Posted: February 1st, 2023
The ISI strategy of the Nkrumah-led government sought to exploit Ghanaâ€™s natural domestic
resources to satisfy the basic needs of the population, create jobs, and assimilate and promote
technological progress. This, ultimately, would modernize the Ghanaian society as a whole. As
indicated by Baah-Nuakoh (1997), the general strategy adopted in the post-independence era was
the extensive promotion of industrialization with specific emphasis on manufacturing
development. This was to diversify the predominantly agricultural economy, create employment
for the rapidly growing population, raise per capita incomes, improve the balance of payments
and project the economy on the path of sustained and rapid economic growth.
At the centre of the ISI strategy was the development of large-scale, capital-intensive
manufacturing industries owned and managed by the state. Government invested heavily in
infrastructure and manufacturing activities by setting up state-owned enterprises (SOEs) for
domestic production of previously imported consumer goods, processing of exports of primary
products (agricultural and mining), and the expansion and development of building materials and
electrical, electronic and machinery industries. According to Steel (1972), the development of the
electrical, electronic and machinery industry was to provide the necessary inputs needed to
expand the industrial sector. As Steel notes (1972), it seemed that Nkrumahâ€™s industrialization
programme was entwined with socialism and macroeconomic policy within the framework of
Ghanaâ€™s broader development plan.
The period from the mid-1960s actually saw a massive involvement of the state in the industrial
sector. The ISI strategy of this period was characterized by an emphasis on import substitution
supported by high levels of effective protection. Protection of domestic production, as already
indicated, was intended to reduce economic dependence on imports in favor of locally
manufactured goods. It was also partly a consequence of the balance-of-payment difficulties
Ghana was facing from its rapidly rising import costs and stagnant export earnings. It is worth
noting that initially (i.e., before 1962), the ISI strategy was considered as a means of achieving
economic independence and economic growth instead of a solution to the balance-of-payment
problems (Steel 1972). By the late 1960s, the effective protection, exceeding 100 per cent for
almost half of the manufacturing industries, created a strong incentive for a shift from consumer
imports to the production of locally made manufactures using imported inputs.
In addition, the government also resorted to such administrative measures as import tariffs and
licensing, but as the World Bank (1985b) observes, these direct controls were not successful in
achieving the intended objectives. Instead, these policy biases generated incentives that created
excess capacity and inadequate linkage with other growth-enhancing sectors. This weakened
Ghanaâ€™s industrial sector and contributed to its sluggish performance by the mid-1970s.
The success of the ISI strategy in Ghana during the 1960s was evident in the significant growth
of the domestic manufacturing sector, the expansion of already existing industries and the shift
of production towards SOEs (set up to produce a higher proportion of basic goods than the
private sector). It also shifted the import structure away from consumer goods to intermediate
and, more importantly, to capital goods.
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