Economic Update

Over recent years, Ghana has been one of the world’s fastest-growing economies, on the back of the emergence of its oil industry and underpinned by its political stability and the strength of its other commodity sectors. While GDP growth is expected to slow this year, the Ghana Investment Promotion Centre (GIPC) is targeting a 20% increase in foreign direct investment (FDI), following a dip in 2013.

Talking to OBG, Kofi Sakyiamah Antiri, the director of research and investment development at GIPC, confirmed recent local press reports about the organisation’s expectations for this year, and detailed changes in the country’s business environment that could offset the downside effect of slowing macroeconomic growth. These include a private sector advisory council to share private investors’ interests with the government, an improvement in provisions for investments of more than $50m and a new focus on public-private partnerships in infrastructure.

“With few exceptions, the trend in recent history is for FDI to increase by 15-20% year-on-year,” he said. “While acknowledging that we must work harder in 2014 than in previous years, we are optimistic that we can achieve a 20% rise in line with Ghana’s past experience.”  

Factoring affecting FDI

FDI totalled $3.95bn in 2013, which was down 19.5% from $4.9bn in 2012, according to GIPC figures, although the country still remained one of the largest FDI recipients in West Africa. Some 417 projects with foreign participation were registered, 310 wholly foreign-owned and 107 joint ventures with Ghanaian partners.

Both external and internal factors contributed to the downturn in investment. Global uncertainty linked to the slow recovery of the eurozone and concerns about growth in major emerging markets affected sentiment – as did the US Federal Reserve’s announcement of plans to taper its programme of quantitative easing. Lower prices for several of Ghana’s major commodity exports, including gold and cocoa, also had an effect.

Domestically, one significant factor was political uncertainty surrounding the presidential and parliamentary elections in December 2012, in large part the result of a lengthy court dispute over the result.

“The history of FDI inflows before and after presidential elections in 2000, 2004 and 2008 do indicate a downward turn as a result of a wait-and-see approach from foreign investors,” Antiri told OBG. “The impact of this was also felt a few months leading up to the 2012 election, as well as up to six months following it. But 2013 was a special case, as the election dispute resulted in an eight-month court case coupled with the energy crisis during the first few months of the year. During this period, most potential and existing investors were not too sure what to expect and the result was a very low rate of FDI inflow in the first half of the year. As in the previous years the inflows picked up significantly during the second half of the year when investor confidence in the system improved.”

Another major challenge is the devaluation of the cedi resulting from ongoing trade and current account imbalances. The cedi, which dropped 15% in 2013 against the dollar, is now trading at 2.82. A string of foreign exchange controls implemented by the central bank in February 2014 has done little to stop the slide, driving up inflation and leading the IMF to project a current account deficit of 9.1% this year.  

Increasing investment

However, there are certainly grounds to expect an increase in FDI in the medium term. Ghana has one of the more diversified economies in the region, with the country’s services and industrial sectors accounting for the bulk of recent growth, which presents a range of opportunities for interested investors, but one sector the government is specifically targeting, according to Antiri, is infrastructure, particularly in energy. Ghana has a range of power plant developments under way or planned, including expansions of existing units, which should help supply keep up with demand if successfully executed.

The World Bank’s “Doing Business 2014” ranks the country a respectable 67th out of 189 countries – one of the highest in Africa, and even above some EU member states – although there is still scope for improvement in some areas, given that the ranking is slightly lower than in the previous year. Its business environment is certainly very strong in some areas – it ranks 28th in the world for getting credit and 34th for investor protection, but in terms of enforcement of construction permits, for example, it is 159th.

Africa has become an increasingly popular destination for foreign investors looking for high returns in a low-growth world, and Ghana has been well positioned to capitalise on that. While a large amount of inbound capital is still related to the burgeoning hydrocarbons sector, the steady diversification of the economy and the shift to improve infrastructure and increase local content and value addition should provide a raft of additional opportunities in the medium- to long-term for foreign capital.

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