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Local Content Possibilities After Coronavirus Outbreak

 

Our current and previous governments in Ghana, have been pushing for Local Content and passing of Local Content Laws.

Local content, meaning local production and promotion of consumption of locally produced products is one of the best ways to develop a country.

But for the past 5-6 decades the world has been driven more on trade and movement of goods across regions than on Local consumption and production.

That I called production and Trade based on “Comparative Economic Advantages”.

In layman’s words that means:
Produce where the economic circumstances including transport costs are the best, read cheapest.

To explain that further: where are the cheapest resources, where is harvesting them cheap, where further producing is cheap and where can we package them cheap, how do we transport it cheap to the consumers?

Let’s follow aluminum: Bauxite from Ghana, transported to China, produced into pots and pans exported to USA or Europe.

Africa has many resources, transporting in bulk to China where productivity is high, labor and melting costs are low gives a lower sales price than producing in the EU and USA, even all transport costs.

The winner is: The consumer, by having affordable access to pots and pans.

Some time ago, I wrote an article as well on the end of “Economic Comparable Advantages” based upon Climate change in the future.

The reason I did is that I foresaw that costs of transport would increase enormously because of taxes on pollution.

This would hit shipping and airlines enormously and increase transportation costs.

I still think that these taxes will help Local Content production.

But this time there is another argument in favor of Local Content: Coronavirus.

Not only this outbreak, but the preparation of another virus or easily transferable disease will lead to countries building a “buffer stock” of food and a minimum industrial capacity in case there is another lockdown of their or other countries resulting in a commercial and transport closure of borders.

The most logic way to produce pots and pans is: harvest bauxite in Africa, melt and produce aluminum close to the resource (reduce quantities) produce pots and pans in Africa to use in Africa and export around the world.

That’s Local Content, Local Production, Local Use and export overproduction to increase a national income/GDP.

Reasons this hasn’t worked for many years are not low transport cost from Africa, but low capacity, low productivity, low quality of labor, and high costs of energy.

Governments in Africa, but also all over the world are trying to influence that by influencing the production circumstances.

In the developed world they do that by giving preferential energy prices for industry and all kinds of subsidies to companies, farmers and service providers.

Other countries try to influence Local Production by lowering taxes for investors.

Developing countries don’t have the money to subsidise Local Production, they often seek to influence investors with tax holidays and other tools.
Another “tool” is passing Local Content Laws.
Until Climate Change and Coronavirus times I was fanatically opposing forcing Local Content by blocking access.

For one simple reason: These laws, almost always lead to complacent Local Entrepreneurs leading to lesser quality for higher prices with one big looser: The consumer.
I am still against forcing Local Production by closing access to markets, in this case my own country: Ghana.

We have a perfect example of how bad these laws worked for over 30 years in Nigeria.

Nigerian producers became very rich, because profits are always optimized, there are hardly investments in modernization and development, staff is not trained etc.

Local Content enforcement with laws is a form of market protection.

The ultimate goal of market protection is or at least should be: protect an infant market from foreign economic attacks on Local Industries, Farming and Sevices until it’s strong enough to compete in an orderly way.

Contrary of Nigeria a good example is South Korea which protected its industry’s through but also forced these industries to reinvest, modernize, develop products and professionalise staff.

I sincerely hope that rising transport costs and creating buffer production in Ghana can be used in smart ways to kickstart Local Content Capacity and help to develop Ghana in the future.

At this moment Ghana and many other countries are still concentrating on containing the Coronavirus and its economic consequences but we should start thinking about the opportunities for Ghana after the crisis.

We have the resources, we have the land, we have a young population, labor costs are about the same as in China, we have African Growth and Opportunity Act (AGOA). and Economic Partnership Agreement (EPA) to export without any trade barriers.

We need to school our (technical) labor force in modern ways and make sure our higher education institutions educate and train our future management in a “worldwide” and open manner, with all this Ghana’s Black Star will rise to its glory of the 1960s and higher.

The writer, Nico van Staalduinen, is a concerned Ghanaian and columnist for African Entertainment

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