Posted: Wednesday 28th May 2014 at 0:06 am

The future of FDI in Ghana

627a240x mg mqh6kwv33e 1854737287542 3220035238864 The future of FDI in Ghana


EY’s positive verdict on the investment climate in sub-Saharan Africa, and Ghana particularly, is gratifying news, but says more of the past than of what’s to come.

The results of the fourth annual Africa Attractiveness Survey, a report by the global advisory and accounting firm EY that measures collective confidence in Africa as an investment destination, may have come as a surprise to Ghanaians and foreigners doing business here.

Any local discussion of Ghana’s economy in the last several months seems to inevitably take a turn for the dreary – the concern over the country’s fiscal deficit, manifesting itself in development-funding anxiety and ratings agency scoldings; the skyrocketing costs of necessities like fuel and power; the constant interruptions in electricity supply that are clearly beginning to wear on even well-established businesses; and, most pertinently, the 20% drop in foreign direct investment (FDI) recorded in Ghana last year. 

But EY’s survey, titled ‘Executing Growth’, reminds us that another, longer view exists: It reports that FDI in Ghana has been climbing since 2007, and gives no clear sign that that trend will change despite the gloom of the present day.

And despite the 20% drop in total FDI value last year, as stated by the Ghana Investment Promotion Centre (GIPC), EY says that the number of foreign-funded projectsin Ghana actually grew by more than 48% between 2012 and 2013. Among all African countries, Ghana ranked eighth in number of FDI projects from 2007 to 2013, above Uganda and Rwanda, which are frequently cited as attracting a great deal of foreign interest.

What remains less clear is whether the enthusiasm for Ghana will be sustained going forward, a subject EY addresses only indirectly in this report. There is some reason to be hopeful that it will, but this is an optimism that must be anchored by the same long-term perspective that infuses the document’s look back at the last seven years.

For instance, EY finds that FDI is often concentrated in urban areas, which in Africa are growing rapidly. Accra is a prime example of the fast-expanding African metropolis with a rising middle class, whose buying power and interest in consumer goods are rising along with it.

Moreover, it is relatively close to a few other major urban centres in Nigeria, making it part of what EY calls the Greater Ibadan-Lagos-Accra (GILA) corridor. This urban cluster, whose points lie in different countries but are connected by transport and trade routes, could serve to draw – in fact, already is drawing – investors who want to enter several markets in West Africa but aren’t prepared to tackle the whole region at once.

Global perceptions are also changing, for the better, about the feasibility of conducting business in Africa as a whole. EY notes that of companies that have already established a presence in Africa, a majority find Africa to be a more attractive investment destination than any other region. Businesses that have not yet entered the region, on the other hand, are more inclined to consider it less attractive. It’s rather cheering to think this means that mythology, not reality, is the main driver of any skepticism surrounding Africa.

Ghana is still beset by challenges. In Doing Business 2014, a report by the World Bank and International Finance Corporation(IFC) that scores 189 economies on the ease of setting up shop there – getting electricity, paying taxes, lining up credit and so forth – Ghana ranked 67th overall, representing a backslide from its 2013 ranking of 62nd. Securing construction permits, starting a business and resolving insolvency were found to be some of the biggest headaches for entrepreneurs here relative to the rest of the world. Regionally, however, Ghana fared quite well on theDoing Business report, ranking fifth out of all countries in Africa, and in certain areas it even outperformed developed nations.

It’s best kept in mind that the World Bank’s report does not include several factors, some unique to Ghana and some not, that consistently pose problems for businesses already in operation, like the absence of reliable market data and, of course, the power cuts that continue unabated. Nor do its results take into account macroeconomic stability or infrastructure in a given country. Finally, and importantly, it covers only the regulations and requirements that apply to domestic businesses. Those can be extrapolated in some cases to relate to foreign companies as well (especially those setting up partnerships with indigenous firms), but undoubtedly the upshot is that certain processes will be even more time-consuming and costly for outsiders.

Perhaps more than anything else, EY’s Africa Attractiveness survey shows that foreign investors are a mercurial lot, whose priorities and tastes can change rapidly based on trends of the day, bad or good PR, and their own level of experience with a region like Africa. Strengthening local institutions and underlying economic conditions must be a far more reliable path to prosperity, creating opportunities for both indigenous and foreign companies without fostering overdependence on the latter. 

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