CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Over the years, one major aim of most organizations in Ghana is to improve on their financial performances through effective and efficient accounting and finance practices. Financial performance of every organization in recent times have gained top priority, as most users of accounting and financial statement have developed indents in the financial position of the organization in question. Stakeholders of every organization need to know the financial performance of their organization, hence the need for managers to improve the financial position of the organization they manage. Assessing the financial position of an organization is the first step for organizations who want to improve their financial performances. After assessment, control measures are now established to correct deviations, and improve financial performance. The overview of the manufacturing industry in Ghana is explored including the various types of manufacturing organizations of which Unilever Company Limited is part. However, this research was undertaken to help assess the financial performance of manufacturing organizations for the periods, 2008, 2009 and 2010 using Unilever Company Limited as a case study.
HISTORY OF THE GHANAIAN MANUFACTURING INDUSTRY
In 1957, after Ghana gained independence, the Nkrumah government launched an industrialization drive that increased manufacturing’s share of GDP from 10 percent in 1960 to 14 percent in 1970. This expansion resulted in the creation of a relatively wide range of industrial enterprises, the largest including the Volta Aluminum Company (Valco) smelter, saw mills and timber processing plants, cocoa processing plants, breweries, cement manufacturing, oil refining, textile manufacturing operations, and vehicle assembly plants. Many of these enterprises, however, survived only through protection. The overvalued cedi, shortages of hard-currency for raw materials and spare parts, and poor management in the state sector led to stagnation from 1970 to 1977 and then to a decline from 1977 to 1982. Thereafter, the manufacturing sector never fully recovered, and performance remained weak into the 1990s. Underutilization of industrial capacity, which had been endemic since the 1960s, increased alarmingly in the 1970s, with average capacity utilization in large- and medium-scale factories falling to 21 percent in 1982. (CIA World Factbook, 2008) Ghana’s record with industrialization projects since independence is exemplified by its experience with aluminum, the country’s most conspicuous effort to promote capital-intensive industry. This venture began in the mid-1960s with the construction of a 1,186-megawatt hydroelectric dam on the lower Volta River at Akosombo. Built with assistance from Britain, the United States, and the World Bank, the Akosombo Dam was the centerpiece of the Volta River Project (VRP), which the Nkrumah government envisioned as the key to developing an integrated aluminum industry based on the exploitation of Ghana’s sizable bauxite reserves and its hydroelectric potential. Foreign capital for the construction of an aluminum smelter in Tema was obtained from US-based Kaiser Aluminum, which acquired a 90 percent share in Valco, and from US-based Reynolds Aluminum, which held a 10 percent share. Valco became the principal consumer of VRP hydroelectricity, using 60 percent of VRP-generated power and producing up to 200,000 tons of aluminum annually during the 1970s. (CIA World Factbook, 2008) Severe drought compounded the effects of unfavorable market conditions by reducing the electricity generating capacity of the Akosombo Dam and by forcing a temporary shutdown of the smelter from 1983 to 1985. Aluminum production was slow to recover in the wake of the shutdown. In the early 1990s, aluminum production and exports continued to be negligible. Drastic currency devaluation after 1983 made it exceptionally expensive to purchase inputs and difficult to obtain bank credit, which hurt businessmen in the manufacturing sector. Furthermore, the ERP’s tight monetary policies created liquidity crises for manufacturers, while liberalization of trade meant that some enterprises could not compete with cheaper imports. These policies hurt industries beset by long recession, hyperinflation, outmoded equipment, weak demand, and requirements that they pay 100 percent advances for their own inputs. Local press reports have estimated the closure of at least 120 factories since 1988, mainly because of competitive imports. The garment, leather, electrical, electronics, and pharmaceuticals sectors have been particularly hard hit. In 1990, even the New Match Company, the only safety match company in the country, closed. (CIA World Factbook, 2008) In 1986 the government established the Ghana Investment Center to assist in creating new enterprises.