When I was in Accra this week I heard about an ongoing debate about a government policy called ‘one district one factory’
Not really sure if that’s the official name of the policy but it’s said it’d require Ghana to use 5% of its currency reserve to invest in this policy backed by a Chinese governmental bank which would finance the building of the factories for something like 2 billions.
I’m not Ghanaian. I don’t know very much about the details of the policy, and I think much smarter Ghanaian could have said things I’m going to talk about.
For Africa and Ghana Industrialisation is good, but the ‘one district one factory’ idea is stupid and looks more like a politician idea, completely disconnected from how things work.
Indeed, that’s not how Industrialisation works. It works instead by clustering industries or factories in the same area, not spreading, dispersing them one here and one there, in order to please electoral constituents.
The Chinese government which is behind the deal knows that. China started its economical revolution with what they call ‘special zones’ where they put together many industries.
Shenzen is one of the famous special zones which ended up inspiring the setup of industrial clusters in neighboring Ghuanzou and Shanghai, the two giant Chinese economical power cities.
If done like planned, the Ghanaian innovation policy would fail.
In 2015, I worked for three months on the first ever innovation policy for Lagos State in Nigeria.
Lagos is the smallest state in Nigeria but its GDP surpass the combined GDP of 25 other African countries.
One of the part of the policy we thought about more carefully was horizontal integration of industries and vertical integration.
Horizontal integration means a group of industries which are almost of the same size but require each other to be able to complete a value chain.
The often used example to illustrate horizontal integration is the wine industry which needs grapes growers, wine producers, bottles makers, design and etiquette printing, bottlers, cork makers, traders, distributors, marketers, etc.
Horizontal integration means a country or an area needs to develop competencies at every step of the value in order to develop a successful wine industry.
If you have only grapes growers without wine makers, you’d look like Mali a big producers of cotton but with no filature industry, no fabric factories.
Mali does not have a cotton industry. Mali is just a cotton producer. There is no horizontal integration.
Now, when it comes to vertical integration, it simply means a big factory which requires a lot of local suppliers. The big factory creates a big demand of suppliers therefore encouraging the sprout of many dependent suppliers factories.
Car industry requires tyres, steel, glass, paint factories in its neighborhood.
I hope someone would talk to the Ghanaian policy makers to forget electoral motivations and consider only innovation and market logics in order to give a higher chance of success to their project.
For example, the policy plans to put palm oil production units in some region. But the issue is that industries seldom work in isolation. Unless you’d have horizontal integration, that policy will certainly fail.
Oil producers – good
Refinery – good
Where would the bottles come from?
Who would be doing the packaging?
Who would doing the logistics /distribution?
Where are the markets for ya oil?
Who are the traders and speculators?
Where are the school to train the engineers?
Once you map out the value chain and the local capabilities, you might end up shipping the nuts to an industrial zone, because it’s cheaper and better.
Most of those districts don’t have human resources capable of handling factories and the up/down stream of activities.
You’d end up importing work force from elsewhere which would make your oil too expensive therefore non competitive.
You don’t build factories in villages or cities with no physical and intellectual infrastructure to back them up.
Just go build the factories in the jungle instead!