Aluminium Might Not Be The Right Export Industry For Ghana

It’s entirely true that Ghana has substantial bauxite reserves and it’s equally true that economic wealth is built by moving up the value chain, not just being an exporter of raw materials. However, that doesn’t mean that processing that bauxite into aluminium is quite the right way for Ghana to develop. Yes, this despite the obvious fact that this is what the government proposes, this is what Presdent Akufo-Addo is asking be done.

It’s entirely true that bauxite is pretty cheap stuff yet can be locally processed into alumina and that revenue can make a difference. Jamaica’s revenues have come from this source for decades now. It almost always is locally processed, bauxite is simply too, too, cheap compared to volume to make it worth shipping. Better by far to do that basic processing and export the product.

However, that doesn’t mean that the next step, alumina into aluminium makes sense locally:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Akufo-Addo wants vibrant Ghana aluminium industry[/perfectpullquote]

Well, maybe he should and maybe he shouldn’t:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Addressing the Board of Directors of the Ghana Integrated Aluminum Corporation at the Jubilee House after administering the Official Oath and the Oath of Secrecy to them at their swearing in ceremony, President Akufo-Addo said, “Aluminium is often described as the metal of the future. If that is the case, we have its raw material, that is bauxite in abundance in Ghana. The time has come to make a concerted effort not only to bring the raw materials into play, but to establish the full value chain of the product so we can have a vibrant aluminium industry in Ghana.” Syno Hydro Deal The President further noted that the obligations of Ghana under the $2 billion dollar Sino Hydro deal require that “we supply them with aluminium products as payment in return for $2 billion dollars worth of projects.” [/perfectpullquote]

This hints at an important point. The major input into aluminium isn’t the alumina at all – nor, obviously, the bauxite. It’s the electricity to do the conversion. So much so that it’s usually cheaper to ship alumina from wherever to places where electricity is specifically cheap. Iceland being a good example.

Yes, there’s that deal with the Chinese for the dam. But is electricity something that Ghana has a lot of? Something that’s cheap there? It might be once the dam is built and thus this all makes sense. But it’s also possible that the dam could do better by selling the power generated into the general economy rather than reserving it for aluminium pots.

It really isn’t obvious at all that this is the right decision. For in economic terms the export of aluminium metal – as opposed to alumina – is really the export of electricity. Is that something Ghana has an excess of? Or a comparative advantage in producing?