Ghana’s exports fell as a result of exchange control and protection policies characteristic of most African economies in the 1960s and 1970s. Mauritius, however, reversed its protection polices in the 1970s and the success of its economy stands in stark contrast to failure elsewhere in Africa. Why is Ghana unable to export manufactures whilst Mauritius can? Research has offered four views in explaining why manufacturing exports from Africa are not internationally competitive:

• Given Africa's low levels of skills and relative abundance of natural resources, exporting manufactured goods is unprofitable.
• African governments have created an environment where high transaction costs are the norm and export growth generally has been retarded. If policies for greater openness can be sustained, export growth including that for manufactured goods, could be achieved.
• Policy has failed to promote the technological capabilities or specific learning to enhance efficiency that are so fundamental to successful industrialisation.
• Key to successful exporting is the technical efficiency of firms, a view originating in the 'new trade' theory, which focuses on firm characteristics determining export performance rather than skills or natural resources. Efficiency depends on policies encouraging innovation, economies of scale, foreign competition, or the availability of new goods.

The capital per employee and value-added (the difference between the value of the output and the costs of producing the output) per employee for manufacturing is shown in Figure 1. Figure 2 shows the same data but just for textiles and garments, a sector which has been the early engine of growth for countries, such as Mauritius, that now export manufactures successfully.

Figure 1: Manufacturing Sector

Figure 2: Textiles and garments

Note: Value-added and capital are converted to purchasing power parity US Dollars

Source: Teal (1999)

Mauritius, for the entire manufacturing sector, has nearly three times as much capital per employee as Ghana. Yet Mauritius produces seven times the amount of value-added per employee. This means that firms in Mauritius are over twice as efficient as those in Ghana. Figure 2 shows that for firms producing textiles and garments the gap is even greater. The two countries have roughly the same capital per employee but Mauritius still produces nearly seven times as much value-added per employee (the difference between the value of the output and the costs of producing the output): the Ghanaian textiles and garments sector, using extremely labour intensive techniques, is highly inefficient.

Does such inefficiency prevent firms from exporting? Not necessarily. What, therefore, can Ghana do to achieve greater efficiency to export competitively?

• Increase firm size: a minimum 100 employees is necessary to export as fixed costs of access require a certain scale of operations.
• Reduce wages or increase productivity: wages in Ghana (US$100 a month) are too high relative to those in Mauritius (US$279) given that productivity in Mauritius is four times higher.

Contributor(s): Francis Teal