a. History and Background
Bauxite, the raw material of alumina was first discovered in Ghana in 1914 in the Atewa Range near Kibi in the Eastern Region by Sir Albert Kitson, a renowned Geologist. In 1928, the British Aluminium Company was granted a concession to mine bauxite at Awaso in the Western Region. However, it was not until the 1940’s that further exploration and mining really began. At present, the ore is still being mined only at Awaso even though major bauxite deposits occur at Kibi, Nyinahin and Ejuanema. The Government has also recently signed two Memoranda of Understanding (MOU) with ALCOA of USA and ALCAN of Canada over the Kibi and Nyinahin bauxite deposits. The main objective of the MOU is the development of an integrated aluminium industry in the country.
b. Industry Structure
Aluminium has one of the most complex processing chains of all metals, with four major production steps leading from the raw material bauxite to raw aluminium sheets and profiles. The major steps in aluminium processing are
- bauxite mining
- refining of bauxite into alumina
- smelting of alumina into raw aluminium ingots
- processing or casting of aluminium ingots into sheets, coils, and profiles.
The processed aluminium is the input for aluminium goods ranging from packaging material, automotive parts and construction elements to household goods.
Worldwide, 10 vertically integrated global companies dominate about 70 percent of the global production capacity. The key success factor in the aluminium industry is low cost production, which requires access to different sources of input material, mainly bauxite and electricity across the globe. The complexity of the production process and the importance of having access to the right resources are the main reasons for persistent vertical integration across the industry.
Ghana is home of almost all major production steps in aluminium processing, but not in an integrated form. While bauxite is exported to smelters in Scotland and Canada, alumina is imported from Jamaica and the US for the local smelter, Volta Aluminium Company Limited (VALCO). Aluworks is the only company that processes or casts aluminium ingots in Ghana and provides one of the vital links in the chain in aluminium processing in the country.
c. Industry Participants
i. The Minerals Commission – The Minerals Commission is a government agency established under Article 269 of the 1992 Constitution and the Minerals Commission Act. It is the main promotional and regulatory body for the minerals sector in Ghana and is responsible for the “regulation and management of the utilization of the mineral resources of the country and the coordination of the policies in relation to them”. The Commission is specifically required by law to carry out the following functions:
Formulate recommendations of national policy for exploration and exploitation of mineral resources with special reference to establishing national priorities having due regard to the national economy and advise the Minister on matters relating to minerals;
- Monitor the implementation of laid down Government Policies on minerals and report on this to the Minister;
- Monitor the operations of all bodies or establishments with responsibility for minerals and report to the Minister;
- Receive and access public agreements relating to minerals and report to Parliament;
Secure a firm basis of comprehensive data collection on national mineral resources and the technologies of exploration and exploitation for national decision making.
ii. VALCO (formerly Volta Aluminium Company Limited) is the only smelter in Ghana and was established by Kaiser Aluminium and Reynolds Metal Company both from the United States of America and holding 90% and 10% equity stake respectively.
The construction of the smelter was started in 1964 and started smelting aluminium in 1967 with three pot lines in operation. Currently, the plant boasts of five pot lines which ought to work all day throughout the year with a production capacity of two hundred thousand tons (200,000) tones primary aluminium per annum. The smelter normally sells 10% of its output locally and Aluworks is its major Ghanaian customer.
In May 2003, VALCO closed completely due to problems in negotiating electricity supply. VALCO’s operations were restarted in 2006 as a result of a restructuring into a new joint venture between Alcoa and the Government of Ghana. In June 2008 Alcoa sold its 10% stake in Valco to the Government of Ghana.
It shut down intermittently for various reasons mainly due to power related issues until early 2009 when it was completely shut again.
In February 2011, VALCO was again re-opened by Government to run two out of its five potlines only, and has been running since.
Until its intermittent shut downs, Valco employed over 1,500 people.
It imports processed alumina from the international market to produce aluminium, a majority of which is exported. Aluworks remains its major customer in Ghana, but it also supplies ingots to Western Rod and Wire Limited, a subsidiary of Tropical Cable &Conductor Limited, for drawing into aluminium wire for the core of power transmission cables.
iii. Aluworks Limited – Aluworks is an aluminium continuous casting and cold rolling mill located in Tema, the major seaport and industrial city in Ghana. Aluworks provides one of the vital links in the chain towards complete integration of the industry in Ghana. The company produces flat rolled aluminium products for roofing sheets for the building and fabrication sector and is the main input supplier to hollowware manufacturers
iv. Construction & Fabrication Sector – Building and general fabrication is one of the fastest growing areas for the aluminium industry. The largest volume of aluminium is used in the manufacture of extruded profiles for doors, door handles, window frames, curtain rails, corrugated roofing sheets, etc. The building industry is expected to achieve even more growth and as such an increasing need for aluminium products is expected.
v. Hollowware Manufacturers – The aluminium hollowware sector is highly competitive and includes a large number of competitors with Pioneer Kitchenware Limited, Domod Company Limited and Lion Aluminium Products amongst the main competitors in this area of production. The growth of this market has been very consistent and strong. Most of the companies in this market purchase the bulk of their raw material, aluminium circles from Aluworks: although some are supplied through foreign sources.
The main competitors for Ghana’s aluminium products are East Asian manufacturers. In general, the types of household goods manufactured in Ghana are not produced in developed countries. In the domestic market, closeness to the input material and low transportation costs result in a very cost-competitive position for the local industry. Exports to neighbouring countries however are in strong competition with goods from East Asia and other African countries.
Lack of Alumina Plant
There is no integrated aluminium industry in the country due to the lack of an alumina plant to process the bauxite ore. Nonetheless, alumina input of VALCO has to-date satisfied the majority of industry’s requirements. However as these requirements increase, VALCO’S volume supplied to the local market must be increased in order to satisfy the increasing demand.
The aluminium industry thrives on cheap and abundant power supply. All the energy requirement of the industry is supplied by the Akosombo and Kpong hydro-electric dams through the Volta River Authority (VRA). However, in 1994/1995 and recently in 2006/2007 there were curtailments of power to VALCO and other processors because of the low level of the lakes that feed the dams. Production can be compromised due to the under-utilization of plants and equipment. The survival of the industry hinges on the guarantee of a continuous supply of energy.
For the bauxite mining, the poor condition of the country’s railway system is the main factor for its inability to grow its capacity and to return a profit. The bauxite is transported over 240 km on a single-track railway, which is also used for manganese, timber, and cocoa loads. As transport costs make up a significant portion of the total Freight On Board (FOB) price, Ghana’s bauxite is currently not competitive on World markets.
The poor state of Ghana’s infrastructure, in particular its decrepit power plant, are a major problem for the country’s primary aluminium processor.
Although the aluminium industry as a whole is a very important industry for Ghana, there is no government or industry-sponsored research or training institutions providing specific support for the industry.
Overall, the administrative infrastructure of Ghana does not support the development of competitive advantage of Ghana’s aluminium industry. The processed aluminium industry complains about administrative hurdles for exports to neighbouring ECOWAS countries, on which Ghana’s government has only limited direct impact.