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Contributor: James Ogunleye
Ghana: Firming Up Investment

Ghana is ambitious. By the year 2020, it hopes to rub shoulders with the present-day Asian Tigers. The aim, according to a strategy document,?is to transform Ghana from a low-income to a middle-income country within one generation by achieving a long-term average rate of economic growth of over 8% per annum, which will raise real average incomes fourfold.?
But there are barbed wires standing between Ghana?s dream and reality, for instance the shortage of savings and investment in the domestic economy. The Structural Adjustment Programme marks its 12th anniversary this year and, had it been going according to plan, Ghana is supposed to have been awash with donors? money and investors? cash. Whilst the former has been made available, there is no sign of the latter. And the real rub - after a decade of restructuring, Ghana?s level of investment as a percent of GDP is 4.5%, while savings stands at 1.8% of the GDP. For an economy that has shifted its focus from the public sector to the private sector, this is simply not on. Something has to give.
In 1994 Ghana started doing what it had hitherto taken for granted: taking its case direct to the doormats of foreign investors. Until last year, Accra didn?t favour an aggressive approach in attracting foreign investment. The government?s attitude, according to economic watchers, was: `We?ve got the macroeconomic credentials. Let that speak for itself.? But in a world where investors sometimes demand encores from those singing the praises of their own reforms, Ghana?s soft approach never quite caught on.
Now their attitude has changed, and they have produced the first of a series of moves to attract foreign investment - a new, streamlined investment Code tagged ?Ghana Investment Promotion Centre (GIPC) Act (1994)?. The Act, which replaced its 1985 version, makes Accra Investment Centre an epicentre of investment promotion in Ghana. It became operational last October. Accra did not stop there. Between May 1994 and July 1995, a series of trade fairs, investment promotions, conferences aimed at selling Ghana followed on the heels of the of the investment law.
Are there tangible results? Yes, says Ghana Investment Promotion Centre - albeit in an epileptic manner. But half a loaf, according to the old adage, is better than none. According to GIPC, foreign direct investment (FDI) in the first quarter of 1995 alone is in the region of $0.5 million- compared to $238,000 in the last quarter of 1994. Of the 27 projects recorded in the first quarter of 1995, 30% are on trade export. Of course, the government has not underplayed this increase. The trouble is the goodies haven?t been evenly spread over all sectors of the economy. Almost all the investment - some $1.5 billion - has been in the mining sector. The annual average inflow of FDI outside the mining sector is estimated at $35 million, some $75 million short of the Government base target.
If Ghana?s Vision 2020 is to be achieved, the government says it needs to complement its drive for FDI with export promotions. ?The ultimate goal,? says Trade and Industry Minister, Emma Mitchel, ?is the creation of an export-oriented economy.? Mrs Mitchel is convinced that her government can square up to the future challenge, ?by enhancing the role of private sector advocacy groups, simplifying procedures relating to exports, removing all bottlenecks in our international system and providing pricing incentives by surrendering 100% export proceeds to exporters at prevailing forex (foreign exchange) bureau rates.? Moreso, by ?reducing corporate taxes for all business activities, improving bonded warehouse and duty drawback schemes for export oriented activities, and by providing financial incentives in the form of concessionary borrowing for manufacturing and export sectors.? The minister seems to appreciate the importance of export promotion - especially for Ghana?s little-explored non-traditional exports. Before the introduction of SAP in 1983, non-traditional exports? share of overall export total was a measly $2 million. Now that figure has gone up a hundred fold. By December last year, however, the sector?s share of forex earnings was only $120 million, of $1,215 million recorded as export revenue. Confident Emma Mitchel says the government is licking its lips in anticipation of around $335 million from this sector in 1997.
Although foreign investment has been sporadic, aid has been forthcoming, so much that at one time (in 1991) aid, grant and other budgetary supports came to a neat 9.1% of the GDP. Nigeria (in comparison) during the same period was left holding the shorter end of the stick with aid standing at only 0.1% of its GDP. Of course Ghana can?t really `live? - for now at least - without external finance. Thus the government reckons the country would require aid flow of approximately $1.6 billion between January 1995 and December 1997, to supplement own-earned forex income. Currently though, annual average aid flow to Ghana hovers around $500 million.
But some people are asking the question: if Ghana has indeed received so much in aid flow and still expects so much in future, where is the evidence of the cash on the ground? First of all, the average Ghanaian citizen may be forgiven for thinking that more aid will improve his wage slip. No. It will be some time before the effect of aid is felt because since 1990, Ghana?s spending policy on aid and external accounts have been working at cross purposes. The country has been running huge deficits on its trade account, which effectively neutralised the benefit of aid inflow. For instance, Ghana?s current account balance in the five years to December 1994 amounted to $2,844 million. As a percentage of the GDP, however, it translates to 44.9% over the same period. The effect of this therefore has been to offset the aid flow over the last five years. And this explains, in part, why `ordinary? Ghanaian is still asking ?Why is my miracle?.
The government calculates that a minimum of 8% growth rate will have to be achieved - and sustained - if Ghana is to add the revered prefix NIC (Newly-industrialising Country) to its name by 2020. How will Accra go about this? Well, this is one area it can count on for many friends, one of whom is Ravi kanbur, one-time World Bank handmaid in Ghana. He says Accra must run a surplus 5% of the GDP (ie the government?s must end its Budget deficit and improve on the current 2% of the GDP surplus achieved in the fiscal year 1995/96). He also recommends a minimum foreign direct investment of 5% of the GDP. Additionally, observers say, Accra must toughen up its stance on revenue generation and be ruthless in curbing public spending. So the message to Ghana is simple: raise savings and investment rates (especially investment to GDP ratio from the current level of 16% to 60%); increase private investment; and a strenuous hunt for outside investment.
Is Ghana ready for this? Some have no doubt Ghana is up to the task - and some even see Kwame Nkrumah?s black star?s potential as a clearing house of sorts for investment. ?With one of the region?s strongest and most stable economies,? declared Richard Needham, former British Trade Minister and mission leader to Ghana, ?Ghana represents a vital foothold in the region - a gateway to West Africa.? With supporters like this, Ghana?s drive to firm up foreign direct investment may well have been given a boost.
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