Determinants of Exports in Ghana (1980-2017)

Determinants of Exports in Ghana (1980-2017)

Chapter One of Determinants of Exports in Ghana (1980-2017)

INTRODUCTION

Background to the Study

The trend towards globalization of trade and sales activities has propelled the need to understand the behaviour of firms in foreign markets (Sousa, Martinez-Lopez &Coelho, 2008). It is therefore very crucial for nations and firms to stay competitive in today’s global market place by improving the export performance of firms (Adu-Gyamfi & Korneliussen, 2013). Increasingly, firms are looking beyond their traditional markets and expanding into export markets as a means of growing and enhancing their competitiveness (O „Cass & Julian, 2003).The growing international business experience as a result of education abroad, language similarities, and technological advances has made exporting easier than before (Ibeh, 2003). It is however not surprising that there has been a 4.7 % growth in export volume in developing economies in 2011 (WTO, 2011).

According to Leonidou and Katsikeas (1996), exporting also plays a key role in the achievement of sustainable competitive advantage of firms in turbulent markets, because of the improvement of financial position, increased capacity utilization, higher technological standards, in the attainment of a desired performance. Moreover, from the point of view of most national governments, exporting is extremely attractive because it allows the accumulation of foreign exchange reserves, enhances societal prosperity, and helps national industries to develop, improve productivity and create new jobs (Czinkota, 1994). Exporting is one of the main business activities that countries all over the world engage in for economic development and growth. Exporting agricultural products like cocoa, wood, yams, pineapples and other material resources have brought significant economic returns to Africa, particularly the Ghanaian economy for over a period of time. Some of the factors that bring success to export include: market orientation, firm size, management attitudes, and firm, industry, product and market characteristics, (McGuinness and Little, 1981; Madsen, 1989; Dau, 1992; Chetty and Hamilton, 1993; Cavusgil and Zou, 1994; ; Diamantopoulos and Cadogan, 1996; Slater and Narver, 1996.

Interestingly, Ghana is the economic success story of Africa. In 2011, its gross domestic product (GDP) growth was as high as 14.4%1. This growth is seemingly related to the development of exports, an important sector of Ghana’s economy (37% of GDP2) that has increased at a fast pace for the past three decades. This performance is the fruit of Ghana’s steady commitment to stabilize its economy and boost its export sector. Since 1983, many market-oriented reforms have been implemented. Two of the key macroeconomic reforms were the realignment of exchange rates and inflation control.

The transition to a more liberalized, specialized and export-oriented economy may have increased Ghana’s exposure to risk. Indeed, despite efforts to reinforce other sectors of the economy and diversify its export base, Ghana remains heavily dependent on export receipts that come from a limited number of commodities and countries. Price competitiveness and foreign income serve as major determinants of any country’s export performance which is usually measured by changes in the export volumes ( as suggested by export demand theory). But unpredictable exchange rates lead to revenue uncertainty. In this case, decision theory suggests that, to avoid losses, export firms will not be willing to make investments such as adopting new technologies, diversifying their productions or expanding their operations. The effect is accentuated if producers are risk-averse (e.g., Hooper and Kohlhagen, 1978) and if risk management tools are limited, which is generally the case in developing countries. As a result, in the aggregate, export volumes will fall.

These studies have conceptualized models of export behavior. For example, Aaby and Slater, 1989; and Cavusgil and Zou, 1994, and focused on perceived barriers to engaging in export activity, either across firms at different stages of internationalization e.g. Ford and Leonidou, 1991, or among firms at the same stage of export involvement e.g. Barrett and Wilkinson, 1985 and Burton and Schlegelmilch (1987). A brief look into the related literature reveals that adequate attention has not been paid to internal factors that drive export performance especially among agricultural and other sectors operating in an emerging economy like Ghana. This study therefore seeks to identify the characteristics that influence and determine exports in Ghana.

1.2      Statement of the Problem

This study seeks identify the characteristics that influence and determine exports in Ghana. The strategic export model developed by Aaby et al. (1989) which provides both financial and non-financial measures needs to be applied in determining the export performance in developing countries like Ghana. This study will therefore seek to build upon the Strategic Export Model in order to strengthen the theory of export performance in the Ghanaian setting. An important aspect of this study is to measure export performance determinants on export intensity (financial), management perception of export profitability (non-financial), and management satisfaction with export performance (non-financial), since performance (success) can be both financial and non-financial (strategic).

Majority of export performance studies have been conducted in the advanced economies with huge export activities (Adu-Gyamfi et al., 2013; Zou et al., 1998). There is dearth of literature on export performance in developing countries like Ghana (Adu Gyamfi et al., 2013). A study of the determinants of export performance in developing economies is very important in contributing to literature given the limited understanding of what determines the export competitiveness in developing countries (Singh, 2009). This study in order to contribute to the practically few studies conducted in sub-Saharan Africa, seeks to use survey data from SMEs involved in non-traditional exports in Ghana to determine factors influencing export success.

This research sought to use firm-level determinants of the Strategic Export Model which are: firm characteristics, firm competencies and capabilities, and export marketing strategy to determine their relationship with export performance of SMEs in Ghana. In using these antecedents to determine export performance, the study developed export performance scales which consider financial outcomes/ performance, strategic performance.

Research Objectives

The study has both general objective and specific objectives. The general objective or main objective of this study is to identify the characteristics that influence and determine exports in Ghana. The specific objectives are:

i)             To identify the factors that determine export promotion in Ghana

ii)           To investigate reasons for export promotion in Ghana

iii)         To examine the impacts of export to the Ghanaian economy

Research Questions

The following are some of the questions which this study intends to answer:

i)             What are the factors that determine export promotion in Ghana?

ii)           What are the reasons for export promotion in Ghana?

iii)         What are the impacts of export to the Ghanaian economy?

Research Hypotheses

The followings are the research hypotheses to be tested:

i)             There is a significant relationship between export promotion and economic growth

ii)           There is no significant correlation between volume of export and foreign exchange rate

iii)         There is a significant relationship between export promotion and comparative advantage

Significance of the Study

In general, the importance of any research work is either for acquisition or addition of new knowledge or problem solving. This study therefore has the following importance: The findings from this study may help the government, investors, stakeholders and entrepreneurs to understand the importance of export on the economic growth of the country. The study is to provide insight into further research needs in this study area. Also, the study will help the researcher to gain new knowledge on export promotion, balance of trade and foreign exchange. Lastly, the findings and recommendations in this study will help the export companies and agricultural sectors in the country to examine the existing materials, promotion systems and procedures for the purpose of improving it.

Scope of the Study

The study focuses on export companies and agricultural sectors involved in non- traditional exports usually into manufacturing and / or export products such as agricultural goods, handicraft, textiles and wearing apparel, footwear, food and beverages, plastics, pharmaceuticals, and furniture. These exporters in emerging markets are small firms which are prone to many constraints associated with operating in the global market. Adu-Gyamfi et al. (2013) stated that these exporters tend to be located far away from major markets, have limited resources, limited management experience, limited degree of internationalization and have high internal export barriers. These constraints impact negatively on export performance of Ghanaian Small and Medium Entrepreneurs as they are faced with internal and external barriers. These Small and Medium Entrepreneurs represent the success story of firms venturing into international business through exports. These non-traditional export companies registered with the Ghana Export Promotion Authority were selected to participate in the study. The internal drivers of export performance is the major focus of this research with emphasis laid on their international marketing strategies, firm capabilities and competencies, management commitment and characteristics.

Limitations of the Study

The Major Limitations of the study are:

Cost Limitation: There was a cost limitation. This means that the researcher could not offer any gift or monetary incentives for the respondents to answer the questionnaire. This might have resulted in certain prospective respondents choosing not to respond to the questionnaire. This might not have created a motivation among respondents not to take a chance to give opinions.

Definition of Terms

The following terms were used during the cause of the study.

Export: sending of goods or services produced in one country to another country. The seller of such goods and services is referred to as an exporter; the foreign buyer is referred to as an importer.

Determinant: a factor which decisively affects the nature or outcome of something.

Promotion: the entire set of activities, which communicate the product, brand or service to the user. The idea is usually to make people aware, attract and induce to buy the product, in preference over others