Abstract
In this paper, we conduct a cost-benefit analysis of six important industrial sector interventions, purposely designed to increase firm profitability and growth. The interventions are as follows: (i) management training for large manufacturing enterprises, (ii) management training for medium-sized firms, (iii) a capital grant for micro-enterprises, (iv) increased general R&D spending, (v) establishment of a properly functioning credit reference bureau office and (vi) reduction in electricity tariff for industry. Where possible, we took advantage of recently completed context-specific randomized control trials from various studies to estimate the effects of the interventions. This was supplemented by wider literature reviews and nonexperimental data.
The analysis indicates that providing management training to local (non-multinational) factories with large turnovers (large firms) generates a BCR of 5.9. The total cost of this intervention is estimated at GHS1.62M per year per factory, and it is expected to generate total profits of GHS 2.1M for the first year. In the case of management training for medium-sized firms, a much higher BCR of 9.6 was obtained; with a total cost of GHS6,876 per year per firm and an expected total profit of GHS 70,985 per year. In terms of the capital grant for microenterprises, a BCR of 7.0 was obtained. An in-kind payment worth GH683 is expected to accrue as profits to a typical microenterprise of GHS5,263 for three years. An increase in R&D spending by 0.4 percent of GDP is expected to generate a BCR between 1.5 and 1.75. The expansion of the activities of the current credit referencing system to include data from Fintechs, mining companies, wholesalers, court records and tax records, will generate a BCR of 11.7. Finally, for the last intervention that sought to provide subsidies or reduce the electricity tariffs payable by manufacturing firms and industry, a BCR of 1.8 is estimated. Our results provide important information to decision-makers.
The analysis suggests the key interventions needed for the different size of firms in order to ensure industrial transformation. Management training of medium and large firms while providing capital grants to microenterprises will stimulate industrial transformation. The headline recommendation is that these interventions can be successful at structurally transforming the industrial sector by increasing the profitability of local firms, creating avenues for employment generation and complimenting the efforts at increasing economic growth. These findings are much aligned with the Ten Point Industrialization Strategy of Government and therefore provide very useful analytical information and policy direction for programme implementation. The recommendations should be in tandem with other strategies outlined in the ten-point industrialization strategy of Government.
Quartey, Peter