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ENGINEERING FOR DEVELOPMENT

(First Draft)

E J Jefferies

March 1969

CONTENTS

PART 1 THE WORLD DEVELOPMENT PROGRAMME

Chapter 1 Introduction
Chapter 2 Closing the Gap
Chapter 3 Resistance to Change
Chapter 4 International Technical Assistance

PART II AN ENGINEERING APPROACH TO A PLAN FOR A COUNTRY

Chapter 5 Outline of the Approach
Chapter 6 Setting the Problem
Chapter 7 Basic, Concepts, Terms and Definitions
Chapter 8 Background Data Available
Chapter 9 The Starting Point for a Case Study
Chapter 10 Preliminary Calculations
Chapter 11 Patterns of Economic Growth
Chapter 12 Development Plan for Year 1
Chapter 13 Development Plan for Year 2
Chapter 14 Development Plan for Year 3
Chapter 15 Review of Changes During the Three Years
Chapter 16 The Control of Development
Chapter 17 Financing the Development

PART III THE IMPLICATIONS OF RAPID GROWTH

Chapter 18 Economic Growth and Technological Changes in Rural Communities
Chapter 19 The Influence of Agriculture on Industrial Development
Chapter 20 The Role of Manufacturing Industry
Chapter 21 The Contribution of Industrial Engineering to a Solution

PART IV DESIGNING FOR BALANCE IN DEVELOPMENT

Chapter 22 The Prediction of New Manufacturing Capacity Requirements by Product Group
Chapter 23 The Productivity of Labour
Chapter 24 The Growth of Productivity
Chapter 25 The Calculation of Appropriate Levels of Productivity in New Plants

CHAPTER 25

THE USE OF THE GRAPHS OF SECTORAL GROWTH

FOR THE ESTIMATION OF ALLOWABLE LEVEL

OF PRODUCTIVITY IN NEW PLANTS

The example in Chapter 5 above demonstrated the determination of the probable growth in textile manufacturing under certain conditions using the data of Graphs 1 to 3. Continuing this example, we can examine the permissible level productivity of labour in a new textile mill compared with the present level in the textile industry as a whole, taking into account the expected general development of the economy.

At present agriculture accounts for about one-third of the GDP and the productivity of labour in agriculture must be assumed to grow at 5% per annum, since without this it is improbable that the expected growth rate of 5% per annum in the economy as a whole will be possible.

Productivity in agriculture will increase by 1.05⁵

= 1.275 = 27.5%

From the graphs, by the method outlined in Chapter 5 above, we can estimate that the total Value Added in agriculture will grow in five years from $47 m to $53 m or by about 13%. Therefore the labour force in agriculture will fall in the ratio ^1.13/_1.275, i.e. by about 11.5%. Some 4% of the country’s labour force will leave agriculture, since about one-third of the total labour force is engaged in agriculture. If unemployment is not to rise, this 4% plus all of the 12% in the total labour force of the country due to population increase must be absorbed in activities other than agriculture. Thus the increase in the size of the non-agricultural labour force will be from 0.65 to 0.81 times the present labour force, an increase of 25%.

Now, Value Added in textiles is expected to rise in five years from $6.7 m to $10.9 m or by 63%. If this sector is to make its pro-rata contribution to controlling unemployment, its overall labour force must increase by 25%. Thus average productivity must not rise by more than about ^1.63/_1.25 = 1.31 or 31% over the five year period.

Since all the higher productivity will be in new plants, with a total output equal to about two-thirds of the old plants (these continuing at their present level of output and productivity), the permissible average level of productivity in the new plants can be planned to be 2.5 times¹⁵ the present average level calculated at present-day prices. This assumes of course that none of the existing production capacity is closed down or upgraded.

In addition, the general projected increase in GDP must be allowed for, so that the productivity at some future time will be in line with economic conditions then. It is suggested that this point in time should be chosen two-thirds of the way through the write-off time allowed for the plant. In the present example this may be ten years hence, i.e. two-thirds of a write-off period of fifteen years. This implies that the plant will, from a productivity point of view, be rather ahead of the general economy to begin with, falling into line in ten years time and becoming obsolescent thereafter.

Now the development rate for the economy was specified at the beginning of this example as 5% per annum, producing a factor of 1.05¹⁰ or 1.53 in ten years time. Productivity is the sum of three elements, one of which - labour - fill increase in price about in line with the development of the economy and the other two of which - capital costs and profits - will, as a first approximation, stay fixed at present-day levels.

From a given project report the fraction of Valued Added relating to labour costs is known. Assume this to be one-quarter in the present example. Then the connection between productivity as planned now and as it ought to be in ten years time is:

P₁₀ = P₀ x 1.53 (subscript 0 = now; subscript 10 = ten years hence).

The contribution of the labour element in productivity will increase, due to the increase in the price of labour, from 0.25 P₀ now to 0.25 x 1.53 P₀ = 0.38 P₀ in ten years time while the remainder will stay fixed at 0.75 P₀. By "natural causes" a productivity of P₀ planned now will become (0.38 + 0.75) P₀ = 1.13 P₀ in ten years time. Hence to plan now for a productivity level appropriate to ten years hence, the figure of 2.56 times the present average level already calculated should be increased again by a factor not of 1.53 but of ^1.53/_1.13 or 1.35, giving a target for design at present-day prices of 2.56 x 1.35 or 3.45 times the present-day average productivity for the sector.

The above logic in designing for the future applies only to a sector of manufacturing which is already "appropriate" to the country, that is, whose average productivity level falls within the "Mean to Upper Quartile" range (see Graph 5). Where this is not the case, or where information is lacking, a value within this "appropriate" range should be assumed. If it is known that productivity in the sector is very low, assume a value equal to the "Mean". If there are already existing plants with inappropriately high productivities assume a value at the "Upper Quartile". This will help to smooth out the ill effects of excessive sophistication or excessive obsoleteness in any existing plants.

The Calculation of Productivity of Labour From a Project Report

Two examples of the relevant calculations are given below, with comments.

From this we can calculate:

Value Added per employee = US $8,700 approximately.

Comments

(Source: Staley and Morse, "Modern Small Industry for Developing Countries",

Tables 7-2, 7-3, 7-4)

• •  
  • to reduce the profit margin (e.g. to assume a sales price of $300/ton would reduce productivity to $6,100 and profit to $109,625 a year, i.e. to about 15% return on risk capital);
  •  
  • not to install full mechanical handling equipment in the warehouse, i.e. to substitute labour for capital in this department;
  •  
  • not to install automatic batch weighing and charging equipment, again replacing some capital with additional labour.

2. Case Study in Mechanisation of Handling in a Bag Store

A rice mill has a store capable of holding a year’s supply of paddy, which has to be taken in over a limited period after harvest. Paddy is received during two periods of twenty working days in the year. It is delivered in trucks at the rate of 600 tons a day on 1 cwt bags.

100 casual labourers, one ganger and two tally men are employed to take bags from the trucks into the store and stack them, only when needed, and are paid respectively Rs 3, Rs 10 and Rs 5 per day worked.

The Cost Accounting procedure of the mill calls for the addition of 10% to all departmental costs, as an element of profit.

A proposal has been put forward to install mechanical handling equipment to reduce the number of casual labourers needed and to reduce the total costs of the handling operation. The details of the installation proposed are as follows:

•  
• Two portable and adjustable belt conveyors which can be located with the foot end near the trucks and the head end at any point and height of the stack in the store as it is built up.
•  
• Cost of two conveyors installed, with electric wiring and trailing cables (Rs 20,000).
•  
• Power consumption of the two conveyors will be 240 KWH a day when working, the charge for electricity being Rs 0.10 per KWH.
•  
• The labour requirement will be: twenty casual labourers, one ganger and two tally men.
•  
• The installed cost of the equipment is to be written off over ten years.
•  
• Maintenance of the equipment is estimated to cost Rs 2,000 a year.
•  
• The new equipment will be financed from a loan carrying 15% interest per annum.

Questions

(1) What will be the effect of mechanisation on the total cost of the operation?

(2) What will be its effect on the economy of the country as a whole?

(3) Would you recommend that the proposal to mechanise should be accepted?

(4) Is here any alternative action you would suggest?

Calculations:

Comments

Thus a loss of Rs 4,960 to the National Income will result.

(4) The twenty-three men still employed gain no benefit in extra pay.

(5) The eighty men displaced are unemployed.