Case Study Series ..... . 56877 · » 0' Technology and Enterprise Development: Ghana Under Structural.Adjustment Sanjaya Lall, Giorgio Barba Navaretti, Simon Teitel and Ganeshan Wignaraja The views and interpretations expressed in this study are solely those of the authors. They do not necessarily represent the views of the World Bank or its member countries and should not be attributed to the World Bank or its affiliated organizations. TABLE OF CONTENTS ......... -.... 1 Pr'eface ........ '" . '" '" . '" '" .. '" '" '" '" ...... '" ...... '" . '" . ". '" ....... '" ....................................... '" ............ '" .................................. " PART A .......·..........··.............................·.·...............··.·................... 5 APPROACH AND BACKGROUND ..........··..........··....··.··....·...................... 5 Chapter I ........................................ '" '" ....... 6 iI . . . . . . . . . . . . . . 4; . . . . . . . . . . . . . . . . . . . . . . . '" .................................. '" .. .. .. .. .. .. .. .. .. .. .. .. .. · .. .. · .. .. .. .. .. .. .... Introduction and Analytical Approach .......·..........·.....·......·...........·............·..... 6 I. a. Setting the Scene ·..·...................··................·.···........ : . . . · . . . ·. . . . . . . . . .. 6 I. b. What are "'I'echnological Capabilities"? . . ·. . ····. ·. . . . . . . . . ····· . · ··. ·. . . . . · . . · . . . ·. . .. g I. c. Functional Categorisation of Technological Capabilities .··.·.···.·.....·..·........·.... 14 I. d J)eterminants of Technology J)evelopDlent .........·...····..··..·......·.·.............. 18 I. d i. Introduction ..... ·. . . ·. . . ·. . . . . . . . . . ·. . ·. ··. . ·. . . . . ·. ·.. . . ··. . . . . . . . . . . . . . . . . . . .. 18 I. d ii. '!be Incentive Framework ................... . . . . . . . . ··. . . . . . ·. . . . . . . . . . . . . . . . . .. 19 I. dill. The "Supply" Factors: Skills. Finance and Information .....·................... 23 I. d iv. Institutions .............................................................. '" . '" '" .............. ,. . . . . . . . .. . . . .. . . . . . . . . . .... 26 I. d v. Organising for Technology J)evelopment .... . . . . . . . . . . . . . ·. . . . . . . . ·. . . . . . . . . . .. 27 Chapter n ........................................................................................ 30 Background to Technology J)evelopment in Ghana ......................................·........ 30 n. a. The Historical Setting .............·.......·.··...·.·.......·····.......··.............. 30 n. b. Industrial Structure .··............··.·....·.·..........·.···.··.........···............. 31 n. c. Recent Manufacturing Performance .................................................... 33 n. d. Manufactured Exports ·.....·......··....·..·····. ',' · . . . . · · · . · . . ·· · . . . . · . . · · . . . . · . . . . .. 35 n. e. Reasons for Poor Performance .......................................................... 38 U. e. i. Incentive Framework ...................... '" .......... '" ............... '" ....... '" '" ............ '" '" '" "'" . . . . . . . . . .... 38 n. e.n. Skills and Technological Activity ............................................... 42 ChaJll.eC In ..................................................................... ,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 49 Methodology and Sample Characteristics ....··.···.···.·......·.....··.........·.....···......... 49 .. . . . .. .. . .. . . . . . . .. .. . . . · . . .. . . . . .. .. . . . . . . . . .. . · . . .... . . .. · . . . . .. . .... .. .. .. .. .. .. . .. . . . . . . . . .. . . . . . . . . . . . . . . . . . . .. . .. 49 m. a Intt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 In. d iv. Market Pedonnance ....................·.....................·............... 56 Technological Characteristics of the Panel Sample ...................... " ............ '" ................ " . " ................................ . 61 ..................... " . " . " " .......... " .................................... " " ...... " " .... " " ............................................................ " .. " .......................... . 61 IV. a. Introduction ..···.··....·...·..... ...·..··.....·..··..··...·....·............··..·..... 61 - IV. b. Theoretical Fnunework ...........·...........................·...·....·............·.. 61 IV. c. Mapping Out Technological Inputs ...........................................·........ 64 IV. C. i. Data On Skills. Technology And Size 64 IV. C. ii. Principal Components and Clusters 67 IV. d. Technological Clusters and Market Segmentation ..................................... . 74 IV. e. Growth and Invesunents ...................................................·........... 77 IV" f. Conclusions ........ ".......... "............................................ "................................................................ ".... ". ".... ".. 79 TeChnical Appendix ....·.................·....·......................................·.......·... 81 1. Handling MiSsing Data ..·...·.·..··..···.........···.·..····.....·..·..··......·....··...· 81 2. Descriptive statistics 82 3. Princi pal Components ............................................·.·...................... 83 88 88 88 88 88 88 88 88 88 PART B .....·..··..·...···.···.·.··.·....··.····.·.·..·.·.··.......··...·.··.·.···...·..·.....·. 88 PROCESS AND DETERMINANTS OF TECHNOLOGICAL DEVELOPMENT .......... 88 Otapter V ............................. " ............................... ,. ···.· " ..... ,. ........ ,. ................ . 89 Technological Capabilities: A Summary Evaluation 89 V. a. lntrtxIuction ,. ....................... ,. ..................... 89 wer . ,," ~ .... ". "........... ,.... ""........... ".,," ,"...... "" .... """. ".... ".... ". ". ".... "".... ". .... 132 vn. e. Worker SkiDs ....................................................................... 136 VO. f. Training, Reauitment and Turnover of Labour .. .. · · .. .. .. .. .. · · ·.. · .. · .. .. .. · · .. ... 138 VII. g. SUJIlJIlaIy ... ".................. ".......................... "................ ".................. ".. "...... "" ........ "............ ". "...... ".... ".... 147 ........ . .......... ...... ........ ...... ...................... ". " """. "" ................. " "" . "" . ", " Cl'mpter vm ...... " "" " " " " . .............. . . . ...... . 149 Technical Effort ......... "...... ".......... ".... " ........ ........................ " "" .............. "...... "" ............ "..................... ".... ". "............ 149 vm. a. Introduction ......................................................................... 149 vm. b. Technology Ucensing and Technical Assistance ...·..··.....·.......···.·.·.·...··. 149 vm. c. Manpower in wing helped finance public investment in heavy indUStry, which served a narrow market at high cost lbe capacity created was not well adapted to local demand and supply conditions, and much of it cannot be sustained. Modern manufacturing remains mostly small. stagnating at around 10 percent of GDP and 9 percent of employment between 1965 and 1987. Most industries remain isolated from world markets and new technology. with high costs relative to best-practice operations elsewhere. Protectionism has stimulated investment but not innovation to raise productivity or export growth to finance the import requirements. The future lies in shifting industrial structure towards high-growth, competitive enteqxises that are linked to the domestic economy.... The most successful newly industrialising countries (NICs). while protecting domestic markets. have graduaUy. opened them to competition. provided export incentives, and identified the educational and technical skills that build a flexible labour force. In Africa this implies a shift from central planning to a market-oriented approach. from regUlation to competition, and from failed attempts to transplant technology to systematic building up of capabilities. The core of this stralegy is the step-by-step acquisition of skills necessary to operate and adapt new techniques. Industrial strategy in Africa has tended to overstress the hardware (plant and machinery) and neglect training labour and management to master new technologies. "2 The study goes on to discuss policy refonns that could help African countries to stimulate renewed and efficient industrial development, one that becomes an engine of structural transf I, Info. systems skilled personnel X v A INNOVATIVE Basic process In-house process In-house product Turnkey capability. I N T RISKY design. Equipment innovation. basic innovation, basic cooperative R&D, C y E (Research based) design and supply research research licensing own D technology 10 others Introduction and Analytical Approach favourable terms, including the participation oflocal engineering firmS in design and construction. By contrast. an important cause of high project costs in Africa has been the almost total absence of relevant local investment and engineering capabilities. · Second, production capabilities. These are the skills and knowledge needed for the operation and improvement of a plant As the table shows, these can range from routine functions to intensive and innovative effons to adapt and improve the technology. However, the classification of the degree of complexity, being purely relative, may be misleading. The acquisition of even "basic" capabilities (like quality control, maintenance. scheduling, or reaching prescribed levels of machine efficiency) generally requires considerable time and effort in developing countries. Indeed. in recent years, the achievement of competitive levels of quality has become the subject of much technological and organisational effort even in developed countries. The more advanced capabilities, for adaptation and innovation, generally require higher (or different) skills. and more time and investmeDl. This is so even when new technologies are bought in rather than being created by the enterprise. The absorption of new technologies still calls for skill and know-how development. though clearly at a different, if not lower, level than those required for innovation. Most technologically mature enterprises tend to develop some element of in-house innovative capability. This is because fast changing technologies can only be absorbed by formal or explicit R&D (i.e. research and experimental development separate from routine production).17 Even for industries with slowly changing technologies, an independent design capability becomes desirable rei' firms that waDI to upgrade their products or move to different markets, and run into constraints in purchasing the latest vintage of technology from other firms. Industrial engineering skills are required to improve the organisation of prOOuction. Industrial engineers seek to continuously improve productivity by changing the time and spatial sequence of \7 On the absorptive functions of R&D. see Coben and Lcvinthal (1989). 16 Introduction and Analytical Approach manufacturing and auxiliary operations.The intrlicies to enter heavy industry, in the latter case to exploit hydroelectric potential from the Volta river dam4(). On the other hand, Ghana's equipment manufacturing industries are relatively underdeveloped, together accounting for 1.4% of MY A in 1990 (down from 2.4% in 1980). This compares with 10 % in Kenya (also down from 14.7% in 1980), 17.2% in Cote d'Ivoire (10.2% in 1980), and a massive 32.2% in Korea (up from 18.5% in 1980). The Ghanaian industrial structUre is typical of low levels of industrialisation, shOwing a natural evolution from traditional to simple processing and assembly activities. The main departures from this are accounted for by foreign investments to process. natural resources (in this case, aluminium from bauxite, based on cheap energy from the Volta river dam) or by specific heavy industries launched by the public sector. As with all such economies, the development of the engineering subsector, and the associated lack of metal working skills and facilities suited to modem industry, constitute an imp::>rtant source of weakness in its industrial structure. The formal manufacturing sector in Ghana falls into three broad groups; a few large modem firms with the ability to produce to international standards; a larger p::>pulation of small and medium sized finns using some modem technology but with low levels of efficiency; and numerous informal or micro enterprises with very simple or traditional technologies, serving limited local markets and lacking standardisation, quality control and modem management techniques. The modem sector is concentrated in food processing and industries making industrial intennediates. It has relatively few indigenous private owners, being largely owned by foreign interests, the government or local non-Africans. It has strong technological connections with foreign companies, regardless of its ownership, but very little with the domestic economy. It has invested in training the 40 Ghana used to meet all its bauxite needs locally. but now imports a substantial amount of alumina from Jamaica. It is economical to do this because of the low cost of electricity in Ghana. 32 Background on Ghana local workforce to reasonable levels of efficiency. though it remains highly dependent on foreign sources for technology, high level skills, equipment and components. Few of them (the aluminium company is an obvious exception) are likely to have reached levels of prOOuctive efficiency whereby they can withstand the full force of international competition, except when the "natural" protection of transport costs is high. The rest of modem or semi-modem enterprises operate at relatively small scales and use simple machinery. They are largely African owned. though there is a sprinkling of resident non-Africans. They generally appear to have low levels of worker and managerial skills. with little knowledge of the relevant material, prOOuct or processing technologies that they may need in order to be internationally competitive. 41 Their quality tends to be low. inform;ttion about markets limited. and awareness of their own deficiencies poor. They draw on traditional methods of creating skills. obtaining information and organising production. There is practically no standardisation and little demand for modem technical services. design or consultancy (see below). There are few links with large scale enterprises. The informal or artisanal sector, entirely African, is even further removed from modem technologies. It is geared to meeting very localised demands for simple. low cost products of low quality. using very little equipment and few skills that require formal training. II. c. Recent Manufacturing Performance Ghana's industrial growth record is disappointing. After an initial period of expansion of investment and output. the manufacturing sector suffered massive "deindustrialisation" until the middle of the last decade. 41 By 1984. manufacturing output in Ghana was 39 percent of the level achieved in 1977. and capacity utilisation in medium and large scale plants was down to a mere 18 percent From 4' Technical inefficiency in this class of Ghanaian firms in the wood working industries was investigated for the early 19705 by Page (1980). AD earlier paper on Ghanaian industrial efficiency is by Steel (1972). 42 For a comparative analysis sec: the World Bank (1989), p. 110. 33 Background on Ghana a peak contribution to GDP of 14 percent in 1975, the share of manufacturing had dropped to 4 percent in 1983.43 After the launch of the Economic Recovery Programme (ERP) in 1983, and particularly after the undertaking of structural reform policies in 1986. the performance of manufacturing industry improved sharply. In the first instance. this was due almost entirely to two factors: the availability of imported inputs and the rise in domestic demand from growing incomes, due to better cocoa prices and aid inflows. Thus, the real annual growth rate of MVA (manufactw:ing value added) was 12.9 percent in 1984.24.3 percent in 1985. 11.0 percent in 1986, and 10.0 percentin 1987. However, this pace of expansion could not be maintained. After easily usable capacity had been brought into production, the further growth of manufactw:ing activity called for more investments in refurbishing and modernising run-down facilities, the addition of new capacity, and, most important. increases in the efficiency of operations (a significant proportion had been run down to an extent that it could not be used as it stood). The need to improve technical efficiency became particulary pressing as the trade regime became more open and tariff baniers to import competition were reduced. For a variety of reasons, discussed later, such investments were relatively slow to materialise. As a consequence, the rate of growth of MVA fell to 5.1 percent in 1988. 3.1 percent in 1989 and 2.5 percent in 1990. There are few signs of a revival thereafter. By the start of the 19908, therefore. manufacturing had not regained its peak 19708 share of GDP of 14 percent. In the adjustment period itself, this share had fallen from 11.5 percent in 1985 to 9.2 percent in 1990. Total manufacturing production was 63 percent of its 1977 level in 1990. These broad trends conceal important variations in the performance of individual activities. For instance, two subsectors. cement and non-ferrous basic metals (aluminium), had reached their earlier peaks (Table 2.2) Beverages, petroleum refining and wood products also fared relatively well (reaching ., These data are from the World Bank, Ghana: ProgrelSl 011 Adjusnnent. Report DO. 9475-OH. April 16. 1991. 34 BacJcground on Ghana 70% or more of their 1977 volume). 'These were industries that had a strong local resource base (lIke wood or beverages). other cheap inputs (aluminium). "natural" protection from high transport costs (cement). or else had attracted government investments in upgrading and equipment (petroleum refining). Industries that did rather badly (below 50% of the 1977 volume) were textiles. garments, leather. iron and steel products. electrical equipment, and transport equipment (though index numbers for this last activity are not given, there is anecdotal evidence that import llberaiisation has hit it badly). The others turned in an indifferent performance. Basic oon-fcr.rous 9.6 D.a. 73 97 101 104 metals Noo-ferrous metal 0.5 10 55 46 48 S5 I Soun:e: Quanerly Di,es, ofStatisrics. Statistical Service, Republic arGbana. Dc:c:embcr 1991. II. d. Manufactured Exports The state of development of Ghanaian industry is also indicated by its manufactured expon. performance. Data extracted from the Ghana Export Promotion Council's figures for non-traditional exports in 1986 and 1991 show that the absolute values involved are extremely small. At ruling 35 Background on Ghana exchange rates. total Ghanaian manufactured exports in 1986 come to S3.5 million. The adjustment programme offered much better returns to exporting. and the volume of manufactured exports did lead to an increase, to $14.7 million by 1991." At first sight, this suggests that there was a dynamic growth of competitive manufacturing activity and a shift of resources from inefficient to efficient industries. This reading would be premature. 'The disaggregated data show that the growth came mainly from resource-based industries that were already established in export markets. Moreover, the rates of expansion should be treated cautiously because of the very small base from which they start. 'The leading performers were wood and aluminium products, both with long experience of international markets. The values of the main non-traditional manufactured exports in 1991 were: aluminium $5.5 m., wood products $6.2 m. (of which furniture accounted for $3.6 m. and other wood products for S2.6 DL), canned foods $0.3 m., tobacco SO.4 m., soaps $0.6 m., machetes and iron rods SO.8 m., and others 1.3 m. There were, in addition, handicraft exports of just under SI m. 6 Figure 1.1: M8Duractured Exports, US $ m. (1986-1991) 5 4 3 2 1 AlIminium Furniture Olhar Foods Soap Tobacco MeIaJ Others Wood Produc:I8 ... Note that the definition of "manufactured exports" here is somewhat different from that used by the GEPC. In particular. re-cxports and products like common salt and handicrafts are excluded from the sums shown here. 36 Baclcground on Ghana There was. however. little sign of the emergence of new exports that went beyond the processing of local resources. In particular. in contrast to the early expansion of expons in East Asia, the availability of cheap labour (as shown later. wages are now relatively low in Ghana) has so far failed to emerged as a source of comparative advantage. There is also little sign that local enterprises are entering new areas even within the category of resource based expons. where the natural cost advantage may be expected to stimulate local entrepreneurs. Aluminium exports are accounted for by two long.-established foreign fums. while one Scandinavian fum alone accounts for around 95% of furniture exports. In general. Ghana's manufactured expon growth to date has been below the modest targets set by the Export Promotion Council. This is an important reflection on the analytical basis of structural adjustment Adjustment is premised on the expectation that "getting prices right". rapidly and across the board. is both necessary and sufficient for achieving sustained industrial and export development. The response capacity is assumed to be present and all relevant markets to work efficiently. This view derives from a simple neoclassical interpretation of the technological learning process. In particular. as noted in the last chapter, it ignores the cost. difficulties and market failures involved in enterprises becoming efficient. In a country at Ghana's stage of development. all these problems loom much larger, even for the restructuring of relatively simple labour-intensive operations. An understanding of the technological capability building process would have led to the expectation that local enterprises in Ghana would find it very difficult to develop the technological and other capabilities that are needed for world class competitiveness. Unlike UberaliSaliOD in countries with more advanced industrial capabilities and better functioning markets. it would have been expected that in Ghana a considerable period of ''learning'' and ''relearning'' would be involved In addition, the learning process within firms would need considerable assistance from external institutions before prices did their work. 17 Background on GluJna This theme will be developed through the study. The rest of this chapter describes the incentive framework and the broader setting for capability development in Ghana. The following part takes up the more detailed examination of the technological capabilities of industrial firms. II. e. Reasons for Poor Performance II. e. i. Incentive Framework The incentive framework under which enterprises operated during the past regime is critical to an understanding of their technological development today. The present shape of Ghanaian industry has been detennined more by the policies pursued over the two decades before the launch of ERP and structural adjustment than by the policies thereafter. The incentive framework can be considered under two closely related headings: trade policies and industrial policies. Trade Polices: Restrictive import licensing was introduced in Ghana at the end of 1961 to deal with a deteriorating balance-of-paymentscaused by rising import demand and stagnant export revenues They quickly became entrenched in Ghana's trade regime and determined domestic prices and the ability to obtain intermediate inputs. While the industrial sector generally benefited from the high levels of protection offered. it suffered from periodic cuts in production when the reserve situation called for a tightening of imports. These scarcities increased over time and, by the early t 980s, had brought the highly import-dependent sector to gross underutilisation of capacity. The atmosphere of uncertainty, falling demand and general economic malaise compounded the existing disincentives to investments in technological activity. As in other countries pursuing unseJective industrialisation policies behind high barriers of protection, Ghanaian industry failed to develop adequate industrial capabilities and infrastructure.45 In addition, its poor initial base of industrial sldlls and its macroeconomic and primary sector policy mistakes exacerbated the problems created by the trade regime. leaving Ghana with a much lower 45 On the cooccpts of selective and economic interventions in trade n:gimes and thek application in the newly industrializing countries. sec Operations Evaluation Department (1992). 38 Background on Ghana capability to respond to changes in the incentive framework than other import-substituting economies that had a much larger initial base of skills, like India or Mexico. In common with highly inward oriented regimes, the effective rates of protection offered in Ghana were high. and also highly variable across activities. Calculations by the World Bank show that by 1972. nearly half of Ghanaian industry had effective rates of protection (ERPs) of over 100 percent. and 43 percent of 400 percent or more. including several with negative value added at world prices.46 However, the calculation of domestic resource cost ratios for a sample of firms suggested that a significant number of them were potentially competitive if they could operate at full capacity and achieve the requisite standards of quality and design. These were industries that used local resources intensively. did not have large minimum scales of production. and had technologies that were easy to master (or else could use traditional technologies competitively). Activities like food, beverages and 47 tobacco emerged as the best placed to compete in world markets. The liberaIisation that started with the structural adjustment programme of 1986 transformed the trade regime. Quantitative restrictions on imports were removed entirely. and tariffs were lowered and rationalised. Official restrictions on access to imported inputs. equipment and technology were removed. By 1992, most tariffs were concentrated around 2S to 40 percent. with an average effective rate of protection of around 25 percent They were due to be lowered further during 1992 The present trade regime in Ghana can. therefore. be generally described as relatively open, and seems set to expose practically the whole of the Ghanaian manufacturing sector to strong world competition. Once the reforms under way are fully implemented, there will remain littJe or no overall incentive bias towards the home market However. a few activities may be given a degree of protection from local taxes. while some others may suffer from negative effective protection if their output is sold '" World Bank. 1985. p.SO. 41 ibid. P 58. 39 Background on Ghana at world prices while their non-traded inputs (particularly energy) are more expensive than to overseas competitors. Industrial Policies: The main area of industrial policy of relevance to technology development concerns the ownership policies pursued in the past and the development of private enterprises in the future. The post-independence leadership in Ghana strongly promoted public ownership of industry, both to speed up the industrialisation process and to establish socialism. However, the government's strategy was to have a blend of a strong state presence alongside an active private sector. rather than to expropriate the latter completely. The attitude toward the private sector varied over time. The military regime of 1972-79 extended the scope of the state in production. marketing, distribution, pricing and resource allocation. but was unable to suppress a private economy that took advantage of the growing distortions introduced by the controls. The subsequent regimes tried to control corruption and profiteering with tighter controls on the private sector. Ultimately, the new policies launched after the ERP introduced comprehensive reforms and much greater freedom for the private sector. According to the latest figures available on the ownership breakdown of Ghanaian industry. for 1986. the small and micro enterprise sector (concentrated in traditional activities with low productivity technologies and low quality products) is entirely in the local private sector (Table 2.3).The medium and large scale sector, in more modern and capital intensive activities. was originally dominated by wholly foreign owned enterprises (in 1962 they accounted for 68% of value added by large and medium enterprises, with another 12% from joint ventures). Over time, the role of the public sector grew. reaching a peak of 30% of value added in 1986. The public sector also had a number of joint investments with foreign and local enterprises. accounting for 14.4% of value added in 1986. The number of joint ventures between Ghanaian and foreign enterprises increased ten fold over 1962-82, Background on Ghana because of the requirement that foreign firms take local partnerS. The number of wholly private enterprises also rose in this period. despite the discrimination against them. ForeigolLocal Joint StatclLocal Private Wholly State Ventures· Joint Ventures I This includes joint ventures with both public and private sector firms. The post-ERP regime improved significantly the environment for private business in Ghana. Among the reforms now under way is the liberalisation of entry to all private investors, local or foreign. 48 While the 1985 Investment Code is still in force, its application is more relaxed now and a new Code is under preparation. The approval process has been considerably speeded up. The government plans to improve the efficiency of state-owned enterprises and to divest them gradually. All enterprises that remain in state ownership will be encouraged to operate on commercial principles and will be granted greater autonomy. There are, however, few indications of a significant growth in the interest of foreign investors in Ghanaian manufacturing industry. Table 2.4 gives details of foreign direct investment (FDU approvals in manufacturing over 1986-90. The data show that there was a burst of approvals in 1987 over 1986, doubling the figure from $5.7 to $11.7 million. In 1989 there was another increase to a peak. of $19 million. followed by a decline to $14.3 million. The cumulative ·figure for approvals was $62.9 million over the five years, an average of $12.6 million per year. However, approval data are not usually a good indicator of actual arrivals of FDI into a country; in most developing countries the ratio between approvals and arrivals is generally 60:40. Actual FDI arrivals are likely to have been in the range of $5-6 million per annum. a very low figure indeed. Qrovais US S millions) ,USS '% share I 1986 1987 19881 1989 1990 (1986.1990) I i ! I Food. beverages' and tobacco 1.4 1.7 2.1 4.01 2.31 11.5 18.31 Textiles and garments 0.01 0.3 0.2 0.0 0.1 0.6 1.01 Leather products 0.01 0.0 0.01 0.1 0.0 0.1 0.21 Wood and wood products I 2.51 5.1 2.9 7.0 0.6 18.1 28.81 Paper and paper products i 0.0 1.41 0.0 1.4 1.2 4.0 6.41 Chemicals 0.3 0.6 0.9 1.3 4.9 8.0 12.71 Rubber and plastic products 0.4 0.01 2.4 4.6 1.4 S.8 14.01 Non-metallic minerals 0.2 0.1 0.1 0.0 1.8 2.21 3.5! Basic metals 0.0 0.0 0.0 0.01 1.3 1.3 2.11 Fabricated metal products 0.9 2.5 2.6 0.5 0.4 6.9 11.01 Electrical products I 0.0 0.0 1.0 0.1 0.3 1.4 2.21 I 1 Total manufacturing 5.7 11.7 12.21 19.01 14.3 62.91 1001 I I I Notes: (a) Approvals. Data on actuals not available. 1 i Source: Ghana Investment Centre. Accra. I i I - .J . - I __._J _ Background on Ghana TIle bulk of FDI approvals, 47% of the total value over the period, has gone into two activities: food processing and wood products. These are relatively simple resource based industries, with reasonable export prospects because of their local material inputs. However, these investments may not signify much upgrading of industrial capabilities in Ghana, because they have few linkages with the rest of manufacturing. Intermediates like chemicals and rubber have got about 27% of total approvals, while capital goods (even if fabricated metals are included in this category) have received very little. This pattern is not surprising. In the absence of protection from imports, the main draw for manufacturing FDI into high value added activities in a developing country is a good base of local skills and technical expertise, together with a network of efficient subcontractors and suppliers. This Ghana cannot offer at this stage (see below).49 FDI inflows have therefore to rely on cheap raw materials and natural protection given by transport costs. What is less expected is the inability to attract more foreign · interest in labour-intensive activities. Ghanaian labour is now relatively cheap, and the country enjoys, with most of Sub-Saharan Africa, special access to the EC market. Its failure to draw the relocation of garments and other assembly activities from the developed and newly industrialising economies points to low labour productivity and/or infrastructural deficiencies. Some of these problems are found in the present case studies. II. e. ii. Skills and Technological Activity Ghana has a well-deserved reputation for possessing a large base of skilled labour by SSA standards. In the mid 19605. it had a primary school enrolment ratio of 69 percent and a secondary enrolment ratio of 13 percent By 1989, these ratios had increased to 74 and 39 percent respectively In primary enrolments, Ghana was among the top 5 SSA countries in 1965 and the top dozen in 1985; in secondary enrolments. it ranked among the top three in both periods (only Zimbabwe and Mauritius did better). Its tertiary enrolment ratio, at 2 percent, though not high, was average by SSA standards. 50 In 49 The skill gaps at tbe fum level betwccn Ghana and more advanced industrialising countries (India. Korea. Malaysia and Sri Lanka) are highlighted in Chapter 7. !II Data from tbe World Development Report. 1991. Sec Lall's (1992) articleOD African industry for a longer analysis. 42 Background on Ghana addition. Ghana has a stock of educated people living abroad that may constitute a valuable potential base of industrial skills. Table 2.5 shows emolment rates at the three levels in Ghana and five other African countries as well as Korea. It suggests that Zimbabwe has the best general skill base in Africa, but that the African countries all lag seriously behind the NIEs of East Asia. It is useful to supplement these data with figures on tertiary level emolments in technical subjects that are likely to be of direct relevance to capability building in manufacturing. Table 2.6 shows emolments at three levels of aggregation in science related subjects. The category of "natural science, mathematics, computing and engineering" is perhaps the closest to industrial needs. Here, the proportion of enrolments to population comes to 0.01 % in Ghana, the same in Zimbabwe and slightly less that in the other four African countries. This can be compared to 0.76% in Korea. Vocational training emolments in Ghana are shown relative to these other countries in Table 2.7. Here Ghana fares better than Kenya and Nigeria, but worse than the other African countries (Cameroon has a particularly good performance). Ghana's figure, relative to population, is just over 5% of the figure for Korea. While these figures cannot be taken as they stand as measures of the human capital base for industrialisation. they are highly suggestive. By comparison with the newly industrialising countries of East Asia or Latin America. the base of manufacturing skills in Ghana seems very small. Korea and the other NIEs had relatively high levels of human capital, and especially technical human capital, at the sian of their industrialisation drive in the 19608. This was essential to their ability to achieve international competitiveness in a rapidly diversifying range of manufacturing activities. Ghana lacks a similar base even today, though it has been attempting to industrialise for almost as long as Korea. 43 Table~.5" E_ Textiles Food Wood Metal All firms a~rments processing working working A. CASE STUDY FIRMS 1. Firm size categories: Small firms « 29 employees) 50.0 0.0 25.0 55.6 34.4 Medium firms (30 - 99 employees) 50.0 14.3 25.0 22.2 28.1 Large firms (> 100 employees) 0.0 85.7 50.0 22.2 37.5 2. Ownership categories: Firms with foreign equity 0.0 42.9 12.5 22.2 18.8 Firms with local non-African equity 50.0 14.3 12.5 11.1 21.9 Firms with local African equit'L 50.0 28.6 75.0 55.6 53.1 Firms with state equity 0.0 14.3 0.0 11.1 6.3 3. Age In producHon categories: Firms which began production before 19 87.5 71.4 75.0 77.8 78.1 Firms which began production after 198 12.5 28.6 25.0 22.2 21.9 B. PANEL DATA FIRMS 1. Firm size categories: Micro firms (0 - 9 employees) 41.2 46.2 31.8 30.8 37.2 Small firms (10 - 29 employees) 29.4 28.2 38.6 30.8 32.1 Medium firms (30 - 99 employees) 17.6 15.4 18.2 25.7 19.3 Large firms (> 100 employees) 11.8 10.3 11.4 12.8 11.5 2. Age In production categories: Firms which began production before 19 54.1 70.0 48.6 64.3 59.6 Firms which becan production after 198. 45.9 30.0 51.4 35.7 40.4 Methodology and Sample Characteristics respectively), while wood and metal working show increases (6.0 percent and 4.0 percent). By size; small (10 to 29 employees) and micro enterprises (less tban9 employees) are the best perfonners, each with 3.0 percent employment growth. Medium (30-99 employees) and large finns (above 100 employees) show negative employment growth rates. It is interesting to compare the panel findings with that of the survey by Steel and Webster (1992), conducted in late 1989 to assess the impact of the structural adjustment on small enterprises in Ghana. The survey covered 82 finns, of which 33 were micro enterprises (1 to 3 employees), 42 small enterprises (4-29 employees) and 7 medium and large enterprises (30 plUS employees). The period covered was before the import liberalisation really started to "bite", 1990 and later. Nevertheless, the period 1983 to 1989 is interesting to analyse. In that time sharp rises in import prices (arising from massive devaluation) and the stabilisation measures (that reduced credit and significantly raised interest rates), combined with the lifting of quantitative restrictions on imports and easier domestic entry, to lead to much greater competition for established finns and to easier access to foreign inputs. Steel and Webster's survey found that many new small enterprises emerged in this period. However, the total numbers involved were small, and the 'quality' of the response to the liberalisation was weak: only 39 percent of the sample managed to increase production in 1983·89. Of the remainder, 43 percent suffered declines and 18 percent stagnated. One important finding was that declining rums were concentrated in the set of enterprises started before the ERP (1983). Micro enterprises (with less than 4 employees) fared particularly badly regardless of their age. Newer finns had the largest proportion of those with rising production. with the best perfonners among those with employment of 4 to 'J!) workers. Three sets of comparisons can be made between the two sets of surveys: (i) the percentage of growing rums, (ii) the perfonnance of finns of different size classes, and (iii) the perfonnance of finns of started before and after the launch of the ERP. It should be noted that the panel sample is more 58 Methodology and Sample Characteristics representative of the population of Ghanaian firms. because it has a larger coverage and its sampling procedure was carefully designed. (i) The present panel survey confirms Steel and Webster's finding that supply response to import liberalisation continues to be weak in Ghana. In the panel. 36.4 percent of the firms have positive sales growth compared to Steel and Webster'S 39 percent. Thus, the later period, when the liberalisation had gathered momentum, did not witness a strengthening of enterprise growth. (ii) The panel survey confirms Steel and Webster's findings on the relative performance of firms of different size classes. Thus, small firms performed best amongst all size classes, while micro rums performed worst It is not immediately obvious why this pattern should exist. but one explanation may be that medium and large firms are more concentrated in tradable products that face direct import competition and are losing markets to foreign products (this is the finding of the case studies later in this study). In the "non-tradable" section of the market served by small and micro enterprises, the former are gaining at the expense of the latter. presumably because micro enterprises lack the minimum skills and equipment to cope with competition and are particularly hard hit by stabilisation measures. We do not examine this issue. since there are no micro enterprises in the case study. (iii) The panel's results on the performance of firms of different age groups differ from that of Steel and Webster. The latter found that declining firms were concentrated in the set of enterprises started before the 1983. and suggested that new enterprise formation was healthier in response to a moce competitive environment The panel data show. however. that firms founded before the ERP declined considerably less (at -2%) than those founded after 1983 (-19.0%). There thus seems to be no clear evidence that the general pattern of enterprise formation had improved over time. Interestingly, small firms both in Steel and Webster's as well as the panel survey felt that their major competition came from other small firms rather than from imports. In a period of sweeping 59 Methodology and Sample Characteristics import llberalisation this suggests that small enterprises were serving local niche markets that were naturally protected from foreign products,67 or that import competition had not yet started to reach these markets. The technology case study also finds this for many of the fums in wood and metal working (see below). This concludes the description of the background to the sample firms. The next chapter analyses in greater detail the technological characteristics of the large panel sample. 61 Most of the new producers were concentrated in simple metal products (water coolers. drums. knives) or those with a SlrOng local input base (briquettes from sawdust). 60 CharaCleristics of Panel Sample Chapter IV Technological Characteristics of the Panel Sample IV. a. Introduction The development ofTCs is based on the interaction of physical capital (equipment) and human capital (skill recruiunent and training. combined with technological effort), driven by entrepreneurial responses to product and factor market conditions. Only some of these variables can be captured in an analysis of the quantitative data obtained in the panel sample. This chapter analyses information for the 164 panel tirIns on capital-labour ratios. the stock of human capital and investment patterns between 1983 and 1991. This analysis gives a number of insights into technology development in Ghanaian manufacturing. a valuable supplement to the detailed firm-level examination of the case studies of the 32 firms reviewed in the next part of the book. This Chapter will assess the following issues. First, if there are firms with different levels of technological capabilities (as measured by stocks of equipment and human capital) within the same industry. Second, whether differences in TC levels are continuous or discrete. If there are discrete differences. this implies that there are factors that hamper the smocim ttansition of firms across different levels of technology and cause them to "cluster" in panicular segments of the spectrum. Oustering may be an important phenomenon to analyse for policy purposes. Third. what the determinants of any observed technological clusters are: size. factor or product market segmentation. or those related to the process of technological learning. The former are emphasised by neoclassical apJX'OOChes to adjusunent, while the latter are stressed by the TC approach. IV. b. Theoretical Framework It may be useful to reiterate the key theoretical assumptions, derived from the approach laid out in Chapter I. on which this empirical analysis is based. 61 Characteristics 0/ Panel Sample From the perspective of the manufacturing firms. the inputs that go into the development of TCs can be classified into external and internal. External inputs are the machines. sldlled personnel. licences and manuals. trainers, and technical infoonation that can be acquired in the market Internal or in-house inputs have to be developed through search, training, experimentation and research. The processes of acquirtng the two types of inputs are interactive: internal effort is affected by the external inputs and the ability to search for, acquire and utilise external inputs is affected by the nature and the extent of internal efforts. This has three implications. First, Tes are costly to acquire. The decision to develop TCs is like any other investment decision: it implies a sunk cost and it brings uncertain long term benefits. And, like any other rational investment decision. it will be based on the present value of future expected benefits. Given the perceptions, abilities and risk profile of the entrepreneur, this will depend on demand and competition in the product market (the incentive framework) and on the characteristics of the markets for the relevant inputs. Second, TCs are 10 a large extent firm specific, for four reasons. First. because, given the very large number of TC inputs, possible input combinations are infinite and these may differ from firm to firm. Second. there is a possibility of market failures in any individual input market, which may also vary by firm. Third. to the extent that TCs developed inside the firm they are determined by the nature of the individual learning process of each firm, uncenainty, and by the costs that arise for transactions internalised by the firm. Finally, the efficiency of investments in TC is frequently affected by scale economies, thus relating capability acquisition to the size of the firm. Finally, TCs are technology specific. In other words, the know how developed relatively to a given technology does not completely spill over to other technologies. 68 For example, tithe basic concept of weaving is involved in virtually all textile production, but much of the technical knowledge " Atkinson and Stiglitz (1985). 62 Characteristics of Panel Sample upgrading is held back by the lack of TCs. interventions aimed directly at improving TCs would be necessary. Liberalisation by itself would not suffice. Section IV. C examines the broad relationship between technology and firm size and canies out a complete mapping out using a statistical clustering technique. Section IV. D assesses whether factor markets segmentation provides a full explanation of the formation of the clusters. Section IV. E looks at the relationship between technology and growth performance. The main conclusions are drawn in Section IV. F. IV. c. Mapping Out Technological Inputs IV. C. i. Data On SkUIs, Technology And Size The data available on the panel sample are not ideal for analysing techological capabilities. In particular. the only quantitative indicator of the kind of technology employed is the value of physical equipment The meaurement of capital is always fraught with problems. and these problems are compounded in developing countries where the smaller enterprises keep little or no accounts and often buy second-hand machines. Even if accurate capital data were available. and could be adjusted for inflation and depreciation. it is not necessary that capital intensity (value of equipment per employee) would be a b11e indicator of the nature of the technology. However. we have to manage with the data that are available. and every effort has been made to adjust the firm responses for distortions and inflation. It is assumed that capital-intensity within a given industry measures the "level" (that is. the complexity and sophistication) of the technology. It is not in fact an implausible assumption that more advanced technologies are more capital intensive. Using it aUows us to analyse the available information in interesting ways. Such a measure of technological levels within industries may be hypothesised to have certain characteristics that can be tested with the data: 64 Characteristics of Panel Sample associated with modem automated factory production is inapplicable to hand-loom technology" (Stiglitz 1987). These hypotheses provide a useful base for exploring the empirical issues raised above. The premise that TCs are costly and firm specific implies that the optimal level of TCs differs for each finn, and may explain why there are firms with different levels of technological capability within the same industry. The technology specific nature of TCs can explain technological clusters,. discrete levels of technology within the same industry. Firms may develop the capabilities required to use efficiently a given technology, but lack. the ability to create the TCs necessary to move to the next level of technology. Finn and technology specificity imply that the relevant set of production technologies is no longer clearly defined and cannot be represented by the standard isoquant. At any time there are only a limited number of techniques that a firm can easily control and efficiently use. Standard neoclassical theory usually explains differences in technology in terms of firm size and factor market segmentation. Such explanations are complementary to, and not necessarily in conflict with, the TC approach. For instance, when there are increasing returns to scale in investing in TCs, size is one of the factors that can determine finn capabilities. If factor market are "segmented" (that is, different firms face different prices, availability or quality offactors), upgrading to superior technological clusters can be constrained by factor market segmentation as well as by the fact that TCs are technology specific. There are important policy implications arising from this analysis. In developing countries, it is generally considered desirable to reduce technical inefficiency and bring the less efficient firms nearer to the efficiency frontier; in other words, to reduce technological segmentation. If factor market imperfection were the only constraint, policy interventions aimed at liberalising markets and eliminating market imperfections would suffice to let dynamic firms move to better technologies. However, if 63 Characteristics of Panel Sample · Large finn size is expected to be positively associated with tecbnologicallevels, since within every activity large-scale operation is nonnally more capital intensive; · Physical and human capital are expected to be positively comelated. since more complex technologies involve greater skill inputs to operate efficiently; · Within similar size classes of finns, however, there are expected to be technological and skill differences because of the firm specific nature of capability acquisition; · Across size classes there are expected to be technological and skill differences caused, not just by scale factors but also by segmentations in factor markets which affect different finns differently These hypotheses are not directed at the firm level capability building or at technical efficiency .. The capital intensity of an enterprise bas no necessary connection with how capable it is at using its technology. and there is no presumption that large firms are more capable than small ones. As noted in Chapter I, large finns tend to specialise in different market and technological segments from small ones in the same industry. and it is only in very special circumstances that size per se is an indicator of greater technical efficiency. Coming now to the data. the distribution of the sample firms by size (note that this distribution is shown by four rather than three groups) is given in Table 4.1. The majority of finns (112 of the total 164) employ 29 or fewer workers each, and at the other end there are only 18 finns with over 100 employees. As noted in the last chapler, this is typical of Ghanaian indUstry at large, with its preponderance of micro and small rums. Table 4.2 shows data fer- the sample firms on the value of fixed capital, investments in equipment (in 1983·91) and the skill levels of the entrepreneur and employees. Table 4.3 gives the C: a. · 0,11 EMP · )( .. (j) ·0.17 INKA - - c 0.73 SLAB (j) c 0 I r I I - I I I I I I I I 1--°,93 KL 0.15 EDMAN Co E 0 ·1 .0,5 · 0,5 1 1,5 2 0,14 EDPRO 0,26 EOENT 0 - · -0,15 .- l- · · Noles: (a) This malrlx gives lhe · · · · correlallons between variables and componenl, ·· (b) See table 6 lor lhe vailal · J' · -1 - I- IdescrlPllon · · .. (e) Explalned variabilily · - -1.5 _L.. --.- . Component 2; expl.var.: 13.6% (c) Flg.2 _________ Wood working I Rotated Faclor Mattix (i) I Faclor1 VarIable, · 0.1 TINV 0.69 CAP 0.6 SAL o.3?I!'MP · l= ,0.04INKA 0.471SLAB ---- 0.9 Kl 0.72IEDMAN . ~21EDPRO ---l -0.06 EOENT ~ Factor31Variabies 0' · · ___ O~_I·ITINY.~ ~ Q. · 0.56 CAP 0.321SAL ~ 0.751EMP O.OOII1NKA ~ 0.001 ISLAB i 0.031KL 0.43 IEDMAN 0.74 I EDPRO · 1--_0 ~EDENT!..-._ _ _--t .;,.:..6.:....:.1 NOles: (a) This matrix gives the correlations between variables and components (b) See lable 6 lor the varilbtes' --:=J'deSCtiption (e) Explained variability Comeonontl; .'pl.vor., 46.6% (e) ·~l- =.-~--- Food processing I _._~I~,- . .!I~laled Faclor Malrlx (a) Factor 1 Variables 3,00 -r- --...... ----~ TINV(b) ~ 0,88 CAP 2,50 - 0,8 SAL 0,89 EMP · -0,22 INKA I · 0,27 SLAB V 2,00 - 0,55 KL 0,031 EDMAN · 0,36 EDPRO ,\~ f- 0,79 EDENT ~ CO ....: · Faclor3 I - . Variables "If ..: D > "5. ( · 1,00 - f- · · 0,007 TINV (b} 0,33 CAP >< - - QJ 0,22 SAL I .- 0,1 EMP c O,5O.-f- · I 0.1 C · · f--- ·0,12 INKA · · 0 Co ----~ SLAB .E 0,73 KL 0 0 I I I I · I I I · 0,91 EDMAN r I I I I~ I I I I 0,78 EDPRO · ----0; ~ ·· -1,00 -0,60 -0.40 -0,20 0,20 0,40 0,60 0,80 1,0 0,19 EDENT ·· ·· · · ·· · · -0,50 -l- · ·· · ( Notes: (a) This matrIx gIves the ----- COHelatlons Iletween · · -1.00 -I- · vwJables and componenls Ill) See lallle 610r the variables' desalption I-- Ie) · · ExplaIned variability -- -1,50 -'- -_. --. Componenl3i expl.var.: 11.2% (c) - - - - I---. ~- - Textiles & Garments ~~~=~_~1\l-=-4[_ Rolated Factor Matrix (a) Factor1 Variables 0.18 TINV b 0,96 CAP 0,89 SAL 2,00 0,75 EMP -0,02 INKA. 0,6 SLAB 0,77 KL · 1,50 0,8 EDMAN 0,85 EOPRO ~ '. \ 0,01 EOENT li; .., co · · .. ..: · Factor3 Variables 0 1.00 >: -0,04 TlNV b Q. )( 0,02 CAP - - CD u C CD c 0.50 0,16 SA.L -0,08 EMP -0,13 INKA 0 Q. E · 0,17 SLAB 0 -0,15 KL 0 0,03 EDMAN 0,03 EOPRO -1,50 ·0,50 · 0,50 1,50 0,96 EDENT · · · · · -0,50 NOles: (a) This malrlx gives the ·· ·· · ·· correlations between · · ·· varlablss and components · · (b) Seslable 6 lor lhe variables' · ·· I Id9SCflPlion -1,00 (e) Explained varlablHty CompOnent3i expl.var.: 10.1% (C) . -3= I Characteristics 0/ Panel Sample For instance. in the case of textile the principal component on the horizontal axis is correlated with the education of the entrepreneur. In this industry both capital intensity and size are correlated with the same component (on the vertical axis). Each dot represents one firm in the sample. TIle boxes or circles around groups of firms represent the clusters. The "structural" CluSter analysis has six major results: 1. All the four industries are characterised by clear-cut clusters of firms with similar values of the physical and human capital indicators. This suggests that there are multiple equilibria in investments in TCs. with different groups of fIrms responding in different ways. 2. The type of technology. as measured by these variables. is generally different in each of the clusters (below). Thus. firms do not seem to operate over a continuum of alternative technological options: changes in the type of technology are generally few and discrete in each industry. 3. 'The structure and the nature of tile clusters is different for each of the industries and depends on the features of the technology in the industry itself. 4. For each of the four industries. the inferior technological cluster (with lower capital and skill intensity) is always composed of micro enterprises. 5. 'There is. as expected. a positive and consistent relationship between size and human and physical capital intensity. 6. However. size does not always differ across technological clusters: because of fmn level differences in the TC building process. there are dusters which are explained by differences in technology but not size. Let us examine these results at greater length. Figures 4.1 to 4.4 show that three clusters emerge for metal working. wood working and food proce$Sing. and two for textile and clothing. Tables 4.8 to 4.11 give tile average values for some key variables characterising the firms in the clusters. 'The clusters are called A. B and C in each industry (A and B in textile and clothing), where cluster A represents the most advanced technologies and C the least. In other words, average capital intensity and human capital increase when we move from C to A.1i In every indUStry, cluster C comprises micro 70 table 4.1 MaIor clu.......· ch.ec.....ttc. : METAL ~KINO --- CLUSTER NUMBER OF AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE --- ,---- EDUCAT10N CAPITAL PRODUCno EDUCATIO PER SHARE OF SHARE OF NUMBER OF N N OF EDUCAT10N EMPLOYEE FOREIGN PUBlIC EMPLOYEE FIRM AGE WORKERS MANA GEM ENTREPRE (In 1lt1 OWNERSHF OWNERSHIF FIRMSC_) SIN 1lt1 1N11t1 (b) ENT(b) NEUR{b) U.S.S) I(%)(c) I(%)(d) i (median) (median) (median) -- A 6 118 6 5 7 8 17728 16.7 16.7 . - r--- B 12 60 15 4 7 6 4465 33.3 8.3 C 19 10 10 1 n.a. 3 1338 10 0 Notes: Ca) this c::oh.mn ~es the number of Irma whictI form the duster. ------- (b) 1-none, · 3-mIdcIe 1ChooI; 4oosecondary; 5-voeallonal; 6-poIyIhecn1c; 7..professlonal; Saunlverslty. JC) this column gives the of Irms In the dUster which are anIIrely owned by prlva. foreign owners or are joint ventures between private ~ and bel!Jl owners. (eI) this column ~es the pelQ8lltage of firms In the duster which are entirely owned by the State or with a public: paI1Ic:ipatiorl· _I L -- ,- -- table 4.' Mlljor ct......· CIhMIc....Ic8: WOOD WORKING CLUSTER NUMBER OF AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE EDUCA110N CAPITAL PRODUCno EDUCAnO PER SHARE OF SHARE OF NUMBER OF N N OF EDUCA110N EMPLOYEE FOREIGN PUBLIC EMPLOYEE FIRM AGE WORKERS MANAGEM ENTREPRE (1n t .., OWNERSHIP OWNERSHIF FIRMS(., S1N1..' INt .., (b) ENT(b) NEUR(b) U.S.S) (%)(e) %)(d) (madan) (madan) (madan) A t1 93 15 4 6 6 7818 20 20 B 24 21 9 2 6 3 2439 4 0 C 8 3 7 3 3 3 1068 0 0 Notes: (a) this column ~es !he number oIlrms which form !he duster. (b) '-none~' ; 300mIdde 1IChooI; ; Savocalonal; 6-poIyIhecnIc; 7"flrOfesslonal; a.untversity. (e) this column ~es the p8fcentage oIlrms In the cluster which are entirely owned by private foreign owners or are Joint venuas between privata g,anaIans and torelgn owners. (d) this column ~ the oIlinns in the cluster which are entirely owned by the State or with a public participation. labIe4.10 Mafor cI. . . . . c. . .te..1IctI : FOOD PROCESSING -~- CLUSTER NUMBER OF AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE EDUCAllON CAPfTAL PRODUCTIO EDUCAT10 PER SHARE OF SHARE OF NUMBER OF N N OF EDUCAllON EMPLOYEE FOREIGN PU8UC EMPlOYEE FIRM AGE WORKERS MANAGEM ENTREPRE (In OWNERSHF OWNERSHF FIRMS (a' SIN'"' IN '"1 I(b) ENTJb) "'~UR(b) U.S.S) '"' 1(%) (c) (0A)(d) (meclan) (mecIan) (median) -~ A 4 424 33 3 5 8 10089 0 75: B 13 37 10 3 7 6 7111 25 25 ~-- C 23 7 11 3 n~a. 3 1278 8 0 Noles : r---~~ (a) ItIIs ccIumn gives the number of Irms which form the cluster. (b) 1-none;2-primary; 3-mIdcIe echooI; 4oosecondaIy; 5-vocaIionaI; e-potythecnle; 7.professional; 8-unlversity. (e) ItIIs ccIumn gives the peroemag. of arms_ill the duster which are entirely owned by privata forelgn owners or .e joint ventures between private ~analans and foreign owner·. Id) this column 9VeS the of firms in !he duster which are entirely owned by the Slate or with a public partidpaUon. tabl.4.11 Malar clu......· chane.....,. : TEXTLES .. GARMENTS -------- CLUSTER NUMBER OF AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE EDUCA110N CAPITAL PRODUC11O EDUCAnO PER SHARE OF SHARE OF NUMBER OF N N OF EDUCAnoN EMPLOYEE FORBGN PUBLIC EMPLOYEE FmM AGE WORKERS MANAGEM ENTREPRE (In 1..1 0 OWNERSHF FmMS(a) SIN 1..1 INt..1 (b) ENT(b) NEUR (I») U.s.$) ("") (cl OO(d) (mecIan) (median) (mecIan) A 8 112 14 4 6 4 5769 37 25 i , B 28 II 9 3 2 3 460 0 4 ""415 the number of Irma whic:I'I form the duster. b. Notas: (_) this column (b) 1-none' ; 3-mIdtte school; ; s.vocalonal; ,,- ,,. Ie; 7"'P"ofesslonal; &.university. (c) this column gives the peroentage of Inns In the cIustar which ...e entirely owned by prtvate foreign owners or ...e joint ventures between private (IlanaIans and owners. n-r (eI) this column lives the of IInns In lie du* which ...e entirely owned by the Slate or with _ public partic:lpalon. Characteristics of Panel Sample enterprises with uneducated personnel mostly using hand tools. The characteristics of the higher clusters depends on the industry, which are discussed in turn. In the case of metal working, fInns in cluster B use manual or powered machine tools. The capital-labour ratio is about four times higher than for cluster C, and human capital increases signifIcantly for all the three categories considered (entrepreneurs, managers and production workers). In cluster A, we have either fIrms using more sophisticated machine tools, sometimes with numerical control (for example for the production of high quality window and door frames) or fInDs which use large-scale technologies, like rolling mills. It is interesting to note that fInns in cluster A are on average younger (6 years old) and were founded after the ERP in 1983. This tendency for more capital intensive technologies to be launched after ERP may run counter to the intuitive belief that liberalisation pushes industry to use technologies that are more "appropriate" to the labour abundant factor endowments of a country like Ghana. It may be that distortions remain in factor markets that favour capital-intensive technologies. It may, on the other hand, be the case that the dichotomy based on a simple two factor model is misleading. and that ftnns are in fact choosing the most efftcient technologies with the precision and scale needed. In wood working, differences between clusters C and B are less dramatic than in metal working. Average capital intensity in wood working cluster B is roughly double that in C, and the type of equipment fIrms use is still extremely simple. Managers have a higher level of education. but average schooling does not change for the entrepreneur and the production workers (for the latter it even declines). Finns in cluster B have pennanent locations, in contrast to fIrms in C which generally have II Note that the industries are dermed rather broadly. and there is the risk that differences in capital intensity in fact reflect differences in products. It is not possible with the information at hand to correct for this. but an examination of the firms involved does not suggest that the problem is a major ODe. Fums producing 'capital intensive' products are spread across Ibe clusters in each of tbe four industries. For example. in the case of the textile industry. clothing fums may be expected to be in the lower cluster and textile fums in the upper ODe - Ibis is not the case. 71 Characteristics of Panel Sample temporary ones. The technology gap is larger between clusters B and A. In A. capital-intensity is three times higher and the average entrepreneur has polytechnic education (compared to middle school in cluster B). Firms in cluster A tend to be modem furniture manufacturers with expensive equipment like kiln dryers and electric machine tools. Only three of the 11 wood cutting firms in the sample are in cluster A. Therefore, the jump in capital intensity between A and B does not reflect a shift towards more capital intensive products. In/Dod processing. cluster C has the usual group of micro enterprises. mostly bakeries. Between clusters C and B there is a considerable technological jump. Ouster B has small-medium firms with highly skilled personnel (particularly managers) and capital-intensity five times higher than in cluster C. Finally, cluster A has the largest group of firms in the whole sample, far larger than firms in B. However, in contrast to the rest of the industry, these firms have poor human capital (the average education of the managers is low) and capital intensity does not increase proportionally with size. 83 Fums in cluster A are relatively Old, with old equipment which has not been renewed. Fums in cluster B are much younger and use relatively advanced processing technology. Fmally. in textiles and clothing. 4 of the firms in the sample are in textiles and 32 in clothing. Only two significant clusters emerge. Ouster B is made of informal tailoring shops. while cluster A has larger firms with more complex organisations and higher capital intensity. The average education of the entrepreneur is higher in cluster A. but it is much lower than in the top clusters of the other industries. Three of the four textile firms are in cluster A. This is expected because textile plants are always ma:e capital-intensive than clothing manufacturers. However, the other five firms in the A cluster are &3 It should be DOted that this sample does Dot include the big affiliates of multinationals that are covered iD the case studies below. These affiliates do have high levels of physical aod humao capital. 72 Characteristics of Panel Sample garment firms. suggesting that the increase in capital intensity between the two clusters is not due only to changes in the product 'There are inter-industry differences which are also worth noting. These are particularly marked between the two relatively capital-intensive industries (metal working and food processing) and the labour-intensive ones (particularly wood working. because the results for textile are not particularly revealing). First. the change in the production techno}ogybetween clusters C and B seems much larger for the capital-intensive industries. 1bis result suggests that in the simpler labour-intensive industries. the discrete jump in the technology is smaller and there exist opportunities for some technological upgrading at the lower end of the technological spectrum. 1bis possibility appears to be more limited for firms in capital-intensive industries: upgrading from the micro cluster implies a more radical change in technology. Second, metal working and food processing firms in the top cluster (A) are more physical and human capital intensive than their counterparts in wood working and textiles and clothing. Finally. the relationship between technology and size. Although firms in the top cluster are on average larger than others. size and technology are not consistently correlated. Some of the clusters differ in terms of technology and human capital, but not in terms of size (A and B in metal working and food processing).... Technology seems to be more independent of size in more capital-intensive industries and for the higher technological clusters. In both metal working and food processing, size has a strong explanatory power independent of capital intensity. and capital-intensity has an explanatory power which is independent of size. In contrast. size and capital-intensity are highly correlated in industries with simple technologies (textiles and garments and wood working). In other words. finn size seems to be important when changes between relatively simple technologies are taken into account However. changes to higher technological levels in metal working and food processing. size (and thus economies of scale) do not seem to matter substantially for the technologies chosen. .. This is seen clearly wben individual fums are considered in the case studies below. 73 Characteristics of Panel Sample Human capital emerges as a key factor both for teclmological levels and firm growth. Firms with superior technologies have better educated entrepreneurs. managers and production workers. On average, technological upgrading requires an overall change of the skill structure in the firm. 8~ IV. d. Technological Clusters and Market Segmentation This section considers the role of market imperfections in explaining the formation of clusters. 1bree different markets are taken into account. First. the market for capital equipment. The source of information on the capital equipment purchased is considered - whether the source is local or foreign, the assumption being that in imperfect information markets larger firms have better access to the foreign sources with information on more advanced technologies. Second. the labour market. The recruitment of workers from vocational training schools and through other formalised channels is compared to informal, 'word of mouth' methods of recruitment The qualification of new recruits is also considered. Finally, the financial market. The source of financing of the capital equipment is analysed, to see whether firms finance their purchase of capital equipment through banks and other formal financial instirutions or through informal channels and their own savings. The analysis is conducted in two stages. First. the percentage of firms which used one of the two segments of these markets is measured for each cluster (Tables 4.12 to 4.15). Second. measures of association (Cramer's V) between the clusters and the different market segments are computed (Tables 4.16 to 4.19). A measure of association between discrete variables is equivalent to a measure of ca:relation between continuous variables. 17 1$ This cooc:lusioo is strongly supported in the detailed case studies. 1'1A multinomiallincar logit analysis with the cluster as the dependent variable and the market segments as independent variables was also carried out. The number of observation in each of the clusters was not sufficicut to provide interesting and significant results. 74 Tab.. 4.12 Technological c . . . . . 1nd IIIIIr'ket legmentaUon: METAL WORKING (frequenciM) --- Source 0' Info on k Source of Info on k Source o. work. . Source of k Percentage purch· · : felt In_t purch... : InltJallnv. recruitment purchMe IInancIng of apprentIcM CLUSTER: Forelgn(.) LoceI(b) Olhe!' Foreign Local Oll1er Formal (c) Informal(d) Bank In theftrm A 50% 0% 50% 500/0 0% 50% 67% 33% 170/. 1---- 13% ,--- 8 40% 30% 300/. 200/. 40% 40% 75% 25% 20% 15% I ----- C 00/0 46% 54% 0% 42% 58% 21% 790/. 0% 65% ----- - Notes: Ca, Independent forel!J1'l4'PfIer or plant; for. joint venture partner; foreign buyers; forel!J18chn1cal consultants; publications; forelgl bips. (b) Trade fair.; business associations; other local ftrms; technology Instltutlon·. (c, Relative or friend or ownerlol current ; suggs.1on from tuppIIer or business associate; word 01 mouth. I(d) Formal adVertising; labor ol'llce; trade or technical echooI·. Table 4.13 Technologlcall . . . . . Mel maUl 1MI9ft*l1ll1on: WOOD WORKING (frequenclell) j I- I -Percentage ------ Source of Info on k Source of Info on k Source of work.... Source of k pure..... purchase: .... Inveat. purchaM : Initial Inv. recruitment financing o' epprentlcee CLUSTER: Foreign (a) Local (b) Other Foreign Local Other Formal (c) Informal(d) Bank In the nrm A 50% 37% 13"- 45% 27% 280/. 670/. 33% 20% 170/. B 90/. 33% SEW. 11". 23% 66% 30% 700/0 00/0 56% -------- ----------- C 0% 500/0 500/0 0% 50"1. 50"1. 0% 1000/0 0% 590/. Notes: (a) Indepelldent for. supplier of plant; tor. joint ven..... pamer; buyers; Iorel! I1'1l9chnical consultants; publications; Ioraigl "Ips. (b) Trade fairs; busineu M8OCIalons; other 1ocaI1Irms; ..... -"""WInsIItutions. lor. (c) Formal advertising; Iabof olllce; trac:» or 1IId1nicaI1ChooIs· (d) Relative or friend of owna-Iof current _.' ; .... from supplier or busilesII asaodate; word of moulh. I I I I I I T"'4.14 Teohnolog.......... Md mftIt ngmentltlon: FOOD PROCESSING (fr'equencl.) Source 0' In'o on k Source 0' In'o on k --- Source 0' WOI'k. . Source o. k pure.... Percentage purch· · : .... Inveet. purchHe : Inillalinv. recruitment flnenclng o. · CLUSTER: Foreign (a) LoceI(b) 0'* Foreign Local 0'* Formal (c) In'ormal(d) Bank Intheftrm A 67% 33% 0% 750/. 0% 25% 75% --~ --- 25% 25% 0% B 14% 29% 57% 600/. 300/. 10% 67% 33% 25% 00/0 -- C 17% 50% 330/0 00/0 20% 600/. 8% 920/. 6% 14% ------ Notes: ~a) foreign suppHer of plant; foreign joint venllJre partner; foreign buyefl; pel! an I&chnlcal consultants; publications; foreig1 tips. (b) Trade fairs; business associations; oIhIr 1ocaI1Inns; Iadlnology institutions. (e) Formal atWer1Ising; labor oflloe; Irade or tactmIc::aI schools. d) Relative or friend 0' r:1WrtIiIIl/of current employ..; suggestion from supplier or business associate; word of mouth. TABLE1S.xLS T.ble4.15 Technologlcal ....... .net ...... wgmentallon: TElnLES · GARMENTS (frequenclee) J Source Info on " 0' Source of In.o on k 0' Source work. . Source of k purchase P...cen~. pure.... : .... lnwat. purchase: Inl..... lnv. recruitment financing o. apprentlcee CLUSTER: ForeIgn(.) Local (b) 0"- Foreign Local 0"- Formal (0) Informal(d) Bank In theftrm A 20% 0% 80% 87% 00/. 33% 5O'Y. 5O"Y. 14% 5% B 8% 5O'Y. 420/. 8% 48% 46% 420/0 580/. 80/0 55% Notes: (a, Independent foreign suppIIaJ of plant; tor. joint venture partner; foreVI buyer.; (b) Trade fairs; business asaocIaIans; oItMIr 1ocaI1IrmI; ted1noIogy InslHutlons. torelgn **,"1caI consultants; publications; tor. "Ips. I (0) FOfI118IlIJ:IIIertislng; labor oIIIc:e; tradIt Of fIIcflnIcaI schools. '(Ii) Relative or friend of CWflllllof c:urrant ; fram IlIPPIkIr or business associate; word 01 mouth. Page 1 table 4.16 Technologlcld oIua..... C &, B MelIIUIf'ket .~men1atlon: .......u... of · METAL WORKING I "ARIABLES OF(.) CRAMER'S V (b) SIGNIFICANCE (e) I STRUCTURAL CLUSTERS &, 1 0.52 0.004 SOURCE OF LAB.RECRUITMENT (d) STRUCTURAL CLUSTERS &, 1 0.48 0.007 SOURCE OF FINANCING (e) STRUCTURAL CLUSTERS &, 1 0.61 0.0006 SOURCE OF INFO ON K (FIRST !NY.) (I) - STRUCTURAL CLUSTERS &, 1 0.68 0.0001 SOURCE OF INFO ON K (LAST !NY.) (I) I Tect'lOIog1cId clu...... C &, (A.B) Mel merket eegmen1atlon; · ......ure of .. : METAL WORKING I VARIABLES OF (a) CRAMER'S V (b) SIGNIFICANCE (e) l ! - STRUCTURAL CLUSTERS &, 1 0.52 0.001 SOURCE OF LAB.RECRUITMENT (d) - STRUCTURAL CLUSTERS &, 1 0.4 0.01 SOURCE OF FINANCING (e) - STRUCTURAL CLUSTERS &, 1 0.58 0.0004 SOURCE OF INFO ON K (FIRST INV.) (f) - STRUCTURAL CLUSTERS&, 1 0.66 0.00005 SOURCE OF INFO ON K (LAST INV. ij1) I Notes: I ca) dagrMs 0I1reedom. (b) Cramer'. V Is deftned as the square root of PearIlOl'l" chi-square previously cIvIded by the sample's size !irMa the ITIinirIun betWeen the number of rows and colUmns (minus 1) 01 the table. (c)obMtWd . level; " It Is lui than 0,05. the that the two variaI:lIes are inc:IIIpencIInt Is rejed8c1 (d) EIinaIy variable Which assumes value 1 " lie linn rec:ndts workars by: fonnaI adverIisilg. labor otIice, tradIt or technical schools; and value 0 If It AIGnJits wortcers by: suggestion from suppIieI" or businNs auoc:iat8... .......-;.,.. from relative 01 owner or of current , WOfd 01 mouth. (e) Binary variable Which assumes value tlf the a bank Is among the main linn'. IOIA'C8S 01 financing and 0 " not ff) BinaIy variable Which assumes value 1 If the main acuce 01 Information on the pt.I"c:hase 01 capital equipment has bean a toreig\ one, I.·. : an Independent foreig\.~ 01 plant. toreig\ joint Wll'ltl6e par1nIr, for.q, buyer. foreign tIchnIcaI consultant. publication. foreign trip; and value 0 If the main source of Information has bean a trade fair, business association. ofMIf local linn. t8chnologv institUtion. table 4.17 Technologiclll ctustw. (C,B) .. A and mark... Mgmen..lIonj a m..... of I · WOOD WORKING ~ I YARIABLES CRAMER'S Y(b) SIGNIFICANCE (e) I - SmUCTURAL CLUSTERS .. 1 0.6 0.001 SOURCE OF LAB.FlECRUITMENT (d) - SmUCTURAL CLUSTERS .. 1 0.28 0.07 SOURCE OF FINANCING (e) - smuCTURAL CLUSTERS .. 1 0.5 0.001 SOURCE OF INFO ON K (FIRST INY.) (f) - smUCTURAL CWSTERS .. 1 0.48 0.002 SOURCE OF INFO ON K (LAST INY.) (f) I Technologiclll cIuIItanI B .. A and mIII'keIs IlelJlHftt.llon; a m..... of Indep.ndence: WOOD WORKING I YARIABLES DF(a) CRAMER'S Y (b) SIGNIFICANCE (e) I I - SmUCTURAL CLUSTERS .. 1 0.72 0.001 SOURCE OF LAB.RECRUITMENT (d) - SmUCTURAL CLUSTERS .. 1 0.32 0.16 SOURCE OF FINANCING (e) - SmUCTURAL CLUSTERS .. 1 0.57 0.01 SOURCE OF INFO ON K (FIRST INY.) (f) - SmUCTURAL CLUSTERS .. 1 0.49 0.03 SOURCE OF INFO ON K (LAST INY.) (f) Notes: I '. (a) da!JeN of freedom. (b) Cramer, Y Is defined as the square root of Pearson', chi-square previously divided by lie sample', liD times the minimum between Ihe number of rows and columns (minus 1) of the table. fc) obsetWd aigr'Iificance level; It It Is lass than 0,05, Ihe hypoIheaIs that the two variables are independent Is rejectad. (d) BInary Y8IiabIe which assumes value 1 It lie film reauitll WOI1: · 1i O,841TINV Ib ~ .. - c 0.251cAP 0.481SAl Q) · · 0.321EMP 8. E O,91UNKA · · 0,64 ISLAB o o ·1,20 -~ 1,30 1.80 -O,071Kl ·· · · · · · · · ·· -05dl · , . O,241EOMAN 0,08 I EOPRO -O,27IEOENT · · · Notes: (a) This matrix gives the correlations betw.en variables and compon.nts (bl See tabte 6 101 the variables' -1.50 ~ ~~ipllon -- -,.- -_._- (e) expl"'nocJ va/lability - - _.- Component2; expl.var.: 17.7". (c) Food processing Flg.7 _'=r~ Rolaled Factor Malrlx (a) F;~~;1-rv~;lables O,271TINVlb 0,88 ICAP O,81SAl O,891EMP ___ ~~INKA O,271slAB · O,551Kl I 0,031 EDMAN ~ 1.!5 0,36 EDPRO co ....: · 0,79 IEDENT ~ .. ..: Faclor2 IVarlables 0 > ...:. Co )( __0.85!TINV ~'Ll- - - - - 1 .. III -: - c -.- 0.19 CAP ___ .O.44\SAL III c: /" \ tI · 0,14 EMP 8. · O,811NKA E O,741SLAB 0 () /- .\. I "- · O,Q4IKl 7 ·· · -0,5 · -O,12IEDMAN 0.18 EDP~ 0,13 EDENT .-· ·· · ·· · ·· · ~ · ~ -t.5 = ,. __ (b) See labll! 6 lor Ihe variable ]deSCfiPUO"-______-I (C~platn~ vatlabl1ltv Component2; expl.var.: 20.3% (c) I Textiles & Garments I Flg.8 ------j- Rotated Factor Matrix (a) 2.50 - ..... · Factor1 Variables 0,18 TINV(b) ~ 0,96 CAP 0,89 SAL 2,00 - f- 0.75 EMP -0,02 INKA I · 0,6 SLAB 0,77 Kl · 1.50 - c- 0,8 EDMAN 0,85 EDPRO ~ 0,01 EDENT 0- · · '\ ..., cO . · ~r2_ Vllrlables - ..: L--; 0 .00 - >: Q. · - 0,89 TINV(b) ;;::-: )( o CAP .. CD - .- c CD C f- 0,18 SAL ~28 EMP 0,83 INKA 8. E · · 0.55 SLAB 0 -0,35 Kl 0 0,21 EDMAN I I I I I · I I -r 1 I I 0.08 EDPRO I I "1. · I O,po 0,50 I I ,00 1,50 I 2,00 I 2,50 I 3,00 -0,11 EDENT -2,00 -1,50 .1.00 -0,50 ·· · · I · -0,50 - f- . NOles: l~_~.!l.~S matrix gives me ·· · · · correlallons belween · 2- · ·· -. · variables and component$ (b) See 1able 6 lor me variable! · · descripllon · -1,00 -.,.. te) Explained varlablilly Componeni2; expl.var.: 18.8% (c) --l---u-.-- - Characteristics 0/ Panel Sample wood and metal working industries, as shown in figures 4.9 and 4.10: almost all the firms which have invested are growing. In this respect, renewal of capital equipment appears to be necessary for growth in dynamic industries. IV. f. Conclusions In conclusion, cluster analysis has turned out to be extremely useful in 'mapping out' the technological features of the firms in the panel sample. It has been useful in highlighting some of the major constraints to technological upgrading. However, the analysis is based on a limited number of imperfect quantitative indicators, which clearly fall shott of providing a complete picture of the technological development process in a firm. The detailed case studies in the rest of the volume try to capture some of the qualitative factors that the large data set could not 18 To summarise the main findings of this analysis: 1. All the industries in the sample are characterised by clear clusters of firms defined by size, physical capital and human capital. This confirms the hypothesis that there are multiple equilibria in investments in technology. 2 Although firms in the top clusters are on average larger. size and technology are not consistently correlated. Some of the clusters observed differ in terms of technology and human capital, but not in terms of size. 3. Segmentation in facta- markets affects technological upgrading at intermediate technological levels. It does not. however. bind upgrading at the lowest and highest ends of the technology spectrum. . 4. Part of the reason for clustering in terms of physical and human capitalJies in the fact that les are firm and technology specific. In other words, the level of capabilities is determined by the · In addition. the other studies in the larger project. OD labour markets. fmaoce and regulatioDs. ad~s in detail issues of market imperfections and their remedies. 79 -'------------------------------------------------------------------------------ FIG.9 METAL WORKING PLOT OF COMPONENT; WITH COMPONENT3 CONTROLLED FOR GROWTH RATES: LEGEND: 1=POSITIVE EMPLOYMENT'S OR/AND SALES' GROWTH RATES 2=NEGATIVE GROWTH RATES IN EMPLOYMENT AND SALES 5=MISSING DATA R E G 1.9 R F A 5 C 1.425 5 T o ~ R s .95 .\ c o 1 R 2 1 5 E 5 .475 1 2 F 0 0 R A N -.475 A 51 L 1 Y 5 5 5 I -.95 55 S 5 2 -1.425 r- 1 I 1 , 1 . 57! '2.ozf 11. 12~ -,675 -.225 I .22S I .57! , 1. 12S -1.35 -.9 -,45 o .45 .9 1. 35 1.8 REC,R FA(,T("In ... rl""'\f""\'- --------------'----------------------------------------------------------------- FIG.l0 WOOD WORKING PLOT OF COMPONENTl WITH COMPONENT2 BY GROWTH RATES: LEGEND: 1=POSI1IVE EMPLOYMENT'S AND/OR SALES' GROWTH RATES 2=NEGATIVE EMPLOYMENT'S AND SALES' GROWTH RATES ' 5=MISSING DATA · R 2.5 E G R F 2 A C T o 2 R S 1."1 C o R 1 E 2 1 5 5 .5 F o R o A 5 5 N 11 5 A 1 L 5 Y -,5 5 5 5 2 211 S j I 5 S 5 I 5 I -1 I I I -1,5, I I -1 -J -J J J 1.A 1.A I -1.2 -.8 -.4 0 .4 .8 1.2 1.6 2 REGR FACTOR SCORE 2 FOR ANALYSIS CluJracteristics of Panel Sample fum's own decision to invest in their acquisition, and in certain cases capabilities in the firm are too low to make the shift to a more advanced technology worthwhile. 5. 1bere is very little evidence of upgrading across technological clusters, particularly when large changes in technology are necessary and market segmentation exists. These results have interesting policy implications. In line with the structural adjustment approach, market segmentation exists and constrains growth and upgrading in some of the technological clusters. Policy intervention aimed at improving factor markets and reduCing segmentation might be helpful for enterprise development. However, it would not be sufficient. if only particular factor markets are addressed and TC needs are not taken into account. Take, for instance, a cluster which is constrained by segmentation in the financial market: small firms have no access to formal credit The government may set up a fund for lending to small enterprises. Assuming that such a fund can be operated efficiently (a major assumption, given the transactions costs and risks inherent in lending to small and micro enterprises), is this sufficient to ensure that the firms concerned invest and upgrade their technology? Not necessarily. To use new technologies, many firms would need to develop new sets of technological capabilities. For some, tre process may be too costly and risky, or it may be constrained by other factor market imperfections, e.g. a shortage of skilled technicians. Furthermore, policies aimed at removing market imperfections would have no effect on upgrading across clusters when this is not constrained by market segmentation. TIle need to promote the technological learning period by infant industry promotion may also be a necessary part of the policy suppon needed to dynamise manufacturing enterprises. 80 Technical Appendix Technical AppendixB9 1. Handling Missing Data TIle original sample consisted of 188 fmns and 234 variables. As many observation were missing for some of the variables, the problem was first tackled by selecting 50 crucial variables, each of them having at least 90 observations. Twentyfour finns were dropped from the sample because of measurement errors in many important variables. The subsequent analysis has therefore been made on 164 finns. All the methods considered for handling missing data belong to the "explicit imputation methods" family, which try to find a replacement value as similar as possible to the value of the missing item. Similarity is defined according to values of a set of assignment variables, statistically related to the variables with missing data and available for both respondents and nonrespondents. In particular, two methods were considered i) Mean-value imputation: If observation Y of variable Y is missing. this method simply i substitutes YI with the mean of character Y in the population. A more sophisticated version of this method controls for a certain number of assignment variables i.e. if variables X l,x 2.....X 0 are thought to be relevant in grouping observations, YI is not substituted by the overall mean of the population, but by the mean of Y controlled for the relevant level of X 1 .x 1 , ... ,Kn .TIle same procedure applies if Y is a qualitative variable: in this case the imputed value will be character Y's median instead of its mean.TIle advantage of this method is ease and rapidity"t bears one important disadvantage: it distorts the sample distribution of Y, since item nonrespondents can only take on values of the imputation ceD means, greatly reducing the sample variance. ii) Regression imputation: YI is computed by building up the following regression. and by using observation for which the data set is complete: 19 See l..cbart et aL (1984) and Lcssler and Kalsbeek (l992). 81 Technical Appendix where bl i =1,2·...,n are estimated parameters; iffor elementi of the popuIationXuJC:u,····.Km are available without missing values. it is possible to predict YI on the basis of the estimated coefficients. If Y is a qualitative variable. the regression model can be substituted with a logit model. The advantage of this method -- given a goOO fit and a correctly specified model-- is the maintenance of the statistical association of the Y and the assigned variables. We opted for the flISt method mentioned. controlling for an industry and a size qualitative variable (on 5 levels). Thus. if a sales datum concerning firm i -- belonging to the foOO processing industry and employing 60 employees -- was missing. the mean of variable 'total sales' calculated among food processing firms with more than SO and less than 100 employees (this was the appropriate size level) was used to substitute for it TIlere are three reasons for the choice of this method. First, there is a lack of strong predictors fa: the variables with missing data. Second. there was widespread lack of data among variables. making the availability of the data set fa: element i-necessary fa: computing y(i} ·· impossible. Third, the higher time and cost of using the regression-based model. l. Descriptive statistics TIle COnslIUctiOD of desaiptive tables used the canonical inslIUment. i.e. the analysis of marginal association between variables. In this phase only pre-imputed data were used, since mean-value imputed ones wood only reinforce the results already obtained. At this stage. a correlation matrix among quantitative variables. and a measure of association among couples of qualitative variables. were produced; the latter is a Pearson's 1} based measure - Cramer's V - defined as [X2/n*min(#rows-l ;#COlumns-l )]112. where n is the sample size and #rows the 82 Technical Appendix number of rows of the contingency table. It varies from 0, which means absence of association, to 1, which means perfect association, independently from its direction (positive or negative). In the tables, Cramer's V is accompanied by the X2 test of independence, a test based upon the ''l statistics, whose null hypothesis is known as "marginal independence of the two variables considered in the contingency table". An observed significance level smaller than the fixed significance one (usually 0,05 or 0,01) will imply rejection of the null hypothesis, i.e. the two variables are in some way correlated to each other. 3. Principal Components Ten theoretically important (imputed) quantitative variables were selected, yielding a data matrix of the order (164,10). Since we wished to get a clear visual representation of the information contained in this matrix, and since the correlation matrix showed quite high correlation among variables belonging to certain homogeneous economic subgroups, it was thought feasible to reduce the number of ° variables without losing much of the statistical information contained in the original 164* 1 modalities. Principal components analysis has been used as a method to implement this reduction. Let X( 164, 10) be the original data matrix, the first prinCipal components of X( 164, 10) is. by defmition: where a l' is a row-vector with elements (all.8:!l' ....~I) · and XI a column-vector ofX(164,IO); 8, is determined by the following maximization process: 83 Technical Appendix where S2\ is the sample variance ofP(1). The result is that the first principal component P(I) is a linear combination of the k original variables (Xt~,... ,X.) with coefficients equal to the elements of the eigen vector associated to the greatest eigen value of the variance..covariance matrix of X( 164,10). The second principal component P(2) =X(I64,10)3: is computed similarly, maximizing (S2 2 ) S.t. 3:' 3:=1 where the second constraint means that component PO) and P(2) are not correlated. The same procedure applies to the other principal components. (Note that the number of components of a matrix is equal to its rank i.e. to the number of its noncorrelat.ed columns). There are two major properties of principal components: i) They are orthogonal, with no 'overlapping' information among them: each explains a specific amount of the sample variability. il) Since the result of the optimization shown above is: max (S2 ~ = J(i) = Var(p(i» where I(i) is the i-th eigenvalue in decreasing order, 10)1 1; 10) 1()() will be i-th's principal component contribution to the explanation of original data's total variability. We have thus obtained 10 (=rank ofX(164,10» new (noncorrelated) variables of decreasing importance and maximum variance: 84 Technical Appendix We chose the first three principal components. retaining a percentage of total original data's variability equal to 1(1)+1(2)+1(3) I ti 10) 100 (in our case never less than 60%); Unfortunately. components are not always correlated in an interpretable pattern. Thus. a rotation phase of components analysis attempts to transfonn -- by rotating components' axes -- the initial factor structure matrix into one that is easier to interpret. Varimax. the algorithm we used. attempts to minimize the number of variables which are correlated with one component. preserving distances between them. 4. Cluster Analysis Qustering algorithms were run at an industry level because no clusters could be detected at the whole sample level (as was expected from biplots). 'The fIrst decision referred to the variables to be utilized in fOrming clusters: the 10 original variables or the three chosen principal components ? We opted for the second because of consistency with the analysis so far accomplished and because experience suggests that differences in results are negligible. Moreover. the smaller the number of included variables the easier are the clusters to interpret The second choice concerns the algorithm to be used. Empirical studies show that different algorithms give the same clusters. if groups possess a spheric shape. Particularly, splitting methods. which form groups by dividing the original statistical population, are oot likely to deter1mne non-spheric clusters. while aggregating algorithms. which aggregate objects around predetermined cenues. can only create non-spheriC clusters. It WIned out from biplots that some clusters do not have a spheriC shape. For this reason an aggregating method was chosen. Aggregating methods operate in the following way: - initially n clusters (CI'C2..... cu) - each made up of one element of the population -- are considered; 85 Technical Appe1ldi.x - a new partition is then built up by minimizing d(c"cj ) relative to i and j. (where d is a distance function), and aggregating the nearest groups c1 and cj in a new one, thus obtaining n-l clusters; - new distances among groups are calculated and a new partition of the n-I clusters is built up using the same procedure; - the procedure is iterated until all the n original objects are assembled in one unique cluster.. It is therefore clear that what makes the difference between alternative clustering methods is the way in which the distance between clusters is defined, or, more precisely, the way in which the new centroid of a merged cluster is calculated: this will vary with the desired clusters' characteristics. 1be median method - the algorithm we used - determines: where d(c1 Cj'~) is the distance between cluster ct and the cluster obtained by merging clusters 1bere are two main characteristics of this method. FlI'St, the two combined clusters are equally weighted in the centroid computation, regardless of the number of cases in each; thus this method is robust. Second it should not suffer from 'chain effects' i.e. progressive agglomerations of objects which are not homogeneous with regard to one prinCipal component. An imponant problem was then deciding how many clusters to choose. since hierarchical methods (like the median one) provide many alternatives (from n to 0 groups). This was done by cutting the dendrogram (the 'tree' which describes the grouping dynamics) above the low aggregations (which bring together the elements that are very close to eachother), and under the high aggregations (which lump together all the groups in the population). 86 Technical Appendix Table 6. Variables used for the derivation of the clusters. 1. Size variables Sales (SAL): Logaritlun of Sales in 1992 (in 1992 US dollars) Employment (EMP): Logaritlun of Employment in 1992 (including apprentices) Capital stock (CAP): Logaritlun of replacement value of capital in 1992(in 1992 US dollars) 2. Technology indicators Capital labour ratio (KL): Replacement value of capital in 1992 on total employment in 1992 Productivity of labour (SLAB): Sales in 1992 on total employment in 1992 3. Human capital indicators Experience and education of the entrepreneur (EDENT): Managers' average wages for equivalent education multiplied by an experience weight (>II). Education of the managers (EDMAN): Managers' average wages in the firm Education of produ\!tion workers (EDPRO): Average wage of production workers. 4. Investment variables Total Investments (TINV): Cumulated investments between 1983 and 1992 in current US dollars. Replacement of the capital stock (lNKA): Cumulated investments between 1983 and 1992 in current US dollars on replacement value of capital in 1992. (>II) The education variables are discrete. In order to use them for clustering we needed to transform them into continuous variables. We used wages as a proxy for education (the two are highly correlated). For the enttepreneurs there are obviously no wages; for this we used managers' wages for an equivalent level of education. The experience weight is given by the ratio between the number of years worked in the same industry and 30 years, which is the maximum experience available in the sample. 87 PARTB PROCESS AND DETERMINANTS OF TECHNOLOGICAL DEVELOPMENT 88 Summary Evaluation ofTCs Chapter V Technological capabilities: A Summary Evaluation V. a. Introduction This part ofthe sntdy deals with a firm level qualitative analysis of the technological capabilities in the smaller sample of Ghanaian firms. In this chapter we present a "mapping out" of firm level capabilities. This was carried out for each of the four industry groups separately. based on the data collected in the interviews (the detailed assessment of 1Cs, on which this chapter is based, is reported in appendices A-D). For each of the capabilities, the discussion is divided to the extent possible according to industry. The chapter ends with a list oftectUlologically "competent" firms, whose characteristics reveal some of the main influences on tectUloiogy development The next three chapters discuss these influences under separate headings. The first chapter presented a breakdown on 1Cs by three major functions: investment, production and linkages. Each of these functions is performed, implicitly or explicitly, by every manufacturing firm, with a combination of its own efforts and those of others. Each requires its own specialldnds of skills and information, and so can be more or less well done depending on the firm's ability to mobilise internal and external resources and its willingness to invest those resources. Let us see how the Ghanaian sample fares in each category. V. b.lnvesunent capabilities V. b. L Introduction All manufacturing activity starts with the investment needed to set up the productive facility. The process of defining the equipment and tectmology needed, finding and buying them at the right price and on the right conditions, installing and absorbing the tacit elements of the technology, and getting into production -- these are usually fairly complex tasks for most manufacturing activities. They require the development of skills and the collection of information in fragmented markets for 89 Summary Evaluation ofTCs technology. However. not aU investments require the same intensity of search and effort. The appropriate investment capabilities vary by industry. the level of technology used, the scale of the operation and the nature of the market (local or foreign. niche or exposed to international competition). Not aU enterprises need possess equal levels of skills and infonnation to set up facilities efficiently, and there are a number of specialised agents (like engineering contractors, capital goods manufacturers or foreign investors) who can undertake some or most of the investment activity. For a developing country finn entering into production itself, howerver. a certain minimum level of capabilities is needed, to set up the basic parameters of the project and to evaluate and monitor external sources of assistance. The significance of investment capabilities to the success of the enterprise increases with the capital-intensity of the facility and the complexity of the process. In any given teChnology, both tend to rise with size of the operation.90 Thus, activities with mature technologies, simple processes, and small-scale facilities generally have relatively low skill and information needs for investment Those with new technologies and large-scale, complex processes have high transactions costs in locating. deSigning. engineering and setting up an efficient facility. V. b. Ii. General Findings 1be Ghanaian sample firms span a range of investment needs, but within each industry they tend to be concentrated in the simpler end of the technological spectrum. Practically all the equipment is imported. since the local capital goods industry is relatively undeveloped. Table 5.1 presents infonnation on the age of equipment, origin of equipment, whether the initial equipment was new or used. and the most important source of information for the initial investment by the 32 sample firms. It also shows the available data on the number and value of "major" new investments since the ERP started. 1be impressions conveyed by this table may be summarised as follows: 90 As shown in the previous cbapter, there is also a clear correlation between the size of the enterprise and capital intensity (the value of capital per employee) in the larger panel sample. Thus, micro fums (employment of 1-9) bave average capital per employee of S1195, small fums (10-29) of $4827, medium sized (30-99) of $7920-S8644, and large firms of S8008. 90 Table 5.1 Invelltme.,. In PIOnt andJ~nt I InIIIaIlnvellment In plant and · QUlpment Major subsequent Inve.tmenfs Arm Average age of New/used Sources of information for initial Investment Total value of major Sources of ieQuloment .".,. tInrnont In equipment: additions since 1983 informatIOn: (yeal'S) General USS '00) (runber) General T.xttles and garments TG1 14·17 years old New Local dealer L 1.729 (2) FWS TG2 (a) Over 16 years old Used Trade fairs FWS n.a n.a TG3 About 11 yeard old New Foreign cloth supplier fNS n.a n.a TG4 Over 30 years old Used Own search abroad FWS n.a (1) FWS TG5 OVer 15 years old New Foreign agent FWS 0 TG6 About 25 years old New foreign equip. mfrer FWS 0 TG7 n.a Used None, (subcontracted) L 0.3(1) L 1GB 16-24 years old Used None, (subcontracted) L 0 FP1 Mix of 30 year old and new New Forelan POrent fNS n.a n.a FP2 Mostl'L4O-00~ old Used Foreign parent fNS 600(1) fNS FP3 OVer 30 years old New(lK) foreign eng. firm FWS 191 (1) fV..$ FP4 00 years Old Used Own search abroad FWS 5(1} n.a fP5 (a) 2 years Old New(lK) foreign eng. firm FWS 0 FP6 MIx of 30 year old and new New Forelan POrent FNS 6(2) fNS fP6 (a) About 8 ~rs Old New(lK) foreign eng. firm FWS 2,00)0) FWS \NWI 8-14 yeal'S old New Previous work experience FWS n.a (3) FWS \NW2 MostlY 50 yeal'S old New Foreign POrent fNS n.a (1) FWS \NW3 5-10 yeal'S old Used Previous wOfk experience FWS 500(1) FWS \NW4 About 20 years Old New Foreign embassy L 0 \NW5 About 15 yeal'S old New & used Own search abroad FWS 450(1) FWS \NW6 16-27 vearsold Used Other local firms L 4(1) FWS \NW7 (a)No machines. only hand foolS Used Previous work experience L 2 (3) L \NW8 (a) No machines. only hand toolS New & used Previous work experience L 0(1) L MWI 15-27 years Old New(lK) foreign ena. firm FWS n.a n.a MW2 (a) 5 years Old Used Foreign agent FWS 172 (1) FWS MW3 Mostly 2-3 yeal'S old New For~lgn PQrtner fNS n.a (1) FWS MW4 Mostly 50 yeal'S old Used Foreign parent FNS 18 (1) fNS MW5 Over 30 yeal'S Old Used WOfk experlnce L 12 (l) L MW6 n.a Used Other local firms L 3 (2) L MW7 30-40 vears old Used Education and wOfk experlnce L 8 (2) FWS MW8 (a) 7-10 yeal'S Old New(lK) GovernmentJPUrcha~ FWS 12(1) FWS MW9 Over 14 years Old Used Other local firms l 1(1) L Notes: (a) Founded since 1983. TK · turnkey DIalect. n.o · not avalloble. L -local sources, FWS - foreign with searCh, FNS - foreign no search. Summary Evaluation ofTCs · There is a high propensity to start with used equipment: of the 32 finns, IS launched themselves exclusively with used equipment while another 2 had a mixwre of new and used equipment Each of the four industries does this, but the metal working subsector seems to have a slightly higher propensity. This is not undesirable per se, if the choice of equipment is appropriate to the technical needs of the entrepreneur and he has the capability to use the machines efficiently (second hand equipment does not come with the manufacturer's technical assistance. and spares may be difficult to obtain). · TIlere are several sources of information for the initial purchase of equipment. The column on the specific sources of information shows that foreign parents help their affiliates, while foreign engineering finns are used by locally-owned finns in more complex processes. The entrepreneur's own search abroad and familiarity with sources from previous work experience are found in several instances. Other local finns have helped some of the fums starting with used equipment bought locally. A variety of other sources is also found in individual cases. · TIle general sources of information on the initial investment, classified more broadly to match the data collected in the larger panel sample, are 'local' (local trade fairs, business associations, other local firms and technology institutions), 'foreign sources involving search' (independent foreign supplier of plant, foreign engineering or consulting finn. trips abroad and publications), and 'foreign sources without search' (foreign partner, parent company or buyer). For the case study sample, the sources of information are 34% local, 46% foreign with involving search, and 22% foreign without search. There is thus a fairly high reliance on foreign sources of information. reflecting the relatively large size of the case study firms. Again. there is a suggestion of market segmentation in access to technological information and foreign sources of technology by size of firm. · The data on the values of subsequent investments, while not complete (23 of the sample finns provided this data), suggest that there have been relatively few significant new investments by the 91 Summary Evaluation o/Tes sample firms since 1983. Of the firms reporting this information, only 7 firms have invested (or are in the process of investing) over $100 thousand each. and only 2 have invested over $1 million. The total value of new investments of $5.2 million gives an average of $227 thousand per reporting finn. with only six of the 23 reaching this figure. Most new investments tended to be very small machinery purchases. · Sources of information on the subsequent investments in the case study sample are local for 27% of the firms. foreign involving search for 59% of the firms and foreign without search for 14%. Compared to the panel sample. the larger case study enterprises show a higher propensity to to rely on foreign sources. with a much greater propensity to search by the firms. V. b. iii. Textiles and Garments Firms in this industry fall into two groups. The first consists of firms sewing relatively standardised garments. aimed at local markets not compteting directly with import (like army or school unifonns). The second consists of knitwear firms. Let us start with garment manufacturers. Despite wages that are much lower than East Asia (the source of most imports).91 the Ghanaian garment indUStry has been unable to withstand import competition. Some of these firms also used to make knitwear but this market has almost completely gone to impons (exceptions are noted below). 1be equipment in use is standard sewing machines (as opposed to the more sophisticated. programmable ones used in advanced counlIies). that were relatively easy to locate and buy. These were bought locally or in Europe. relying on the advice of agents. some personal search. and contacts in the trade. Two fmns started by USing tailors with their own machines. and added new machines later. Since there have been practically no significant new investments in this 91 The average hourly wage io Ghana in the garment in dustry was 30 US ceots in 1992. This may be: compared with $3.22 in Korea $3.05 in Hoog Kong. 92 cents io Thailand and 40 ceots in Sri Lanka in 1990; the rates are likely to be: higher today. See Lall and Wigoaraja (1992). 92 Summary Evaluation olTes activity since import competition started (the single exception is noted below), it is difficult to assess more recent investment capabilities. Initial start-up and training needs were met by technicians sent for short periods by equipment suppliers, experienced people hired from other garment firms (in one case by the owner's daughters who were trained in textiles), or technicians from abroad (one German stayed on after coming to install knitting machines). One firm sent two supervisors to Italy for training in embroidery and knitting (though these skills were lost when the firm closed and then restarted with school uniforms). Most of these firms did not attempt to invest in upgrading garment sewing. One exception is TG 1, which kept the German engineer: this firm drew on his expertise to import and set up a computer-aided design system. lhis investment enabled it to carve out a niche market for customised logos (printed on imported T-shirts). lhis firm also attempted to set up an expensive textile finishing plant, after careful feasibility study and evaluation, but this was never commissioned.91 The second group of three firms in this industry manufacture knitwear (the only specialised knitwear maker left in Ghana), fishing nets and synthetic leather. The knitwear firm used a German agent to source equipment in Europe and a Sudanese engineer to set it up and train workers. The net maker searched for and bought used equipment in Germany, and a German technician helped set it up. The synthetic leather firm also bought German equipment. getting it cheaply at a trade fair; however. its installation took place some 8 years later because of political instability. When installation finally took place. the owner took training in Germany and got German rechnicians to design the plant. install the machines and train the workers. It seems, on the whole, that investments in this industry were reasonably well managed by the sample frrms. In the nature of the industry, the demands on skill and information were not very high. and. after some search. they were met adequately by the firms. Foreign assistance was drawn upon in 92 The fum claims that defective equipment was sent and is still involved in litigation with the equipment suppliers. 93 Summary Evaluation olTes most cases to design, install and launch the investments, with brief training sufficing to reach the levels of operational efficiency demanded by protected local markets. Most fimls were content to stay at this level of efficiency, however, and were not able to achieve world competitiveness. V. b. iv. Food Processing In food processing. the sample consists of medium and large fIrms using modern technologies, with exclusive reliance on imported equipment The industry is the most capital-intensive of tile activities in the sample, and its investment needs are correspondingly complex. 'The relevant technical and engineering skills did not exist in Ghana when the fIrms launched production, accounting for very high reliance on foreign engineering fIrms (or parent companies) for the design, procurement and setting up of new plants. 'The three MNC afflliates FPI, FP2 and FP6. relied exclusively on their parent companies for designing. procuring, setting up and launching their investments. One of these got used equipment from the UK, the others started with new plant; each had foreign technicians stay in Ghana for extended periods to train local employees. There was no local participation in the technical aspects of these investments. It seems. some 3040 years later. that such technical capabilities have remained underdeveloped -- each of the afflliates has set up. or is planning, new investments in response to tile Iiberalisation. with all the technical investment functions handled by the parent The initial investments were presumably weD managed, but they transmitted little information on the design and detailed engineering of the process. and the selection of the equipment, to local personnel. Three of the local fIrms bought their technology in the form of turnkey projects. One of these, the state-owned cannery, got a plant (in 1960) as part of an official barter agreement. The design was by a Yugoslav engineering firm. and, as with the multinationals. the local staff played no role in tile choice of the contractor or the design of the investment 'The equipment was sourced from several countries, creating problems of operation which could not be solved by local staff, who were unfamiliar 94 Summary Evaluation o/Tes with the technologies involved (they had to be resolved by a Yugoslav engineer). Even though ten people were taken to Yugoslavia for initial training, this was confined to the operation of the equipment and gave no knowledge of process or plant engineering, Thus, when the finn wanted to rehabilitate the plant in 1986 it had to go back to the original contractor. The quotation given ($ 2.1 million) was too expensive for the cannery, and it has had to carry on with the old plant. The other two turnkey projects. both more recent (1988 and 1983) and both by Italian firms, were better executed In the case of the flour mill. the entrepreneurs. who not technically qualified (though they had worked on the management of local flour mills), found the supplier through the local Italian embassy. They opted for Italian equipment because it was suitable for relatively small-scale production. They negotiated a satisfactory agreement, with a 10 year guarantee and 4 years of technical assistance (with four Italian engineers stationed locally as well as regular visits by special technical teams). Though the local staff played no role in the design of the plant, the transfer of skills and operational routines was systematically conducted over an appropriate period. The plant is new and there have been no major additions. The other project, for FP7's fruit juice plant, was set up by the Ghanian entrepreneur, a tra,ined chemical engineer. who was able to select the equipment himself on technical merit. He evaluated several suppliers before choosing the Italian manufactUrer. The suppliers sent two technicians for installation and took the production manager for factory training to Italy for a month. The foreign technicians spent only a fortnight in Ghana. and the local production and maintenance managers participated in the design, installation and commissioning of the plant This gave them a thorough knowledge of the plant and facilitated efficient operation later. The finn is now going for a new Tetra Pak (paper packaging) plant from Sweden, also on a turnkey basis with similar local participation. This finn's local investment capabilities are the best of the food processing finns and one of the best in the sample. 95 Summary Evaluation olTes Finally, the biscuit manufacturer started 35 years ago with second-hand equipment from the UK.. The installation and startup was done by the finn itself. drawing on the food processing experience of the entrepreneur's family (his grandfather had started a bakery on arriving in Ghana in the 19508, and his children now operate a food processing plant in the UK). No additions were made to the plant over time, however, and the old plant was kept running until import competition almost wiped it out (see below). To sum up, foreign investment capabilities were tapped efficiently by the MNC affiliates, but led to little development of local capabilities in this process. The two local private firms that bought turnkey plants showed the ability to tap foreign engineering skills efficiently. The turnkey project by the state-owned enterprise was less successful, while one firm started on its own with used equipment. Only one finn (fP7) made the effort to participate in the technical aspects of investment, and was able to build up some investment capabilities in the process. V. b. v. Wood Working In the wood working industry, the firms can be divided into three groups according to their investment capabilities (one finn. WW2, is not considered here because its plant was originally acquired by its British owners over 50 years ago and has never been updated). The first group comprises two relatively new finns (6-7 years old) that operate out of temporary sheds, using simple hand tools bought locally with minimal search. Their products are cheap and of low quality. Their investment needs are extremely simple. and the process is not complex enough to merit consideration of design and layout The second group consists of two finns, one small (WW6.) and one medium sized (WW4) that started as micro, traditional carpentry workshops and 'graduated' to modern furniture technology and larger size. Their initial investments needed little search or special knowledge. but their graduation did involve a large jump in their technologies. Their approaches differed. WW6.. bought used equipment 96 Summary Evaluation o/TCs locally (to minimise the need for search); some years later it bought used equipment abroad. drawing on contacts provided by the owner's brother in the UK. Its continued reliance on second-hand equipment meant that the owner had to use his own skills to manage the expansion, with no assistance from equipment manufacturers. The other 'graduating' firm. WW4, opted for a new plant In the absence of other sources of infoonation, the entrepreneur sought advice from the local Norwegian embassy. The embassy put him in contact with a Norwegian equipment manufacturer, who also offered him credit (an important consideration in making the choice). The supplier sent engineers to install and commission the plant and provide some training. It also took 4 employees to Norway for training. However. over 20 years the firm had done little improve on the initial transfer, and a later technical study by UNIDO found the layout of the plant and the choice of equipment to be inefficient The firm had not invested since 1983. The third group consists of four finns that started as medium or large modem furniture manufacturers. One was launched by an experienced and qualified Italian furniture maker who was familiar with equipment from his counuy, and has relied solely on Italian machinery. His experience and knowledge gave him the best investment capabilities of the sample finns in wood working. Another firm. WW3. was started by a Ghanaian without technical knowledge of furniture making but with years of experience in a furniture firm in Canada. He was familiar with the names of Italian suppliers. and wem to Italy to negotiate the initial purchase of basic equipment himself. Over time he acquired information on other sources, and diversified his purchases when buying more specialised machinery (WW3 is the largest recent investor in this industry on which data are available). This suggests that the firm's investment capabilities improved over time. All purchases were supported by technical assistance from the suppliers. The last firm started with a mixture of used and new equipment The entrepreneur had experience in saw-milling and searched among several European suppliers. The initial layout and 97 Summary EvaiUalion ofTCs commissioning was done by the production manager. a technically qualified Lebanese. A substantial later expansion was camed out similarly. lnvesunent capabilities were quite good in this case. There is considerable variation in invesunent capabilities in this industry. Of the 6 medium and large firms. four displayed the ability to search for appropriate equipment overseas. One seems to have made a poorer choice. The smaller fmns only bought simple hand tooIs. so did not need any special skills to start with. V. b. vi. Metal Working In metal working, the firms also fall into three groups. First come two firms, both state-owned, . that have relatively complex technologies. The first of these, MWl, is a 'mini' steel mill (with electric arc furnaces, continuous casting facilities and a roiling mill for making structural rods) that started in 1975. It started as a turnkey project, with a UK engineering firm supplying the plant, but with little or no receptive skills on the part of the local employees for the technology. The layout was not satisfactory and the initial transfer of technology was not successful. Large partS of the plant did not work properly and productivity was abysmal. Italian consultants were called in after some years. They modified the plant and added more complex equipment (including the continuous casting machine). The lack of local capabilities meant that the siruation deteriorated further, and by 1990 only 10% of the plant was operating. 93 This case is a good illustration of the risks inherent in turnkey projects where local capabilities are deficient. The second relatively complex plant, MW8, is a foundry and machine shop. started in 1985.The foundry started with equipment that had already been purchased for another purpose. The choice had been made by the Ministry of Rural Development and Cooperatives. presumably because of the credit offered by the suppliers rather than on technical considerations. The enterprise was previously a car servicing facility and lacked any foundry operating skills. The foundry furnace did not 93 This cannot be blamed on the lack of imported inputs and spaR'S. since import liberalisation bad taken place some years earlier. 98 Summary Evaluation o/TCs work and an attempt to start it was aboned by a power breakdown. It has not been rectified and commisioned till today, so that the central element of the foundry has never worked. The machine shop has been made to work with German technical assistance. but only 5% of the rated capacity is now being used The second group of metal working firms comprises three fmns making aluminium products. Of these, one makes lightweight pots and pans from locally rolled aluminium sheets. The other two make doors. windows and other structural products, largely from imported aluminium extrusions (the local aluminium mill does not make extrusions). All these processes are simple. essentially cutting. bending and simple forming operations with low requirements of precision and skill. The pots and pans maker. MW2. started with used equipment bought through an agent by the entrepreneur. by training an accountant. Production skills were obtained by hiring technicians who had worked in utensil manufacture in Nigeria; this was a success and led to further purchases of used equipment (through the same dealer). TIlis was clearly an efficient and economical investment, where the relative simplicity of the technology and the availability of skills allowed the firm to launch with Jittle technical assistance. The two structural products firms were started in collaboration with foreigners who transferred the initial technology. In one. MW3. an Israeli partner set up the plant and stayed for several years; later. the owner's son took over and then, in 1989. modernised and expanded the plant and is set to go into aluminium rolling (data on values of investment are not available). TIlis later investment was carefully planned and prospective suppliers evaluated over a 6 month period. Installation and technical support were provided by the equipment suppliers. Training needs were. and are, systematically addressed. The other firm. MW4. is an affiliate of a Swiss retailing firm. The plant was first set up by Swiss technicians with used equipment, and some stayed on to operate the plant for several years. For a long time the firm was the main manufacturer of aluminium doors and windows in Ghana. The initial 99 Summary Evaluation a/res investment, with simple bending and cutting machines, was probably well implemented. However, the old equipment was never renovated, and today the plant is obsolete and uncompetitive. The local management and the Swiss parent failed to respond positively to the liberalisation, with the result that the firm is rapidly losing market share. The third group of metal working firms contains four smaller firms. Two of these make machines (mainly simple equipment for food processing), and two make structural products of iron and steel. The two machinery makers are interesting for several (and opposing) aspects of their TC development, taken up below. One of them, MW5, was set up by a small blacksmith who 'graduated' into the formal sector. It started with used machine tools bought locally, and added other used machines later. The owner reconditioned these machines and made a few himself. All the equipment was very simple and of old design, with little capability to make precision products. The entrepreneur made no attempt to move to more modem, higher productivity technologies. The other firm, MW7, also started with used equipment, but took a different tack. The entrepreneur was a plant engineer who could evaluate modem equipment and make an informed selection based on catalogues and visits to suppliers. Its intial purchase, in the UK. was thus of relatively high quality and modem vintage. This gave it a significantly better technological base than the 'graduating' firm. The other two small firms differ from each other. One is essentially a welding operation with simple equipment bought used from local firms. The other is in much more advanced fabrication, and was started by an engineer who searched in Germany for used equipment 1be sellers trained him and he did the layout, engineering and worker training himself subsequently. The metal working industry in Ghana is at an early stage of development, and, with the exception of the first group (which is not representative of the industry at large), is confined to relativel y 'easy' technologies with simple processes and products. In this part of the industry, the right equipment is not difficult to locate (and consists mainly of general purpose machine tools of older 100 Summary Evaluation 0/ res vintage). Used machines are generally adequate to make simple products foc local consumption. However, a certain effort is required to find even such equipment and transfer the necessary skills. While many of the sample firms have been able to do this, some firms have been far more capable than others. In the case of the more complex technologies, the lack of investment and other technical capabilities has led to pooc choice, transfer and absorption of technologies. Perhaps state ownership has constituted an added disadvantage. V. b. vii. Conclusion In general, investment capabilities can be rated as weak in Ghana relative to those in the more industrialised developing countries. The only exceptions are the MNC affiliates, which can draw upon the highly developed capabilities of their parent companies to mount relatively complex investments. However, none have transferred their most advanced technologies to Ghana. given the low level of production capabilities there. nor have they invested in developing investment skills in their local employees. Among local firms, investment capabilities revolve around the fairly simple technologies in use in Ghana. Here, many enterprises do show adequate ability to find and transfer technologies. The needs of infocmation, process engineering and training are met by seeking out foreign sources, and some firms devote a lot of effort to this process. At the same time, a number of firms do not invest capably even at this level. These are either small, traditional enterprises (particularly in wood and metal werking) that do not know how to set about investing efficiently, or enterprises entering relatively complex (but fairly mature) technologies without adequate preparation (like the steel works). There is practically no instiwtional or consultancy support available locally for investors. and the smaller firms seem to come off worst in using the imperfect information market foc technology. V. Co Production Capabilities V. Co i. Introduction Production capabilities can be considered under two broad headings: process technology and product technology. Industrial engineering as a distinct discipline is so rare in Ghana as not to merit 101 Summary Evaluation a/TCs separate discussion. Process technology can be considered under various headings like maintenance. quality control (QC), plant layout, productivity monitoring, improvement in equipment and processes, adaptation to raw materials, and so on. Product technology includes design of products and changes or improvements to this design. as well as the introduction of new product designs. Not all these categories will be considered in each case, only the ones considered significant The technological needs of production processes vary by industry. In broad terms, for the present spread of activities, garment manufacture has the least demanding processes, and certain forms of food processing and metal working the most demanding. Each industry is now taken in turn. V. Co if. Process Technology: Textiles and Garments There are, as noted, two distinct segments in this activity, garments and other products. 'The four garment manufacturers operate with 14-25 year old sewing machines. These are relatively easy to maintain and service, but only one firm (TG 1) has a regular routine for maintenance and servicing; it also the only firm with an in-house workshop with the capacity to carry out repairs and make some spares. This enables it to keep its plant running better and at lower cost than its competitors. Only TG 1 has a full-time QC department and keeps track of its reject rates; the others (mainly the owners personally) do ad hoc checks on the finished product and do not check reject rates. Efficient garment plants (as evidence from export-oriented plants in the NIEs suggests) need to adjust their layout every time they shift to different product patterns. None of the sample fIrmS. with the exception of TG 1. was even aware of the need to do this. TG 1 had introduced computer-aided design technology for making logos on T-shirts - the only firm to do so in Ghana Finally. it was the only fmn to have a formal productivity monitoring system and a payment system based on worker productivity. Thus, TGt emerges as clearly the most capable firm in garments as far as process technology is concerned It has the best quality of the sample firms, and has been able to increase its local market 102 Summary Evaluation ofTCs share and capacity utilisation in the past 3 years. However. its sales are essentially limited to markets where there is no direct import competition. According to its own calculation, its products are 15-20% more expensive than competing products from Hong Kong, despite transport costs and the much higher wages in the latter. Using this as the technical benchmark for the best garment f1I1Il in the country gives some indication of the extent to which process technologies in the industry lag behind world levels. As for the other textile products, the three finns concerned have faidy old equipment Maintenance was poor in the net manufacturer, reasonable in the synthetic leather f1I1Il and good in the knitwear finn. 'The experience of this last firm, TGS. is worth noting. It was the only surviving knitwear f1I1Il in Ghana, the others all having caved in to import competition. It had been taken into state hands for 12 years and was badly run down when it was returned to its original Lebanese owner in 1990. His two sons (both technically trained) then managed to refurbish about one-tenth of the plant, with one in full charge of production, training. and maintenance. He looked after the old machines constantly and carefully. In addition, various improvements were made to the equipment to raise productivity and change the process: the knitting process was adapted to make a lighter fabric; machine controls were brought up to date and settings adjusted; there was better material control and better quality; work practices were improved; and quality was carefully checked. As a result, machines per worker rose threefold, while machi1U! productivity rose by 95%. 1be firm was surviving the fierce import competition and was even negotiating an export order in the UK. This process of technological upgrading in TG5 is the most successful in this industry. The other textile finns bad not done much to raise their productivity. 'The net firm was under receivership after making large losses. 'The synthetic leather finn was stagnating. 103 Summary Evaluation of res v. c. iii. Process Technology: Food Processing In the food processing industry, the technology in the sample !inns is generally quite capital intensive. and needs a combination of process, food chemistry and electromechanical engineering skills. 1be three MNC affiliates draw heavily on their parent companies for technological inputs. with one (FP2) having a long-tenn technical assistance agreement for which it pays 2% of sales. Having such access does not. however, ensure technical efficiency. In this complex industry, constant local technical efforts are essential to utilise efficiently what is available from the parent . company. Take, for instance, the case ofFPI. an affiliate of one of the world's leading food MNCs. with operations in practically all developing countries. During the 1980s, import constraints and slack local management in Ghana led to deteriorating quality. poor maintenance and low productivity. A worldwide comparison of productivity of a hundred-odd affiliates by the head office showed that in 1992 the Ghanaian affiliate had the lowest productivity of all FPl operations worldwide. In addition, it found the its operations in Sub Saharan Africa generally had lower productivity than those in other develOping countries. 1bis shows the significance of local TCs in operating similar technologies with similar levels of training and access to parent knowhow. Similarly, poor expatriate management in the dairy products firm (FP6) prior to 19891ed to falling productivity and losses in market share. Both afftliates recently replaced their managers and were starting to invest in productivity and quality raising measures. FPl had introduced strict industrial engineering routines to raise productivity in every aspect of the operation, making only small new investments. FP6 brought in weU-qualified new maintenance personnel. set up a good QC laboratory. improved the layout and was investing in new plant. Irs market perfonnance improved as a result 1be productivity perfonnance of these affiliates. especially FPl again provides a benchmark t to evaluate technical efficiency in the best local firm in Ghana in food processing. Irs ranking by world standards indicates how much further behind other local firms are likely to be. 1bis has important 104 Summary Evaluation. o/Tes implications for developing an export-oriented food processing industry, a likely candidate in view of Ghana's agricultural resources. The third affiliate (FP2) still operates with 40-50 years old equipment. with good maintenance and QC facilities and regular inputs oftechnical assistance from the parent company. It has, however, been content to continue to 'tick over' without upgrading its plant or making stringent efforts to raise producti vity The flour mill, with its Italian turnkey plant, has regular visits by Italian technicians and absorbed good maintenance and operational practices. It has developed the necessary skills among local personnel to meet quality standards for flour. TIle new plant did not need adaptation and is almost competitive with imports: it claims to be 10% more expensive because of smaller scale of operations. It has, along with other flour mills, been able to persuade the government to grant tariff protection. If its claims are to be believed, this finn is an example of efficient technology transfer and absorption. ~ two fruit and vegetable processors, fP3 and FP7, present an interesting contrast between an established state-owned finn and a new private entrant. the former owns its own plantations, and exports some ethnic processed foods (eggplant and palmnut soup). The latter has no plantations and is entirely domestic market based. Yet FP7, with its new products (see below), and better process capabi1iti~ and QC. has been able to take domestic market share for fruit juice drinks away from FP3. The latter has done little to improve its processes over time, and claims to suffer from a lack of spare pans (though imports were liberalised in the mid 1980s). FP7 seems far more dynamic in its operations and is expanding into new packaging technology. The last food processor. the biscuit manufacturer FP4, is technologically interesting. rather like the knitwear finn mentioned earlier. It has obsoJete, 50 year old equipment, yet is the only biscuit flCDl in Ghana to have survived import competition. It did this by reducing its product range to the cheapest 105 Summary Evaluation o/res (cabin) biscuits, sold without packaging (which is expensive in Ghana and not of good quality), and by greatly boosting its productivity.94 Its production manager rearranged the layout. changed the electricals and generally improved the obsolete equipment in various ways. These changes reduced breakdowns and raised machine output threefold, and the firm now sells as many cabin biscuits as it can make. There is more evidence of competent process ·technology in the food processing industry than in garments. The presence ofMNCs partly accounts for this, but there are some local firms that also display systematic approaches to technology development V. c. iv. Process Technology: Wood Working In the wood working industry, the situation is more akin to that in garments. Only two of the sample ftrms, WWI and WW3, show evidence of reasonable mastery of process technology. WWI now claims to be exporting one-third of its output. but this is only in the past year, and it is still a minor exporter compared to the Scandinavian firm (not in this sample), which accounts for some 95% of Ghana's furniture exports.9S WW3 is entirely domestic market oriented. Both firms have invested in kiln-drying facilities. and have well maintained plants. WWl, run by an Italian furniture engineer. has very good QC. and makes various efforts to raise productivity and improve finish (it is classified among the top ten furniture firms in Ghana by the export promotion council). WW3's QC is not quite as good and its production planning is weak. Nevenheless. it is relatively efficient and was identified by a UNIDO report as having export potential. None of the other firms in the sample comes near these two in terms of process technology. It is instructive to compare WW4 with WW3. WW4 is a firm that has 'graduated' from being a micro sized carpenter's shop. and may thus offer insights Oike the metal working ftrm MW5, see below) into this potentially important phenomenon. Both the firms are of roughly equal size. However, process capabilities in WW4 is significantly weaker than in WW3. In comparison with the latter. the 94 See Appendix B for details . ., See Cbaptcr n. 106 Summary Evaluation o/TCs former's equipment is poorly maintained and laid out. production planning is weak, and quality is . relatively low. The other large firm WW2 has extremely old that has not been rehabilitated and has poor QC and low productivity. Its only attempts at improvement have been directed at its saw-milling operations. The two medium-sized firms are rather like WW4, only with somewhat lower efficiency. The small-sized firms are simpler operations, using hand tools and traditional technologies that have not been improved over time. Thus, with the possible exception ofWWI and WW3, the general level of process capabilities in the sample furniture firms is rather low. The natural protection given by transpon costs, local raw materials and the pattern oflocal demand allows these firms to survive, though only the two better ones have registered growth in the past 3-4 years. Two of the firms have 'graduated' from micro traditional enterprises. but their process capabilities have not developed beyond a cenain extent, and they do not match those of more 'modem' enterprises. v. c. v. Process Technology: MetaJ Working In the metal working industry. the enormous differences between the technologies of the different enterprises have to be taken into account in assessing process capabilities. On the one hand is MWI with its complex steel smelting and rolling technologies. on the other MW6 with simple welding and shaping operations. MWI is one of three manufacturers of rods for the constIUction industry in Ghana. using scrap foc smelting in an electric arc furnace and rolling the billets produced into rods of different sizes and specifications. Its process is less cost efficient than a competltoc with a new plant (under construction), but more efficient than another plant of similar age to itself. The initial technology transfer was, as noted, not successful; neither was a later attempt to rectify it by bringing in other foreign consultants. 107 Summary Evolualion ojTCs In about 25 years of operation. the firm managed neither to bring its facilities into full operation nOr to properly master the technologies that were running. By the time new Indian management was brought in (in 1991) the plant was operating at 10% capacity. In a year the new management. USing 17 Indian steel technicians and engineers, managed with very little new investment to put large parts of the plant into operational condition (see Appendix D). This is a clear example of how the lack of process capabilities can cripple a plant with complex technology. and the injection of a modest amount of such capabilities can raise productivity and efficiency without costly new plant The changes included: bringing the second (of two) furnaces into operation; improving the performance of the first furnace so that it could operate continuously; putting the continuous casting machine into operation (by locating and installing some missing components); adjusting the settings of the rolling mill so that it suffered less breakdowns and had lower costs; refurbishing motors that had been run down; starting the foundry which had never been installed; improving maintenance, and so on. Further changes and improvements are planned, including a costly new layout to cut energy and transpon costs. The firm is able to meet UK standards for its products, and was coping with impon competition (though it claimed that a 15% tariff would enable it to generate surpluses for reinvestment and expansion). This sort of injection of TCs is what the other state-owned plant. MW8, seems to lack. Its foundry has not been put into operation since its start 7 years ago. The finn never had the technical skills to operate the facilities, and has waited foc foreign assistance to sort out its problems. 1lIe German aid agency sent two people, a technician and a swdent (both in mechanical rather than metallurgical engineering) in 1990; they helped to activate the machine shop but could not repair and stan the foundry. In the three aluminium products firms, by contrast, the technology is relatively simple and there were experienced staff available locally (some with training in other countries like Nigeria). This 108 Summary Evaluation ofTCs enabled MW2 (making pots and pans) to start production"with relatively little difficulty. However, the finn had to find an engineer within a year to maintain and improve its used machines and raise quality. 'The MW3 plant was started by an Israeli engineer who set up good maintenance and quality procedures, and today there is an engineer in charge of maintenance with a supporting team. Quality was better than local competitors, spurred by the foreign co~ction companies that were its main customers. In 1987 the finn was taken over by the entrepreneur's foreign trained son, who continued and strengthened the practices started earlier. and introduced incentive schemes to raise worker produCtivity. The equipment was renovated, and some sophisticated new machines (like a numerically controlled glass cutter) added. and the finn was become the largest manufacturer in its field in the country. TIlls is leading the finn to start introducing ISO 9000 standards (referred to in Chapter II), the only finn we encountered in Ghana to do so. The third aluminium products finn, MW4, is an affiliate of a Swiss retailing firm. It has been long established in Ghana. but has been relatively stagnant and has lost its dominant market position. lIS old equipment has minimal maintenance. and produCtivity has declined since Swiss technicians left in the late 19708. There was no QC system and product quality was poor. This long period of technical sloth may end under a new technical manager, but so far it remains backward 'The two machinery makers specialise in simple equipment for food and wood processing. but offer interesting contrasts in technological capabilities. One (MWS). the one that 'graduated' from miao. traditional blacksmith status to medium size, remains under the control of the original entrepreneur. who has a rigid traditional approach to produCtion and training. The other (MW7) was started by a UK trained plant engineer who worked in the UK, taught in the University of Science and Technology in Kumasi and had good contacts with their Technology Transfer Centre. While MWS's owner showed considerable ingenuity and skills in copying foreign products. using old equipment and building simple machines of his own (the only fInD in the sample to do so), its 109 Summary Evaluation ofTCs methods of maintenance, QC. training and production remained traditional and static. As a result. the firm began to lose to import competition to countries like India that also make simple food processing equipment. but with a better finish and design, and more powerful machines. MW7, on the other hand, had more modem (though also used) equipment, which was better maintained The level of workmanship and training was higher. products were more reliable and better designed, manufacturing techniques were superior and after-sales service was highly regarded. As a result, MW7 was able to increase its sales and achieve full capacity utilisation. Thus, even at this level the input of higher technological capabilities made a vital difference to performance. TIle other two metal working firms are in welding and structural operations. One (MW6) is a semi-permanent activity based on simple welding techniques, the other (MW9) is a more advanced operation. The first has primitive process technologies, with static technologies. The second has not improved its capabilities sufficiently to be able to compete with imports from neighOOuring countries and has been forced to give up making trailers for simpler chutes for the mining industry. Its TCs, while at a higher level. are not dynamic. The metal working firms thus show a mixture of process engineering capabilities. In the more demanding activities, of which there are few in the country, there are low levels of capabilities and little evidence of indigenous upgrading. However. the injection of a relatively modest number Of technically skilled personnel can make an enormous difference. even without the need for large new investments. In simpJer activities, some local firms do show the ability to master the processes. though they do not go further in terms of improving them. Others lack this Capability and are being hurt by the new competitive environment V. Co vi. Product Technology This section can be quite brief, since there is little independent product design capability in the sample apart from the copying of imported products and designs. In gannents, the markets served 110 Summary Evaluation o/Tes need little design effort - most uniforms are designed by the customer. though some school uniform designs are suggested by the finns. There is no evidence of innovativeness in design. apart from TGI's attempt to use CAD technology to design logos for T-shirts. The quality of garments is generally lower than imports. though TG 1 and TG5 claim to be able to match this. In food processing. the MNC affiliates get almost all their product technology from their parents. and after the llberalisation several new products are being introduced into Ghana. However, some adaptations have been made locally also: FPl introduced two products in the early 19808 to compensate for the lack of imported inputs, but these were dropped later because their quality was deficient by parent company standards. No local product development is planned. and the parent is setting up a research centre in Abidjan to serve Africa as a whole. FP2 adapted one of its main products by downgrading it to make it more affordable; this was done in the QC laboratory and is still made. The dairy product finn adapted its yoghurt to use local pineapples. These efforts are relatively modest, and the affiliates do not have any intention of developing product capabilities locally. Of the local firms. the two fruit processors have developed new products in their QC laboratories. The private firm FP7 seems to have been somewhat more innovative in this respect, with its new formula for a mixed fruit juice based drink. It is interesting to note that QC laboratories are the only facilities in these firms, as well as the MNC affiliates. with the facilities and skills needed to engage in product development. It is these labs that provide a focal point for (fairly rudimentary) product development effort, the nearest to formal R&D that we found in the case studies. The wood working industry displays practically no independent design capabilities. Most designs, whether chosen by the firms or by the customers, come from foreign magazines and catalogues. However. the ability to interpret these deSigns in production is also low. The designs are sketched crudely without proper technical specifications, and 'interpreted' by the craftsmen. The only firm that has better capabilities in formalising the interpretation process is WWl, with its Italian 111 Summary Evaluation ofTCs entrepreneur. The general lack of precision and training constitutes a major handicap to achieving levels of uniform quality and finish that could enable entry into export markets. In the metal working industry design activity at some level is inherent to production, since many of the products have to be crafted to specifiC needs. For this reason, the sample firms making pots, pans, doors, windows and food processing equipment have to tailor their products to customer demands. However, this design activity is at a fairly low level. with few research or information needs. no sustained experimentation, and undemanding process specifications. Most designs are based on imported concepts, implemented without rigorous stress on tolerances and quality. The only firms that is worth noting is MW7. where the owner has introduced some (his estimate was 25) new products of his own design: even these are essentially adaptations of products that exist elsewhere. Much of the design effort consists of adding new features to older products to make them more reliable and stronger. Even this level of effort. however, marks this firm as one of the best in the sample. In general. however. product engineering capabilities remain relatively poor in the sample. This is not unexpected at this stage of industrial development, and it is likely that these capabilities wiD start to emerge only when industrialisation bas reached more sophisticated levels. There seems to be no effort on the part of foreign or local firms to build up product engineering capabilities. and there is no effective institutional assistance to firms to undertake product development (see below). V. d. Linkage capabilities Growing inter-fum and inter-industry linkages. defined as relationships that go beyond the anonymous purchase of products or services and involve exchanges of information. skiDs and other factors, are an essential feature of industrial development. They permit increasing specialisation, allowing fInDS to become more efficient They are a very effective form of technology and information diffusion, especiaI1y from large to small enterprises. They allow for greater deepening of the industrial structure, and so less dependence on imported parts, components and services. In addition, linkages 112 Summary Evaluation o/Tes with institutions that provide training. technical information and services. and do research, can provide a valuable input into industrial capabilities, by undertaking activities with infrastructural (public goods) characteristics and filling in for deficient markets. The Ghanaian sample has very low levels of linkages of both kinds. There is little subcontracting or local procurement of manufactured inputs and spare parts. Apart from the purchase of some repair services. large firms in the formal sector have practically no relations with small fmos, especially with those in the informal sector. There is some movement of personnel across firms. more commonly among small traditional firms (see Chapter VI), but beyond this information and technology diffusion is minimal. Even the metal working industry. normally the most linkage- intensive of all manufacturing activities, has practically no subcon~cting in Ghana. As far as linkages with technology institutions and universities are concerned, the situation is not much better. Table 5.2 shows the incidence of institutionailinIcages in 1991 for each of the sample firms. It also shows the firms' ranking (from 1 to 5) of the quality of service provided by each of the main institutions. The most common interaction has been with the Ghana Standards Board. The GSB visits many of the firms on a regular basis to check the quality of their products, with the food industry having the highest incidence of contacts. The quality of the interaction is rated at the intermediate level. However. all the fmns stressed that the GSB does not go beyond checking of quality; it does not provide advice on how to improve quality or to prepare to meet international standards (this has been noted above. in chapter II). It does not therefore perform the valuable function of diffusing technological information and raising quality, that good standards institutions do in more developed economies. The other institutions used on occasion by the sample are the Food Research Institute and the Kumasi University of Science and Technology. The former is used by food processing firms primarily 113 lable 5.2 Linkages with SClenee and lechnof.)gy InsHIuIIons: fr~eney of use last yeor (A) and perceived quality of service (8). Firm Food Research Gha1a Kumasl GRATIS other InstHute stcn:tads Technlca Board University -- (A) (B) (A) (8) (A) (8) (A) (8) (A) (8) ~xIIles and garments TGI 0 · 0 · 0 - 0 - 0 - TG2 0 · 2 · 0 · 0 · 0 - TG3 0 · 0 · 1 2 0 - 0 - --- TGiI 0 · I 3 0 · 0 · 0 - TG5 0 · 1 4 0 · 0 - 0 - TG6 0 · 0 · 0 · 0 - 0 - TG7 0 · 0 · 0 - 0 - 0 - 'TGa 0 - 0 - 0 - 0 - 0 - FPl 2 3 1 3 0 - 0 - 0 - FP2 52 3 1 - 0 · 0 - 0 - FP3 1 2 3 0 - 0 - 0 - FP4 0 · 0 . 0 - 0 - 0 - FP5 4 3 12 . 0 · 2 3 0 - FP6 0 · 1 3 0 · 0 - 0 · FP6 2 3 4 - 0 - 0 - 0 - WWl 0 - 0 · 0 · 0 - 3 5 WW2 0 - 0 · 0 · 0 - 0 - WW3 0 · 0 · 0 - 0 · 0 - WW4 0 · 1 2 0 - 0 - 0 - WW5 0 - 0 · 0 - 0 - 0 · WW6 0 · 0 - 0 - 0 - 0 - WW7 0 · 0 - 0 - 0 · 0 - WW8 0 · 0 - 0 · 0 - 0 - MWI 0 - 0 · 0 - 0 - 0 - MW2 0 · 2 3 0 - 0 - 5 4 MW3 0 · 1 2 0 · 0 · 0 · MW4 0 · 1 · 0 · 0 · 0 · MW5 0 - 0 · 0 · 0 · 0 - MW6 0 · 0 - 0 - 0 - 0 - MW7 0 - 1 2 I 2 0 - 0 - MW8 0 · 0 · 6 2 0 - 0 - MW9 0 - 0 - 0 - 0 - 0 - Notes:(A) Number of times this Institution was used lost 'lear. (B) Ratlna Is on a scale of 1 to 5 where 1 Is very POor and 51s very aood. Summary Evaluation o/Tes to do tests (for instance, microbiological tests for FP2. or quality checks for the flour finn) rather than to help with process or product technology. Only one finn. the FPI mulitnational affiliate. approached the FRI to carry out a joint research project. This was to develop an enzyme for a fennented breakfast cereal; if successful, it will be sent to the parent company for further testing. The UST was used by one garment finn to repair equipment, by MW7 in the development of a shea butter kneading machine (but in this case the finn sold technical services to the UST rather than the other way around), and by MW8 (for some technical assistance). There is again little evidence of active technology development or transfer by the university to the sample manufaCWrlng finns. In general, therefore. the sample evidence confinns the findings of other studies that the institutional system has minimal linkages with the manufacturing sector. This may reflect deficiencies on both sides: the finns may lack the ability to identify their technical problems and fonnulate them into projects that can be dealt with by institutions, and the institutions may lack the skills and equipment to offer practical assistance. Both may have other reasons for hesitation in approaching each other. V. e. Conclusions Let us conclude this analysis of the technological capabilities of the sample finns. The general level of TCs in the sample, which is itself biased towards the Jarger and better finn in the country. is very low, by standards not only of developed countries but also of the industrialising developing countries of Asia and Latin America. It suggests that Ghilnaian manufacturing at /Qrge Iu:u only been able ro develop a rather Umited range of CllpabUiries in a lew mature, simple technologies. There is little sign of dynamism in any of the main forms of capability developmenL It is nOl in a position to launch a broad based export thrust in response to the new incentive regime, unless new TCs are introduced by foreign investors or created by investments in local skills and technical effort. 114 SumnJllry Evaluation ofTes The liberalisation has exposed these weaknesses in activities that face import competition. The evidence suggests relatively few firms have been able to withstand unfettered import competition. As noted, some finns serve niche markets where location constitutes a significant competitive advantage (uniforms in gannent manufacrure, structural products for building), where demand is for low income products not easily met by imports (cabin biscuits, lightweight pots and pans), or where product requirements are very specific (some food processing equipment).96 Some have a resource cost advantage (fruit juice processing. dairy products, wood products and furniture. aluminium products). And some MNC affiliates may not be fully competitive, but may control a strong brand where import competition comes only from another affUiate of the same company. and so is unlikely to be a real threat (some processed foods and beverages). In the case study sample. only three finns currently face the full brunt of direct import competition. 97 Most of the non-competent finns are far less able to meet import competition. Qearly the base of manufacturing competitiveness is small and narrow in the sample. and is likely to be even more so in Ghanaian industry at large where there is a much larger proportion of small, low productivity finns. What is more significant for the future growth of induStry in the UberaIised setting. the firms that did have locationaJ or resource advantages showedfew signs of gearing up for export markets to exploit those advantages. Nevertheless. the case studies reveal that beneath this generaIJy gloomy surface there are many significant differences between firms. Some are clearly doing better, and are able to deploy more technological capabilities, than others. It is firms like these that will be able to develop the TCs needed to grow in the future. It is clearly important foc Ghana's industrial development to understand what has \l6 This does not mean, however, that these firms will continue to be completely insulated from import competition. Some transactions costs could come down with time. and there may be substitution of low income products with more sophisticated imported ones as buyers became better informed or ricber. 91 These are 105 (the knitwear fum). FP5 (the flour mill). and MWI (the steel mill). Of these. the flour miD was receiving protection at the time of the study. and MW 1 felt that some protection was needed to bave reinvestible profits. 115 Summary Evaluation o/Tes enabled some firms to be technologically more competent. This is the theme of later discussion; the identification of the competent finns is taken up in the next chapter. 116 Technologially "Competent" Finns Chapter VI Technologically "Competent" Firms VI. a. Introduction We have used the infonnation from the case studies to draw up a list of technologically "competent" finns. The choice is based on a combination of indicators, since much of the data reviewed above is qualitative. Most of the competent finns were easy to identify, by virtue of their clearly superior investment and production engineering capabalities. There were some where some discretion had to be exercised. but these are very few and do not distort the main findings. The list, impressionistic though it is, is similar to standard industry analyses of industrial competence widely used by international consuitings for policy analysis. In the present case, it is the first such effort in Ghana and win be used in the analysis of the determinants of technological development conducted in the next three chapters. VI. b. List of "Competent" Finns Table 6.1 shows the 13 finns that we have identified as relatively competent It has to be emphasised that inclusion in this list does not necessarily mean that they are technologically capable by world standards. The evidence suggests that the level of technological mastery of the technologies in place is realatively poor, There is liUle or no process or product development by sample finns that can be regarded as "innovative", The kind of "minor innovation" that has been found in many more industrialised developing countries, leading to the raising of machine productivity beyond its design capacity, the use of completely different raw materials. the development oftechnoJogicaUy complex new products, and so on, are rarely found in the Ghanaian sample, In general, the best that the competent finns to do is to use imported technologies relatively wen and make some adaptations to local circumstances. 117 Technologially "Competent" Firms Table 6.1: Technologically Competent Firms in Sample Garments 24 LNA Reviving! Food 650 31 Accra Foreign Growing Food 200 36 Accra LNA Reviving4 Food 200 3 Accra LA Growing Food 172 32 Accra Foreign Growing Food 80 8 Accra LA Growing Wood 267 14 Accra Foreign Growing Wood 147 10 Accra LA Growing Metal 430 27 Accra Foreign Growing Metals 150 5 Accra LA Growing Metals 71 21 Accra LA Growing Metals 19 20 Kumasi LA I Accra refers to peater Accra. including Tema and surrounding areas. 2 LNA stands for local non-African, LA fOŁ local African. ! Sales are starting to pick up after severe recession and banding back of fum from state management to owner. 4 Sales started to revi ve last year. Let us now look at some general features of the competent firms. Of these 13 firms (41 % of the sample), the largest number (5) are in the food processing industry, followed by metal working (4); textiles and garments and wood working have 2 firms each. While one should not read too much into the industrial distribution of such a small sample of firms, it is worth remarking on the fact that the two activities in which Ghana may be expected on a priori grounds, and on the basis of the experience of other developing regions, to have a comparative advantage are garments (which is low technology and labour-intensive) and furniture (which is local resource-based and labour-intensive). Yet these activities seem generally to register low levels of Te, not just in the sample but also in the industry more generally (see the background sections in the relevant appendices). 1be food processing and metal working industries, with relatively more competent firms. are essentially oriented to the domestic market. In addition, many of the competent firms in metal working, normally an engine of technological development, are in relatively simple technologies. There is little 118 Technologially "Competent" Firms sign that more advanced engineering activities are emerging in Ghana. The implications of these trends for future growth and export dynamism are not very promising. Four of the firms are foreign controlled (two being part of large MNCs); three are owned by local non-Africans and the remaining six by local Africans. This last group will be analysed at greater length when the entrepreneurial background of the fInDS is discussed in the next chapter. All the competent firms are located in or around Accra with the exception of MW7 which is in Kurnasi. VI. c. Statistically Significant Features To anticipate some of the discussion below, it would be useful to compare some of the characteristics of technologically competent and other sample firms. Table 6.2 shows the results of T-tests on the means of several features of the two groups on which data are available (the small size of the sample precluded more powerful statistical tests). The salient points are as follows. 1. Technologically competent firms are larger than other firms. There is a statistical} y significant difference between the average employment size of the two groups, with the mean for the competent firms coming to 192 employees and f<:r the other firms 70 employees. Of the 13 fmns in the table, 8 are large (over 100 employees), 3 are medium sized (30-99) and only 2 are small (below 30), The e<:rrelation between size and competence may indicate one or m<:re of three things. First, it may indicate that finns have reached large size because they were competent. i.e. they earlier invested in TC development to a greater extent, or m<:re effectively, than other firms (this applies to foreign firms also, in that the parent companies became MNCs because they had certain "ownership" advantages based on technology). Second, it may be due to the distribution of activities and technologies in the sample, i.e. in many of the technologies covered there were economies of specialisation and size that meant that only large firms could reach efficient levels of TCs. 119 Table 6.2 T-test to Compare Means of Techn~lcally Competent Firms and Other Firms Employment Age In Capacity % lNAI foreign Av.wage Entre. edn Prod. Mon. edr Sclen .· eng. Eng. only Quality (nos.) iproductlor utilisation equity (USS) (years) (g) (years) (g) & techn\. ("ofemp. controll In 1992 rate(%) ("of emp.) malntan (years) manpower ("of emp. Technologically Competent Firms (0) Observations 13 13 12 13 13 13 13 13 13 11 Mean 192.31 19.00 66.00 35.38 64.59 17.08 15.54 6.68 1.59 6.50 Standard deviation 176.09 10.65 29.34 38.27 21.41 3.20 2.37 6.15 1.74 3.36 Other I Firms (b) Observations 18 18 13 18 18 18 18 17 18 18 Mean 69.67 22.72 32.00 18.89 43.91 11.72 8.89 2.80 0.87 1.80 Standard deviation 81.00 14.91 16.85 34.45 15.94 3.44 6.54 2.73 2.25 3.52 T-statlstlc (c) 2.6" .(J.76 (d) 3.6" 1.26 3.09* 4.50" 3.47* (f) 2.25" 0.93 (e) 3.15" Notes: (a) TG 1. TG5. FP1. FP4. FP5. FP7. FP6. WWl. WW3. MWl, MW2. MW3 and MW7. (b) TG2. TG3. TGIl.TG~,I~Z.FP2.FP3. WW2. WW4. WWS. WW6. WW7. WW8. MW4, MW5. MW6. MW8 and MW9. (c) * denotes statistical Significance at 5% level (with 29de, rees of freedom unless stated otherwise). Small sample hypothesis test. (d) The t-test for this variable used 23 degrees of freedom. (e) The t-test for this variable used 28 degrees of freedom. (f) The t-test for this variable used 27 degrees of freedom (g) The number of years of education were computed as follows: middle school (8 years). secondary school (12 years), diploma (14 years), B.Sc. (17 years), M.Sc. (20 years), PhD (22 years). Technologially "Competent" Firms Third, it may reflect the existence of market segmentation. i.e. only finns above a certain size were able to gain access to the skills, infonnation and credit needed to be competent. It is not possible to say firmly which of these explanations has most validity, and there is probably some validity in each. The distribution of the firms in the case studies may in some cases have led to the association between size and competence. particularly in the sample food processing finns (given the scale-intensive processes used in modem food processing, it is difficult to imagine that FPI could be replicated on a small scale). Even in these technologies, however. the fact that certain firms were competent could be traced to their TC efforts rather than to size per se. In the case of garment, wood working or most metal working (apart from MWI) technologies. where the size threshold for competence was relatively low. there were still large differences in competence between firms of similar sizes. This suggests again that technical competence was directly traceable to deliberate investments in TC development. Market segmentation may well exist in Ghana (as in all developing countries. formal credit markets tend to be biased against small firms), The analysis of the panel data above suggests that such segmentation exists. but that it does not account for the whole difference in performance between firms of similar sizes. The other factors that show up as important determinants of competence in the following chapters suggest that segmented factor markets playa relatively minor role. 2. 1bere is no significant difference between the age in production of the two groups. TIl: technological learning process is not a simple junction of years of experience. but more the result of a deliberate investment in creating skills and information. The ability to undertake this investment is dependent on several factors apart from age. It is interesting to note, however, that only three of the competent finns were formed after the start of the ERP. 120 Technologially "Competent" Firms 3. As may be expected. perfonnance indicators like growth and capacity utilisation in capable firms are significantly betterfor technologically capable than other firms. 4. Ownership does not seem to matter. The division of the sample firms by African and other forms of ownership (foreign or local non-African) fails to show statistical significance. Though the mean fer non-African ownership is higher in capable firms. the T-statistic fails to reach acceptable levels. This seems surprising at first sight, since there is a general presumption that MNCs would have greater TCs than local firms in a less industrialised country like Ghana. The reason is probably the small size and purposive nature of the sample. but it may also lie in the fact that existing levels of TCs reflect the legacy of decades of relative isolation and hardship. Even MNCs have to make do with the base of skills that is generally available: thus, in the longer term they may well develop better capabilities than local competitcrs but these capabilities may not match those of their affiliates in countries with higher levels of education, training and management experience. 5. The average wage paid by capable firms is significantly higher than in other finns (the means are $65 and $44 per month respectively). This may be due to a number of factors, such as differences in size, capital intensity. labour market distcrtions, location and so on between the finns. It may, however. also indicate that capable firms employ wcrkers with higher skill levels, give more training and then offer higher wages to retain werkers, or are more productive for given skill levels fer other reasons. The data do not allow these different hypotheses to be tested properly. but there is some evidence (see the next chapter) that the more competent firms do have higher skill levels that are related to their investments in TCs. 6. There is a highly significant difference between the years of education of entrepreneurs (or managing directors) of competent and other finns. The mean comes to 17.1 years for the former and 11.7 for the latter. This is an important point, explored further in the next chapter. 121 Tecluwlogially "Competent" Firms 7. There is a similar, and highly significant. difference between the education of tile production managers, with the mean being 15.5 years for competent firms and 8.9 years for other firms. This indicates that it is not just the 'vision' of the entrepreneur that matters, but that a technically competent production manager is also needed to catalyse the learning process (the role of the technological catalyst is discussed in the next chapter). 8. In terms of the employment of technical manpower, competent firms have a significantly higher proportion of scientists, engineers and technicians in their workforces than other firms (6.7% compared to 2.8%). They also have larger proportions of employees in QC and maintenance (6.5% and 1.8%) than other firms. This clearly shows the importance of having adequate 'receivers' to absorb new technologies and of paying adequate attention to certain vital process functions. However, the employment of engineers by themselves does not show any statistically significant difference. Many of these results are expected from the literature and experience of technological development in other countries. It is nevertheless reasswing to have them show up so clearly in our sample. The following chapters explore some of them at greater length. 122 Human Capital and Technology Development ChapterVD Human Capital and Technology Development VII. a. Introduction The relevance of "human capital" to technological competence and development is universally accepted in the literature. However. human capital may have many ramifications. each of which should be considered separately. A finn has a stock of skills given by the background and training of the entrepreneur or business leader. the production manager (who is generally the most important person, after the entrepreneur. in deciding the technical course of a firm), and other technically qualified personnel hired from the labour market (locally or abroad). In addition. it has workers of different levels of quality and education. Over time, it adds to this stock by investing in training its employees, in-house or externally (locally or abroad); it also loses skills as employees leave the finn to set up on their own or join other finns. These broad components of human capital are considered separately below. VII. b. Entrepreneurs As noted in the last chapter, the level of education of entrepreneurs and managing directors of the technologically capable firms is significantly higher than in other firms." This section explores in greater detail the characteristics of the sample entrepreneurs in general, and of the entrepreneurs of capable African firms in particular. TabJe 7.1 shows the age, education and oogin of the present entrepreneurs or Managing Directors (MDs) of each sample firm. These are discussed in rum for each industry. In the garments industry. the average age of the entrepreneur (excluding the two on whom this is not known) is 62, and none has had university education. Most are secondary school graduates, while two have had vocational training in dress making (both in the UK). This rather simple educational 91 Data on the larger panel sample suggest that the average education level of entrepn::neurs rises with the size of fum. from middle school for micro and small fum to university level for large firms with over 100 employees. These average levels do. bowever. conceal a number of interesting variations within the size groups, as sbown below. 123 Table 7.1 Background of Entre~eneur Firm Age Highest level Educational Origin (years) of education specialisation at tertiary level Textiles and garments TGl 67 Secondary None LNA TG2 62. Secondary. None LNA TG3 n.a Diploma (abroad) Dress making. LA TG4 tIJ Secondary None LNA TG5 71, Secondary None LNA TG6 n.a I Secondary None LA TG7 56 Diploma (abroad) Dress making LA TG8 58 Secondaty None LA FPl n.a University (abroad) Chemical eng. Expatriate FP2 n.a Secondary None LA FP3 n.a! Secondary .None LA FP4 68 B.Sc (abroad) Food technology LNA FPS . n.a Chartered accountan Accountancy LA FP6 n.a B.Sc (abroad) Management Expatriate FP6 n.a!PhD (abroad) Chemistry LA WlN1 n.a B.Sc (abroad) Wood working expatriate WW2 63 BA(abroad) Management LA WlN3 42 BA{abroad) Management LA WlN4 65 Primary None LA WINS n.a Secondary None LNA WlN6 36 Middle school None LA WIN7 . 26 Middle school None LA WlN8 44 Middle school None LA MWl 43 B.Se (abroad) Metallurgical eng. Expatriate MW2 A6 SA Business studies LA MW3 35 M.Sc (abroad) Management LA MW4 n.a DiplOma n.a LA MW5 65 Middle school None LA MW6 45 Middle school None LA MW7 A6 B.Sc (abroad) Plant engineering LA MW8 n.a B.Se (abroad) Mechanical eng. Expatriate MW9 42 B.Se (abroad) Mechanical eng. lNA Human Capital and Technology Development background is in keeping with the nature of the technology involved, especially for garment making. It has served as the entry into manufacturing for some of the local non-Africans who were required to invest in induStry under the old regime. Four of the current entrepreneurs are local Africans (one of these took over from a non-African) and four are local non-Africans (Lebanese or Syrian). It is difficult to relate technological perfoonance in this subsector to anything because of the generally declining state of al.J the firms. For what it is worth, however, the only relatively dynamic garment finn is run by a fairly old entrepreneur of Syrian origin with secondary education. and the only knitwear finn that is surviving the blast of import competition is run by an even older entrepreneur of Lebanese origin. Both come from trading backgrounds that give them commercial rather than industrial acumen. but perhaps this is what is needed to seek out and use mature technologies. In/ood processing, where the technology is far more demanding and the sample firms larger. the background of the enttepreneursIMDs tends to be much more impressive in educational terms. Five have university degrees. of which three are in chemiStry or food technology from developed country universities. Two are secondary school graduates, FP3 and fP2. and have worked their way up in their finns. Two are expatriates (both multinationals) and one is of Syrian origin (his family has been in food processing for generations. and his children run an ethnic foods plant in the UK). The best firms in the sample. FPI (for its sophistication and size). FP6 (for quality production of dairy products). FP7 (a dynamic and innovative fruit juices maker) and fP4 the biscuit finn (for its ability to survive in a highly import penetrated segment), all have highly trained leaders. In wood working. of the 7 firms on which this infoonation is available. the average age of the entrepreneur (46 years) is much lower than in textiles and garments. but the general level of education is higher, though not as high as in food processing. There are only two entrepreneurs with university degrees -- these are the heads of the two firms classified as technologically capable. The MD of WWI has a BSc in wood working, while the owner ofWW3 has a Canadian management degree. The others 124 Human Capital and Technology Development are primary. middle or secondary school graduates. Of these, two (the owners of WW4 and WW6) started as traditional carpenters; WW4 was started by a carpenter's son. while WW6's owner did not come from a carpentry family but was an apprentice in a carpenter workshop. In metal working. the average age of the entrepreneur (46 years) is the same as in wood ~ working, and the level of entrepreneurial education is somewhat higher. Of the eight entrepreneurs on whom information is available, 5 are university graduates, all trained abroad Four of these have engineering degrees. one has a management degree. The two who have middle school education only are MWS (the blacksmith who 'graduated' but now finds it difficult to keep up with the emerging technological challenge) and MW6. which is a simple welding operation. Does the ownership of the enterprises have an impact on the characteristics of the entrepreneur or MD? The leader of the MNC affiliates all have high levels of education and tend to be well trained in management However. it is interesting to note that two of the affiliates in food processing suffered slack periods of management during the 1980s that led to declines in performance and efficiency. The parent company had to send out to new MDs to remedy the situation. Being part of an MNC is not by itself a guarantee ofleadership qUality. As far as local non-African entrepreneurs are concerned, the best firm in garments, the only surviving knitwear and biscuit firms, and a dynamic metal working firm. are all owned and managed by local Lebanese or Syrians. At the same time, there are three stagnant firms with similar ownership. There may be two a priori reasons for expecting local firms with non-African entrepreneurs to have a better technological performance: first, the owner may have longer industrial experience; second. he may have better connections overseas to access capital and technology. The first applies to a few of the firms. Some of the families had been in industry for generations and may have accumulated know-how that newcomers may lack; at the same time, some moved into manufacturing from commerce and brought only financial skills with them. Access to finance and technology overseas also applies to a few 125 Human Capital and Technology Development of the firms, and foreign connections helped in locating and buying equipment But this advantage seems rather marginal. In general, however, the origin of local entrepreneurs does not seem to have been a powerful advantage in terms of developing teclmological capabilities. It is interesting to look specifically at the characteristics of the entrepreneurs of the six capable African owned/irms, two in food processing, one in furniture and three in metal working. Of these. the flour mill shows the capability to manage well the transfer and abscxption of teclmology, while the fruit processing firm shows more innovative capabilities based on the application of scientific knowledge by the entrepreneur. The furniture firm WW3 shows good management skills, with the ability to tap the available sources of teclmology and teclmical skills in the country and overseas. 1be metal working firms MW2 and MW3 show good mastery of their process teclmologies and the ability to find economical soorces of equipment (the latter due partly to the Israeli partner who started the firm). MW7 shows good capabilities in all these activities as well as some product design ability. though not at an advanced level that would require formal R&D. Table 7.2 shows the age. educational and work experience of these African entrepreneurs. It is clear that these entrepreneurs are relatively young and highly educated. Teclmical education per se is not a distinguishing feature, though in the case where it does exist it is a valuable asset to the firm. Most oithe entrepreneurs are from a business studies background, and nearly all have some experience of working in a business, of which three are have experience overseas (generally the same line of business as their present one). 126 Human capital and Tecluwlogy Development I Rclativcly young, probably in 405. The fmn was started by a group of similar young people. 2 Probably in bis 50s. 3 The present entrepreneur was educated and worked a sbort wbile in the US before taking over father's business. 4 The ent:rcprencur was a lecturer in the University of Sciencc and Tecbnology in Kumasi, and bas kcpt connections with UST. He also bad work experiencc in the UK, wbere be received bis university training. 1bese characteristics have interesting. and potentially important, implications for TC development. Entrepreneurial success among Ghanaians is clearly associated with high levels of education. 99 'This may simply reflect that better educated entrepreneurs have better access to segmented factor markets and official favours. It may, on the other hand, imply that education is associated with qualities that conduce to teclmological acumen: like analytical and organisational skills. an appreciation of technological factors, the ability to seek out necessary information and the relevant professionals, and a willingness to try new methods and technologies. 1bere is evidence of market segmentation, but on the whole we find support for the hypothesis that education provides real benefit to technological effort (aided in some cases by relative youth). 100 Work experience in general has obvious benefits fa the accumulation of technical know-how and institutional and marketing skills. Work experience overseas probably gives exposure to a broader .. This is also IlUC of small and medium enterprises in otber developing counuies. For evidence in the metal working industry of several A.lian and Latin American counuies, sec Maldooando and Sethuraman (1992). The sbtdy of Bangalore. India. in this volume fmds that 71 % of the beads of 80 sample SSEs. with a median employment size of 14 workers, bad univcnity level (bacbelor or mastcn) education. A similar analysis of S3 small metal working enterprises in Rwanda found. in contrast. thaI 54% of the sample bad only reacbed primary scboollevel. and the remaining 46% bad general or tecbnical scbooling. There were no university graduates in the Rwanda sample. In Mali. the picture is similar: 50% of the enterpreneurs in a sample of 64 enterprises were illiterate, wbile another 22% were primary scboolleavers. and the rest bad not gone beyond secondary school. This suggests tbat many African small-scale enterprises are operating at a different level of sophistication from their counterparts in more industrialized developing counuies. The panel data for the Gbanaian sample sbows. as noted above, that the median level of education for enterprises witb below 30 employees was middle scbooL wbich is better than for Rwanda and Mali. but far below levels in Bangaiore. 100 Tbc entrepreneur wbo took over from his father and revitalised the business (MW3) is a particular indication of the conuibution of education 10 cbanging attitudes 10 technology and management 127 Human Capital and Technology Development range of experience and techniques. TIlese associations are not at all surprising, but it is interesting to have them show up so clearly in this sample. TIle implication is clearly not that all Aftican entrepreneurs have to be modem, well educated. young people with work experience. TIlere are aJways exceptionaJ entrepreneurs who are "born and not made", and rise above the constraints of low educationaJ status to use the skills of others in building up successful businesses. However. it is still likely to be true that success in modem industry is facilitated by the cognitive. sociaJ, technica1 and other skills imparted by education. In this context, it is important to reiterate that there are severaJ enterprises in our sample that 'graduated' from micro status, where the entrepreneurs had low levels of education: none of these were able to seek the technologies and skills they needed because of the limited horizons and information of the entrepreneurs. 101 This may imply that policies that seek to base future industrial development (of Africa in general) on the "natural" advantage of its myriad micro and informal enterprises, are ill founded. If these enterprises lack the basic educationaJ base on which to develop the TCs needed for modem industry. they are destined to die out as modem industry emerges (if it emerges) rather than be the seed bed for the future industriaJ entrepreneur in Africa. 1be lack of entrepreneurship has often been held up as a cause of the poor performance of African industry. Since this project focused on existing firms. it could not address this larger question, of whether the generaJ supply of entrepreneurship was ample or nOL However. the evidence of this study suggests that there was no shonage of the "animal spirits" thaI drive entrepreneurs to take risks in the hope of long term profit The issue seems more of whether the experience, education and perceptions of the entrepreneurs equipped themfor the technological challenges/acing them, rather than if there was a shortage of entrepreneurs in some generic sense. There seems to be emerging a class 101 The firms are WW4, WW6 and MW5. 128 Human Capital and Technology Development of entrepreneurs that is so equipped, though they may comprise a small proportion of the total population of business leaders in Ghanaian manufacturing. VII. c. Production Managers The background of the production managers is directly relevant for explaining the ability of firms to develop technologically. As with entrepreneurs, there is a statistically significant difference in the years of education of production managers in technologically capable as compared to other finns. 102 'Ibis section looks at available data on them in greater detail. Table 7.3 shows the educational background, origin and years in the present business of the production manager of 26 of the sample firms. Five of the firms do not have a production manager, 1 in garments and 2 each in metal working and wood working. none of whom shows up as technologically capable. They are generally small ftrmS. though in each industry there are smaller firms that do have production managers. so the lack is not merely a matter of size. The industries are taken in turn. In garments, the largest and most capable firm, TG 1, has an expatriate (German) textile engineer who came to Ghana to install knitting machinery and settled down there. He has been with the firm for 12 years. Nearly all the technological capabilities that exist in this firm are directly traceable to this production manager (he is the technological 'catalyst' discussed later). He has introduced a high level of discipline in the workforce and systematically developed all the necessary capabilities to run an efficient business. He introduced the CAD system to TG 1. which is used by a Ghanaian trained by him and has proved a competitive advantage to the firm. 10:1 The panel sample bad a question on the "average education" of management, wbicb presumably included the production manager. This sbowed tbat managers are on average better educated than entrepreneurs at all size levels and in all industries. and that fIlmS in all size classes from 30 employees upwards (medium and large fums) bave management with professional education. while smaller firms bave management with middle or secondary level education. It is difficult to interpret the average level of education of the entire management, and the present study's focus on the production manager is more geared to the tecbnological aspects of operations. 129 ITabie 7.3 Background of Production Manaaer Firm IYears in Highest level Educational Qriain ipresent of education specialisation business at tertiary level Textiles and ytoJIlIlVnts Nitro 12 B.Se (abroad) Textile ena. Expatriate ~ Ados .0 Diploma Electrical ena. AwuraAbena n.a Primary None Terrycott 10 Secondary None LA Overseas Knitwear 2 Secondary INone LNA Thadanl None Wiredu n.a Primary None LA Mutual Union n.a Secondary None LA Food Processing Nestle n.a B.se (abroad) n.a Expatriate Cadbury n.a B.Sc Biochemistry LA Gihoc Cannery 27 B.se Mechanical enc LA PicadUIy 2 B.se (abroad) Mechanical enc LNA Golden Spoon 3 B.se Mechanical enc LA Fan Milk n.a B.Sc (abroad) Dairy studies Expatriate Astek 5 M.se (abroad) Food science LA Wood wOt'king r Fumart n.a Diploma Joinerv LA n.a Dioloma n.a LA '1 Dioloma Wood workina LA 15 Secondary None LA f: Ashanti Furniture n.a Dioloma n.a LNA n.a Primary None LA Progressive None Amoo None '-- .Metal working TerTIQ Steel llB.se (abroad) Metallurgical en Expatriate b'- Dcmod 5 Secondary None LA Allegan n.a Dloloma n.a LA trc 2 Diploma (abroad) Mechanical enc LA Agbemskod n.a Diploma Mechanical enc LA S.B. Addoh None 1--" SI~ Engineering 16 Dloloma i Mechanical ent LA 1--- Suarre Foundry I-:-: 7 Dioloma IMechanical ent LA A.':: Halabv None I Human capital and Technology Developmelll The production manager of the knitwear finn is the second son of the owner. He has secondary school training, unlike his brother who studied textile design in the UK, but is exceptionally gifted with machinery. His long exposure to the finn's equipment has given him the capabilities needed to maintain, repair, adapt and improve the machines, and is the main reason why the finn has been able to survive with its ancient capital stock. He interacts with his designer brother on adapting the fabric (making it lighter to meet standards of import knitwear). The two production managers employed by the dress makers TG3 and TG7 have only primary education, while the manager for the synthetic leather plant (which needs some chenticaI skills) has a polytechnic education in electrical engineering. In the food processing indUStry, each production manager is university trained, one with postgraduate education in food SCience (FP7). Three are mechanical engineers. There are two expatriates in MNCs (FPI and FP6). while the third operates with a local biochentist. One firm (FP4) has a local non-African; the others are all Ghanaian Africans. 1be noteworthy one is the production manager of FP4. who used his mechanical engineering skills to transform the obsolete machinery into a well-functioning plant In the wood working industry the general level of education of production managers is not very high. The two smallest firms do not have a production manager at all. One has production manager with only primary education. Another has a secondary graduate with no training in wood working. According to the available information. only the two technologically capable finns have production managers with diplomas in joinery and wood wortdng. In metal working, two finns (both in suucturals) have no production managers. Of the others, only MWI has a production manager with a graduate engineering degree in metallurgical engineering. probably necessary in such a complex technology. The others all have diploma holders in mechanical 130 Human capital and Technology Development engineering, except for MW2 which had a secondary school graduate with previous experience in the industIy (it had an engineer in charge of maintenance and QC). This is generally in confonnance with the relatively simple nature of the technologies employed by these firms. It may be relevant at this point to discuss the role of the Utchnologieal catalyst that has been mentioned at several places above. The catalyst is an individual whose efforts and knowledge are critical to the technological upgrading of the enterprise. In most of the sample firms there was usually someone who played this role, generally the production manager or equivalent who worked closely with the entrepreneur or else was given a free hand to upgrade the technology of the enterprise. Enterprises of larger size and with more mature organisational structures do not need to rely on the (partly random) presence of a technologically gifted person to catalyse the firm. 1bey would tend to have institutional mechanisms to identify, recruit and assign due responsibility to such persons. 1his is one of the advantages oflarge size and functionally specialised organisations that was mentioned in the analytical framework. In small, newer,less mature enterprises. on the other hand, the existence of a catalyst seems to be essential to technological development. In some cases it is the entrepreneur himself, setting up in business to exploit his skills or innovations. In others, it is someone selected by the entrepreneur to take the technological lead: in this sense, it is a reflection of the entrepreneur's education and vision. Technological catalysts who were entrepreneurs are found in firms like FP7 in food processing, WWl in furniture and MW7 in metal worldng. Other catalysts are found. for instance, in garments (the Gennan production manager in TG I). in food processing (the production manager in the biscuit manufacturer), in furniture (in WW3. where the production manager was important because the owner lacked technical training), and in metal working (in MW2, the engineer in charge of maintenance and QC). 131 Human Capital and Technology Development A catalyst was not always needed by the sample firms. Where the technology was transferred entirely from abroad, well absorbed by the work force and has not faced major problems of adaptation, there would be no need for a dynamic leader to take initiatives that routine work cannot take care of. Good examples may be the flour mill or the aluminium pots and pans firm. 'Il)e technological failures in the sample are usually firms that faced changing circumstances and could not come up with an appropiate technological response: technological activity was not routinized. and the owner could not locate a person to undertake the response. VII. d. Technical Manpower Table 7.4 shows the breakdown of employment by various technical qualifications. including the entrepreneur and the production manager. The categories used are SCientists. engineers and . technicians (together and separately). Expatriates are also shown for interest. The last column shows average monthly wages, taken up in the next section. The employment of scientists, engineers and technicians was found in the previous chapter to be significantly Jarger in technologically capable than other firms. The firm level figures are now considered by industry. and comparisons are drawn with other develOping countries wherever possible. In textiles and garments. each of the firms had one technical person. with the exception of the dead firm and a small firm ('1"G6). Not swprisingly. none of them has a science degree. since this activity has no need for such training. However. onJy two firms have an employee each with an engineering degree - and these are the best firms in the sample. The others have non-degree level technicians. essentially to service the sewing machines. The total level of technical employment is low, even by the standards of this simple industry. 103 103 The bigb pcn:entage fIgure of 7.7% for one firm. TG7. is misleading because there is only one tecbnician out of a total employment of 13. 132 Table 7.4 TechnICal Manpowerlndlcalon and Wages I I Firm Total ScIentIsts. , ..,.. IS Scientists crii (b) Engineers only (c) Technlck:Jns crii (d) Expatriates (e) Av.monthly e ' .......... ,' ent and teclYllckns (a) worker wage 1991 No. '"or emp. No. '" of amp. No. '" or amp. No. '"or emp. No. %ofemp. In 1992 (USS) Texliles and gal1'nenfs IGI 90 , 1.1 0 0.0 1 1.1 0 0.0 1 1.1 55.6 IG2 73 1 1.4 0 0.0 0 0.0 1 1.4 0 0.0 48.3 IG3 42 1 2.4 0 0.0 0 0.0 1 2.4 0 0.0 41.1 WelghtMi IG4 30 1 3.3 0 0.0 0 0.0 1 3.3 0 0.0 48.5 av.monthlY' TG5 24 1 4.2 0 0.0 1 4.2 0 0.0 0 0.0 53.0 workerw~ IG6 15 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 36.2 A8.2 IG1 13 I 7.7 0 0.0 0 0.0 1 1.7 0 0.0 25.0 IG8 (g) 0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0.0 Food processing FPI 650 130 20.0 n.a n.a n.a n.a n.a n.a 4 0.6 120.8 FP2 246 10 4.1 4 1.6 I 0.4 5 2.0 0 0.0 96.6 FP3 228 8 3.5 1 0.4 1 0.4 6 2.6 1 0.4 34.2 WelghtMi FP4 216 2 0.9 I 0.5 1 0.5 0 0.0 0 0.0 43.5 avo monthly FPS 200 11 5.5 I 0.5 1 0.5 9 4.5 0 0.0 48.0 worker wage FP6 172 16 8.7 2 1.2 3 1.7 10 5.8 4 2.3 80.5 11.7 FP6 eo 4 5.0 3 3.8 1 1.3 0 0.0 0 0.0 43.5 Wood working INWI 267 7 2.6 0 0.0 2 0.7 5 1.9 1 0.4 60.4 1NW2 225 2 0.9 0 0.0 2 0.9 0 0.0 0 0.0 40.3 1NW3 147 3 2.0 0 0.0 0 0.0 3 2.0 0 0.0 65.0 WelghlMl 1NW4 135 2 1.5 0 0.0 0 0.0 2 1.5 0 0.0 36.2 avo monthlY' 1NW5 65 3 4.6 o· 0.0 0 0.0 3 4.6 1 1.5 48.3 worker wage 1NW6 41 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 43.5 50.0 1NW7 16 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 29.3 1NW8 10 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 31.4 Metal working MWI 430 17 4.0 0 0.0 3 0.7 14 3.3 17 4.0 85.3 MW2 150 5 3.3 0 0.0 1 0.7 4 2.7 0 0.0 51.2 MW3 71 10 14.1 0 0.0 0 0.0 10 14.1 0 0.0 72.5 WelghtMi MW4 30 1 3.3 0 0.0 0 0.0 1 3.3 2 6.7 41.5 avo monthlY' MW5 28 2 7.1 0 0.0 0 0.0 : 2 7. , 0 0.0 36.2 worker wag, MW6 28 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 39.0 70.9 MW7 19 3 15.8 0 0.0 1 5.3 2 10.5 0 0.0 60.4 MW8 16 3 18.8 0 0.0 1 6.3 2 12.5 2 12.5 63.4 MW9 13 1 7.7 0 0.0 1 7.7 0 0.0 0 0.0 51.2 Notes: (a) AR degree ond dploma holders. (b) B.Sc decrees (and above) In food technology. chemlstrv or blochemlstrv. (c) B.Sc dearees In dfterent types of enalne~rIng. Human Capital and Technology Development A comparison with another developing country can illustrate this point In Sri Lanka, a relative newcomer to the industry and not as advanced in garment quality or technology as the East Asian NIEs, two German affiliates Oarge operations with 900 to 1500 employees each) have 8-10% of their employees in the technical category.l04 In more sophisticated operations, say, in Hong Kong and Taiwan, the proportion is likely to be higher. The technical level of the Ghanaian garment industry, as measured by its use of engineering and technical personnel, is very low. In food processing. the picture is different in terms of the skill composition of the employees. FPI claims to have 20% of its employees technically qualified (unfortunately a breakdown between scientists, engineers and technicians is not available), the absolute number exceeding the rest of the sample put together. Of these. there are 4 expatriates in key technical and marketing positions. The dairy products affiliate comes next, with nearly 9% of its employees with technical qualifications. It is followed by the flour mill and FP7, the fruit mnks firm. FP2 is relatively low COnsidering the nature of its technology (which is very similar to FPl's). The lowest is the biscuit maker, due to the simpler nature of its product 'The number of scientists is highest in FP2 (FPl excluded), but as a percentage of the workforce it is FP7 that takes the lead. The dairy firm has the largest absolute numbers of engineers and technicians. In general, these data correspond with the relative performance of the firms within their respective technological segments. FPl, for instance, is distinctly a better performer in the market than FP2. and the two mu1tinationaJ show very different propensities to invest in human capital. FP7's dynamism compared to FP3 may be traced to the superior quality of its high level technical resources. FP4 does not really need any highly qualified technicians, but its access to an engineer (the production manager) allows it to perform very well. 104 See Lall and Wigoaraja (1992). 133 Human Capital and Technology Development In the wood working industry, none of the finns has any scientists, and only two have any engineers (WWl and WW2, the latter using its engineers in saw-milling rather than furniture manufacture). Technicians are found on the staffs of 4 finns, with WWl leading in terms of absolute numbers. The three smallest finns do not have a single technically qualified person (including the entrepreneur). WW5 has the highest proportion of its employment as technicians, but has no engineers. In the absence of data on other countries, it is difficult to assess how Ghanaian fums fare in relative terms. In metal working. there are again no scientists. and relatively few engineers. Of the 7 engineers in total in the indUstry, 3 are in MWl, all recently imported from India. The others are distributed over 4 firms, including 'capable' finns like MW2 and MW7. MW3 does not have an engineer (though one of its founders was an Israeli engineer, and set up its processes); however, it has a relatively high pro(X)rtion of technicians. One of the finns. MW6, has no technical personnel at all. In the very small finns, again, the figures are difficult to interpret, because the presence of one person shows up as a large percentage. If these are ignored. the employment of engineers in the Ghanaian metal working firms is under 1% o/total employment. nus may be compared to some figures the employment of engineers by large firms in engineering products in India, Korea, Malaysia and smalJer firms in Sri Lanka. lOS These are as follows: India lO6 : - Associated Babcock (1982): Total employment 5,000, engineers 10%. - Hindustan Machine Tools (1981): Total employment 25,600, engineers 5.1%. - Tata Engineering & Locomotive Company (1982): Total employment. 39,500. engineers 4.3%. Korea lO7 : lOS Figures for India from Lall (1987), Korea from Eoos (1992), Malaysia from Lall (forthcoming) and Sri Lanka from Wignaraja (thesis in progress). 106 These flI'mS are locally owned. 107 These flI'mS are locally owned. 134 Human capital and Technology Developmelll _Daewoo Heavy Industries, Diesel Engine Branch (1918): Total emp. 1.181, engineers 14%. - Kolon (1984): Total employment. 4,132, engineers 5.6%. - Eng Group (1993): Total employment 230, engineers 4.3%. - Inventec Corporation of Malaysia (1993): Total employment 2.300, engineers 5.2%. - National Panasonic Malaysia (1993): Total employment. 996, engineers 8.0%. - Motorola Malaysia (1993): Total employment. 5,000, engineers, 4.4%. - Sony Malaysia (1993): Total employment 4.900. engineers 12.1%. - Acme Aluminium (1989): Total employment. 111. engineers 2.8%. - Brown and Co. (1989): Total employment. 1,200. engineers 3.3%. - Elsteel Ltd (1989): Total employment. 150. engineers 2.1%. - Metalux Engineering. Co. (1989): Total employment. 160. engineers 2.5%. TIlese figures should not be taken as direct indications of skill gaps in Ghanaian finns, since the technological level of the firms in the other countries is far higher than those of the Ghanaian sample. However. this is less true of Sri Lankan finns. which are relatively small and in simple technologies. and so more comparable to the Ghanaian sample. This comparison is particularly revealing. since it is difficult otherwise to establish if Ghanaian finns have adequate technical manpower to achieve effiCiency. Moreover. even the data on India. Korea and Malaysia are useful to illustrate the kind of skill upgrading that may be needed by Ghanaian industry if it is to enter more complex engineering activities. 110 IGI All the Malaysian firms except for Eog are foreign owned. 109 Brown and compaoy and Metalux are local.ly owned. 110 In this cootext, it may be useful to mention figures of larger samples of Indian and Korean macbine tool and electrical firms collected by Cbudnovsky, Nagao and Jacobsson (1983). In macbine tools, the Indian sample employed engineers as 16.6% of its staff and Korea 8.2%; in electrical equipment. the figures are 21.9% and 13.1 % respectively {Table 3.9), 135 Human Capital and Tecluwlogy Development VII. e. Worker Skills Ideally the skillleveIs of workers employed by the sample firms should be measured by their years of education and training. broken down by job categories and length of stay in the finn. Such data are not available for the Ghanaian sample. In their absence. skillleveIs may be indicated by average wages paid by finns. While using wages as indicators of skill suffers from a number of well-known handicaps (in particular. it assumes perfectly functioning labour markets), it is the best measure that is available. If used carefully, it may reveal something about relative skill levels. 1be last column of Table 7.4 shows the average monthly wage for each finn, and the weighted average for each industry and the sample as a whole. The last chapter showed that technologically capable firms paid higher average wages than other firms. 'Ibis may have indicated, among other things. that they employed more skilled labour than other finns. We now look at the wage levels of each industry separately, to assess if the competent firms within each pay higher wages than comparable firms The weighted average wage for the sample as a whole is $69.3 per month (or $58.6 ifFPl, an outlier in terms of its wages and its large size. is excluded). and the mean in $50.3. In general terms. the food and metal working industries have higher weighted average wages ($81. 7 and $70.9 respectively) than wood working and garments ($50.0 and $48.2 respectively). If the largest finn in food processing (FPl) and in metal working (MWI. also a special case in terms ofits technology and size) are excluded. their averages fall to S59.4 and S53.5 respectively. Whether or not these two large firms are excluded. the ranking is in line with the technological characteristics Of these industries. Garments requires the lowest levels of skill of the four activities. while large-scale food processing requires the highest. Metal working may be highly skill-intensive where difficult processes (steel making, as in MWI) or complex equipment are concerned. but is not very demanding for the manufacture of many simple products. Furniture making 136 Human Capital and Technology Development is generally not a very technically skilled activity, at least in the form that it takes in Ghana. This suggests that wage levels are not too distorted, and relative wages can serve as a good proxy for human capital. Within textiles and gannents, the highest wages are paid by TGI and TGS, the two finns found to be technologically capable. The latter is in a different (more demanding) technology from gannent sewing. so its wages are expected to be higher. TGI. however. makes the same product as finns whose average wages are significantly lower, ranging from $41.1 to $25.0. There are therefore grounds for believing that it has a more skilled workforce. In food processing, the three MNC afflliates pay far higher wages than the average. This is a tendency found in MNCs the world over, and may be traced to their more complex techoologies. established brand names and, because of this, stronger market positions. It also reflects their more selective recruitment and better training. The state-owned cannery pays the lowest wages in this industry. which accords with the relative technical slack found there. The biscuit maker pays relatively low wages. but this is in line with its technological processes. which are much simpler and less capital-intensive than in the other firms in the industry. In wood working, all the firms make similar products (with the exception of WW2, which is essentially in saw milling). Yet the wages paid by WWl and WW3, the two competent firms, are significantly higher than for the other large and medium sized firms (the two small firms pay expectedly lower wages). It is interesting to note that WW4. the firm that 'graduated' from traditional carpentry, is almost the same size as WW3 but the latter's wages are nearly 45% higher. This suggests that the difference between them in terms of attention to worker skills is partly responsible f(Y the resulting difference in TCs. 137 Human Capital and Technology Development In metal working, MWI is, as noted, exceptional in tenns of its production processes, and it is not surprising that its wages are relatively high. To some extent this also applies to MW8. though its foundry has yet to start operations. There are two sets of comparisons between finns in similar activities that are of interest. First, between MW3 and MW4: both are aluminium sttuctural products finns that compete directly with each other, yet the former's average wage is 75% higher than the latter's. Similarly MW5 (another 'graduating' finn) is in the same line as MW7, but the latter's wage is 55% higher. In both cases, the higher wage firm is technologically more competent and in market tenns more successful. It does seem , therefore, that there is a relationship between skill levels and wages paid, and that worker skills are positively related to technological competence. VII. f. Training, Recruitment and Turnover of Labour The level of employee skills of any finn is affected by its recruitment and training strategies, and by the turnover of its employees. Recruitment policies determined the initial quality of the workers taken in, while training is a crucial element of capability deveJopment thereafter. The departure of employees constitutes a possible leakage of skills created by the finn. This section discusses the available information on these aspects of capability development in the sample flIlllS. Many of the skills that are needed to operate specific technologies are not imparted by formal insttuction and have to be learnt on the job. Training can take three main forms. The flI'St is apprenticeship, which generaJly refers to training given to a young entrant who knows little about the skill in question, and who learns by working alongside an experienced worker. The second is on the job training, which generally refers to further hands-on skills imparted to a person who already has some theoretical knowledge of the work.. The third is formal employee training, where experienced employees are given formal training to refresh, increase or alter their skills. 138 Human CapitaltpUl Technology Development The apprenticeship system is particularly important in Ghana (and most African countries), since it is the main way in which traditional activities and crafts transmit their technical knowledge to workers. 111 It is useful to distinguish between this form of apprenticeship and what goes under the same name in highly industrialised societies (like Germany). In traditional systems the apprenticeship system is directed at primary or middle schoolleavers, and involves little or no further formal education with it It is thus geared to transferring relatively low-level manufacnuing skills which do not change much with time and which do not require numerical abilities. There is usually no formal certification at the end of the training, though the finn involved may give a testimonial. Generally some allowance is paid to the apprentice, but at a much lower rate than the market wage. On the other hand. apprenticeship in countries like Germany starts after fairly lengthy schooling, and incorporates a great deal of continuing higher education in technical subjects. The qualification is formally certified, and the content of the training is upgraded constantly in line with technological requirements. There are strong incentives for undergoing such training, and the level of skill acquisition is considerable (the German system is the envy of the developed world). The apprenticeship system in Ghana is taken up below for the sample finns that have this system. Let us start with some general data. It was possible to collect information on the numbers of employees sent by finns for external training, within Ghana and overseas. Table 7.5 shows these numbers for 1991. as a percentage of total employment. and labour turnqver rates in that year. Table 7,6 shows the use of apprenticeship training by the sampJe finns. External training is undertaken by very few finns (9 in total), and seems to be very low in relation to the skill needs of the activities undertaken. Again, a comparison with Sri Lanka shows that there was considerably less sustained external training by garment and metal working frrms in Ghanall2 , The data are presented in Table 8.3 in the next chapter. Of the training offered by Ghanaian III For an analysis of the a~oticcsbip system in Africa, sec Bas (1989). 112 From Wigoaraja (thesis in progtcss) 139 Table 7.5 Personnel Sent on Extemal Training and Labour Tumover Rates Firm Paw~.~t on exte 01 Labour turnover rote in 1991 (%) training trainlna abroac (c) & abroad In 1991 onlY In 1991 (% of emp.) (0) (% of emp.) (b) Textiles and VWl ·· _nls TG1 0.0 0.0 5.6 TG2 0.0 0.0 n.o TG3 0.0 0.0 7.1 TG4 0.0 0.0 3.3 TGS 0.0 0.0 4.2 TG6 0.0 0.0 n.o TG7 0.0 0.0 1S.4 TG8 0.0 0.0 0.0 IFP1 1.2 0.9 n.a FP2 2.4 0.4 n.a FP3 3.S 0.4 0.0 FP4 0.0 0.0 1.4 FP5 0.0 0.0 n.a FP6 0.6 0.0 5.2 FP6 5.0 0.0 n.o WW1 0.0 0.0 2.2 WN2 0.0 0.0 n.a WW3 0.0 0.0 0.0 WW4 1.5 1.S 3.0 WW5 0.0 0.1 n.a WW6 0.0 0.1 4.9 WW7 0.0. 0.\ 12.5 WW8 0.0 0.1 20.0 MWl 0.0 0.01 2.3 MW2 0.0 0.0 11.3 MW3 4.2 2.8 8.S MW4 3.3 0.0 3.3 MWS 7.1 0.0 7.1 MW6 0.0 0.0 0.0 MW7 0.0 0.0 S.3 MWB 0.0 0.0 12.5 MW9 0.0 0.0 23.1 Notes: (a) Total number of employees sent on external training courses in Ghana and abroad du (b) Number of employees sent on external training courses abroad only during 1991. (c) Number ofemplovees leovino durino 19911 overaoe number emploved during 1991 e 100). !able 7.6 TradHional ApprenHceshlp System Firm Current apprentlcl Apprentice's Apprenticeship Apprentice's Apprentice No. %otemp. entry period monthly turnover rate IQualification (months!years) allowance (%ofemp.) (% of master's monthlv waoe) Wood worklna WW3 20 13.6 Secondary 2 years 19 n.a WW4 12 8.9 Less than prlmory 6 months - 1 yea 21 neallglble WW5 12 18.5 Most primary. odd KTI 3-6 months 24 n.a WW6 14 34,1 Primary 6 years 16 4.9 WW7 13 81.3 Less than primary 3 years 21 18.8 WW8 2 20.0 Less than primary 2 years 30 negligible Metal working MW5 5 17.9 Primary 4~ears 40 n.a MW6 24 85.7 Less than primary 3-4 years 31 10.7 MW7 5 26.3 Secondary. odd KTI 3-4 years (a) 0 0 MW9 3 23.1 Less than primary 2-5 years 39 n.a Notes: (a) Aoorentlces do not receive monthly allowances. Human Capital and Technology Development firms. most seems to be in management courses ll3 rather than technical skills, and is sporadic rather than sustained There are few institutions available in the country to provide industry-specific training in activities such as garments and textiles. or furniture making ll4· It is therefore difficult to judge the contribution of the external training that does take place in the sample. 1bere are no data available on training conducted internally by the sample firms. Few of the firms have separate training departments with separate budgets. However, it is possible to review qualitatively recruitment and internal training by the firms. 1bese findings are reviewed by industry. 1be garment end of the textile and garment industry in most developing countries does not require high levels of education among its shopfloor employees, and as a consequence normally experiences high levels of labour turnover. It does. however, have to invest in training its workforce, especially where export markets. with very demanding standards ·. are served. 115 In the Ghanaian sample. the garment makers hire a mix of primary school leavers and experienced workers, except for TG 1. which has a policy of hiring secondary school graduates. 1161be knitwear manufacturer hires a mix of 0 (ordinary) level and A (advanced) level graduates. 117 In general, hiring policies seem to be casual and not related to Skills. except for supervisory or technical staff. Only two rums have training programs in this group: TGl and TG5. the two technologically capable firms. In TGI, training was provided in its early years by the owner's daughters. and later. under the close supervision of the German production manager. by senior employees. New recruits get 3-4 weeks training. All staff get occasional half-day courses by the production manager on quality control. clearly an important input into the quality edge that the fum enjoys over local competitors. In III AD exception is 2 workers from the WW4 company who WCl'C sent on an aid·funded scbolarsbip to Italy and Sweden. However. the firm claimed that the courses were not very practical and there was no gain in productivity in tbe trainees. !If The Kumasi Tecbnical Institute trains young people in wood working. but does DOt seem to provide more advanced employee training. In See Lall and Wignaraja (1992). 116 AD interesting case is TG7, wbicb bires retired and disabled workers at very low wages, and so gains a competitive edge in tbe Kumasi scbool uniforms market. This may. bowever. have disadvantages in terms of worker skills relative to othcrfums. 117 These certificates are from tbe former Britisb scbool certificate system. 0 levels were taken at 16 and A levels at 18. 140 Human Capital and Technology Development TG5. many employees were fired after the firm was returned from government to private management. to get rid of "bad habits" and "troublemakers". New recruits were intensively trained personally by the production manager (the numbers involved were fairly small), who had intimate knowledge of all the machines and processes. TIlis sort of personal and systematic attention to training is lacking in other fmns. In/ood processing, FPI pays the most attention to recruiting well-qualified staff, while FP2 has the strongest policy of placing Ghanaians in top management positions. Recruitment seems to be carefully conducted in all the firms with the exception of the biscuit firm, that has an existing core of experienced workers and is not hiring new workers (in any case its skill needs are lower than that of the other firms in the sample). All the food firms provide on the job training for emplOyees. Both FPI and FP2 have formal training programmes, but the fonner has a more comprehensive system, probably the best of all the sample fmns. Apart from the programmes for new recruits. FPI has annual training for all employees coordinated by an expattiate training officer. Technical training is conducted on the job by expattiate trai~rs. Upper management is sent to FPI's training centre in the parent's home country for courses in management and marketing. FP2 gives 1 week formal training to production workers and 2 weeks to supervisors, both followed by several weeks of on the job training. Managers and technical staff also go on external courses, while the production manager and chief engineer get training in the parent's plant. The dairy multinational gives on the job training for production workers by the expattiate production manage and maintenance managers. A technician was sent to the parent company for training in 1991 in relation to the planned expansion of capacity. Data processing staff are being trained in a local firm. The flour mill got its workers trained by the Italian plant suppliers, but has not instituted a formal training programme thereafter. Of the two fruit processors, FP7 used its Italian suppliers of plant to train workers. and since then conducts on the job training for new recruits under 141 Human Capilal and Technology Development the supervision of a senior employee. The government cannery provides on the job training. It plaruted a proper skill upgrading programme, but did not implement it for lack of resources. Its quality manager has twice attended courses in Sweden In general, the level 0/ investment in human capital development seems to be geared to meeting basic production needs rather than to upgrade the stock/or coping with technical change and competitiveness. The only exception seems to be FPI, which invests in continuous training and uses foreign professional training personnel. FP2's policy of training high level Ghanaians is commendable, but it is not clear that the operational workforce has skill levels comparable to FPI's. The others seem to be content with training for immediate production needs. In wood woricing, WWI sets high standards of recruitment and training. It has recently introduced a tninimum recruitment level of a vocational training certificate as well as a test set by the firm itself. It does not take apprentices, but has an extended in-house training programme that runs over 3 years and covers each stage of production (this is the only specialised training programme of the wood working sample firms). There are presently 31 trainees in this programme. In addition, foreign consultants will provide QC training periodically over the next two years; this project is promoted by the Ghana Export Promotion Council as part of its effort to boost furniture exports. By conttast, WW2 has no recruitment Standards and there is no in-house training programme (there is no apprenticeship system). This indicates a disregard of skill needs, though when its saw tnill was rehabilitated the German technicians who had implemented the programme instructed some local staff. WW3 provides training by the apprenticeship system. It recruits fresh trainees from the Industrial Training Centre, as well as apprentices who have been trained at smaller carpentry workshops. Both sets of entrants are given further apprenticeship training for 2 years. Though no 142 Human Capital and Tecluwlogy Development testimonial is given at the end, the finn claims that its reputation allows many trainees to get jobs elsewhere. 1bere are currently 20 apprentices and 50 master carpenters. Apprentices are paid Cedis 15 thousand per month, compared to Cedis 80 thousand for the master carpenters. This finn is unusual in taking apprentices with previOUS training, and paying relatively high salaries (see below on other fmns). The owner feels, however, that this system does not meet the firm's skill needs adequately, and is considering changing to a more formal on the job training system. WW4 used to hire mainly primary schoolleavers for apprenticeship training in the finn. It found that primary school recruits did not have the skills to read technical drawings, so it changed to recruiting graduates in wood working from the Kumasi Technical Institute. It found, however. that these graduates were "too theoretical" and continued to give apprenticeship training. The training is relatively brief, 6 months to a year, with a testimonial provided at the end. It pays an allowance of Cedis 7.400 per month, compared to Cedis 35 thousand for a foreman. Currently there are 12 apprentices but no new ones are being taken because the firm is not doing well. WW5 also hires mainly primary schoolleavers and some graduates from the Kumasi Technical Institute. It offers apprenticeship training for 3-6 months, and pays apprentices Cedis 6 thousand per month (compared to Cedis 20-39 thousand for a master and 40 thousand for a foreman). There is no other form of training given. The three remaining firms (WW6, WW7 and WW8) all take recruits with minimal levels of schooling and give them apprenticeship training. The training period varies between 2 and 6 years, with allowances ranging from Cedis 4 to 7 thousand per month. compared to the masters' pay of Cedis 20 to 28 thousand per month. These firms also try to hire apprentices trained by other finns. They expressed no dissatisfaction with this system of recruitment and training. perhaps reflecting the low levels of skills that had to be imparted. 143 Human Capital and Technology Development In metal working. MWI is in too complex an activity to rely on apprentices. It has to take recruits with some education and give considerable on the job training. The previous management had given very little training to workers. The new owners kept alx>ut half of the former workforce when they took charge. and got rid of the rest. New recruits were taken from middle schools. and provided intensive on the job training by the expatriate personnel. There was currently an unfulfilled need for metallurgical engineers as well as for skilled workers like fitters and electricians. The level of skills was found to be weD below that in India. and it is felt that more formal on the job training systems need to be installed after the task of refurbishing the plant is completed. None of the three aluminium firms has an apprenticeship system. MW2 takes mainly primary schoolleavers, and does not regard formal educational qualifications as very important. For its needs. on the job training for 2-3 months provided by experienced operators is sufficient. MW3. by contrast. felt that it had to upgrade its recruitment standards. It recently introduced a minimum requirement of vocational training for its new shopfloor recruits and a technical diploma for higher level recruits. and pays a correspondingly higher wage (above) to ensure that it attracts good quality applicants. Recruits have a 6 month probationary period when they are trained on each aspect of the firm's operations and their progress is evaluated. This systematic approach is unique among the metal working firms in the sample. In addition. 2 technicians are sent to Israel for alx>ut a month to the plant of the former partner to learn specialised tasks like computerised glass cutting (the Israeli firm provides the training for free but MW3 bears all the travel and subsistence costs). MW4 has also recently switched to hiring vocationally trained workers, and provides on the job training for new employees supplemented by occasional sessions on problems like QC. The owner of this fnm said that a new recruit with vocational training had higher productivity than an untrained worker with 25 years of work experience. This is an interesting claim. which we could not substantiate. Even if it is partly true. however. it implies that raising productivity in large parts of Ghanaian industry 144 Human Capital and Technology Development will involve boosting the vocational education of workers rather than relying on traditional apprenticeship methods. Both the food processing machinery makers, MW5 and MW7, recruit from primary schools and give apprenticeship training along traditional lines. MW5 also tries to hire trained apprentices from other firms. Interestingly, it does not want technical school graduates for higher level skills; its owner is suspicious of technical school graduates, and finds their training "too theoretical" and their wages too high. This may be a reflection of his own lack of formal training and his background in traditional blacksmithing. The owner of MW7, by contrast, hires technical school graduates for supervisory work. Both firms train their apprentices for 3-4 years, and provide testimonials at the end MW5 pays apprentices about half the salary of a qualified worker, while MW7 pays nothing (but gives much higher salaries to its qualified workers). MW7 also provides further on the job training to its workers, with the owner taking personal charge of this activity. liS MW5 provides no further training. with the apprenticeship system having imparted all the skills considered necessary. Part of the technological difference between the two firms may be traced to the relatively static approach of MW5 to recruitment and training. The two structural product firms. MW6 and MW9. both give apprenticeship training. MW6 only takes primary schoolleavers, while MW9 also takes vocational schoo) trainees. MW6's apprenticeship lasts for 3-4 years, and apprentices recei ve allowance of Cedis 5 thousand per month (depending on the job to be done). MW9's apprenticeship lasts for 2·5 years, and the allowance is 11 thousand per month, compared to Cedis 28 thousand for a master. The owner himself trains workers in the use of new equipment MW9's recruitment standards and salary levels (the remuneration of apprentices is the highest of the sample firms) suggest higher levels of skill than MW6. II' Moore (1989) commeots on the effectiveness of this training by MW7 in raising the quality of its products. 145 Human Capital and Technology Development Finally. MW8 has been recruiting only for the machine shop rather than its foundry. It takes only technically qualified personnel. who are given on the job training by the foreman and the Gennan technician sent by the aid agency. There is, however, no formal on the job training system. To sum up on the apprenticeship system. there are 10 finns in the case study sample (6 in wood working and 4 in metal working) that use it for training their workforces. Only two of these. WW3 and MW7. have been classified as techoologically competent Both of them have made adaptations to the traditional system to enhance its training potential. WW3 takes graduates from technical schools and other finns' apprentices and gives them further training rather than relying on recruits with minimal educational qualification; and it pays them relatively high salaries. More importantly. it is finding this system inadequate to its skill needs and is contemplating a move to a more formal method of training. MW7 recruits some workers with technical training for supervisory work along with primary schoolleavers for the shopfloor; it supplements apprenticeship with follow-up on the job training. In general. the apprenticeship system seems to be well suited to the transmission offairly simple manufacturing skills to workers with minimal formal education, with little change over the generations. It is Jess suited to training/or the skills needed/or modem manufacturing, where completely different types of skills from that possessed by traditional craftsmen may be required. and where a considerably higher level of education is necessary to operatlons. 119 Even in activities where there is a role for traditional skills like metal and wood working, an upgrading of the apprenticeship system to encompass more formal education would seem to be called for. As far as labour turnover is concerned. Table 7.5 shows that the rates were quite variable in 1991. with no consistent pattern by industry (except that food processing generally had low turnover). 1bere was some propensity for the higher rates to be concentrated in the smaller enterprises. but this 119 Bas (1989). 146 Human Capital and Technology Development pattern does not hold for metal working. It is JX>SSible that the "leakage" of skills through turnover constituted a barrier to invesunents in training. but this cannot be ascertained without further investigation. VII. g. Summary To conclude on human capital. the broad picture that emerges for the sample firms is as follows: ,.. There is a clear relationship between the education of the entrepreneur and the propensity to invest in capability development There are several indications that poorly educated entrepreneurs lack the "vision" and compete~ce to appreciate the needs of modem technology. even at fairly simple levels, and to undertake the effort necessary to meet those needs. ,.. The education of the production manager is also an important element in the technological success of enterprises. ,.. In most small and medium firms. as well as some large ones. technological success is related to having a "technological catalyst" present. who can introduce the practices. systems and information needed to upgrade operations. This catalyst may be the entrepreneur (if he is technically qualified). or the production manager; the ability of the finn to locate and use a good catalyst is itself an indication of entrepreneurial acumen. While a catalyst is obviously desirable, the need to depend on one person indicates the lack of the ability to systematically organise for technological developmenL ,.. The high-level sIdll composition of the employees varies. as expected. by the nature of the technology. The most demanding activity in the sample. food processing, tends to have the largest numbers of scientists and engineers; garments the least >- In general. the use of formal technical skills in the sample is relatively low. and is likely to be even lower for the larger population of enterprises. This partly reflects the generally low level of 147 Human Capital and Technology Developme1ll technologies in use, but it is also likely to reflect the scarcity of technical manpower in the country and the lack of awareness of firms (especially smaller ones) of the need for technical Skills. ,.. There is no clear connection between size as such and the relative use of technical manpower. This does not conflict with the fact that certain kinds of technological activity have minimum thresholds for firm size and need large firms to be managed efficiently: in the sample, this is particularly true of some food processing and metal working activities. ,.. The gaining of technological competence is clearly related to the employment of technical skills at managerial and supervisory levels. ,.. While worker skills are difficult to measure, it appears that technologically competent firms pay higher average wages and employ more skilled workers. ,.. In training. there is a mixture of traditional system of apprenticeship and more modem on the job training. The former is confined to wood and metal working. and even there is not ideally suited to providing modem operational skills. ,.. On the job training is carried out with varying degrees of effectiveness by different firms. Some firms have created the base for absorbing technologies (especially in food processing) by getting training from equipment suppliers. others by investing in their own systems. Affiliates of foreign rums. or firms run by technically trained expatriates, seem to have the best systems. In many other firms. on the other hand. the training systems are weak and ineffective. ,.. 1bere is very little use of external training conducted by institutions or by firms overseas. A few of the large firms send managers on courses. but the basic skill needs of operatives, especially in the smaller firms. is not met by any existing institutions. 148 Technical Effort . Chaptervm Tecl1nic8I Effort VOl. a. Introduction There are several ways to examine the technical effort of manufacturing enterprises, none of them entirely satisfactory. On the input side, the most common measure used is R&D expenditures. This is not relevant for our purposes, since none of the sample firms conducts what is normally understood as formal research and development. Even the large MNC affiliates do not claim to do R&D in Ghana. Another measure of technological effort may be the employment of technical personnel, which has been discussed above. In any case, this is a very imperfect measure of effort, since two firms with the same numbers of technical personnel could invest quite different amount of effort on improving their technologies. TIle more correct measure would be the actual engineering or technician time spent in purposive technical worle directed to raising the p:oductivity of the technologies in use. This sort of data was impossible to obtain, though we did get one or two indications of the sums spent in improving equipment. However, these are not very helpfu] in constructing proper indices of technological effort. In the absence of better measures. therefore. this analysis has to be based on three aspects of the sample firms' operations: the use of foreign licensed technologies and technical assistance contracts; the distribution of enterprises' workforces in identifiable technical functions like QC and maintenance; and firm relations with the technology institutes. VIII. b. Technology Licensing and Technical Assistance The import of technology is an indicator of one aspect of technology input, which mayor may not be related to internal technological effort by the firm. In most developing countries, however, the import of technology by licensing and other contracts tends to be positively correlated with internal 149 TechlUcal Effon technological effm, and it may be assumed that this is also true of the Ghanaian sample. Data on technology contracts by the sample finns are shown in Table 8.1. The table shows that only 4 ftnns in the case study sample took foreign licences, 2 each in food and metal working. Of these, 3 were foreign affiliates (FPl, FP2 and MW4), and one (MW3) was a local fum. The food multinationals licensed their technology as well as brand names from their parent companies. The metal working ftnns only licensed some designs for doors and windows. In these cases, there may have been some transfer of p:ocess technology, but it did not affect the rest of the fum's technology. The impact of the new technologies transferred through licensing was marginal for the sample. Purchases of technical assistance by the sample ftnns were more widespread. In 1992. ten fums had technical assistance contracts overseas, mainly in food processing and metal working. 120 Four of these finns were affiliates of foreign fums. Data on the expenditure on these contracts are only available for 4 ftrms. The two affdiates (FP2 and FP6) spent 1.5 to 2.0 per cent of sales on technical assistance provided by their parent companies. The local ftnns spent less: WWl spent 0.06 per cent and MW20.6%. In general, the use of this channel of technical information and assistance was rather limited. In general. therefore. very few Ghanaian fums were trying to improve their process technologies, or their product range, by getting know-how from abroad. This is surprising. especially in the food processing and metal working subsectors, where licensing is very widely used the world over. The sample Ghanaian enterprises are clearly well behind international, even most other developing country, levels in their technology, and their lack of contact with international technology markets suggests that they were relatively static in their approach to technological upgrading. None of the local enterprises expressed the intention to seek new foreign technologies or joint ventures. 120 This included a contract by MW8 for the foundly which bas Dever worked. 150 TableS.1 Technologlcallndcators -= Firm No. of torelon Technical assistance Expenditure IExpenditure on technoloa Ucences In 1992 contract (lAC) In 199- on lAC In 1991 Instltu110ns In 1991 (% of soles) (%ofsoles) l!xliles and Il'!rrnants IG1 0 No 0 0.04 IG2 0 No 0 0 IG3 0 No 0 n.o IG4 0 No 0 0.07 IG5 0 No 0 0.14 IG6 0 No 0 0 IG7 0 No 0 0 IG8 0 No 0 0 FPl 1 Yes n.o n.o FP2 1 Yes 2 0.02 I FP3 0 No 0 0.13 FP4 0 No 0 0 ----- FP5 0 Yes n.o n.o FP6 0 Yes 1.5 n.o FP6 0 Yes n.o n.o INN 1 0 Ves 0.06 0.06 INN2 0 No 0 0 INN3 0 No 0 0 INN4 0 No 0 0.03 INN5 0 No 0 0 INN6 0 No 0 0 INN7 0 No 0 0 INN8 0 No 0 0 MW1 0 No 0 0 MW2 0 Yes 0.6 n.o MW3 2 Yes n.o 0.01 MW4 2 Yes n.o n.o MW5 0 No 0 0 MW6 0 No 0 0 MW7 0 No 0 0.2 MW8 0 Ves n.o 1.4 MW9 0 No 0 0 Note: n.o = not ovoUoble. Technical Effort VID. c. Manpower in QC and Maintenance One indicator of the ability of firms to launch technological effort. partial and limited though it may be, is the distribution of its workforce in certain essential technical functions like quality control and maintenance. It was noted in Chapter VI that there was a significant difference between technologically competent and other firms in their employment of full~time QC and maintenance personnel as a proportion of total employment The mean for the former was 6.5 and for the latter 1.8. Table 8.2 shows full time personnel in the sample employed in these two functions, individually and together as a percentage of total employment The data illustrate clearly the difference between the firms classified as technologically competent and others. It may be interesting to compare QC employment (this refers to full time personnel) between this sample and some Sri Lankan firms in garments and metal working. The Sri Lankan data are shown in Table 8.3. 122 They give the employment size of the 10 firms. the percentage of employment in QC, and the personnel sent overseas on training. The latter set of figures pertains to the discussion of training in the previOUS chapter. The firms in Sri Lanka have significantly higher proportions of their employees in QC than the Ghanaian sample. It is notable that a large locally owned garment firm in Sri Lanka, with 1000 employees. has 9.5% of its workforce in QC; even the smallest, with 330 employees, has a figure of 4.6%. The best Ghanaian firm. TGI. ooIy has 3.3%, and most other firms have zero. The differences are equally striking in metal working. VIII. d. Linkages With Technology and Other Institutions Technological and other linkages have already been discussed in Chapter V under the heading of linkage capabilities, and the available data on recent use of technology institutions were presented in = These data ~ from Wigo3l'llja (thesis in progress) 151 Table 8.2 Full-nrne P8I'IOnnet In Quality Control and Maintenance (a) Firm Quality control Maintenance Quality control & manpower manpower maintenance manpow (% of employment) (% of employment) (% of emplo'tment) Textiles and garments TGl 3.3 4.4 7.S TG2 0.0 0.0 0.0 ITG3 0.0 2.4 2.4 TG4 3.3 0.0 3.3 JTGS 0.0 4.2 4.2 TG6 0.0 0.0 0.0 TG7 0.0 0.0 0.0 TG8 0.0 0.0 0.0 FPl 2.0 7.8 9.S FP2 2.S 10.2 13.0 ,FP3 1.8 4.4 6.1 FP4 0.9 0.9 1.9 FP5 2.0 3.51 5.5 FP6 2.9 7.0 9.9 FP6 5.0 5.0 10.0 WW1 n.a n.a n.a WW2 0.0 0.9 0.9 ·WW3 0.7 3.4 4.1 WW4 0.0 0.0 0.0 WW5 0.0 0.0 0.0 WW6 0.0 0.0 0.0 .WW7 0.0 0.0 0.0 WWS 0.0 0.0 0.0 MWl n.a n.a n.a MW2 0.0 1.3 1.3 MW3 1.4 5.6 7.0 MW4 3.3 3.3 6.7 MW5 0.0 0.0 0.0 MW6 0.0 0.0 0.0 MW7 0.0 10.5 10.5 MW8 0.0 0.0 0.0 MW9 0.0 0.01 0.0 Note: (0) Fulf.time personnel employed in these functions. Includes all employees regardle of qualifications. Does not include po..Jt-tlme personnel or technical visits from abroad. (b) Dead firm which retains a few emplo'lees for tasks aport from prOduction. It employed employees at its peak in 1986. n.a = not available. ! Table 8.3 Full·'rlme Personnel In Quality Control and Personnel Sent on Extemal Tralnlncl In Firms In Sri Lanka Arms Total Ownership QuaJitL control Personnel sent emp/oymen structure man~wer in 1989 onextemal 1989 (% of emplo't'ment) troinina in Sri Lanka (01 & abroad in 1988 (% of emolo Garments (b) 0101 Textiles 1500 1001, Foreian 5.9 1.0 Cadillac Garments 1COO 1001, Sri Lankan 9.5 3.4 Kundanmal Garments 1COO 15% Foreian. 85% Sri Lankan 8.4 1.7 Eskimo Fashion 900 1001, Foreian 4.5 2.2 Alliance Garments 330 1001, Sri Lankan 4.6 1.5 Average for aarment firms 6.6 2,0 Metal wOlklna Acme Aluminium In 53% Foreian. 47% Sri Lankan 5,6 7.9 Metalix Eneineerina Ltd 166 1001, Sri Lankan 3.1 0.0 Eisteel Ltd 150 1001, ForeiQ!1 5.4 5.3 Aero Technica 75 1001, Sri Lankan 4.0 4.0 Swedlanka 40 49% Foreian. 51% Sri Lankan 3.6 5.0 Averaae for metal workina firms 4.3 4.4 Notes: (a) Full-time oersonnel emP/oved in these functions. Includes all elT!Q!~ees r~ardless of~ualifications. Does not in dude oart-time oersonnel or technical visits from abroad. (b) Total number of emP/ovees sent on extemal training courses in Sri Lanka end abroad durin--.9. 1988. Source: G. Wignaraja. Manufactured ~. Outwarc:K>rientaflon and the Acquisition of Technolcoical Caoabitlties in Sri Lanka. Doctoral thesis in progress. Oxford Universi1\'. Technical Effon that context. It was shown that linkages with the science and technology infrastructure were very low, and this discussion need not be repeated here. However, the question may be addressed in a different way. One of the most important causes of (XXX' technological response by Ghanaian finns is the sheer lack of information on the part of enterprises on a variety of tasks. The main items on Which sample firms need information are: >- What technologies are appropriate to survive, grow and (in the longer tenn) export in the new competitive environment >- What equipment to buy, how to evaluate its capabilities, where to buy it and what prices to pay. >- Where and how to negotiate the best technology transfer deal. >- How to participate in project engineering, and to persuade foreign technology suppliers to impart elements of process technology to local engineers. )J- How to train workers to the necessary sldlllevels, initially and on a continuous basis, with in·house and external inputs. >- How to establish suitable quality control procedures, standardise products and get them certified. so that they can have market acceptability. )J- How to optimise production processes, adapt them to local scales of operation, materials, components. and market conditions. by in·house engineering effon and troubleshooting. or by getting technical assistance and consultancy. >- How to establish industrial engineering procedures. to schedule production. control inventory. keep track of productivity. set up procurement procedures, and so on. >- How to reduce costs over time and adapt to changing factor conditions. by condUcting (or contracting) research into processes and keeping a watch on international technological developments. 152 Technical Effort .. How to improve products and diversify the product range, again by conducting or contractiJ1g design, research and development .. How to source materials and components locally, by establishing linkages with potential suppliers and subcontractors, and rendering them technical assistance. .. How to establish supply or sales contracts with overseas companies. This is a list of the main technological tasks that manufacturers have to perform to become technically efficient (there are many.others related to management and marketing). Many of these are not performed satisfactorily by many sample finns, or are not performed in a manner that is conducive to competitive growth and diversification. One of the main reasons is that the enterprises lack the necessary information, or ready access to sources of this information. They do not often know what they need, ncr how to go about finding out If they have some idea of their Deeds, they may be unable to define them properly. To use external technical assistance effectively a finn has to be able to explain what its problems are in technical language, otherwise the consultant or technology institute has to spend considerable resources in finding out what to address. It is unlikely that most of the local finns in the sample could frame their technological needs in this way. In other words, they have to be taught to "leam" in the broad sense of the term Even if finns could define their technological needs, there are few institutions in Ghana to which they can tum for effective and economical help. The existing institutions related to industry, in the S&T network cr in other ministries. lack the skills. technical resources, incentive and organisation to attempt this kind of education/assistance for industry. Thus, the sample finns that have been able to undertake technological activity on a systematic basis are only those that have internal sources of information (the educated entrepreneur or technological catalyst) cr links with other sources overseas. The former suffices for relatively simple and low level technological activities, which is what most of the observed effort in Ghana consists of. The latter becomes necessary for larger scale and mere demanding effort. the nearest approximation being the type of systematic plans being launched by FPl 153 Technical Effort to raise productivity. This requires external training resources, new technologies and equipment and better management control. 1be parent company of an MNC affiliate is geared to providing this, but few, if any of the local firms have the resources or connections to tap a similar source of information and skills. Foreign licences or joint ventures are crucial ways of supplementing local information, but, as noted, these are extremely rare and show few signs of increasing among the established local finns. While it is difficult to establish this fumly, the lack of local institutional support for TC development may be a significant detenninant of the weak technological performance of Ghanaian finns. It is certainly the case that the best performing industrialisers, the East Asian NIEs, noted the market failures that existed in the functions noted above. and provided a diverse set of institutions to support their firms. This was, of course, a small part of the process of creating technological capabilities that included massive investments in education, training, research and local linkage creation. In addition, these countries also had a much stronger tradition of industrial entrepreneurship. 1beir export activity, once it was started, provided its own inputs into information flows. Nevertheless, the array of support mechanisms that were set up in the form of institutions for research, training. technical extension and marketing is likely to have made a significant contribution to TC development This contribution is signally absent in Ghana. As far as other lechnologicallinkages are concerned. foreign affiliates obviously drew upon their parent companies for all sorts of technical information. Of the local finns, some drew upon f- The second furnace was trought into operation after making some technical modifications. >- The first furnace was improved so that it could produce a larger number of heats. and has been able to achieve operations 24 hours a day (which it could not before). >- The continuous casting machine was put into operation for the first time, by getting certain missing items made (the previous technical staff could not even identify these deficiencies). >- Ingot production was replaced by billets, and moulds and patterns were changed to suit size needs of the market >- The rolling mill was adjusted so that the modifications made by the Italian consultants could be reversed. The bearings and skid lengths were changed to prevent frequent breakdowns, raise production and cut processing costs. >- Various motors that were not working were refurbished and put back into action. >- The foundry, which had never worked, was being put into operation, initially to be used for internal needs. >- Refractory products were being developed for use by the furnaces. The in-house workshop was critical to many of the improvements made. since there was little available by way oflocal suppliers or technical services (this was contrasted by the firm to India, where a good network of subcontractors and suppliers existed). Given the age of the plant, it could not reach the level of productivity of a new plant like the Taiwanese one. but it was expected to have competitive processing costs when it reached full capacity utilisation. However, the higher costs of some local supplies (like furnace oil) and the difficulty of obtaining local supplies meant that it would be barely profitable when it faced the full force of impM competition (the products are highly traceable. though transpM costs give some advantage). It was not clear that it would be able to generate the resources to fully modernise and expand the plant as it wanted to. The firm thought that a modest degree of protection (15% was mentioned) would allow it to generate reinvestible swpluses. 228 Appendices Quality control was at British standards, and there was no problem in meeting import competition in terms of quality. There was a small laboratory for quality testing, but there were no facilities for tensile testing and the controller was a secondary school graduate with 6 months training in the Kumasi Institute. The fmn made both hard bars (that are used in developed countries) and soft bars (that are preferred in Ghana because they are easier to bend). The case of MWI is an excellent illustration of the difference that technological capabilities can make to the absorption and deployment of a reasonably complex technology. With basically the same equipment, the injection of technological skills and experience led to an enormous improvement in efficiency. There was no identifiable technological 'catalyst': the team of expatriate engineers had different specializations, and each contributed in his field It is likely that their background in another developing country helped greatly in coping with the situation in Ghana. Years of operation under the previous owners bad not allowed the necessary capabilities to be built up, because the receptive base of skills, information and instruction, were lacking. MWl faced much lower demands on technological capabilities. The process of making pots and pans from aluminium sheets is relatively simple. In the first year of the firm's operation, it did not have an engineer and managed with three experienced operators who had worked in this activity in Nigeria. This was enough to operate the process and train other workers, but minor problems with the alignment of the motors and bearings could not be dealt with in-house until an engineer was hired. There was no system of controlling quality during the production process, but at the end of the process each piece was inspected by eye. There were some rejects because of in-process defects. but these were relatively low (1.5%). It was claimed that quality was much better than local competitors, which is borne out by the market share achieved by the company, and its ability to export a small amount to neighbouring countries. An engineer was hired for plant maintenance, and he instituted a 229 Appendices maintenance routine of weekly; monthly and annual checks and servicing. There was an in-house . maintenance repair shop. The maintenance engineer was a technological catalyst in that he changed the motors and pulleys to raise operating speeds. He saved costs by doing in-house the repairs and servicing that previously had to be done by external agents. His input was essential in achieving good pedormance from used machinery. Given the needs of the technology. this level of technological effort. in combination with a sensible choice of equipment. was enough to establish a leading position in the Ghanaian market. This firm thus appears to be technologically competent. We come now to the two medium sized firms. MW3 and MW4. MW3 now has a fairly modem capital stock. since the major machines were replaced in the last 2-3 years. It had a good maintenance system from the start, instituted by the Israeli partner. and the system was kept up. At the time of the interviews there was a full time maintenance manager (a qualified mechanical engineer) with a supporting team. There was a regular maintenance schedule. and an annual shutdown for a complete OVerhaul. Interestingly. the firm had started to implement ISO 9000 quality systems. one of the few companies in the country to do so. This was at the insistence of the foreign construction companies that were operating in Ghana and buying products from this firm. Reject rates. at 1-2% per batch, were claimed to be lower than local competitors. and the quality of the final product was claimed to be higher. MW3 admitted that the layout of the plant was not optimal. and that production could be speeded up with a different arrangement of plant and equipment Plans were in hand to change the layout. 1be firm had made no adaptations or improvements to the machines. Inventory control was done manually, but it was planned to computerise this function over a year or two. There was a scheme for monitoring productivity and for rewarding workers by pedormance. In general, therefore. the firm displayed good mastery of its technology, with a systematic approach to maintenance and quality and 230 Appendices an awareness of its process needs. It is not iImovative in its processes, but given the nature of the technology this is not surprising. MW4 used to be the market leader in aluminium structural products in Ghana, but lost market share steadily (from 85% in 1986 to 30% in 1991) as new competitors appeared. Its old equipment is a handicap. Maintenance is minimal, and there is no in-house repair shop. Repair services are called in when needed The productivity of the plant apparently declined after the late 1970s when the last Swiss technician left. and it is only after 1990. when a new manager (qualified as a technician) took over that some conscious efforts were made to improve capabilities. When the new manager took over, there was no system for quality control. He instituted a system of random quality checks for materials and finished products. He claimed that reject rates came down from over 10% previously to 3% in 1991. However, it appears that the quality of the product is still inferior to that of MW3; certainly the care given to this function is far less. The layout of the plant. based on the Nigerian affiliate of MW4, has never been changed The machinery has not been improved. There is no incentive system for rewarding worker productivity (apparently the parent company does not allow any changes in the salary structure). Thus. despite some improvement in the past two years, this firm remains technologically stagnant Coming now to the small firms, we start with the two machinery makers MWS and MW7. MWS is a firm that has grown out of a traditional blacksmith's skills and entrepreneurship. As noted earlier, the entrepreneur showed considerable ingenuity in using old reconditioned equipment, and building some simple machines of his own. However. most of the equipment was very old and apparently in poor condition. There was no maintenance schedule or personnel in charge of this function. The owner himself did all the repairs as the need arose. There was no formal system of quality control; again. the owner inspected all the products himself. Capacity utilisation was low. 231 Appendices The quality of the products was crude, and did not seem to have improved over time. As a result, the firm was rapidly losing market share to imported food processing equipment from India, which was better designed and finished and offered better performance. However, the owner, who dominated all the functions of the plant, was resistant to any changes in procedures. MW7 also had old equipment, but the machines were in much better condition. There was a regular maintenance schedule, with a diploma holder and two assistants in charge of this function. The owner only intervened for the more complex maintenance and repair tasks. Many of the old machines had been renovated with in-house manufacture of spares; some of these spares were complicated, like clutches and gears. The level of workmanship was high, with thorough training of workers. 174 The firm was operating at full capacity. There was no formal quality control system, and, as with the previous case, the owner did all the inspection himself. However. the results seemed much better than with MW5. The careful mOnitoring of the pnxluction process gave the firm a reputation for reliability and quality, leading to a sustained increase in sales despite growing import competition. The firm claimed to match imports in quality, and to be better than the several local competitors making food processing machines. Thus. the two firms present contrasting pictures of process capabilities. One is very much a traditional shop. where the master craftsman. in charge of all technical functions, is rooted in old technologies and procedures. The other is a more 'modem' operation with a more systematic approach and greater use of newer production methods. The owner also undertakes all the complex technical functions, but he pays more attention to the quality and training of his staff. On this evidence, the first is technologically stagnant, while the latter is dynamic. The two structural parts manufacturers. MW6 and MW9. are at different technological levels. MW6 is simple welding workshop, one of several in Kumasi, and losing market share to its competitors 17<1 This is SIrCSSed by Moore (1989), p. 16. 232 Appendices (all local). It operates in temporary accommodation. Its equipment is old and in poor condition. without proper maintenance. Quality control is primitive (welding is tested by tilling tanks with water). The processes are very simple, and have nOl improved overtime. Even given the nature of the technology. the firm is stagnant MW9 has more complex equipment and higher production capabilities to fabricate structural metal products. Its equipment is in reasonable condition. but there are no maintenance or quality control procedures. The owner checks the finished products himself. There has been no improvements to the machines or processing techniques. but the technology seems adequate to make the kinds of products required. However. the level of efficiency is not enough to meet import competition, and the fmn is barely surviving by switching to simpler products. Thus. production capabilities are adequate but not dynamic. Finally. MW8 has a mixture of experiences as far as process capabilities are concerned. The foundry. the main part of the plant, has never worked. and there seem to no capabilities to restore it to working order. The firm is waiting for foreign technical assistance to sort out the problems. but what was provided has been of the wrong kind. In 1990 the German aid agency 01Z undertook to send·two engineers, one mechanical and one metallurgical. to complete the project execution, set the foundry working and train the local staff. Instead, the Germans sent one technician and one exchange student. both in mechanical engineering and without metallurgical skills. The two were able to rehabilitate the machine shop. set up a maintenance routine and train the workers in machining. Thus. some capabilities were developed in this section. and the firms is able to machine parts. However. on the whole the state of production capabilities in the firm is rudimentary. Product Engineering: As may be expected, there is no product design capability in the sample firms based on independent search and experimentation. However. there is some capability to carry out minor adaptations. In the intermediate product firms like MWI there is no need for design; the firm has 233 Appendices to implement quality and other standards that are demanded by the market The only adaptation that it has made has been to make some rods 'softer' because of the local preference for rods that are easier to bend. It also plans to move into the production of flat products, and cast iron products from its foundry. The technology for this will be provided by the Indian technicians running the plant MW2's initial designs for aluminium utensils were copied from those being sold in the market, and later some minor changes were made (to the size, shape, handles and so on) based on feedback from customers. There was no separate design department or any systematic effort to explore new designs; all the designing was done by the maintenance engineer. The two aluminium slIUctural product firms got their product designs by copying foreign products or building to specifications provided by customers. MW3 had to follow stricter standards because many of its customers were foreign contractors, and was working with local architects to develop new products like ceilings and partitions to compete with wood products. It had cut costs by eliminating thermal insulation from doors and windows (this feature, useful in cold climates, was not needed in Ghana). MW4 had introduced one new product based on foreign license (the venetian blinds noted above), and had developed a sun breaker that was being made by another firm. It also bought a technology from the US for door and window frames that were better insulated from rain. 1bis did not require any change to the equipment or the production process. Product design is more important to the two machinery makers, MW5 and MW7. Both based most of their designs on imported equipment, and both made adaptations and designed products for specific local needs. The owners in both cases undertook all the design work themselves. However, the product engineering capabilities manifested were different MWS's designs were relatively crude, but those of MW7 were more imaginative, better executed and more appealing to the customers. 234 Appendices TIle MW7 entrepreneur geared his product adaptations and designs to adding new functions and raising the reliability and quality of its products. For instance, food processing machines were traditionally made with bronze bearings and were exposed to dirt. This reduced the life of the bearings and meant a lot of 'downtime' on the machines. The entrepreneur substituted imported stainless steel bearings enclosed in a self 1ubricating case (made locally from scrap metal), improving greatly the 4 quality and life of the product 115 In collaboration with the Technology Consultancy Centre of the University of Science and Technology, he developed a shea butter kneading machine and other simple pieces of equipment (this was a service he sold to the TCC for a fee). He improved the servicing of his products. offering staff and spares to solve any operational problems that his custome1'8 encountered. The level of product design capability was not high by the standards of the industry, but even this capability was unusual in the Ghanaian context. MW6 copies designs for tanks, gates and doors from other local produce1'8. There is no attempt even to adapt them. MW9 copies imported deSigns, and was able to switch from traile1'8 to structures fa the mining industry. The Lebanese partner is the source of these designs. Finally, MW8 copied products that its custome1'8 brought into its machining shop. with no attempt at design. D. Iv. Unkage Capabilities The engineering industry is namally the most linkage intensive of all manufacturing activities, 4 because its production processes consist of several separate stages that have different technological requirements and can be located in separate locations. This lends itself to very tine degrees of specialisation. with accompanying gains in productivity and efficiency. and with active diffusion of technical knowledge and skills. However, the development of such a network requires firms of various sizes with the technological capabilities needed to undertake the specialised forms of production and the technical interchange that linkages involve. m See Moore (1989), pp. 15-16. 235 Appendices There are few signs of the Ghanaian metal working industry developing linkages of this type. As in most developing countries in early stages of industrialisation, there is practically no subcontracting between large modern firms and SMEs in the engineering industry. Traditional small firms in similar activities do exchange information and employees with each other. At the low levels of technology that these firms operate, however, this serves to preserve existing methods of production rather than to increase specialisation and efficiency. To quote Moore on linkages in Ghana, "Unfortunately there is no interdependent network of firms in Ghana with specialisation in production through subcontracting. The extent of subcontracting is minimal, sporadic and primitive; consequently, the base for growth in the engineering industries is weak, production is limited to a few products, there is no interface between the larger and smaller firms, and the benefits from some integration of activities cannot be achieved with the present structure. organisation. and operations of the industry."m; The sample firms illustrate this clearly. The two intermediate product makers, the steel flIm and the foundry, have no linkages with other producers. While this is not surprising, the Indian technicians in MWl noted that the lack of a local supply and servicing network was a handicap relative to India, where a large network had developed over time. The three aluminium firms also had no production linkages. Though their raw material was local. it was procured in sheet form from the local rolling mill. with no need for special technological exchange. All the components. where subcontracting may have been feasible, were imported since there were no local suppliers with the capabilities to meet the needs of the aluminium fmns. The two machinery manufacturers, the most likely candidates for linkages with other metal wa'king fmns. had no subcontracting with component suppliers, and did not themselves subcontract for larger firms. The same applies to the two structural product firms. As far as technology institutes are concerned, there are again very few linkages with the sample firms. The Standards Board checks the products of the three aluminium firms and MW7, but offers no 1'76 Moore (1989), pp. 4-5. 236 Appendices technical advice on improvement and is uninfonned about international standards for their products. 177 MW3 has informal consultations with the faculty of architecture in UST about the new products it wants to develop. MW6 has taken the advice of the Technical Institute on equipment purchases and machining services. And MW7 has collaborated with the Technical Consultancy Centre of the UST to develop the shea butter kneading machine and other machines. However. this was a service sold by MW7 to the institute rather than a transfer of technology from the institute to the firm. MW8 has purchased some technical assistance from the UST. but no details are available on this. As with the other industries in the sample. therefore. the engineering industry has minimal linkages within the industry (apprenticeship is considered in the next chapter) and with the technology infrastructure. lllis is of particular concern because of the inherent nature of the industry, which is especially reliant for its efficiency and growth on the development of specialisation and subcontracting. D. v. Conclusions The sample firms have to assessed in the context of the industry as a whole. The Ghanaian engineering industry is at a low level of technology. It produces a limited range of products. mostly fairly simple, and mostly at relatively low levels of quality. There is little backward integration or subcontracting. In this context, the sample shows a mixture of strengths and weaknesses. There is evidence of technological competence in some sample f1IlIlS relative to tile rest of tile engineering industry. lllis competence consists mainly of tile ability to absorb and use relatively simple technologies rather than to enter into sophisticated engineering activities or to develop of new products and processes. Nor does it signify, so far, the emergence of export potential on the part of the Ghanaian metal working industry. I'T1 Moore (1989) notes that· All in all aSB plays little or DO active role in the improvement of standards and tecbnology transfer and cannot so much without the R:COnslrUCtion of the facilities and equipment.* (p. 70). 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