Declaration

I do hereby declare that except for references to other peoples works which have
been duly acknowledged, this thesis presented is my own and has not been written
for me, in whole or in part by any other person(s).
Isaac Fokuo Donkor,
isaacfdonkor@gmail.com
November, 2008
UNIVERSITT HOHENHEIM
The Determinants of Competitiveness and Performance of
Ghanas Key Non-Traditional Exports
A thesis submitted in partial fulfillment of the requirements for the award
of a degree of master in Agricultural economics
by
Donkor, Fokuo Isaac
Institute for Agricultural Policy and Agricultural Markets
Chair, Agricultural and Food Policy
University of Hohenheim,
Stuttgart, Germany
Supervisors: Prof. Dr. Harald Grethe, Prof. Dr. Tilman Becker
November, 2008
The Thesis Committee for Universitt Hohenheim
certifies that this is the approved version of the following thesis:
The Determinants of Competitiveness and Performance of Ghanas
Key Non-Traditional Exports
Approved By
Supervising Committee:
Supervisor:
(Prof. Dr. Harald Grethe)
(Prof. Dr. Tilman Becker)
Dedication
To my Parents George K. Donkor and Comfort Donkor
i
Acknowledgement
I am thankful to the Almighty God for all his protection throughout this journey. To
God be the glory for the great things He has done in my life up to date.
I wish to express my heartfelt thanks to Prof. Dr. Harald Grethe for believing in me and
opening his door to me anytime. His thoughtfulness, advice and insight shaped the final
outcome of this thesis. To Eckhard Volkmann, my former boss at GTZ, I am most
grateful for your kindness. You are second to none. My sincere gratitude also goes to
Katja Glause and Anna J ankowski for taking time to help shape the thesis. The thoughts
and direction of the thesis was in part owed to my internship at the South Centre in
Geneva. To Darlan, Luisa Bernal and Zeeshan, Marumo, Nicole, Angela, Wase and
Heather, I say thanks a lot.
Secondly, I am forever, indebted to the friendship of Patience Tinashe Shoko. You will
forever remain my friend. To Sheila, I say thanks for being there. And to all my
Ghanaian colleagues in Hohenheim; J oseph, Seth, Richard, Akwasi, Augustine, Moro
and Carl I say Ayekoo. To Henry Lubinda, Nina Koch, Franziska Harich, Rohan Orford
and Samuel Boama I say hi-five buddies.
Finally, to Katrin Winkler, the Coordinator of the Agricultural Economics program of
the University of Hohenheim, you are the best.
ii
Abstract
The Determinants of Competitiveness and Performance of Ghanas
Key Non-Traditional Exports
By
Donkor, Fokuo Isaac (M.Sc.)
Universitt Hohenheim, Stuttgart, 2008
SUPERVISOR: (Harald Grethe)
Global trade has expanded, even as, conventional barriers to trade continue to decline.
At the same time, the continual decline in the value of primary commodities on the
international market is subjecting many developing economies, including Ghana, with
small export portfolios into fiscal difficulties. The need for product and market
diversification in an increasingly competitive trading regime becomes imperative.
The paper examines Ghanas diversification drive in the export sector over the past
decade. Specifically, it analyses for performance and competitiveness in its production
and exports of ten product lines not included in its traditional exports basket of raw
cocoa beans, and timber in the agro-forestry sector. Referred to as non-traditional
exports, they are products not forming part of the customary diets of its people and are
mainly produced for their cash values through exports, such as; fresh pineapples,
preserved fruits, cashew and Shea nuts, as well as, those resulting from vertical and
horizontal diversification of its traditional exports including; cocoa butter, cocoa paste,
preserved tuna, plywood and veneer.
Employing the Revealed Comparative Advantage (RCA) and the Contribution to Trade
Balance (Lafay), indices as proxies for the level of specialization and thence a measure
of competitiveness, the following observations were made: that cocoa paste and
plywood are most competitive non-traditional exports from Ghana followed closely
cocoa butter and veneer. Cashew nuts and fresh pineapples revealed positive
comparative advantages and Lafay indices at marginally reduced levels whilst preserved
fruits and frozen tuna revealed not specialization. Preserved fruits revealed de-
specialization. There was no data for Shea nuts.
iii
The general conclusion was that non-traditional exports emanating from endowed
traditional export baskets like cocoa beans (cocoa butter and paste) timber (veneer and
plywood) performed better averagely and are more competitive on the international
market (i.e. products that have undergone vertical diversification) than those existing as
stand-alone or novel products (horizontal diversification).
Key words: Non-traditional exports, Competitiveness, Diversification
iv
Table of Content
ACKNOWLEDGEMENT I
ABSTRACT I
ACRONYMS V
LIST OF TABLES VII
LIST OF FIGURES VII
LIST OF GRAPHS/BOX VIII
CHAPTER I 1
1.1 RESEARCH TOPIC 1
1.2 RESEARCH OBJECTIVE 4
1.3 ORGANIZATION OF THESIS 4
CHAPTER II 5
2.1 BRIEF OVERVIEW OF GHANAS ECONOMY 5
2.1.1 GHANAS EXPORT PERFORMANCE 2002-2006 6
2.1.2 GROWTH TRENDS AND DIRECTION OF EXPORTS 7
2.1.3 MAJ OR EXPORT DESTINATIONS AND THEIR SHARE OF EXPORTS 8
2.2 NON-TRADITIONAL EXPORTS (NTES): CONCEPTS AND DEFINITIONS 9
2.3 DETERMINANTS OF EXPORT PERFORMANCE AND COMPETITIVENESS 12
2.3.1 THE THEORY OF THE FIVE COMPETITIVE FORCES 13
2.3.2 BARRIERS TO ENTRY 14
2.3.3 RIVALRY AMONG EXISTING COMPETITORS 14
2.3.4 SUBSTITUTES 16
2.4 OTHER FACTORS THAT AFFECT EXPORT PERFORMANCE AND
COMPETITIVENESS 17
2.4.1 THE EFFECT OF PREVIOUS PERFORMANCE 17
2.4.2 DIVERSIFICATION 18
CHAPTER III 20
3.1 METHODOLOGY 20
3.2 COMPARATIVE ADVANTAGE 20
3.3 LAFAY INDEX 21
3.4 DATA REQUIREMENTS AND SOURCES 23
v
CHAPTER IV 24
4.1 RESULTS 24
4.1.1 DISAGGREGATION OF GHANAIAN EXPORTS 24
4.1.2 APPROXIMATION OF COMPETITIVENESS: THE SYMMETRIC REVEALED COMPARATIVE
ADVANTAGE (SRCA) 25
4.2 NORMALIZED COMPETITIVENESS MEASURE: THE LAFAY INDEX 25
CHAPTER V 30
5.1 DISCUSSION OF RESULTS 30
5.1.1 COCOA INDUSTRY 30
5.1.2 TIMBER INDUSTRY 32
5.1.3 THE PINEAPPLE AND PRESERVED FRUITS INDUSTRIES 33
5.1.4 NUTS INDUSTRY 37
5.1.5 THE FISHERY SECTOR 38
5.2 POTENTIALLY COMPETITIVE EXPORTS 40
CHAPTER VI 42
6.1 OPTIONS FOR INCREASING COMPETITIVENESS 42
APPENDIX 47
BIBLIOGRAPHY 54
Acronyms
AGOA Africa Growth and Opportunity Act
CAPEAG Cashew Processors and Exporters Association
CDC Cashew Development Center
CEPII French Economic Research Institute
CMC Cocoa Marketing Commission
COCOBOD Market Board
CPC Cocoa Processing Company
vi
CRIG Cocoa Research Institute of Ghana
CTB Contribution to Trade Balance
ECOWAS Economic Community of West Africa
EEC European Economic Community
EPAs Economic Partnership Agreements
EU European Union
EUREPGAP European Good Agricultural Practices
FAO Food and Agriculture Organization of the UN
GAP/IPM Good Agriculture Practices/Integrated Pest Management
GDP Gross Domestic Product
GEPC Ghana Export Promotion Council
GNPC Ghana National Procurement Agency
GPRS II Ghana Poverty reduction Strategy II
GSP+ Generalized Systems of Preference plus
GTZ-MOAP German Technical Cooperation- Market Oriented Agriculture
Program
HS Harmonized System of Classification
IMF International Monetary Fund
ISO International Standard Organization
ITC International Trade Centre
LBCs Licensed Buying Companies
MOF Ministry of Fisheries (Ghana)
MOTI/PSI Ministry of Trade and Industry and President Special Initiative
(Ghana)
NTE Non-Traditional Export
PPRC Producer Price Review Committee
vii
RCA Revealed Comparative Advantage
RSCA Revealed Symmetric Comparative Advantage
TIPCEE USAID Trade and Investment Program for Competitive Export
Economy
TRADEMAP Trade Interactive Map of ITC
UNCTAD UN Conference on Trade and Development
WTO World Trade Organization
List of Tables
Table 1: Top Performing NTEs From Ghana in 2006........................................................ 3
Table 2: GDP Structure based on Main Economic Activities between 2000-2004 (in %) 6
Table 3: Rank of major importing markets for products exported by Ghana..................... 8
Table 4 Leading Cashew exporters and Unit Price Differential based on Processing
(2006)................................................................................................................................ 16
Table 5: Major products exported by Ghana (2006)......................................................... 24
Table 6: Revealed Symmetric Comparative Advantage (RSCA)..................................... 25
Table 7: Lafay Index of Ghanaian Top-performing NTEs (2006) ................................... 26
Table 8: Lafay Index of Major Exporters of NTEs exported by Ghana (2006). .............. 28
Table 9: World Imports of Cocoa and Cocoa Products (2002-2006)............................... 31
Table 10: Number of Marine Fishing Vessels in Ghana.................................................. 39
Table 11: Potential NTE Basket for Ghana (Lafay Index , 2006).................................... 40
List of Figures
Figure 1: The Five Competitive Forces that Determines Industry Profitability (Porter,
1990)................................................................................................................................. 13
viii
List of Graphs/Box
Box 1: Adapting To Changing Market Preference: Buyer Driven Approach........ 36
Graph 1: Major Cashew Producers (2006). ...................................................................... 15
Graph 2: Market Share of Major Cocoa Importing Countries in 2006 (%)...................... 32
Graph 3: Main Export Destinations of Ghana Fresh Pineapples (2006). ........................ 35
Graph 4: Growth trends in Potential NTEs on the International Market (2003-2006)..... 41
1
1CHAPTER I
1.1 Research Topic
Global trade has expanded steadily in the past decade as a result of a more formalized
trading regime across countries at both the bilateral and multilateral levels (World
Economic Outlook, 2007). For many developing countries therefore, it has become
imperative that they are positioned to take advantage of existing, as well as, new
opportunities arising from the development of global markets and trade negotiations,
even as, conventional barriers to trade continue to decline. Many developing
countries foreign receipts from trade have for decades been accrued to the
production and exports of primary commodities with minimal vertical diversification
(Barghouti et al., 2004). Over time, the value of primary commodities has declined
on the international market, subjecting many developing economies with small
export portfolios into fiscal difficulties (Radetzki, 2002). The need to diversify their
production horizontally
1
and vertically at a more competitive level has become
essential to developing countries including Ghana.
Ghanas economy, for many decades since its independence, has relied heavily in the
production and exports of its naturally-endowed primary commodities including
cocoa, gold and timber. However, as a result of many factors including loss of market
share to more competitive producers
2
, there have been concerted efforts over time to

1
Horizontal diversification refers to the process of entering into the production of new lines
within a particular product sector. For example commercial production of pineapple in the
fruits and vegetable sector constitute a horizontal diversification. On the other hand
commercial processing of pineapple into pineapple juice, jam etc. constitute vertical
diversification.
2
Ghana was more competitive when the production and exports of these primary
commodities were heavily dependent on labour and prevailing natural conditions which well
suited production. With the advent of improved technology for example in the mining
sectors, more endowed countries are able to produce more minerals for exports
competitively. Improved R&D in the late 1980s turned the production of cocoa into a capital
intensive business even as supply surge therefore depressing world market prices.
2
shift production into innovative sectors that favours the natural and human
endowment of the economy. The shift has been promulgated in two folds:
vertically by moving up the production chain for a particular sector mainly in the
form of continuous product development and horizontally by entering into
production areas within a particular sector hitherto unexploited commercially.
Products emanating from this form of venture are the so-called non-traditional not
least because these products are novel in terms of their commercial exploitation
(Singh, 2002).
Many developing countries endowed with certain climatic conditions have taken
advantage of the increased demand for out-of-season food crops by consumers in the
temperate regions to produce those crops mainly for exports with considerable
returns on such investments. These crops commonly referred to as non-traditional, is
defined by Singh (2002) as crops and products that are not part of the customary diet
of the local populations and are grown primarily for their cash values and export
potential. For many African countries engaged in the production and export of non-
traditional products, the European Economic Area remains the most lucrative market
where these countries enjoy not only a considerably enhanced market access, but
sustained consumer demand for those products exported by them albeit under strict
quality and safety controls (Dolan, and Humphrey, 2000).
Studies have consistently shown that the continuing deterioration in the terms of
trade of developing countries, particularly in Sub-Saharan regions traditional exports
is offset, among other measures
3
, by shift to non-traditional activities (Helleiner, G.
K. 2002; Dolan, C., J . Humphrey, 2000 and C. Harris-Pascal. 1999). The potential
therefore, of non-traditional exports (NTEs) to developing countries, including
Ghana, cannot be overemphasized.
For any country (or firm) to enter into a particular market, the onus lies on its ability
to identify commercially viable venture which is able to compete given a set of
endowments and constraints (Rauch, 1999). The Ghana Export Promotion Council

3
Other factors that offset deterioration in terms of trade include efficient import substitution,
policy-related measures etc.
3
(GEPC) is the trade promotion arm of the Ministry of Trade and Industry tasked with
facilitating the development and promotion of Ghanas non-traditional exports. It
seeks to achieve its set objectives through the provision of development initiatives
including market penetration assistance, capacity building and information delivery
to exporters. The GEPC is additionally tasked with identifying potential products for
exports. It produces a list of products which is reviewed every 3 to 5 years on
performance.
The GEPC identifies the following ten products as the countrys top-ten performing
non-traditional exports as of 2006:
Table 1: Top Performing NTEs from Ghana in 2006.
PRODUCT
GROUP
NUTS HORTICULTURL
PRODUCTS
MARINE
PRODUCT
S
MANUFACTURED
PRODUCTS
Cashew
nuts
Fresh Pineapple Frozen
Tuna
Cocoa Paste
Shea Nut Preserved Fruit Prepared
Tuna
Cocoa Butter
Veneer Sheet
Plywood
Source: GEPC, 2006.
The UN Commission on Trade and Development (UNCTAD) and the World Trade
Organization (WTO) identifies the lack of technical capacity on the part of many
developing countries in identifying and prioritizing potential production and export
sectors of their economy. As a result these organization have been collaborating
through a joint effort, the International Trade Centre (ITC) to assisting developing
countries identify potential export sectors, as well as, with information in the
formulation of enabling trading regime by the provision of market development
tools, trade statistics information and market contacts. The GEPC receives such
support from the ITC in this regard. GEPC relies almost entirely on the use of the
ITC trade research tools in identifying potential sectors and products for exports. On
casual inspection, it is not clear what indicators were used to identify these products
and question arise as to why certain products are missing from the list of potential
products especially when they are deemed to be top performing products on the
international market. Also, the list provides little information regarding the prevailing
4
domestic conditions and how these conditions might play in the export performance
and competitiveness dynamics.
1.2 Research Objective
This thesis as its main objective, therefore, tries to identify a set of indicators of the
export performance of the listed products using the information provided by the ITC.
It empirically applies the theory of comparative advantage and specialization
(modified as a proxy for competitiveness) using set of trade data from the ITC to test
the export performance of the so-called top ten NTEs of Ghana. Finally, these
indicators are used to identify alternative potential non-traditional products for
exports.
In order to arrive at the set objective, the paper will attempt to provide answers to the
following questions:
1. Are these products non-traditional? What accounts for their categorization?
2. What are the main indicators of export performance and how are they
different from that of competitiveness?
3. What are the measurable and non-measurable factors affecting export
performance and competitiveness?
4. Which products are deemed as performing well and which are not. What
should be included as potential NTE?
1.3 Organization of Thesis
The paper is organized in four sections. Section 1 justifies the choice of topic for
research and outlines the objectives and expectations of the thesis. Section 2 reviews
the theoretical framework in which the research will be carried out. The goal is to
discuss available literature on factors that influence performance and competitiveness
in the context of non-traditional exports. Section 3 explores the methods of research
by provision of the theoretical background for these methods. It explains the source
of data and the shortcomings in its use. Analysis of results including calculations of
the indices of export competitiveness, as well as, discussions of the underlying
elements influencing these outcomes are detailed in Sections 4 and 5 respectively.
Conclusions, summarizing the various sections of the thesis are provided in
Section 6.
5
2CHAPTER II
This chapter forms the conceptual and theoretical framework in which the analysis
for the thesis will draw from. It is divided into three sub-sections: First, a general
economic overview of Ghana, including the export structure, growth patterns and
export destinations is provided. Second, products and sectors that constitute non-
traditional exports in the wider context are reviewed and thence the various
classifications of NTEs are analysed as per the role NTEs play in the economies of
developing countries. The last sub-section reviews some of the determinants of
competitiveness drawing largely on, Michael Porters five forces of competitiveness
proposition. Other factors such as effect of previous performance and diversification
are also discussed.
2.1 Brief Overview of Ghanas Economy
The Ghanaian economy with a Gross Domestic Product (GDP) per Capita of US$
520, growing at an annual average of 5.7 per cent, has experienced noticeable gains
in its macroeconomic indicators in the medium term, with for example, an annual
inflationary rate of 14.6 per cent in 2006 compared to 27.1 per cent in 2000 (The
World Bank, 2006). Industrial activities, mainly mining and construction, (5%) and
services sectors including transportation and the financial services (4.7%) lag behind
agriculture (6%) in their contribution to annual GDP growth (GPRSII, 2006). Crops
and livestock production, cocoa sub-sector, forestry and fishing are the most
important agricultural activities contributing over 37 per cent to total GDP in 2004
(see Table 2). Despite the relative strength of the agricultural sector to the rest of the
economy, it remains underdeveloped and marginally financed. The government in its
poverty reduction strategy survey, GPRS II concedes that
the stagnation of technologies and in some areas, the wide gender inequalities in
access to and control over land and agricultural inputs, including extension services,
as well as adverse environmental factors such as climate variability and land/soil
degradation, continue to be challenges posed to the growth potential of the
agricultural sector(GPRS II, 2006).
6
Ghanas total export in value in 2006 was approximately US$ 3.6 billion down 35%,
from the 2005 value of US$ 5.6 billion. Imports by Ghana exceeded its exports by
US$ 1.7 billion during the same period in 2006. According to the International
Monetary Fund IMF, 2006) decline in the prices of the countrys major commodities
gold, and cocoa on the world market accounted for the countrys dismal performance
in 2006. Despite that, medium term exports grew at 28 per cent between 2002 and
2006 (ITC, 2006).
Table 2: GDP Structure based on Main Economic Activities between 2000-2004 (in %)
Economic Sector 2000 2001 2002 2003 2004
Agriculture 35.27 35.24 35.15 36.38 37.94
Crops And Livestock 22.01 22.25 22.43 22.35 22.12
Cocoa Sub-sector 4.81 4.58 4.36 5.77 7.60
Forestry & Logging 3.89 3.92 3.94 3.95 3.98
Fishing 4.57 4.49 4.42 4.30 4.24
Industry 25.40 25.22 25.28 25.10 24.74
Mining & Quarrying 4.98 4.72 4.72 4.68 4.59
Manufacturing 9.02 9.00 9.03 8.94 8.75
Electricity & Water 2.69 2.70 2.69 2.66 2.59
Construction 8.71 8.79 8.83 8.79 8.8
Services 28.82 29.16 29.21 28.94 28.65
Transport, Storage & Communication 4.29 4.36 4.41 4.41 4.44
Wholesale, Retail Trade Restaurants & Hotels 6.72 6.80 6.87 6.82 6.81
Financial & Business Services and Real Estate 4.26 4.28 4.32 4.30 4.29
Government Services 10.06 10.17 10.08 9.92 9.69
Community, Social & Personal Services 2.56 2.62 2.62 2.58 2.56
Producers Of Private Non-private Services 0.94 0.93 0.92 0.90 0.87
Net Indirect Taxes 10.51 10.38 10.36 9.14 8.66
Source: Ghana Statistical Services (cited in GPRS II), 2006.
2.1.1 Ghanas Export Performance 2002-2006
Improved and sustained export performance is a key to Ghanas economy. The
contribution of trade to its total GDP remains substantial. However, the extent
of development of the sector is dismal. According to Aryeetey and McKay
(2004), until the turn of the 21st Century, Ghanas external trade sector
experienced minimal changes with insignificant growth in its export
composition. The country relied heavily on its major traditional export
products; cocoa, timber and minerals (including gold, diamond bauxite and
manganese) which were susceptible to negative price development over that
period. This assertion is agreed by Frimpong-Ansah and J onathan (1991) who
observed that the share of exports to GDP declined significantly from the late
7
1960s until the early 1980s, associated with sharp decline and disinvestment
in the cocoa sector and a strong anti-export bias in policies. Between 1977
and 1983, the economy experienced structural difficulties as a result of
political instabilities.
4
However, the economy recorded some modest gains
from the institutionalization of IMF/World Bank sponsored policies such as
the Economic Recovery and the Structural Adjustment Programs (SAP) in the
late 1980s. The measures stipulated under the SAP included policies that
sought to reform the cocoa and gold sectors including subscription to more
liberal trade and fiscal policies. Again, attention was given to improving the
countrys participation in the export of non-traditional products. These NTEs
are mostly agricultural or processed agricultural products, including
pineapples, yams, wood products, cocoa products, canned tuna and oil palm
products. From 1989 to 1996 earnings from non-traditional exports increased
from US$23.8 million to US$276.2 million. This new trend has continued and
in 2003 the sub-sector brought in $588.9 million (Aryeetey and McKay,
2004).
2.1.2 Growth Trends and Direction of Exports
Ghana exported US$ 3.6 billion of merchandise in 2006, at rate above the world
average of 17 per cent per annum, between 2002 and 2006. However, short-term
growth in value of its exports declined by approximately 35% between 2005 and
2006 mainly as a result of unit price fall in its major traditional exports of cocoa (
which accounts for over 34% of total exports), precious stones and mineral (32%)
and timber (8%). For example between 2005 and 2006, 11 of the countrys top-20
export products experienced a decline in their export value between 2005 and 2006
cumulating in an average short-term growth of -35 per cent in 2006 (ITC, 2006).
Ghanas share of world merchandise export is 0.03 per cent.

4
The country between these periods was under military dictatorship. Political power shifted
hands amongst 3 separate regimes. It is important to note also, that, poor climatic conditions
affected the mainly rain-fed agricultural production in the early 1980s resulting in massive
famine in 1983.
8
2.1.3 Major Export Destinations and Their Share of Exports
The European Union (EU) remains Ghanas most important export market. . Ghanas
trade with the EUat 65% of total traderemains the largest compared to anywhere
in the world According to trade theories, colonial ties play a major role in how and in
what countries trade (Rauch, 1999). The countries of sub-Saharan Africa including
Ghana have had a long standing relationship with many of the EU countries
including the United Kingdom, France and Belgium who incidentally remain the
major trade partners of Africa. Again, the establishment of regional trade agreements
between developing and least developed countries of the southwith colonial ties to
Europehas helped facilitate trade between the two blocs. The Economic
Partnerships Agreements (EPAs) between EU and the group of Africa Caribbean and
Pacific countries is an example of such initiative that promote trade between these
two blocs by the provision of preferential treatments. Table 3 provides an overview
of the major destinations of Ghanas export between 2003 and 2006. Europe has had
a strong and sustained presence in Ghana. However, South Africa has become
important market for the countrys export growing in value from US$87 million in
2003 to just US$100million shy of a billion in 2006. Exports to big markets such as
the United States of America and India have also experienced some modest growth
even though they have been sporadic; the former as a result of the introduction of the
African Growth and Opportunity Act aimed at improving selected developing
economies participation in the United States market. From US$67m in 2003, total
exports from Ghana to the U.S. recorded a value of US$1.8billion in 2005.
Table 3: Rank of major importing markets for products exported by Ghana
Rank/Year 2003 2004 2005 2006
1 Switzerland
(25.7)
Netherlands
(25.4)
USA
(33.6)
South Africa
(25.8)
2 UK
(20.0)
UK
(13.5)
South Africa
(13.9)
Burkina Faso
(12.6)
3 Netherlands
(11.8)
Belgium
(7.3)
Belgium
(7.3)
Netherlands
(11.1)
4 Belgium
(4.9)
Free Zones
(6.8)
Nigeria
(7.7)
Switzerland
(6.8)
5 Germany
(4.8)
France
(6.2)
India
(6.4)
France
(4.6)
6 South Africa
(3.8)
South Africa
(6.0)
UK
(5.9)
Belgium
(4.0)
Source: ITC, 2006 (with own modifications).
9
2.2 Non-Traditional Exports (NTEs): Concepts and Definitions
The notion of what constitutes NTEs varies across countries, products and over time.
A country defines it traditional export based on its portfolio of commercially
successful exports over a time period. Diversification of its exports into new sectors
therefore, constitutes it non-traditional base. For instance, Singh (2002) defines non-
traditional crops as those that are not part of the customary diet of the local
population and are grown primarily for their high cash values and exports potentials.
Takane (2004) on the other hand emphasizes the relative relentless promotion of
exports of novel products against the more traditional stock of products as those
constituting its NTEs. Helleiner (2002) who has conducted extensive analyses on the
economic components of NTEs outlines four different factors that may influence
policy interest in NTEs as follows:
1. The hope of finding new export products that are not as vulnerable to
deteriorating terms of trade and/or declining world demand as are the
traditional bundle of exports (e.g. Delgado, 1995)
2. The hope that diversification in the export portfolio will reduce export
instability and, more broadly, risk; diversification may, for these purposes, be
achieved either through a new mix of products or via an expanded range of
markets (e.g. Alwang and Siegel, 1994)
3. The belief that certain new export products may generate greater dynamic
effects learning, positive externalities, etc. than traditional exports (e.g.
Wangwe, 1995; Ernst et al., 1998)
4. The prospect of exporting products that were previously producedwithin the
country but were not exported.
10
2.2.1 Classification and Categorization of NTEs
The concept of what constitute non-traditional will continue to vary depending on the
expectations of a policy, research or market study. Whilst the notion of dynamic
5
versus stagnant approach has been employed to classify traditional exports from non-
traditional (UNCTAD, 1996; Helleiner, 2002), NTEs have been classified by a
threshold percentage of export. The World Bank for example in its compendium of
development indicators (World Bank, 2004a: 2004b) defines NTEs as the ten
largest three-digit commodity groups in the countrys exports in the base year (1983
1984), unless those ten do not account for at least 75 per cent of those exports, in
which case more three-digit groups are added as necessary until at least 75 per cent is
reached. NTEs are, by implication, all of the rest (Helleiner, 2002). This is a
departure from earlier classifications that ascribed exports shares of less than 1 per
cent (Labys and Lord 1990), 2 per cent (Balassa, 1977) and 3 per cent (Balassa et al.,
1971 cited in Helleiner 2002). NTEs have also been defined by it newness in a
countrys production basket. By this definition, products are classified as non-
traditional by the fact that it had not hitherto been exploited commercially for
exports. This method however, conflict with products that are not in themselves new
but minor in the level of production and exports and hence might not necessarily be
novel (Singh 2002; Takane, 2004; Little and Dolan, 2000; Helleiner, 2002).
2.2.2 The Role of NTEs to Developing Economies
Proponents of theory of Export-led growth have argued on the premise that once
economic agents gain an advantage through the capture of export markets, it tends to
sustain that advantage through the operation of various cumulative forces which
generates a so-called virtuous circles for favoured economic agents (Thirwall,
2003). Externalities are therefore, generated, as a result, in the non-export sectors of
the economylearning effects, increased investment, improved infrastructure and

5
Dynamic products are those with both the most rapidly increasing OECD import demands
and an increasing share in OECD imports, while the most stagnant products are those with
both lower rates of growth in OECD demand and a declining share therein (Helleiner, 2002).
11
productivity etc.which drive the entire economy (Helleiner, 2002). By implication,
when economic agents fail to take advantage of such export opportunities, it leads to
the creation of vicious circles with attending negative externalities. In the case of
developing countries, their performance in the production and exports of their
traditional products put them in the second category (J ebuni et al., 1992; UNCTAD,
1998; Grossman and Helpmann, 1991). Helleiner (1998) argues for example that,
with the exception of South Africa and Mauritius, most African countries have not
maximised the positive externalities associated with their exports on their economies.
Traditional exports, more often, have narrow economic participants on their
production chain and without appropriate interventions, the growth and development
are accruable only to economic agents operating in that sector alone. Helleiner (2002)
classifies such production processes with limited or de-linked developmental effects
as being staticwith low productivity, low investment etcand hence continued
deterioration in the terms of trade of such economies and argues a shift to NTE with
dynamic effects as the key to larger economy-wide effect. The horticultural
industry has long been touted as one of such dynamic sectors with wider
development secondary effects. A study by McCulloch and Ota (2002) asserted that
households that participated in horticulture in rural communities sampled earned a
comparatively higher income than those that did not with women being the main
earners.
The success of pioneering non-traditional agricultural exporters such as Kenya, South
Africa and Guatemala have variously been cited in literature to promote the
development and replication of the sector in other developing countries. In an
example, von Braun, (1994) reported that the production of export vegetables created
new employment opportunities, reduced the need to rely on uncertain off-farm
employment, and increased the household incomes of the smallest Guatemalan
farmers (Singh, 2002). In Bhutan, the production and exports of high-value products
such as Masutake mushroom and lemon grass oil to J apan and Europe, respectively
have consolidated the countrys niche market in these product sectors and as Tobgay
(2005) emphasizes, despite the relatively high cost of transport of the products to
these market, the relatively respectable returns have ensured the growth of the
12
sectors. In many developing countries, horticulture which is a key NTE sector
currently accounts for 20 per cent of world agricultural exports (UNCTAD, 2008).
The relatively low cost of labour and favourable natural resource endowments in
many developing countries confers them with comparative advantage in that sector
(Okello, 2004 cited in UNCTAD, 2008) aside the good prices that it offers compared
to traditional exports which have experienced price decline over time. According to
the United Nations Food and Agriculture Organization (FAO, 2006) the fishery
sector presents export opportunities for many coast-lying developing countries
because fish stocks in most high-consuming developed countries have depleted even
as their demand continue to grow.
2.3 Determinants of Export Performance and Competitiveness
This section examines the theoretical background that explains patterns of exports
from across countries in todays increasingly competitive market. Numerous theories
explain the differences in pattern of trade, export performance and competitiveness
across countries and economic blocs including; the Ricardian model that points to
technological differences as the source of comparative advantage (Leamer and
Lundborg, 1993). On the other hand Heckscher-Ohlin-Samuelson theory of
comparative advantage reflects on the supplies of productive inputs (existence of
factor endowments) as the main source of comparative advantage and yet the
Chamberlainian school of thought (including Krugmans New Trade Theory)
(Eszterhai, 2007) refers to the existence of economies of scale and prevailing market
structure as the main sources of competitiveness. Whilst this thesis is not the
platform to discussing the merits or otherwise of these various theories, the thesis
chooses to rely heavily on Michael Porters so-called five-forces of competition
theory (Porter, 1990) in explaining the pattern of exports with respect to the topic
under discussion.
The fundamental insight of Porters theory is that national prosperity is created, not
inherited (Porter, 1990) thereby refuting, in the process, the traditional economic
theory that variables like labour costs, interest rates, and economies of scales are
most elemental to explaining a nations competitive advantage (Helvik and
Harnecker, 2005). It is important to keep in mind that nations by themselves do not
13
initiate trade; it is the done by individuals and individual firms within nations and
therefore, Porters model which is an industry-level framework with the nation as
its core unit of analysis becomes important in capturing the elements of export
patterns at the national level without losing sight of the importance the individuality
of firms.
2.3.1 The Theory of the Five Competitive Forces
Figure 1: The Five Competitive Forces that Determines Industry Profitability (Porter, 1990).
Figure 1 illustrates the five competitive forces that determine industry profitability as
espoused by Michael Porter in his book Competitive Strategy published in 1980. In
it, he argued that the essence of formulating competitive strategy is relating a
company to its environment (11, p.3). The environment, he argued, results from
historical activities and traditions, factors which are inherited rather than created.
In order for firms to counter (or to take advantage of) the effects of the existing (or
pre-existing environment), strategies need to be created and hence his assertions
that prosperity is created. Porter details the forces of competition as follows:
Potential Entrants
Suppliers Buyers
Substitutes
Industry
Competitors
Rivalry among
Existing Firms
Bargaining Power of
Suppliers
Threat of New Entrants
Bargaining Power of
Buyers
Threat of Substitute
Products/Services
14
2.3.2 Barriers to Entry
Industries whilst facing barriers to entry, must compete for buyers, ward off potential
entrants/substitute products and bargain for the least cost supply at any given
business cycle. The success of any single industry therefore, is how it is able to relate
to these competing forces continuously. Porter considers barriers to entry to include
economies of scale, product differentiation, capital requirements, switching costs,
access to distribution channels, cost disadvantages independent of scale, government
policy and expected retaliation. For example the fruits processing industry in Ghana
faces significant entry barriers into the European market not least because as a
relatively capital intensive market, most EU member countries are themselves
producers and need to protect their industries (Hummels and Klenov, 2005). Whilst,
conventional barriers to exports of fresh fruits to the EU has substantially been
reduced, processed fruits juices not only face tariff escalation but also a more
stringent safety and quality standard. Hallack and Schott in 2005 estimated the
relationship between per capita income and aggregate demand for quality. He
observed that rich countries tend to import relatively more from countries that
produce high-quality goods (as had long been argued by Linder in 1961). The
capacity to penetrate these markets while addressing these concerns, therefore, is
essential to developing countries Fruit products that undergo vertical diversification
are especially subjected to stringent quality management procedures (from ISO
9001:2004 to HACCP) to provide quality assurance to an increasingly powerful
consumer in the supplier-consumer relationship (Anderson and Nielsen, 2001). The
EU sets very high standards on pesticide use and its residual effect on processed
products. These measures reduce the competitive edge of producers from many
developing countries not least because they are capital intensive (especially private
standards such as EUREPGAP).
2.3.3 Rivalry among Existing Competitors
Secondly, existing competitors devise measures to secure market share, maintain or
expand their reach. The intensity of their rivalry depends on the balance of
competitors, industry growth, the size of fixed or storage costs, the amount of
differentiation or switching costs, the minimum size of investments, the types of
15
competitors, the strategic stakes and the size and types of exit barriers. Competition
affects a firms performance in two-fold; performance resulting from its exposure to
the domestic market and that to the foreign market (Commander and Svejnar, 2007).
Secondly, the extent of the effect of competition on a firms performance is
dependent on the direction of product diversification. According to Herzer and
Nowak-Lehman (2006), under certain conditions
6
positive effects of increased
competition resulting from vertical diversification comes about from learning-by-
exporting, whilst, horizontal diversification may lead to improvements from
learning-by-doing
7
. However, Sachs and Warner (1997) warned that for producers
and exporters of primary products, these effects (learning-by-doing/exporting) may
not be significantly important in affecting performance.
Major Cashew Producers (2006)
0
100
200
300
400
500
600
700
800
900
V
i
e
t
n
a
m
I
n
d
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a
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Countr ies
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r
o
d
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o
n

(
1
0
0
0
M
T
)
Graph 1: Major Cashew Producers (2006).

6
On perfect market conditions, such as that firms are price takers, perfect competition etc.
7
Herzer et al year, page argues that if knowledge is generated through a systematic
learning process set off by exporting, developing countries will gain from orienting their
sectors towards exporting. Also exporters learn to diversify and improve their reach into
markets by gaining knowledge of their foreign buyers specifications, quality standards etc
which makes them (exporters) more competitive.
16
The cashew market presents a good example of how the amount of differentiation
affects the level of competition among rival producers. The unit value of cashew on
the international market is considerably dependent on the level of processing as
evident in Table 4. The 2006 average world price of shelled cashew was over
US$4400 per MT compared to US$619 when unshelled. Conversely, the major
suppliers of shelled cashew are notably absent in the unshelled cashew trade, even
more they tend to be net importers of that product as is the case of India which
imports substantial volume (88.04%) of unshelled cashew from Africa, including
Ghana. The Netherlands import a bulk of its shelled cashew from India and Vietnam
mainly to meet domestic demand, as well as, for re-exports to high value markets in
the EU. World exports of shelled cashew grew at 17 per cent between 2002 and 2006
even though supply dipped to -1 per cent between 2005 and 2006. On the other hand,
demand for unshelled cashew has not been healthy mainly because most importers of
the product are themselves producers and exporters and demand transmission in the
shelled cashew market is negatively magnified in times of poor demand. World
imports of unshelled cashew increased by 10 per cent in the medium term but fell by
11 per cent in the year leading to 2006.
Table 4: Leading Cashew exporters and Unit Price Differential based on Processing (2006).
Shelled Cashew Unshelled Cashew
Rank
Value of
Export
currency
Unit
Price(Per
MT)
currency
Value of
Export
currency
Unit Price
(Per MT)
currency
World 1,340,716 4,405 World 331,007 619
1 India 546,029 4,508 Cote d'Ivoire 91,331 619
2 Vietnam 380,985 4,236 Guinea Bissau 49,462 433
3 Brazil 187,538 4,338 Benin 48,520 707
4 Netherlands 106,943 4,982 Tanzania 35,633 647
5 Belgium 16,435 5,020 Mozambique 23,678 3,050
6 Tanzania 14,975 3,918 Ghana 8,881 328
Source: ITC (2006) with modifications.
2.3.4 Substitutes
Substitute products offer alternatives and limit the size of profits (REF). Porter
asserts that substitutes also depend on price and the ease of switching costs (REF).
Take the cocoa industry for example. Demand for chocolate and other food
preparations made from cocoa reached US$ 13 billion in 2006, exceeding the
17
previous year by more than US$500 million. Cocoa butter as the main ingredient
used in the production of chocolate and other cocoa-based confectionaries. Dand
(1999) asserts that whilst improved technology may extend the use of an expensive
material in production, the use of cheaper substitute for that material may also be
employed as a cost-reductive measure. The cocoa butter industry presents such
example. The relatively high unit cost of cocoa butter in the production of cocoa
confectionaries in the early 60s fuelled interest in research to find cheaper
substitutes cumulating the development of Coberine in 1960 by UNILEVER as a fat
for cocoa butter. Over the years, there has been growing interest in the development
of so-called Cocoa Butter Equivalents (CBEs) and Cocoa Butter Replacers (CBRs)
used at varying degree in the production of confectionaries albeit under strict
regulations. Dand, however, contends that how these substitute have impacted on the
competitiveness of cocoa butter remains unclear for several reasons: lack of data that
relates the relevant variables, substitution may be done for technical rather than for
economic reasons, the overall price of the product impact more on demand (and the
use of substitute may actually increase the consumption of cocoa).
2.4 Other Factors that Affect Export Performance and
Competitiveness
The factors that affect performance and competitiveness are not exhaustive.
However, many developing countries are engaged in the export of primary goods
and, their capacity to access information of niche markets, trends and growths of
products may be lacking. To such business agents, reliant on past performance is one
means of reading into the market and ultimately devising new competitive strategies.
Secondly, there is a gap between what is produced and exported from many
developing countries and the final products that is consumed from these initial
exports (REF). This section assesses how these two factors affect performance and
competitiveness.
2.4.1 The Effect of Previous Performance
Researchers acknowledge that there is no concrete theoretical framework for
investigating export performance (Leonidou, Katsikas and Samiee, 2002; Lages et al,
2004). Lages et al (2004) contends that researchers are more prone to studies that
18
desires and rewards theories that look for factors to improve performance and tend to
overlook firms reactive behaviour especially in retrospect. According to Cavusgli and
Nevin (1981), preceding export performance is likely to be positively related to a
commitment in the next period because export commitment is a function of resource
availability (Lages et al., 2004). They argued that when firms commitment to the
exporting venture increases as a result of positive past performance; they tend to
allocate more resources to that venture. For example, managers and employees will
be motivated to increase capital, production inputs and labour resulting from
increased wages etc. (they refer to these forces as the internal publics). Also,
improved past performance may stimulate growth in client numbers, interest from
credit institutions and suppliers of inputs (external publics). In the manufacturing
sector for example, Mauritius presents a good example of consistent improvements in
that sector. In 1980-90, Mauritius exported 48 per cent of her total exports as
manufactures but by 1995, it had increased its manufactured exports to 67 per cent
raising its per capita of manufactured exports from US$341 to US$823 (Teal, 1999).
Nonetheless, other researchers point out the possibility of the so-called fat cat
syndrome where past positive performance is associated with mediocrity and
relaxation of future commitments (Cyrert and March, 1963; Bourgeois, 1981; March
and Simon, 1958; Litschert and Bonham, 1978; cited in Lages et al., 2004).
2.4.2 Diversification
Another important element of export performance is diversification
8
.Hughes and
Oughton (1993) established two theoretical relationships between profitability and
diversification. They pointed to Williamson (1975) proposition that through greater
exploitation of a firms assets, reduction in transaction costs, and benefits that accrue
from economies of scope, diversification may be expected to increase profitability by
facilitating increased efficiency. Secondly, they argued that diversification

8
Market diversification entails shifting exports to new and more rewarding markets with
adequate adaptive capacity and long term expectation of sustained demand growth at lower
costs, whilst product diversification on the other hand include the expansion of the existing
export lines to cover more competitive goods and services.
19
strengthens firms recognition of their interdependence by increasing the number of
arenas which they meet and compete thereby providing greater scope for multi-
market contacts with the effect of reducing competition. However, Encaoua et al
(1986) who has extensively analyzed the relationship between diversification on
global market power (Hughes and Oughton, 1993) argued that diversification has a
two-way effect depending on whether the diversified firms produce substitute or
complement goods. Firms may choose to diversify their markets for several reasons
including to reduce their reliance on an increasingly monopolistic market (Dolan and
Humphrey, 2000), to improve their stake in price determination (Gereffi and
Korzeniewicz, 1994) and to find potential commercially viable markets (Minot and
Ngigi, 2004). The increasingly assertive role of EU supermarket chains, for instance,
in the horticulture market was a source of concern to many exporting developing
countries particularly, as prices were no longer a function of the primary produce
itself but more accruable to product differentiation through value addition in the
supply chain (Dolan and Humphrey, 2000; Humphrey, 2002; Gereffi and
Korzeniewicz, 1994; Gioe, 2006). According to Gioe (2006) in 1989, supermarkets
sold 33 per cent of fresh fruits and vegetables in the UK but by 1997, their share had
increased to 70 per cent. Many exporting countries responded to this development by
diversifying their exports to market where they could exercise more bargaining
power and control on prices whilst at the same time they concentrated on meeting
some new requirements and demands that influence prices such as standards,
traceability requirements and packaging (Minot and Ngigi, 2004). On the other hand
product diversification may be embarked upon mainly as a result of prevailing
market conditions. For instance, in the pineapple industry, consumers preference
shift from the traditional sweet cayenne variety to the MD2 on the European market
accounted for the shift in its commercial production across countries. Cote dIvoire
for example, a pioneering pineapple exporting country squeezed several competitors,
particularly Kenya and Ghana, out of business in the late 1980s on the EU market as
a result of it innovative-market-oriented-approach in that business (; Owen and Wood
1997 cited in Gioe, 2006).
20
3CHAPTER III
3.1 Methodology
The research setting is the non-traditional export sector of the Ghanaian economy.
The identification of the specific products for research was based on GEPCs list of
prioritized NTEs using 2006 as the base year. Two indices were employed for
analysis: The Revealed Comparative Advantage (RCA) and the Lafay Index (LI).
The merits informing the choice of these indices are discussed subsequently. The aim
of the research method is to answer the following research question: are the listed
products competitive? The underlying reasons resulting from the answers to this
question are subsequently discussed in following sections.
3.2 Comparative Advantage
Numerous systems have been devised to measure the patterns of trade, including
export competitiveness. The concept of comparative advantage is widely used in
economic literature to evaluate the patterns of trade and specialization of countries in
commodities which they have a competitive edge (Prasad, R. 2006). The paper
employs the so-called Balassa index with some modifications to measure Ghanas
competitiveness in the identified top-ten NTEs. The Balassa index, the Revealed
Comparative Advantage (RCA)
9
of country i in the trade of a product j is measured
by the items share in the countrys exports relative to it share in the world trade.
(Leishman et al 1999). It is calculated as follows:
i
ij
S
S
RCAij =
where

=
i
ij
X
ij
X
ij
S

9
The RCA has the disadvantage of obscuring real comparative advantages or disadvantages
in products groups where trade is distorted by export incentives and trade barriers primarily
agricultural products. These distortions results in upwards biased RCA index values (Prasad
2006; ITC 2001). The Paper employs Laursen (1998) adjustment technique to the RCA to
make it more symmetric.
21
( is the ratio between country is export of good j (denoted as X
ij
) and the world
export of good j;

=
j i
ij
j
ij i
X X S
,
is the ratio between country is total exports and the total exports of the entire world.
By definition therefore, the market j becomes the focal point of comparison of
country is export of product j relative to the total world exports. In our case S
ij
is the
ratio between Ghanas export of a selected NTE and the world export of that product
and S
i
is the ratio between Ghana total exports and the total exports of the world.
RCA
ij
greater than 1, indicates that country is share in market j is greater than its
share in the world market, implying that the country is relatively morecompetitive in
market j than in other markets and hence has a revealed comparativeadvantage in
good j. The opposite is true for RCAij less than 1. The RCA however, produces
outputs incomparable at both sides of 1. Laursen (1998) employs the following
mathematical equation to make the resulting RCAs symmetric: (RCA-1)/(RCA+1).
The resulting measure which ranges from -1 to +1 is referred to as the Revealed
Symmetric Comparative Advantage (RSCA). Non- adjusted Balassa Index runs the
inherent risk of overestimating index above 1 when compared to observations below
1. The RSCA normalises this shortcoming of the RCA. The main short-coming of RCA,
a single flow indicator, is that it does not allow a synthetic assessment of thecountry's
position in international trade (Iapadre, 1996). For any given level of export
specialization, as measured by the RCA or the RSCA indicator, a country's
comparative advantages may differ, according to its degree of import dependence.
Therefore, other indicators that bring import into the equation become imperative.
3.3 Lafay Index
The second method employs the Contribution to the Trade Balance (CTB), an
indicator developed by the French Economic Research Institute CEPII. Also referred
to as the Lafay Index (Dagenais and Muet 1994) it compares the balance of trade of a
country for a selected product to a theoretical balance, corresponding to the absence
of specialization (ITC 2006; Zaghini, 2003). This instrument is useful in identifying
22
strong and weak points of a specific country and comparing them with its
competitors at an aggregated level of industry. Unlike the RCA, the Lafay Index
takes into account, both a countrys exports and import of the focal product
considering the important role of intra-industry trade worldwide (Zaghini, 2003).
Secondly, Zaghini, again, asserts the normalization of each products trade balance
over their respective overall trade balance eliminates structural distortion introduced
by short term cyclical fluctuations which have significant influence in the magnitude
of trade flows. The Lafay index is given for a country i and good j as:
( )
( ) ( )

= =
=
+
+
(
(
(
(

=
N
j
i
j
i
j
i
j
i
j
N
j
i
j
i
j
N
j
i
j
i
j
i
j
i
j
i
j
i
j i
j
m x
m x
m x
m x
m x
m x
LFI
1 1
1
100
where xi j and mij are exports and imports of product j of country i, towards and
fromthe rest of the world, respectively, and N is the number of items. According to
the index, the comparative advantage of country i in the production of item j is thus
measured by the deviation of product j normalised trade balance from the overall
normalised trade balance, multiplied by the share of trade (imports plus exports) of
product j on total trade (Zaghini, 2003). It therefore holds true that
0
1
=

=
N
j
i
j
LFI
.
Positive values of the index indicate a degree of comparative advantage whilst
negative value is an indication of the erosion of specialization. According to Iapadre
(1996), besides being used as a measure of trade performance, in disaggregated
analysis, the normalized trade balance such as the Lafay index, is often interpreted
also as an indicator of trade specialization. High and positive normalized balances are
recorded for commodities in which the national production is very competitive in
both foreign and domestic markets. Therefore, it may be considered as an ex-post
synthetic indicator of the competitive success of national products.
23
3.4 Data Requirements and Sources
The empirical analysis is conducted using trade data from the International Trade
Centres (ITC), interactive trade databases (TRADEMAP, PRODUCTMAP AND
MACMAP). The database provides comprehensive trade data including tariffs,
performances on existing and new market opportunities.
It reports for over 220 countries and territories covering approximately 5300 products
defined at the 2, 4, or 6 digit level of the Harmonized System of trade classification.
Trade statistics between 2001 and 2006 are analyzed. A particular short-coming of
the ITC data is that it occasionally mirrors corresponding figures from partner
countries, as proxies, of non-reporting focal countries (mainly from developing and
least-developed countries) (ITC, 2006).
24
4CHAPTER IV
4.1 RESULTS
4.1.1 Disaggregation of Ghanas Exports
Table 6 shows the merchandise exports of Ghana ending 2006. Ghanas total
export reached US$3.6 billion in 2006. Cocoa and product remain the
countries number export followed by precious metals and wood products.
Total merchandise export between 2005 and 2006 declined by 35 per cent
resulting in relative poor export performance of its major exports including
cocoa, wood products and edible fruits. The export of footwear increased
significantly by as much as 209410 per cent between 2005 and 2006 whilst
meat, fish and seafood recorded the highest losses within the same period.
Table 5: Major products exported by Ghana (2006)
RANK
PRODUCT VALUE EXPORTED
currency
GROWTH RATE (EXPORTED
VALUE) currency
SHARE IN WORLD
EXPORTS in %
2002-2006 2005-2006
All 3,613,994 28 -35 0.03
1 Cocoa/Cocoa
Products
1,241,079 14 3 5.34
2 Precious metals 1,153,148 31 28 0.49
3 Wood products 280,727 35 -61 0.25
4 Cotton 229,421 38 6573 0.46
5 Plastic products 175,526 85 1099 0.05
6 Edible fruit 143,747 76 -59 0.27
7 Footwear 43,997 291 209410 0.06
8 Aluminium
product
43,856 63 -7 0.03
9 Meat, Fish and
seafood
35,248 -14 -90 0.12
10 Oilseed, grain,
seed
32,527 26 -16 0.1
Source: International Trade Centre (ITC, 2006) with own modifications.
25
4.1.2 Approximation of Competitiveness: The Symmetric Revealed
Comparative Advantage (SRCA)
Table 6 illustrates the level of specialisation of the selected NTEs from Ghana by
comparing the countrys export structure of each product to the world export
structure of the rest of the world. When the RSCA for a given product (and for a
given country) equals -1, that sector is structurally under-specialized compared to the
rest of the world and conversely, a sectors comparative advantage is revealed at +1.
From the RSCA figures (2003 - 2006), products that revealed relative strengths
include cocoa paste, cocoa butter, veneer sheets, plywood, cashew and fresh
pineapples. Preserved fruits revealed relative advantages in 2003 and 2004 but
subsequently declined in 2005 before strengthening the following year. Tuna enjoyed
a brief spell in 2003 but have since declined considerably. These figures in
themselves do not assume that the sectors have not been improving. Corresponding
increases in world exports impact negatively on RSCA even if absolute imports from
Ghana in a particular sector increases.
Table 6: Revealed Symmetric Comparative Advantage (RSCA).
4.2 Normalized Competitiveness Measure: The Lafay Index
From the tabulated Lafay index for Ghana in 2006 (Table 7), cocoa paste had the
highest score (12.5) followed by plywood (8.0) and Cocoa butter (7.5). Conversely,
Prepared tuna was the worst performing product (-38.2) with frozen tuna following
PRODUCT 2003 2004 2005 2006
Cashew Nuts 0,96 0,98 1,00 0,97
Shea Nuts 1,00 - - -
Fresh Pineapple 1,00 1,00 0,97 0,99
Preserved Fruits 0,79 0,83 0,24 0,61
Frozen Tuna 0,87 -1,00 -0,36 -0,78
Prepared Tuna 0,48 0,92 0,74 0,87
Cocoa Paste 1,00 1,00 0,99 1,00
Cocoa Butter 0,91 0,99 0,98 0,99
Veneer Sheets 0,99 0,99 0,98 0,99
Plywood 0,94 0,94 0,99 0,97
26
closely (0.0005). Generally, the RSCA compares well with the Lafay Index for the
year under review and for each product. However, a close look at pineapple exports
revealed a strong index with the RSCA but relatively subdued by Lafay. This is
because unlike RCA (RSCA) which does not take imports into account, Lafay index
also normalises the trade balance for each product. Relatively high degree of
importation of prepared tuna for example could explain why a strong RCA index in
2006 is not reflected in the Lafay Index.
Table 7: Lafay Index of Ghanaian Top-performing NTEs (2006)
PRODUCT LAFAY INDEX, 2006 PRODUCT LAFAY INDEX,
2006
Cashew Nuts 1.255781 Cocoa Paste 12.47717
Shea Nuts - Cocoa Butter 7.496998
Fresh
Pineapple
1.812341 Veneer Sheets 6.918528
Preserved
Fruits
0.195966 Prepared Tuna -38.1971
Frozen Tuna 0.000521 Plywood 8.039844
The second stage compares Ghanas Lafay Index to that of selected competing
countries
10
. Table 8 provides and overview of the Lafay indices of these competing
exporters of Ghanas main exporting NTEs in 2006
11
. Ghana compares relatively
well in the production and exports of unshelled cashew, cocoa products, veneer sheet

10
The selection of the competing countries were based on the following measures:
competitive countries that share geographical relationship with Ghana and by extension have
common production patterns for example Cote dIvoire; secondly, countries that enjoy
similar tariff measures as Ghana on the EU market example Fiji (via the Cotonou
Agreement); Finally, world top performing countries for the selected product in the absence
of conditions 1 and 2.
11
The calculation of the competing countries Lafay indices was based on the assumption
that for each selected NTE, that country exports and imports the remaining NTEs in equal
value as Ghana. Holding the value of imports and exports of the remaining NTEs was
important to establishing a basis for comparison.
27
and plywood. It however, performs comparatively poorly in the exports of tuna
products, as well as, unshelled cashew and preserved fruits. Essentially the bulk of
Ghanas cashew exports are sold unshelled (1.25) like her competing African
countries of Cote dIvoire (12.87) and Guinea-Bissau (6.97). The competitiveness
indices of India and Vietnam in the exports of shelled cashew reflects it performance
in 2006. The negative values of Belgium and the Netherlands in the exports of
pineapple and cocoa paste is indicative of the fact that these countries are mainly into
re-exports of these products rather than primary producers. For example, in 2006
Belgium imported US$ 691 Million in value of raw cocoa of which approximately 66
per cent came from Ghana and Cote dIvoire. Kenya is the most competitive exporter
of preserved fruits from Africa exporting over US$ 50 Million worth in 2006
compared to Ghanas exports of US$ 1.8 Million. Ghana has the best plywood
industry in Africa even though China, Malaysia and Brazil have significant share of
that product export market in the world. China, like Malaysia, supplies primarily the
United States of America, South Korea, J apan and the EU whilst over 88 per cent of
Ghanas plywood is supplied to Nigeria (ITC, 2006). In the cocoa industry, Cote
dIvoire has consistently proven the main competing supplier other than Ghana albeit
both countries have a competitive market share on the international cocoa market.
Ghana compares relatively well in the production and exports of unshelled cashew,
Cocoa products, Veneer sheet and Plywood. It however, performs comparatively
poorly in the exports of tuna products, as well as, unshelled cashew and preserved
fruits. Essentially the bulk of Ghanas cashew exports are sold unshelled (1.25) like
her competing African countries of Cote dIvoire (12.87) and Guinea-Bissau (6.97).
The competitiveness indices of India and Vietnam in the exports of shelled cashew
reflects it performance in 2006. The negative values of Belgium and the Netherlands
in the exports of pineapple and cocoa paste is indicative of the fact that these
countries are mainly into re-exports of these products rather than primary producers.
For example, in 2006 Belgium imported US$ 691 Million in value of raw cocoa of
which approximately 66 per cent came from Ghana and Cote dIvoire. Kenya is the
most competitive exporter of preserved fruits from Africa exporting over US$ 50
Million worth in 2006 compared to Ghanas exports of US$ 1.8 Million. Ghana has
the best plywood industry in Africa even though China, Malaysia and Brazil have
28
significant share of that product export market in the world. China, like Malaysia,
supplies primarily the United States of America, South Korea, J apan and the EU
whilst over 88 per cent of Ghanas plywood is supplied to Nigeria (ITC, 2006). In the
cocoa industry, Cote dIvoire has consistently proven the main competing supplier
other than Ghana albeit both countries have a competitive market share on the
international cocoa market.
Table 8: Lafay Index of Major Competitors of NTEs exported by Ghana (2006).
CASHEW (SHELLED) LAFAY INDEX
India 76,80
Vietnam 52,10
Ghana 0
Cashew (Unshelled)
Cote D'Ivoire 12,87
Guinea-Bissau 6,97
Ghana 1.25
Pineapple
Costa Rica 61,24
Belgium -42,22
Cote D'Ivoire 9,97
Ghana 1.81
Preserved Fruits
China 142,95
Thailand 77,49
Kenya 7,24
Ghana 0.19
Tuna
Spain 6,65
Indonesia 8,13
Fiji 0,89
Ghana 0.0005
Cocoa Paste
Netherlands -3,76
Cote D'Ivoire 33,16
Ghana 12.47
Cocoa Butter
Netherlands 41,98
Malaysia 49,78
Cote D'Ivoire 25,45
Ghana 7.49
Veneer Sheet
USA 73,78
Gabon 16,55
Cote D'Ivoire 8,51
Ghana 6.91
29
Plywood Lafay Index
China 410,22
Malaysia 272,95
Brazil 91,69
Ghana 8.04
30
5CHAPTER V
5.1 Discussion of Results
The factors discussed in section two which are believed to affect the competitiveness
and performance of NTEs will be employed to discuss the findings of the research.
These include standards, prior experience in exports, diversification, government
interventions, barriers (discussed under porter), existence of intra-industry trade etc.
The resulting indices are not exhaustive in defining the competitiveness of the NTEs.
However, they shed important insight into some aspects of the structure, character
and direction some of which are discussed below in sector-by-sector basis.
5.1.1 Cocoa Industry
The cocoa and timber industries have long been the backbone of the Ghanaian
economy and have undergone significant structural and institutional transformation
since independence (WTO, 2008). The export of raw products used to characterize
the two sectors and even today substantial portions of cocoa and timber are exported
in the raw state (see Table 5). Vertical diversification of cocoa beans into power,
paste and butter was largely informed by the continued deterioration in the world
markets prices of cocoa beans beginning in the late 1970s (Dand, 1999). Cocoa and
timber have high RCA and Lafay indices indicating party the existence of
comparative advantage but also could as a results of lessons learnt from past export
performance in those industries (see Chapter 2.5.1). Cocoa is Ghanas most dominant
cash crop and single most important export product (WTO, 2008; ITC, 2006) and the
importance of that industry to Ghanaian economy is underscored in its precise
network of administration under the Ministry of Finance and Economic Planning
(MOFEP). The COCOBOD, a semi-autonomous institution under MOFEP is the
main body tasked with research and marketing of cocoa in Ghana.
The COCOBOD carries out its research work through the Cocoa Research Institute
of Ghana (CRIG) which provides research and advice on, amongst others, agronomic
practices that impact on diseases and pests. The Ministry of Food and Agriculture
provides Extension Services to farmers. The Cocoa Marketing Commission, CMC is
the body responsible for marketing of cocoa beans either through exports or sale to
31
local processing companies. CMC purchases cocoa beans from farmers through
Licensed Buying Companies (LBCs) which are mainly private entities involved in
internal marketing of the beans. Price of cocoa beans purchased from farmers is
decided by the Producer Price Review Committee (PPRC) which has farmer, as well
as, government representation.
Domestic processing of cocoa is growing in importance with a medium-term
objective of 40% output. As of 2007, 5 private processing companies were involved
in the production of butter, powder, liquor and cocoa by-products with a combined
processing capacity of 253, 000 MT (WTO, 2008). The GCPC is however, the main
cocoa processing industry, and is partially government-owned. Since locally
produced cocoa products compete directly with processing companies on the export
market, tariff escalation on these markets is the main draw on domestic processing
for exports.
Table 9: World Imports of Cocoa and Cocoa Products (2002-2006).
Cocoa Product Combined
World Imports
Unit Value
(US$/MT)
Growth in
Import Value
2002-2006
Growth in
Import
Quantity
2002-2006
1 Chocolate 13,491,880 3,334 14 7
2 Beans 4,874,867 1,655 6 11
3 Butter/fat &Oil 2,794,413 4,140 18 6
4 Paste 1,202,692 2,098 3 7
5 Powder 918,066 1,547 -2 5
6 Husk/Skin/Waste 43,143 432 10 -2
Source: ITC, 2006.
According to the WTO (2008), Ghana imposes a 20% import tariff on cocoa and
cocoa products. Cocoa exports are subject to taxes and repatriation of export revenue
and its conversion into local currency. The industry is unmatched in the level of
institutional framework governing it and thence the high level of competitiveness it
enjoys.
Secondly, the cocoa industry have enjoyed significant growths in world demand in
value and volume for the past 5 years (see Table 9). Cocoa and cocoa products are
also supplied to high-value markets of the US of A, Germany and France (see Graph
32
2) and apart from chocolate, butter and paste are most valuable cocoa products on the
international market (Table 9).
Market Share of Major Cocoa Importing Countries
in 2006 (%)
0
10
20
30
40
50
60
70
80
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S
.

A
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(
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)
Graph 2: Market Share of Major Cocoa Importing Countries in 2006 (%).
5.1.2 Timber Industry
The high RCA and Lafay figures for timber products also reflect the fact that they are
natural resource- based products like cocoa with little intra-industry trade in Ghana.
The Timber industry is also strong in Ghana. Ghana is endowed with 35 per cent of
forest and woodlands relative to its total land area (GEPC, 2006) which partly
explains the the significant RCA values for veneer and plywood, the main forms of
timber exports from Ghana apart from log. Ghana imports significantly low levels of
veneer and plywood from other parts of the world and thence the high Lafay indices
(6.9 and 8.04 respectively).
Veneer sheet trade formed about 3.2 per cent of wood merchandise with a total
import of 1.85 MT in 2006. The United States (15.49%), Italy (8.85%), Germany
(8.31%) and Spain (7.74%) are the leading importers of veneer sheets. The EU
purchased over 42.9 per cent of the product in 2006. The market for Veneer sheet is
diverse with the top 25 world importing countries accounting for just over 1 per cent
individually. Secondly, the world import growth from 2002-2006 stood at 8 per cent
and even higher in the EU and USA where Ghana export approximately 49 and 24
per cent of its veneer respectively. The RCA and Lafay indices of Plywood are
explained also in part by the increases in growth of its major demand markets of
Nigeria and Burkina Faso. Growth in exports increased at 107 and 237 per cent in
value and quantity respectively, between 2002 and 2006 respectively.
33
The RCA and Lafay indices for Veneer and Plywood reflect the high level of
specialization of the Ghanaian timber industry. However, other factors that affect the
competitiveness of the sector included high tariff rates on timber exports. According
to the WTO, Ghana timber industry currently attracts an MFN of 17.2 per cent,
which have significant implications on competition. Secondly, until 2005, Ghanaian
timber producer had to pay duties on wood product exports including veneer and
plywood (WTO, 2008). Forest depletion, resulting from indiscriminate and illegal
logging, is believed to be the most serious impediment to Ghanaian timber industry
remaining competitive. Ghana has an existing legal framework that guide the sector
(Timber Management Act 1997; amended 2002) which amongst others measures
awards the allocation of timber rights through competitive bidding. The institution of
the Forest Plantation Development Fund in 2000 also provides finance to the
development of private forestation programs (WTO, 2008; Donkor and Vlosky,
2003). The introduction of a log tracking system, Validation of Legal Timber
Programme, in 2005 is aimed at reducing illegal logging (WTO, 2008). Social and
environmental standards place extra constraint on the timber industry. For example
the EU which is a major importing partner of Ghana has laws like Forest Law
Enforcement Governance & Trade (FLEGT) and Voluntary Partnership Agreement
(VPA) that governs its timber trade. How that impact on competitiveness is unclear.
5.1.3 The Pineapple and Preserved Fruits Industries
The third most competitive NTE sectors were the fruit industry. Pineapple reported
an RCA of (0.99) and Lafay of (1.81) whilst preserved fruits reported 0.61 (for RCA)
and 0.196 (for Lafay). The production and export of pineapple has long become
important to the Ghanaian export sector since the late 1970s (Obeng, 1994). Demand
for pineapple has also undergone structural change with the introduction of more
competitive varieties (See box 1). Despite the length of production and export of
pineapple in Ghana, which is endowed with natural conditions for its cultivation, (as
explained by the high RCA value) the industry has not experienced significant
growths in production nor exports (corresponding low Lafay index). One reason to
explain the disparities in the indices may be high level of intra-industry trade but
according figures from ITC, Ghana imported near-zero in value of fresh pineapples
34
2006. Therefore, the relative weakness in the competitiveness of the pineapple sector
is explained by other factors.
According to Takane (2004) and (1994) the structure of Ghanaian pineapple
producers affects its importance on the international market for several reasons. They
identified three main pineapple producers: the smallholder farmer, the non-resident
commercial farmer and the large scale producer/exporter. Characteristically, the
smallholder farming system, which is widespread, involves the rural household
whose operation in concentrated within his community. It is usually labour intensive
system of farming whereby members of the family are the principal stakeholders of
the farm under a family head. On the other hand, non-resident commercial farmers
lease lands from communities. Such farmers, they contend, lack access to finance for
expansion and usually lack industry information on innovations, standard
requirements etc. Secondly, despite the fact that a large tract of land is available for
pineapple cultivation across the country, the production is concentrated in the peri-
urban areas close to the capital, Accra where land is scarce (Obeng, 1994). Several
reasons account for this trend: fresh pineapples are highly perishable and so need to
be carted to the ports for onward exports. These peri-urban areas, including Nsawam,
Suhum, and some parts of Accra are close to the international air sea ports of Accra
and Tema respectively. Secondly, the poor road networks in the country makes it
even more imperative that farming is carried out close to the main cities where there
exist relatively good infrastructural networks and storage facilities.
In terms of prices, export offers the premium to producers. Smallholder farmers
usually do not sell directly to importers but rather sell to so-called middlemen. Most
often, these middlemen are themselves buying on commission on behalf of larger
purchasing agencies and so in the long run, the smallholder farmer is disadvantaged
in terms of what is eventually offered him. The large producer/exporter benefits most
from premium prices from importers as production of the fresh produce is vertically
integrated to its exports.
The EU buys the bulk of Ghanas fresh pineapples (Graph 3 ) and in meeting their
market demand however, one important factor that is considered is the ability to meet
and adopt changing consumer preferences (see Box 1), as well as, quality standards.
35
The important role that European supermarket chains play in ensuring quality
standards, timeliness of supply at the best price cannot be overemphasized. The
requirements typically set by the large supermarkets include high and uniform
quality, low prices, large quantity of supply, and consistent and timely supply. This
often leads to a tendency toward vertical integration and the dominance of large-scale
producers in the supplying countries (Barientos, 2001; Raikes & Gibbon, 2000;
Dolan & Humphrey, 2000; Watts, 1994; Barrett et al., 1999 cited in Tanake, 2004 pp
29-30).
Graph 3: Main Export Destinations of Ghana Fresh Pineapples (2006).
The EU has harmonized food safety and quality standards which are administered on
all third party imports. It also allows national standards to be applied to third parties
on case by case basis. In addition, a more stringent, private standards set by the
industry also exist, such the EUREPGAP. Then again, are social corporate
responsibility standards such as FAIRTRADE which amongst other criteria, ensures
that complying companies are not employing for instance, child labour etc.
Adherence to these standards entails great deal of cost to exporters and is not helped
by the fact that more and more supermarket chains are signing on to these standards.
Large scale producer exporters are not as adversely affected by these standards as
smallholder farmers. For instance, smallholder farmers usually employ household
labour in production activities some of whom are children. As a household, they are
Main Export Destinations of Ghana's Fresh
Pineapples (2006)
0
5
10
15
20
25
30
35
40
45
France Belgium Italy Germany U.K
Importing Countries
S
h
a
r
e

o
f

I
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p
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r
t
s

(
%
)
Ghana
World
36
all residual claimants to profits. How would that relate to FAIRTRADE abhorrence
to the employment of child labour?
Box 1:Adapting To Changing Market Preference: Buyer Driven Approach.
The preserved fruit industry showed some levels of intra-industry trade for Ghana. In
2006, for example, Ghana exported US$164 000 worth of preserved fruits compared
to US$1.8 million of exports. According to the ITC (2006), standard requirements are
the most important factors that affect the exporters of preserved fruits from Ghana.
Agility defined as the capability to survive and prosper in a competitive
environment of continuous and unpredictable change by reacting quickly and
effectively has become an underlying paradigm to producers competitive strategy
(Yawson and Aguiar, 2006). According to the authors, in their research Agility in the
Ghanaian International Supply Chain it measured the time span it took producers in
the Ghanaian pineapple industry to respond to changing demand from their UK
demand networks based on changes in consumer preference. Using the Horst Model
it measured the level of responsiveness of selected producers (60 pineapple
producers in Ghana) to their main supply chain supermarkets in the United Kingdom
(25 companies). The authors found out that the agility gap was at 61 per cent, an
indication that producers are finding it difficult to cope with immediate changes. At
this level, the production system requires most urgent changes (van Hosrt, 2002
cited in Aguiar and Yawson, 2006).
A classic example of the agility effect was the introduction of the Del Montes extra
sweet Gold MD2 pineapple variety which has eventually replaced the hitherto, more
traditional Victoria and Sweet Cayenne varieties.
Fresh Del Monte is a major producer and distributor of fresh fruits and other
agricultural products based in the Caymans Islands with operations Central America
mainly Costa, Rica, Guatemala and Ecuador. Using the innovate-to-order approach
to production, the company engineered and introduced the MD2 pineapple variety
which is sweeter than regular pineapples, MD2 has less acidity and a more complex
taste with 4 times the vitamin C contained in regular pineapples. It became the choice
of pineapple with most consumers especially in the EU where it received a premium.
Added to that, the MD2 has a better shelf life than the more traditional sweet cayenne
37
Again, the EU is the main importer of preserved fruits from Ghana and as already
discussed the EU is also a major exporter of preserved fruits and much of its exports
are into member countries, as well as, developing countries including Ghana. Figures
are unavailable to estimate how domestic consumption impact on the
competitiveness of the sector.
5.1.4 Nuts Industry
The nuts industry is mainly characterized by the production of Shea nut and cashew
with significant levels of exports in the latter. Shea nut also known as Karite nut is
cultivated in the Northern parts of the country where the climatic conditions are well-
suited for its development (Ali and J udge, 2001). The Shea tree grows naturally in
the wild and their fruits are picked seasonally for processing into butter and oil. The
moisturizing effect of Shea butter and oil is being documented by various cosmetic
research bodies, raising interest in its commercial viability (Fleury, 2002). The true
state of the Shea nut industry in Ghana is not well document not least, because, there
was no formal purchasing authority until the advent of the Shea Purchasing Division
of the Cocoa Market Board (COCOBOD) in 2005. According to the COCOBOD, in
2007 purchasing season, approximately 130,000MT representing 50 per cent of
production were picked seasonally in the Northern Region. Of this amount, nearly
70,000MT were processed for local consumption with the rest exported; 45 000MT
as nuts and 15,000MT in the form of butter. These figures notwithstanding, Ghana
accounts for over 22 per cent of all Shea nut trade in West Africa. On the
international market data is not available in the trade of Shea nut and making it
difficult to measure the extent of its market viability.
Cashew is exported in two main forms: shelled and unshelled. The quality of the
cashew processing, according to the FAO (2001) is primarily dependent on the
proportion of kernel retained after shelling. The method of cashew shelling is not
only complicated but also highly specialized to few countries, most notably India.
The process is labour intensive and requires skills and expertise to meet the rather
stringent quality requirements of high-value importing markets of the United States
of America and Europe. As a result, India remains the largest supplier of shelled
cashew to the rest of the world, with a market share of 40.73 per cent of the US$1.3
38
billion market followed by Vietnam (28.42%) and Brazil (13.99%). Four of the world
major suppliers including the Netherlands (mainly re-exports) have a combined
market share of over 90 per cent making the industry highly concentrated. The unit
value of cashew on the international market is considerably dependent on
the level of processing as evident in Table 4.
Quality of the kernel at farm gate is the single most important factor that affect the
value of the cashew. Post production measures of handling, packaging, and storage
are the chief determinants of how much is paid for the nuts. To this end, the Cashew
Processors and Exporters Association (CAPEAG) was registered to help enhance the
cashew processing and marketing business in the country. The CAPEAG has been
worked in closed contact with the government through the Ministry of Food and
Agriculture, as well as, international technical advisors such as the USAID Trade and
Investment Program for Competitive Export Economy (TIPCEE) and the GTZ
Market Oriented Agriculture Program (MOAP) in developing industry quality
standards and value chain procedures.
As of 2006, just about 37MT of cashew were processed domestically per annum to
meet local demand. Local demand at 40MT per annum (CDC, 2006) however, is not
matured and is further offset by relatively cheap, well-package imports.
5.1.5 The Fishery Sector
The worst performing sector amongst the listed products was the fishery with
relatively below average RCA and Lafay indices. As already discussed, the existence
of an endowment is the first condition for comparative advantage. However, RCA is
a complex process which encompasses decisions at the firm level, actions at the
industry level, combined with policies at the national level. Ultimately, decisions that
advance the use of appropriate technologies, opens up markets for high quality
products and reduce cost have significant implications on competitiveness (Leishman
et al, 1999). Ghana has an estimated coastline of 550km (GSS, 2001) that supports
marine fishing including tuna. However, the industry is mainly characterized by low-
technology artisanal and industrial fishing (Atta-Kesson and Atubuga, 2007). As
illustrated on Table 10, the main fishing fleets consists of Canoe and Beach Seine
which are relative low-tech compared to tuna boats and industrial vessels. Secondly,
39
the structure of fishing vessels has remained unchanged over 20 years. The industry
has averaged 1 additional industrial vessel per annum since 1989.
Table 10: Number of Marine Fishing Vessels in Ghana
Canoes/Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Canoes 8052 8688 8641 8610
Beach Seine 852 775 790 769
Semi-Industrial
Vessels
183 169 153 160 155 164 153 165 149 173 173 169
Trawlers 29 30 30 29 32 35 34 34 48 47 38 46
Shrimpers 5 8 11 5 8 14 17 16 13 9 12 12
Tuna Boats 35 34 29 28 25 26 29 35 34 31 33 34
Bait Boat 35 34 29 28 25 26 29 33 29 24 24 24
Total (Industrial
Vessels
69 71 73 63 65 75 81 83 97 91 89 88
Source: FAO (2003)
Secondly, the industry is labour-intensive and streamlined on gender lines. Whilst
men are primarily involved in fish harvesting, women play important role in on-
shore, post-harvest activities including processing, storage and trade activities. The
role of gender in large scale commercial fisheries is not clear. Export of tuna is
capital intensive involving meeting quality checks during processing, storage and
transport. According to FAO (2003), the access to finance, poor storage
infrastructure and poor quality management system affect Ghanaian fishing industry
most. Bearing in mind the role these factors play on competitiveness, it is not
surprising that the industry has low RCA scores. The corresponding below average
Lafay score may be underscored by the existence of high levels of intra-industry
trade. According to the ITC, in 2006, Ghana imported approximately 275, 000 MT of
frozen fish from mainly Spain, Namibia and Mauritania totaling US$108 Million
compared to US$12 million (8234 MT) it exported to mainly France, Spain and Cote
dIvoire. The lack of competitiveness is even made clearer when it is considered that
the unit value of import was US$1017 below the unit value of her exports
12
.

12
The unit value in part reflect the unit cost of production which may have implications on
competitiveness. However, other factors may affect this unit price such as premium products, specialty
etc.
40
According to Akyeampong (2007) the Ghanaian fishing industry mainly meets
domestic demand with limited exports to its neighbouring countries. This is evident
in its performance on the export market. For instance the bulk of Ghanas tuna
exported is primarily to Cote dIvoire which accounts for nearly 93 per cent.
Conflicts in the exploitation of fisheries resources also have implications on
competitiveness. With the rapid depletion of stocks in European and Asian waters for
example, trawlers from Italy, Spain, the Netherlands, and former Soviet countries,
Greece, China, J apan, Korea and Taiwan have moved into more fertile waters off
West Africa (BBC, 2001).
5.2 Potentially Competitive Exports
A casual examination of Ghanas export profile reveals that products with positive
net trade balances tend to have positive and higher Lafay indices (see Appendices 1,
2 and 3). Also taking cognizance of the growth trend in demand in the world markets,
the following products were selected to test whether Ghana is competitive it their
production and exports (see Table 11): Oil Cake, Manioc, Oil-seeds, Bananas,
citrus/melon fruits.
Table 11: Potential NTE Basket for Ghana (Lafay Index , 2006).
PRODUCT LAFAY INDEX
VEGETABLE PRODUCT 1,35
Oil-Cake 2,89
Manioc 2,58
Oil-Seeds/Oleaginous fruits 6,77
Bananas/Plantain Fresh or dried 34,68
Citrus/melon Peel 0,53
Fruits nes 0,01
Melons/Papayas 0.0019
Cashew Nuts 2,64
Shea Nuts 0,00
Fresh Pineapple 3,75
Preserved Fruits 0,48
Frozen Tuna 0,00
Prepared Tuna -28,16
Cocoa Paste 25,84
Cocoa Butter 15,55
Veneer Sheets 14,33
Plywood 16,74
41
The Table 11 underscores the positive effects of export diversification because
increasing the export basket significantly increases the Lafay indices as shown
above. This is because the contribution to the trade balance not only depends on the
intensity of the specialization (which is measured by the difference between the
normalized balances), but also on the relative size of the trade flow taken into
consideration. Therefore, a product's contribution to the trade balance increases
despite a drop in the intensity of specialization, if the latter is more than compensated
by the growth in the weight of trade in that product (Iapadre, 1996).
Ghana has a potential in the production and exports Bananas/Plantain, Oil-seeds and
vegetable products. These are products that the country already exports (therefore
listing it on the GEPC export index for prioritization could increase it
competitiveness). On the international market, demand for these potential NTEs
has increased significantly. For example, world demand for fresh banana and plantain
steadily increased in value from US$7.3 Billion in 2003 to over US$9 billion in
2006, whilst, demand for manioc increased from US$69 Million to US$ 1.1 Billion
during the same period (see Graph 4).
Graph 4: Growth trends in Potential NTEs on the International Market (2003-2006).
42
6CHAPTER VI
6.1 Options for Increasing Competitiveness
Diversification of the export basket remains key to improving Ghanas
competitiveness in the non-traditional sector. In that sense vertical diversification
increasing the process level of products in a particular sectoris important in
realizing this goal. In the cashew market for example, shelled cashew holds
significant market potential than the unshelled market. However, the cost of shelling
(meeting high quality standards, finding alternative uses for broken pieces, labour
expertise in shelling etc) is the major hindrance to such venture at the firm level. At
the national level, tariff escalation resulting from value addition remains significantly
deterring (WTO, 2008). Ghana, Cote dIvoire, Nigeria and Cameroun, the leading
cocoa producers face tariff escalation in the export of value-added cocoa products
unlike the exports of raw beans (WTO, 2007). This is because the EU which is the
major importer of cocoa beans from these countries has most of their member
countries engaged in the cocoa industry at the process level. The Netherlands, a
major chocolate producer for example imports 66 per cent of her raw cocoa beans
from Ghana and Cote dIvoire. Chocolate however, accounts for 57.8 per cent share
of the cocoa industry compared 21 per cent of raw cocoa beans (see Table 10). CPC,
the main producer and exporter of cocoa products in Ghana processed 19 Million MT
of cocoa beans in Ghana in 2005 compared to 16 Million MT the previous year,
however, due to competition for raw materials (which are mainly exported), the
company operating costs increased by 17 per cent (CPC, 2008). Meanwhile, products
of CPC have to contend with relatively cheap imports from the EU for example.
The launch of the National Chocolate Day by the Ghana Tourist Board is one such
initiative to boost the domestic consumption of locally manufactured cocoa products
(Ghana Tourist Board, 2008). Cocoa beans from Ghana have long been associated
with quality as reflected in the number of producing companies competing for the
Ghana label on their cocoa product
13
. It is yet to be established, however, of the

13
There are several chocolate brand either directly bearing the Ghana label such
as Ghana Chocolate of J apan http://www.youtube.com/watch?v=ibv_J FWEdTo ),
43
potential in seeking a geographical intellectual property right to the name. A similar
case for reference could be the Ethiopian coffee case brought against Starbucks
Coffee Franchise in 2005
14
.
Another potential option for improving competitiveness is through product
diversification as reviewed in literature. Table 11 shows potential NTEs that could
prove competitive on the international market. Ghana currently exports only
US$56,000 worth of Fruits nes (with a Lafay index of 0.01). However, the demand
for products of that group increased by 12 per cent between 2002 and 2006. Passion
fruit for example is one such product classified under Fruits nes. With the increased
in world demand for passion fruit vinegar worldwide (with annual growth rate of
23% between 2002 and 2006), global demand for passion fruits have increased
considerably. In Kenya for example, farmers are increasingly cultivating passion
fruits for exports as alternatives to the cultivation of maize
15
. Ghana already has a
healthy competitive edge in the exports of Banana/Plantain, oil-seeds, manioc and
oil-cake. The increased demand in the international market for these products
presents opportunities for product and market diversification at lower cost.
For many developing countries, meeting the stringent quality and safety standards of
high value markets of the EU remains the most important hindrance to improving
their competitive edge (see review on standard). Clearly, Ghana is not performing
well in the export of preserved fruits (which require greater standardization
procedure) compared to that of fresh pineapples. As already discussed, commercial
pineapple exporters are disengaged from small-scale pineapple farmers primarily
because of the products differentials at the production level (chemical application,
harvesting methods, storage and transportation). One option in this regard is to

http://www.datenhamster.org/index.php?/archives/1168-Lotte-Toppo-Milk-Chocolate-
Ghana.html. or professing their beans from Ghana http://www.chocolatebyjamieson.com/)
14
http://www.spiegel.de/international/0,1518,448191,00.html and
http://www.waltainfo.com/Analysis/2008/May/coffee1.htm
15
http://www.freshplaza.com/news_detail.asp?id=20574
44
engage both at the firm level and national level, the establishment of a more
harmonized, cost-effective procedure right from the farm level. Farmers generally
lack access to financing and hence are not fully able to meet the cost of conforming
to high standards. Contract farming is one way of ensuring that farmers, provided
with capital and production inputs, deliver specific commodities of predetermined
qualities and quantities (Eaton and Sheperd, 2001 cited in ADBI, 2008)
16
.
According to the tabulated Lafay Index above, Ghanaian fishing industry is not
competitive on the international market (with -38 for prepared tuna and 0.0005 for
frozen tuna). Its main competitors are top-notch fishing establishments of Malaysia
and Spain with relatively Lafay indices. As reviewed, domestic demand for fish
products in Ghana is high and therefore, the industry could benefit more by
concentrating it supply domestically. Secondly, the legal framework under which the
sector operates should be strengthened. For instance, the Fisheries Act has been
criticized for lacking explicit provisions on fish health, quality assurance or product
safety.
The wood industry has the strongest competitive index and with a relatively stronger
regional demand from Nigeria and Burkina Faso). The industry can consolidate this
competitive edge by continuously seeking new improved potential markets. Factors
that hamper the sectors competitiveness are illegal logging, certification and trade-
offs in adhering to requirements that bother on the sustainable use of forest resource
Ghanas export performance has improved steadily from 2003 to 2006 even though
growth declined between 2005 and 2006. Exports of non-traditional agro-based
products accounts for 54 per cent its total exports in 2006 of which cocoa products,
precious metals, wood and cotton are the leading exports. However, decline in the
relative terms of trade of these products requires that more concerted efforts are
placed into dynamic and improving export linesin the so-called non-traditional

16
Contract farming represents an agreement between farmers and contractors (mostly
processing and/or marketing firms) for the production and supply of agricultural products
(The Asian Development Bank Institute: http://www.adbi.org/discussion-
paper/2008/06/05/2582.rice.contract.farming.cambodia/contract.farming.pros.and.cons/)
45
exports. Based on the performance of the selected NTEs, it is concluded that the
cocoa industry remains Ghanas most competitive sector, followed closely by the
wood industry and the fresh fruits and vegetable sectors including pineapple exports.
Growth trends in the selected NTEs reveals that Ghana has lost some of its
competitive edge in exports of pineapple, unshelled cashew and preserved fruits
whilst its competitiveness in the fishing industry, specifically the tuna sectors
remains suspect.
Diversification of the countrys export basket, vertically continually improving the
process level of its primary exports and horizontally by entering into potentially
competitive product/export markets is key to achieving overall export
competitiveness. On the latter, it was revealed that bananas/plantain, manioc
(cassava), and oil-seed exports which Ghana already export should be prioritize by
the Ghana Export Promotion Council for exports. The production and exports of
products classified under fruits nes such as passion fruits should be actively
explored.
The fishing industry is not competitive internationally and options for meeting an
increasing domestic demand for fishery products (including tuna) should be looked
into.
Finally, development at the national level that improves access to markets such as
infrastructure (electricity for storage facilities, improved road access, etc), policies
that advances the exports sectors by opening up for investments (land acquisitions
laws, commercial judicial process, pro-investor trade policies, improved fiscal
policies) are all important to meeting Ghanas goal of becoming the gateway to
Africa and the export hub of West Africa.
To summarise, cocoa paste, cocoa butter, plywood and veneer are the most
competitive NTEs from Ghana. Fresh pineapples, preserved fruits, frozen tuna and
cashew nuts are relatively less competitive even though they reveal a level of
comparative advantages and specialization. Prepared tuna is uncompetitive on the
international market and reveals a de-specialization. Cocoa butter, paste, plywood
and veneer all result from the vertical diversification of already established
traditional exports from Ghana whilst pineapple, preserved fruits, cashew nuts are
46
relatively novel products. This observation has implications on the possibilities that
exists in further exploitation (vertical diversification) of traditional export basket but
also the threats posed to the reduced prioritization of novel products (horizontal
diversification).
The following caveats are observed: indices of comparative advantages or
specialization are not exhaustive in explaining the competitiveness and performance
of exports. Secondly, the specific indices used for the research were chosen on
purpose to capture the role of intra-industry trade on competitiveness and only
provide a static analysis of the export trends. Also, the thesis had concise objectives
that did not include projected scenarios (by way of sensitivity analysis). Finally data
availability and discrepancies could have affected the specific outcomes of the
indices though not significant to change the arguments thereafter. There was no data
for the analysis of the Shea nuts industry.
47
Appendix
54
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