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

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Djarbeng, Erasmus Douglas (1983) Private foreign investment as a vehicle for development: a case study of the Volta River project and the Valco Smelter in Ghana. Unspecified thesis, University of Tasmania.

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Abstract

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 aluminium 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 aluminium 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 aluminium industry idea, as envisaged by the British
and Nkrumah, was jettisoned. In its place, VALCO, a consortium
of two U.S. multinational aluminium companies, built an aluminium
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 aluminium requirements to feed
her factories, VALCO exports all the 200,000 tonnes of aluminium
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.

Item Type: Thesis (Unspecified)
Copyright Holders: The Author
Additional Information:

Includes bibliography

Date Deposited: 09 Dec 2014 00:16
Last Modified: 11 Mar 2016 05:56
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