacturing is the production of merchandise for use or sale using labour and machines, tools, chemical and biological processing, or formulation. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale. This definition by Wikipedia brings to the fore the knowledge that is required at first-hand by anyone who would like to venture into manufacturing.
Whilst others start businesses with success in mind, the Ghanaian entrepreneur is always saddled with roadblocks and how to surmount them. The difficult economic terrain is turning many people away from exploring the many manufacturing ideas and falling for the less stressful trading ventures.
Availability of Ready Markets
There are several factors to consider when you think of producing anything at all; textiles, pharmaceuticals, food, automobiles etc. The major headache of the entrepreneur may not necessarily be that of infrastructure or machinery or even the source of input materials, but a ready market for the final product. I have come across many business plans put together for funding and majority of them do not even know where their products will sell. At best, there is an attempt to contemplate where these products could be sold. The Ghanaian market is so small and anyone who is serious about large scale manufacturing should be thinking of exports.
That is a great responsibility considering all the hurdles that need to be cleared to get out there. There is the issue of quality and affordability which are all ingredients needed to compete strongly on the global market. The current tirade of US trade policies is an example of what could simply create great turbulence in any market. When such conditions emerge, there is a possibility for most products to lose grounds on the global market.
This issue of Trump’s consistent harsh trade policies is a wakeup call for Ghanaian Industrialists alike. When you become overprotective of your market, it is a way of telling other markets to do same. The aftershocks can be grave for weaker economies. The US has a humongous economy that is capable of surviving shocks from a trade war, but certainly not an economy like ours. Economies caught in this imminent trade war like China, Canada and Europe are equally strong and capable of staying resilient still.
The lazy Approach in Staying Relevant
I have observed over the years, that anytime merchants and industrialists want to have a better hold on the marketplace, they attack importation. Genuinely there are some imports that are illegally done and that must be fought as long as it persists. The attack on products that come through the ports genuinely with all relevant taxes paid should not be fought by advocating for increased import tariffs. That is a lazy approach to solving a complicated issue like this as there is always a backlash when trading counterparts also decide to do same to exports from Ghana.
Trade liberalization should not necessarily bring about an influx of cheap goods. Governments always have their golden eggs which they can protect and let the ones they cannot produce in adequate quantities come from other countries. That way, trading counterparts will not see it as stifling importation but would acknowledge a government’s effort to encourage the establishment of enough industries for economic growth as well as allowing inter-trade with other nations.
Sources of Raw Materials
Perhaps one of the most important factors to consider when venturing into manufacturing is the availability of a consistent source of raw materials. The thinking that goes into selection of suppliers for a manufacturing plant is enormous. On one hand it is about availability in the needed quantities delivered on time. Yet on the other hand, it is about meeting the quality specifications. The cost component is key also, but the first two criteria are most critical. Why anyone will set up a manufacturing company without a promise of a more permanent source of raw materials beats my imagination. The Komenda Sugar factory readily comes to mind.
Source of Funding
Access to credit becomes one of the major bottlenecks when it comes to setting up manufacturing plants in developing countries like Ghana. The quest to industrialize is alive, but as long as the needed environment is not created to fan the flames of this appetite, we go nowhere. In a country where base rate has dropped to 17.0%, access to financing industrialization is as high as it has been in the distant past.
When entrepreneurs are faced with interest rates as high as 30% from commercial and investment banks, it is enough headache to halt the wheels of industrialization. It’s a helpless situation and the earlier dramatic steps are taken by key stakeholders of this industrialization drive, the better for this laudable agenda. By close of 2017, contribution of industry to Ghana’s GDP was around 24.5%.
The trend over the past 10 years can best be described as fluctuating and the factors contributing to this is quite obvious; some of which have been discussed above. The world of a typical manufacturer can be quite complicated with all these factors coming up strongly.
Industrialization is key for the development of every nation and this is irrespective of which sector is involved. Government has the task to ensure the needed environment is created for the success of this process. Many of the industries by indigenous Ghanaians collapsed along the way and could be blamed on many factors including the harsh business conditions made possible by poor government policies.
On the hand, the management of such businesses suffered from poor management decisions regarding cashflow and investments. Diversification is good, but when it is rushed it can destroy the core business of an organization. The mistake of industry players to quickly get on with new ideas even when the environment is not ripe has been one major failure that can be checked. Stay focused on the core business and diversify only when the core business has a solid foundation to shake off any turbulence!
It takes deliberate actions by both government through relevant policies and the private sector to create wealth through industrialization. The opportunities are huge and the right attitude towards business is required to make it work.
[divider]Johnson Opoku-Boateng is the Chief Executive & Lead Consultant, QA CONSULT (Consultants and Trainers in Quality Assurance, Health & Safety, Environmental Management systems, Manufacturing Excellence and Food Safety). He is also a consumer safety advocate and helps businesses with regulatory affairs. He can be reached on +233209996002, email: firstname.lastname@example.org.
BY: Johnson Opoku-Boateng