Ghana: Showing its metals

One of the beneficiaries of growth in Ghana’s construction sector has been the metals industry, which has recently been the target of investment. While manufacturers face challenges – including uncertain supply of inputs and competition from imports – continued economic expansion is expected to drive demand for these locally made goods.

New investments include a $100m plant from United Steel Company, which is already active in the Ghanaian market. The facility, which is planned for the port city of Tema and is expected to begin operations during the first half of 2014, will have a capacity of 350,000 tonnes per year. The factory will produce high tensile rebar, which can be used for large-scale infrastructure projects as well as high-rise buildings. According to company officials, rebar from United Steel will be about 10% less expensive than the imports that account for most steel purchases by developers today.

Another firm set to supply the construction industry is Grup Armangue, a Spanish consortium that plans to build a $10m plant to produce prefabricated steel products. Armangue is expected to enter the market through local partner Eco Technologies & Community Infrastructural Group Ghana, the CEO of which, John Komlan Gbenyedzi, is the also Spanish group’s Africa representative.

Gbenyedzi said that Armangue had chosen Ghana as a base for investment in West Africa due to its stable political environment and favourable business climate. Indeed, Ghana, which has been one of the world’s fastest-growing economies in the past few years, is attracting significant investment in steel production, much of it from foreign players.

Ghana’s installed steel-making potential currently stands at around 600,000 tonnes per year, according to industry players. Market participants include Sentuo, a joint venture between the Fujian Chinese Overseas Industrial Group and the Ghanaian government’s Social Security and National Insurance Trust, as well as Indian-owned Tema Steel and China’s Ferro Fabric. Two Ghanaian firms – Special Steels and Western Castings – round out the field.

The growing construction industry is expected to drive demand for some time but manufacturers face challenges, including a shortage of raw materials locally. The government has taken steps to address this situation, including a ban on the export of ferrous scrap metals, which are used as an input by steel mills. According to Abdul Majeed Mikati, managing director at United Steel, the export ban has significantly improved scrap supply conditions.

But scrap dealers are also calling for the government to tighten regulations on imports of inferior mild steel coils, which they claim are being brought in under false descriptions and thus evading higher Customs duties. The dealers say that the cheap imports will undermine local producers.

The combination of increasing local demand, potential for building up domestic production and competition from low-cost foreign imports is also taking place in the aluminium industry, once the most important component of Ghana’s metals industry and a substantial contributor to GDP.

The heart of the aluminium sector is the Volta Aluminium Company (Valco), once a leader in West Africa but now fully owned by the government after foreign investors pulled out in the past decade. The plant’s decline has been largely linked to a lack of power, and it is operating just one of its five potlines, meaning that it produces around 40,000 tonnes of aluminium annually, 20% of its 200,000 tonne capacity.

But in April, John Abdulai Jinapor, deputy minister-designate for the Ministry of Energy and Petroleum, said assessments of Valco suggested that, with adequate power supply, it could run all five potlines and return to profitability – and indeed again make a major economic contribution. With ample deposits of bauxite, Ghana could rise as aluminium producer, though infrastructure connecting bauxite mines to manufacturing facilities is in need of an upgrade.

One of Valco’s major customers is Aluworks, which purchases around 10,000 tonnes of aluminium each year. While input supply is not a problem for the company, Aluworks, like steel manufacturers, faces stiff competition from low-price Chinese imports, E Kwasi Okoh, managing director at Aluworks, told OBG. However, Okoh is confident about the future. “Thanks to a young population and deficit in housing stock, demand for aluminium products in West Africa will remain strong and continue to increase in the coming years. Aluworks has plans to expand and is already doing so to meet expected growth in demand,” he said.

Ghana is still a relatively low-income country, so it is not surprising that its metals market is price-sensitive and tends to attract inexpensive imports, particularly at a time when Chinese companies are looking to shed aluminium inventories. But with strong demand both domestically and in the wider region, there should be scope for the local industry to flourish, and foreign investments in steel and signs of optimism in the aluminium sector bode well. Nonetheless, a resurgence is likely to require substantial public investment in infrastructure and power supply, as well as reforms to strengthen the business environment.