Impact of textile imports on the competitiveness of textile industry in Ghana

The Ghanaian textile industry which was established in the 1960s under the Import Substitution Industrialization Policy (ISI) with so many players has now shrunken to only five companies. During this era, domestic companies received a blanket of protection in the form of high import duties and quotas imposed on importers among other incentives. In the 1980s, the policy changed in favour of liberalization to overcome the limitations and adverse effects of the Import Substitution Strategy. Under this regime, barriers to trade were either removed completely or reduced significantly, and this represented a paradigm shift from import substitution industrialization to market based competition where Ghanaian industries no longer operated under protective barriers, and thus were forced to compete in both domestic and export market on the basis of their own efficiencies. This allowed the free flow of goods across countries, and since then, Ghanaian manufacturers have argued that imports have severely damaged their industry, creating mass unemployment with its attendant consequences. In view of this argument, this study was designed to examine the impact of textiles imports on the competitiveness of the Ghanaian textile industry. Using quantitative data obtained from Ministry of Trade and Industry, Ghana Statistical Service, Customs Excise and Preventive Service, as well as IMF's World Development Indicators from 1975-2002, imports were observed to have positive correlation with output growth as well as growth in productivity. It was observed that output started to fall long before trade liberalization, whereas output recovery started after liberalization, contrary to our expectation. This indicated that, there may be other variables of interest that might have caused output decline. A further probing into the issue using regression analysis revealed that, import was significantly elastic at 5% in both long and the short run. Labour and the Dummy variables were also significant and elastic in the long run at 5%. This shows that trade liberalization has a positive impact on domestic output in the long run. Interest Rate was found to be negatively significant at 1% in the short run but negatively insignificant in the short run. Real Exchange Rate although had the expected negative, it sign was insignificant in both long and short run. In the short run, the error correction factor of -0.2 indicated that, 20% of the shock from liberalization would be adjusted annually. Questionnaires administered alongside Key Informant Interviews revealed that profit (another measure of import competition) had contracted, indicating the intensity of competition. Other measures of competitiveness: innovation and efficiency had increased. Perhaps the greatest impact import competition has made on domestic textile firms is through innovation. Responses to import competition were analyzed using expenditure on innovation and marketing expenditure among others. Expenditures on these variables have increased indicating that domestic firms are responding to import competition. In addition, companies have adopted improved business practices such as Just-in-Time delivery system, Enterprise Resource System, among others. Consumers have expressed satisfaction at the state of affairs because, import competition provides them with a wide range of goods at lower prices and as such import competition has increased their welfare. Notwithstanding, domestic companies have also benefited by being stronger and better companies.

Source: KNUST