The Future of African Textile Industries: A Ghana Case Study Second DRAFT A report prepared for Friedrich-Ebert-Stiftung(Accra) Prepared By: Dr. Peter Quartey 1 Institute of Statistical, Social& Economic Research University of Ghana P.O. Box LG 74, Legon, Accra, Ghana E-Mail: pquartey@ug.edu.gh 1 I am grateful to the management and staff of FES(Ghana) for making this study possible. My appreciation goes to my field assistants(Simon Nettey, Johnson Glavi and Alex Afriyie) and also to Mawuli Gaddah. I also wish to acknowledge contributions from Mr. Abraham Koomson(General Secretary of T.G.L.E.U), Mr. Moses Zizer(Chairman, TEGLU) and Mr. Mingle(Executive Officer, TEGLU

OUTLINE 1. Introduction 5 2. Profile of the Textile Industry in Ghana 6 2.1 Employment Levels 6 2.2 Number of Companies and Investment 7 2.3 Domestic Textile and Clothing Production versus Imports 7 2.4 Importance of Textile Exports for host Economy 10 3. Reaction of Trade Unions towards the Crisis 14 4. Outlook 18 2

GTP GTMC ATL GEA MOTI AGOA ABBREVIATIONS : Ghana Textile Product Ltd : Ghana Textile Manufacturing Company : Akosombo Textiles Limited : Ghana Employers Association : Ministry of Trade and Industry : African Growth and Opportunity Act 3

EXECUTIVE SUMMARY This report examines the future of Ghana’s textile and clothing industry in the light of the present challenges faced from cheap imports, smuggling and other trade barriers. The study used time series data and where up-to-date data was not available, survey data was used to supplement the existing data. The main observations from the report are discussed below. First, the crisis facing the textile and garments sector has reflected significantly on output and employment levels. Employment within the sector declined from a high of 25,000 in 1975 to 5,000 in 2000. Also, the number of large and mediumsized firms established in the 1960s had declined from 16 by mid 1970s to 4 by 2002 while the number of small-scale enterprises producing garments increased. Nevertheless, the sub-sector had played and continues to play vital roles in the manufacturing sector; it provided raw materials and also served as a ready market for the manufacturing sector. The crisis had also affected output within the industry and this is supported by findings from a survey of 40 textile and garment manufacturers. The reasons for the decline in output are varied but the key ones include imitation from abroad, low demand, high cost of production, smuggling and dumping. The study also found that local production has been substituted with imported fabrics and garments. Imports increased from$35 million in 1992 to$57 million in 1998. The main source of imports includes Cote D’Ivoire, Nigeria, China and most recently India and Pakistan. Sadly, the increase in imports coincided with a decline in textile exports which used to be a very important source of foreign exchange to the country. The gradual decline in the textile and garment industry in Ghana had not gone unnoticed and government had instituted policies and programmes to revive the industry but this has not been adequate to stimulate the industry. Some of the measures to stimulate the industry and in particular to take advantage of AGOA include provision of cluster networks, Presidential Special Initiatives, tariffs, credit and new administrative procedures to check smuggling and trade malpractices. In conclusion, the outlook for the textile and garment industry remains bleak unless there is both local and global restructuring of policies to stimulate the sector. Locally, proactive policies should be put in place to facilitate the arrest of those engaged in trade malpractices. The penalty for such subversive activities should be punitive to serve as a deterrent to others. This should be complemented with strategies to eliminate smuggling and other illegal activities. It is also suggested that fair trade and preferential access of African textile to markets in developed countries should be promoted. 4

1. INTRODUCTION Industrial development has been recognized as one of the surest means of ensuring higher and sustained growth rates. Hence African countries including Ghana pursued import substitution industrialisation in the 1960s and 1970s. The rationale was to move African economies from its agrarian state to modern industrialized economies as has been the case of the East and south-east Asian economies. Consequently, policies to promote import substitution industrialisation were pursued and this led to the establishment of light industries to produce goods locally and operate behind tariff barriers. Like many African countries, Ghana’s industrial strategy was meant to reduce economic dependence; hence, manufacturing industries were established to produce items that were previously imported. Consequently, industries making textiles, soap, wood works, aluminium, metal to mention but a few were established. However, during the initial stages, the sector was largely dominated by foreign owned firms but a shift of government policies in the mid 1970s led to increased state participation in the sub-sector. For over two decades after ISI was started, the textile sub-sector dominated the manufacturing sector and contributed significantly to livelihood. It employed about 25,000 of the labour force, accounted for 27% of total manufacturing employment and operated at about 60% of plant capacity(MOTI, 2004). The textile sub-sector has also been an important source of foreign exchange in Ghana 2 . However, by 1982, shortage of foreign exchange for importing raw materials resulted in the sub-sector operating at extremely low capacity. Consequently, most of these industries went out of business and the situation deteriorated under trade liberation, which formed part of the Structural Adjustment Programmes pursued in the 1980s and 1990s. Hence employment declined from 7000 in 1995 to 5000 in 2000. The reforms led to increased importation of textiles and other used apparel, which facilitated the death and closure of many 2 There is no data on textile exports prior to 1982. 5

textile industries in Ghana. Over the past few years, the sector has shown considerable interest to increase production for the local market and also to take advantage of the opportunities provided under AGOA but the threat of cheap imports(including smuggled items) from China and Pakistan remains a major challenge to the survival of the few existing industries. This paper examines the future of Ghana’s textile industry in the light of the current challenge faced from imported textile products. 2. PROFILE OF THE TEXTILE INDUSTRY IN GHANA This section discusses employment trends, number of companies, importance of the sub-sector, local production versus imports, and the importance of the sector to Ghana’s economy. In view of data limitation, survey data is used where time series data could not be obtained. 2.1 Employment Levels Ghana’s textile industry employed some 25,000 people and accounted for 27 percent of total manufacturing employment in 1977. However by 1995, employment within the sub-sector had declined to a mere 7,000 declining further to 5000 by the year 2000. As the situation continues to deteriorate, employment continues to decline; as at March 2005 the four major textile companies in Ghana employed a mere 2961 persons. A survey of 40 textile and garments industries in 2005 also confirmed that the situation is getting worse 3 . Table 1: Employment within Textile Industry 1975 Output(million Yards) 129 Employment 25000 Ministry of Trade and Industry, November 2002 1995 46 7000 2000 65 5000 3 A bout 44 percent of industry respondents have cut down on employment. From the total number of firms that had shed staff, 59 percent have laid off up to 5 percent of their workforce, 24 percent laid off up to 6-10 percent and 11 percent have cut down employment by over 70 percent between 2000 and 2005. 6

2.2 Number of Companies and Investments By mid 1970’s about 16 large 4 and medium sized textile companies had been established in Ghana. The Garment industry also had some 138 medium and large-scale garment manufacturing companies during that time. However, inconsistent government policies over the years have contributed greatly to the decline in the sub-sector’s activity levels. As at 2002, the four major companies that survived the turbulence in the sub-sector are the Ghana Textile Manufacturing Company(GTMC), Akosombo Textile Limited(ATL), Ghana Textile Product(GTP), and Printex with GTP maintaining the lead in the industry. The Garment industry comprised of numerous small-scale enterprises which took the form of a sole proprietorship and were engaged in making garments for individuals as well as uniform for schools, industries and governmental institutions such as the police, the army, hospitals, etc, and also for the exports market. The garment industry however, depended directly on the textile industry. Investments within the textile industry are mainly by local firms. A survey of 40 textile and garment industries within Accra-Tema revealed that only 5% were involved in a joint ventures with foreign investors. The rest(95 percent) were locally owned and none was solely foreign owned. 2.3 Production and Textile Imports Ghana’s textile industry is mainly concerned with the production of fabrics for use by the Garment industry and also for the export market. The sub-sector is predominantly cotton-based although the production of man-made fibres is also undertaken on a small scale. The main cotton-based textile products include: African prints(wax, java, fancy, bed sheets, school uniforms) and household fabrics(curtain materials, kitchen napkins, diapers and towels). These products form the core of the sub-sector. The main products of the man-made fibres 4 Size categories: small-scale(has 5-29 employees), medium-sized(has 30-99 employees), large-scale (employs 100 or more people) 7

(synthetics) and their blends include: uniforms, knitted blouses, socks etc. These are mainly made from polyester, acrylic and other synthetics. There are also a number of small firms hand-printing their own designs onto bleached cotton fabrics, also known as tie and dye or batik cloth. Also, traditional or indigenous textiles such as Kente cloth(traditional woven fabric), Adinkra cloth(traditional hand printing fabric) and other types of woven fabrics used for various purposes such as smock making etc. are proposed. Total industry output peaked at 129 million yards in 1977 with capacity utilization rate of about 60 percent. GTP maintained the lead in the industry with an annual production of 30.7 million yards(includes the outputs of Juapong and Tema plants). This was followed by GTMC, ATL, and Printex with production levels of 15 million, 13 million and 6 million yards respectively. Unfortunately, total industry output declined from its 1970 level to 46 million yards in 1995 but recovered to 65 million yards in 2000 5 . As at March 2005, GTP was producing 9 million yards, ATL 18 million yards GTMC 2.24 million yards and Printex 9.84 million yards. A total annual output of 39.04 million yards was produced by the industry as at March 2005, which translates to an average of 49.4% of initially installed capacity of the four firms. Thus output had declined from 65 million yards in 2000 to 39 million yards in 2005(see Table 1). The reason for the decline in output is varied 6 . 5 A recent survey of textile and garment firms in Accra-Tema indicated that firms have cut down significantly on output, infact, more than half(about 75 percent) of textile and garment manufacturers answered in the affirmative. About 7 percent of this number indicated that they had reduced output by up to 20%, a further 32 percent indicated their output reduced by 21-30 percent. About 21 percent had reduced production by 31-40 percent while 11 percent have had their output reduced by 41-50 percent and a further 4 percent had recorded over 50 percent fall in outputt. The rest(25 percent) could not tell by how much they have cut down on production(see Table 1a at the appendix). 6 The 40 survey respondents offered several reasons for cutting down on production; about 44 percent of the manufacturers who claimed they have cut down on production cited low demand for local textile products as the principal reason necessitating their action; while 15 percent also mentioned high cost of production and 11 percent cited high wage bills resulting in their inability to pay workers. Another 15 percent blamed the 8

Imports Ghana’s textile industry imports a lot of its raw material inputs for its operations, and also finished goods. Imports of raw materials are mainly from the Netherlands, China, India, the U.S, the E.U, Nigeria, Thailand to mention but a few. Textile imports into the country comprises of dye stuffs and chemicals, calico, khaki fabric, prints and finished textiles and garments of various kind like new dresses, bed sheets, used textile goods like blankets clothing curtains, accessories, like zippers, fasteners etc. Machinery and equipment and spare parts are also imported for use in the sub-sector. Whereas raw material imports such as cotton are complemantary to local production, imported African prints from Nigeria, Cote d’Ivoire and South-East Asia tend to crowd out local production. These finished products often bear the patent designs, logo and trademarks of local textile industries, which are sold on the local market at a very cheap price. Imports of textile have grown steadily over the years. In 1992, the country imported US$35 million worth of fabrics and garments. This increased to US$ 57 million in 1998 and by the first half of 1999, US$ 42 million worth of fabrics and garments have been imported(MOTI, 2002). It is estimated that at the end of the first quarter of 2005, imported textile prints will have accounted for 48% of total textile prints in the Ghanaian market(Ghana Employers Association, 2005) The local market is facing stiff competition from finished imported textile prints such as calico, grey baft, furnishing materials usually from Cote d’Ivoire, Nigeria, China, and most recently from India and Pakistan. Consumers have argued that although the locally produced finished fabrics are relatively better in terms of quality, the market for imported products has increased because the products have attractive colours, new designs, softer and glossier finish. Table 2 indicates the trend in imported fabrics from 1997-2000. problem largely on the influx of imitated products from abroad, particularly Asia and Cote d’Ivoire. Others mentioned smuggling and dumping(7 percent) and lack of raw materials (4 percent). See Table 2a at Appendix 9

Table 2: Textile Imports by Type Year Wax Print Qty/Vol. (Kg) 1997 30,775 1998 11,423 1999 86,700 2000 135,197 Source: MOTI, 2002 US$ (000) 106 571 2,318 1,313 Java/Fancy& the similar print Qty/Vol. US$ (Kg)(000) 152,300 406 46,881 204 136,634 477 455,764 1,818 Calico(Bleached Fabric) Qty/Vol. US$ (Kg)(000) 9,418 41 80,138 601 182,091 1,044 1,034,978 5,247 2.4 Importance of Textile Exports to Ghana’s Economy Textile exports are an important source of foreign exchange and revenue to textile manufacturing firms. Textile exports generated$ 27.2 million dollars in 1992 and this increased to$179.7 million in 1994 but revenue from exports declined consistently thereafter and by 1998, they had fallen to US$ 3.173 million. It is worth mentioning that in 2000, Ghana qualified for AGOA and exports of Ghanaian textile and apparel to the US market amounted to$550,000 in 2002,$4.5 million in 2003 and$7.4 million in 2004. Imports of US textile and apparel were$8.87 million,$12.73million and$11.48 million respectively over the same period(http://www.agoa.info). The decline in textile exports from 1992 to 1998 can be attributed to internal and external bottlenecks. Ghanaian manufacturers of textiles generally agree that the market for exports is huge, but have reservation about operating in some of these markets particularly within the ECOWAS sub-region due to trade barriers. Some of the trade barriers include among others, imposition of 20% duty by Cote d’Ivoire(contrary to ECOWAS regulations), transit tax collected at Benin, extortion by Nigerian authorities, and the risk of currency devaluation. Poor packaging of some manufacturers/exporters also serves as a barrier to exports to markets such as the EU and the United States of America. Also, poor finishing of products(quality/conformity to standards), technical barriers, inability of some 10

manufacturers to meet export orders on schedule, high tariffs charged in some export destinations of Ghanaian textile to mention but a few 7 . Table 3: General Textile Fabric Imports& Exports(excluding AGOA) 1992 1993 1994 1995 1996 1997 1998 Exports US$ 27.18 76.7 179.7 7.703 3.429 5.074 3.173 million Imports US$ 34.57 38.28 39.40 42.30 53.35 52.65 56.55 million Source: MOTI, 2004 1999 na 42.29 8 The main export destination for made-in–Ghana textiles as at 2004 includes EU countries(55%), the U.SA(25%), and ECOWAS(15%). The remaining 5% percent exported to other countries mostly Southern and East African states (mainly South Africa, Zimbabwe, Namibia, Ethiopia etc). Textile and garment exports from Ghana comprise of fancy prints, wax prints, Java prints, calico smock, ladies dresses, men’s wear, etc. The indigenous textile products like Kente, a special fabric produced on traditional loom, Adinkra(hand, prints) smock or Fugu are also exported. Batik or tie and dye fabrics are also used to produce all kinds of products for the exports market. These products includes: a unique brand of carefully crafted handbags, casual wear for ladies and gents, shirts, dresses; napkins, cushion covers, bedspreads chair backs, curtains, toys and many others. 7 A survey of 40 textile manufacturers cited transit taxes as the major constraint to exports(about 29%), followed by haulage and high transport cost(24 percent), extortion at the borders(12 percent), and poor infrastructure(12 percent). About 18 percent cited some other problems(see Table 3a). 8 Half-year figure 11

3. NATIONAL ECONOMIC POLICIES TOWARDS PROMOTING GROWTH OF TEXTILE AND CLOTHING INDUSTRY The textile sub-sector has the potential of accelerating growth in the industrial sector and the economy as a whole and has therefore become one of the main priority areas of government. The government initiated various programmes aimed at restructuring and improving the textile and garment industry. These programmes were meant to enable the industry to take full advantage of the African Growth and Opportunity Act(AGOA) 9 and increase employment opportunities for the growing population, expand and diversify the economy, promote both domestic and foreign investment as well as stimulate exports. Some of the national economic policies aimed at stimulating the sector include the following: • Textile/Garment Cluster Network: A Spinnet Textile/Garment Cluster has been formed by the government in collaboration with UNIDO to bring together micro, small, and medium scale operators in the textile industry. The cluster was formed to address the problems faced by the sub-sector. Since its inception, the cluster had assisted in training in mass production strategies, sub-contracting, up-grading of technical and marketing/managerial skill of members, and financial assistance. • Textile/Garment Training Centre: This is a training centre or laboratory established by the government in collaboration with UNIDO to be used to upgrade skills of textile and garment industries that take advantage of AGOA and exports in other destinations. The industry is also currently supported by 21 National Vocational Training Institutes, which provide basic practical and theoretical training in tailoring and dressmaking. 9 Under AGOA, the US government offers preferential access to American markets by weak nations for the period prior to the coming into force of the WTO rules on free trade and competition. 12

• PSI-Export Action Programme on Textiles and Garment: Export Action Programme on Textiles and Garments is a special initiative of Ghana’s president designed to enhance private sector growth and development within the president’s vision of creating a”Golden Age of Business” in Ghana. • Tariffs: The current tariff structure is being revised to conform to the actual economic trends. It has been proposed that import duties on all imported clothing should be increased to create a level playing field for all textile products in Ghana. In addition, tariffs on all textiles manufacturing raw materials are to attract zero rate of tariffs in order to reduce cost of production for locally manufactured textiles. • Credit: A long-term concessionary credit for expansion, rehabilitation and modernisation of the textile sub-sector sector is under consideration besides an amount of US$50 million that have been recommended by the United Nations Industrial Organization(UNIDO) to be given to the sub-sector based on a study it conducted in 1995. • New Administrative Procedures: In view of the threat to Ghana’s textile industry, new administrative procedures for importing textile print into the country were introduced. Takoradi port has been identified as the single designatation for textile imports, which means that all goods will be physically examined by the Customs Excise and Preventive Services. Also, an Economic Intelligence Task Force comprising the security services, public and private sector institutions was to be set up to check trade malpractices, including textile products. The government has also proposed to establish a consumer protection authority and small claims courts to address consumer complaints. 13

4. REACTIONS OF TRADE UNIONS TOWARDS THE CRISIS 10 The textile industry represents one of the more graphic examples of deindustrialization over the last few decades and raises the need for serious rethinking of national economic policies. In the 1970s into the early 1980s, the sector used to employ over 25,000 workers nationwide. The Textile industry has suffered and continues to suffer unjustifiably from unbridled importation of all manner of textile and garment products, some through dubious means with questionable origin and quality. These products have flooded” the local market and have led to the collapse of many local textile industries. It is against this threat that the Textile Garments and Leather Employees Union was established as a national union outside the Trade Union Congress(TUC); a radical departure from established practice. TEGLU used to be a pressure group within the ICU and its activities was trade centred until it broke away from the Industrial and Commercial Workers Union(ICU) to set up an independent office in Tema in 1993. Although TEGLU was initially conceived in 1984 it was officially certified in 1993. TEGLU was formed in 1993 after its leaders had accused the ICU for not pursuing the interest of the textiles sub-sector. Thus, it was the urgent need to save the textiles sub-sector from total collapse and the refusal of the TUC to grant TGLEU affiliate status that led to the secession and formation of the TGLEU. Subsequently, several attempts have been made by TGLEU to save the textile industry from total collapse. One of such attempts was in the form of a letter sent by the union to parliament. Parliament responded that“Much as Mr. Speaker appreciates your confidence in Parliament to assist in addressing the issues, he would very much appreciate if your Association would be encouraged to continue with the measures it has already initiated to resolve the problem after which 10 This section was written based on interviews with interview with Mr. Abraham Koomson(General Secretary of T.G.L.E.U), Mr. Moses Zizer(Chairman, TEGLU) and Mr. Mingle(Executive Officer, TEGLU) 14

Parliament would be pleased to redress any residual matters”. Other attempts by the union to save the textile industry include: (a) In 1994 TGLEU made an appeal to Parliament to introduce a legislation abolishing the 12½ per cent sales tax on locally manufactured African prints to end the unfair competition with similar imported goods. (b) Sensitization of the civil society through the print and electric media. (c) Organized labour within the National Tripartite presented a proposal to Government in the 2006 budget to focus on TGLEU. Although the Government of Ghana has responded to calls from organized labour to save the textile industry, these have been cosmetic. Some of the cosmetic measures include (a) Although organized labour with the National Tripartite Committee presented a proposal to government to be incorporated into the 2006 budget, the proposal was not incorporated but instead the government focused its attention on AGOA. (b) Also, President Kufuor’s Statements on May Day(2005) showed that the government was either not ready to address the concerns or had answers to the problems. The President was quoted as saying that Ghana cannot subsidize the textiles companies, as in the case of Nigeria, because the country does not have resources to do so(www.ghanaweb.com: General News of Tuesday, 3 May 2005). It is speculated that some people in government are benefiting from the textile imports. (c) The government also suggested that political party cloths and Friday wears to offices should be manufactured in Ghana. Although a few 15

people have heeded to the call, ironically, most of these special cloths worn on Fridays were imitated fabrics printed and sown in china before exported to Ghana. Thus, apart from the political party cloths of the NPP and NDC the rest are printed fabrics from china. To conclude, TEGLU believes that in order to save the textile and garments industry from virtual collapse, the government has to rethink its policies. For instance, importers could be given a quota or pay higher tariffs to create a level playing field or promote healthy competition. Secondly, the government should encourage Ghanaians to order their mourning cloths from the local textile industries. It is a known fact that Ghanaians have maintained the culture of using mourning clothes and that is saving the textile industry from eventual collapse. It is also recommended that state institutions, religious bodies, schools and colleges and the private sector should be encouraged to order their anniversary clothes from the local textile industries. 5. OUTLOOK Nearly two decades after independence, the textile sub-sector was the major key player in Ghana’s industrial sector, contributing significantly to employment and growth in the economy. However, the sub-sector which was once the leader in Ghana’s industrial sector has undergone a considerable decline over the years due largely to the liberalisation programmes which made it almost impossible for Ghana’s textile products to compete with the cheap imports, particularly from Asia. It is however estimated that the few companies that managed to survive operated at just about 5 percent installed capacity since 1995. Various reasons have accounted for the decline. Some of the major ones mentioned include: low demand for local textile products and influx of second hand clothing; lack of 16

competitiveness of local textiles against imported textiles due to high cost of local textiles which resulted from high cost of production 11 ; and smuggling. In view of the current crisis faced by the industry, its outlook remains bleak and therefore calls for pragmatic polices that will lead to both local and global restructuring of the industry. Locally, it is necessary that concrete steps are taken to address the problem of cheap imports, under-declared imports, wrongly described textile imports, and copied brands, markings, tickets and labels including those of the Ghana Standards Board. In this regard, recent proposal by government to establish an Economic Intelligence Unit to arrest and punish those engaged in trade malpractices is timely. The penalty for those caught engaging in these malpractices should be severe to serve as a deterrent to other perpetrators of the crime. Secondly, the Unit should be proactive and effectively managed, otherwise, arresting the perpetrators will prove elusive. On the global level, trade negotiations and fair trade practices, particularly, within the textile and garments sub sector should be made explicit and adhered to. Instances where countries copy brands and other product markings from other countries should be discouraged. This should go together with fair trade practices and preferential access to markets in developed countries. 11 Due to high cost of local cotton, obsolete plants and machinery, high cost of utilities, overstaffing, high cost of finance(high interest rate) etc 17

References Ampofo V.O(2002), Ghana’s Textile and Garment Industry, Ministry of Trade and Industry, Industrial Development and Investment Division Ghana Employers Association(2005), Measures to Save the Textile Industry in Ghana, a report prepared by the Sub-committee of the National Tripartite Committee on Measures to Save Ghana’s Textile Industry, March Ministry of Trade and Industry(2002), Study of the Textile Sub-sector, a report prepared by Brucks& Associates for MOTI, November 18

APPENDIX Table 2: By how much have you cut down on production? Frequency Percent Don’t know 7 4.1 1-20% 2 1.2 21-30% 9 5.3 31-40% 6 3.5 41-50% 3 1.8 Over 50% 1 0.6 Total 28 16.5 Source: Survey Data, July 2005 Valid Percent 25.0 7.1 32.1 21.4 10.7 3.6 100 Table 2a: Reasons for cutting down on production? Frequency No Response 1 Imitation from abroad 4 High cost of production 4 High wages leading to Inability to pay workers 3 Low demand 12 Smuggling and dumping 2 Lack of raw materials 1 Total 27 Source: Survey Data, July 2005 Percent 0.6 2.4 2.4 1.8 7.1 1.2 0.6 15.9 Valid Percent 3.7 14.8 14.8 11.1 44.4 7.4 3.7 100 Table 3a: Major constraints in Export market Transit Taxes Extortation at the Borders Haulage or High Transportation Cost Poor Infrastructure Others Total Source: Survey Data, July 2005 Frequency 5 2 4 2 3 17 Percent 2.9 1.2 2.4 1.2 1.8 10.0 Valid Percent 29.4 11.8 23.5 11.8 17.6 100 19