The latest data emanating from the Ghana Investment Promotion Centre reveals that the country attracted US$2,650.97 million worth of foreign direct investment in 2020, which translates to an increase of 139.06 percent over the US$1,108.93 million recorded in 2019 .
Although not quite as high as the nearly US$5 billion achieved in 2017, Ghana’s performance with regards to attracting FDI in the middle of the world’s first ever truly global pandemic vividly illustrates the country’s lure; indeed Ghana, along with neighbouring Nigeria which attracted roughly the same amount last year were jointly the second most successful destinations for FDI in the whole of Africa for 2020, behind only Egypt.
This defies global trends as COVID 19 continues to take its toll on global trade and investment. A report by the United Nations Conference on Trade and Development estimated the pandemic-induced decline in global FDI at 42 percent. The decline was concentrated in developed countries, where FDI flows fell by 69 per cent to an estimated $229 billion.
The fall however was highly uneven across developing regions – 37 percent in Latin America and the Caribbean, 18 percent in Africa and just 4 percent in the developing countries in Asia.
Importantly, Ghana has carried its global trend-defying performance into 2021; during the first two months of this year the country recorded another US$590 million in FDI. This was better than the performance during the corresponding period of 2020 at which time COVID 19 had not arrived in the country.
Total investment inflows – including indigenous counterparty investment amounted to US$2,796.49 million in 2020. While most of this was registered directly through the GIPC, some of it came through the Petroleum Commission (for investment in the upstream oil and gas sector) Minerals Commission (for investment in solid mineral extraction) and the Ghana Free Zones Authority.
Some 279 projects were registered within the year. This comprised 129 newly registered developments, 131 upstream developments and 19 free zones activities.
For 2020, the biggest sources of Ghana’s FDI included China, the United Kingdom, South Africa, Australia and the Netherlands.
Encouragingly, the manufacturing sector was the biggest recipient of FDI in 2020, with US$1,270.83 million flowing into the sector. This reflects the success of GIPC’s efforts to improve the quality of FDI inflows into Ghana as well as the quantum. This was followed by the services and mining sectors with FDI values of US$656.19 million and US$424.32 million respectively. Export trading, general trading and building and construction recorded 15, 10 and five projects, respectively; the mining and petroleum sectors had three projects each, while agriculture and liaison received a project each.
FDI into agriculture was disappointing a trend which GIPC’s chief executive, Yofi Grant says he has taken due note of and will work to change the situation this year.
GIPC has begun tracking reinvestment by enterprises that have already set up in Ghana and this will be a good measure of investor satisfaction with the Centre’s new emphasis on aftercare services it says it will henceforth extend to investors in the country. In 2020 additional equity in the forms of cash and equipment totaling US$69.28 million was ploughed back as investment by 172 already existing enterprises.
Importantly, indigenously owned companies are increasingly seeking to take advantage of the investment services and incentives offered through GIPC. This is key towards scaling up local participation in the economy. Some GHc1,438.91 million, equivalent to US$250.68 million was recorded with the GIPC from 52 wholly Ghanaian owned ventures.
One disappointment for GIPC though is the spatial distribution of the new projects. The Centre is determined to help in government’s determined efforts to spread formal economic activity into the rural hinterlands, which indeed is why it has started organizing roadshows all around the country. But success has been limited. While last year’s location of new projects across eight regions is an improvement on previous trends, where FDI has been limited to Greater Accra Ashanti and Western Regions, it still falls well short of the target of nationwide spread. Indeed FDI inflows are still overly concentrated in the capital; Greater Accra Region alone received 231 of the 279 projects registered last year. The others are Western 31, Ashanti seven, Volta three, Eastern three, the former Brong Ahafo Region two, with Central and Upper East registering one project each.
It is instructive that the flagship one district one factory initiative is attracting primarily indigenous, rather than foreign investors.
GIPC expects that new investment inflows registered with the centre last year will generate about 27,110 jobs when they become fully operational.
According to the Centre, 95.46 per cent of the jobs would be reserved for Ghanaians, while the remaining 4.54 per cent would go to expatriates.
The country recorded, among others, significant projects by Toyota Tsusho (automobile), Sentuo Oil Refinery (refining crude oil), the One Rand Group (manufacturing of real estate materials) and African Underground Mining Services (mining support services).
GIPC’s CEO, Yofi Grant has attributed Ghana’s extraordinary performance to several factors.
“This trend of strong performance in Ghana’s inbound FDI amidst the global health pandemic could be attributed to a combination of factors including effective government policy responses, an easing of travel restrictions and more importantly, the delivery and expected future development of vaccines in-country; as well as GIPC’s notable efforts as the leading investment promotion agency also played a pivotal role in attracting investors.”
GIPC has been seeking go secure FDI in two ways; one by marketing Ghana in general as a prime investment destination and the other by marketing specific opportunities. The latter is expected to soon start yielding major results. For instance, Yofi Grant has revealed that its flagship Accra Marine Drive coastal property development initiative has already attracted the interest of thee globally renown investors.
“Selling such big ticket investments is not like selling tomatoes in a market” he explains. “It takes time, but the benefits, in terms of sheer project scale are well worth the effort.”
Crucially GIPC has succeeded in the first step – convincing international investment community that Ghana is an outstanding investment destination.
“As Ghana steps into an era of liberalized trade under the AfCFTA there is even stronger commitment from the Centre to boost investor confidence and ultimately harness valuable investments for Ghana which is now Africa’s business capital” asserts Yofi Grant.
Crucially, Ghana is getting rave reviews from government’s around the world that command the respect of international investors. Says the United States’ State Department:
“Ghana’s macroeconomic situation improved over the last three years under its extended credit facility agreement with the International Monetary Fund (IMF), which concluded in April 2019. The fiscal deficit narrowed, inflation came down, and GDP growth rebounded, driven primarily by increases in oil production. Ghana’s economy expanded at an average of seven percent per year since 2017. The economy remains highly dependent, however, on the export of primary commodities such as gold, cocoa, and oil, and consequently is vulnerable to slowdowns in the global economy and commodity price shocks. The Government of Ghana expects GDP growth to slow to just 1.5% in 2020, reflecting a deep global recession and the severe effects on domestic demand from the coronavirus pandemic. In general, however, Ghana’s investment prospects remain favorable, as the Government of Ghana seeks to diversify and industrialize, in particular through agro-processing, mining, and manufacturing. It has made attracting foreign direct investment (FDI) a priority to support its industrialization plans and overcome an annual infrastructure funding gap of at least USD 1.5 billion.
While the economy was doing relatively well before the global coronavirus pandemic, high government debt, low government revenue, and high energy costs remain challenges. Ghana has a population of 30 million, with over six million potential taxpayers, only 3.7 million of whom are actually registered to pay taxes. As Ghana seeks to move beyond dependence on foreign aid, it must develop a solid domestic revenue base. On the energy front, Ghana has enough installed power-generating capacity to meet current demand, but it needs to make the cost of electricity more affordable through more effective management of its power distribution system and diversification of its energy matrix, including through renewable energy.
Among the challenges hindering foreign direct investment are: a burdensome bureaucracy, costly and difficult financial services, under-developed infrastructure, ambiguous property laws, costly power and water supply, the high costs of cross-border trade, a shifting policy environment, lack of transparency, and an unskilled labor force. Enforcement of laws and policies is weak, even where good laws may exist on the books. Public procurements are opaque, and there are often issues with delayed payments. In addition, there are troubling trends in investment policy over the last six years, with the passage of local content regulations in the petroleum and power sectors that may discourage needed future investments.
Despite these challenges, Ghana’s abundant raw materials (gold, cocoa, and oil/gas), relative security when compared to its neighbors, and political stability, as well as its selection to host the African Continental Free Trade Area (AfCFTA) Secretariat make it stand out as one of the better locations for investment in sub-Saharan Africa. The investment climate in Ghana is relatively welcoming to foreign investment. There is no discrimination against foreign-owned businesses. Investment laws protect investors against expropriation and nationalization and guarantee that investors can transfer profits out of the country, although international companies have reported high levels of corruption in dealing with Ghanaian government institutions. Among the most promising sectors are agribusiness; food processing; textiles and apparel; downstream oil, gas, and minerals processing; and mining-related services subsectors.
The government has acknowledged the need to foster an enabling environment to attract FDI, and is taking steps to overhaul the regulatory system and improve the ease of doing business, maintain fiscal discipline, and promote better transparency and accountability.”
Key here will be the imminent replacement of Ghana’s investment code with a new one. Proposals had alr6eady been drawn up by GIPC for consideration by cabinet but a prudent decision has since been taken to wait until the AfCFTA framework has been completed, to ensure that there are no conflicts between the tenets of Africa’s single market and Ghana’s sovereign investment laws.
This means having to wait for the completion of phase two of AfCFTA negotiations – which cover investment – that are scheduled for the second half of 2021. However Grant is confident that Ghana can complete its own revisions more or less simultaneously which means the new investment code could be ready by the end of this year.
The international investment code is eagerly waiting for this to be done, in order for them to see what the new opportunities are in Ghana going forward. If Ghana gets it right then indeed it will become the business capital of the emergent single African market.