Private foreign investment as a vehicle for development : a case study of the Volta River project and the Valco Smelter in Ghana

The past three three decades have witnessed the evolution of diverse theories of development, each positing a particular approach which would lead to the solution of development problems. One such theory is that since developing countries are too poor to generate their own savings, private foreign investment can act as the missing link in the development cycle and thus contribute towards their overall development. This dissertation seeks to test the efficacy or otherwise of this highly controversial theory as a developmental strategy with regard to the VALCO smelter investment and its related Volta River Project in Ghana. The case study approach has been adopted, enabling a detailed empirical study of a specific case to be carried out. Even though the development literature abounds with writings on the pros and cons of private foreign investment, empirical data on specific cases of private foreign investment are relatively scarce. On the attainment of Ghana's independence President Nkrumah decided to dam the Volta River to generate electricity as a basis for the country's industrial development. In particular, he intended to use the power to develop the country's large bauxite deposits, as the basis for the establishment of an integrated aluminum industry. Faced with the lack of capital and expertise as well as the loss of interest in the project by the British, who were the originators of the idea, Nkrumah had no alternative but to turn to the U.S. for assistance. As a precondition to assisting Ghana, the American Government recommended that for the project to be viable the Ghana Government should build the dam, partly from the latter's own resources and partly with assistance from the U.S. Government and international lending institutions. Private American corporations would invest in the building and management of an aluminum smelter which would consume a substantial proportion of the hydro-power to be generated. The U.S. Government argued that this would enable the host country to get a constant source of scarce foreign exchange to pay off the huge debt to be incurred from the hydro-electric project. The net effect of this development was that the original integrated aluminum industry idea, as envisaged by the British and Nkrumah, was jettisoned. In its place, VALCO, a consortium of two U.S. multinational aluminum companies, built an aluminum smelter which currently consumes about 65 per cent of the power, at one of the lowest rates in the World. VALCO had previously been granted generous concessions, including a 30-year exemption from the payment of duties and tariffs and a long tax holiday. While Ghana imports all her aluminum requirements to feed her factories, VALCO exports all the 200,000 tonnes of aluminum ingots produced by the smelter to overseas markets. VALCO also imports alumina from Jamaica and the U.S. to feed its smelter, while Ghana's extensive bauxite deposits remain untouched. Meanwhile, the Volta River has flooded large expanses of previously farmed land, and adversely affected the lives of the majority of the 80,000 people who originally lived along the river basin. Apart from the loss of livelihood many of these people have become afflicted with water-borne diseases. Ghana's industrial revolution has at best only remained a dream, as there is not much power left to enable other industries to be established. On the whole, the benefits of the VALCO investment to Ghana has been marginal. The main beneficiary has been the American companies. Nationalization and joint ventures are among some of the policy options open to policymakers in the developing world to counteract the negative aspects of private foreign investment.