For many years Ghana has been one of Africa’s top investment destinations, ranking fifth on the continent for foreign direct investment (FDI) inflows between 2011 and 2020, according to World Bank data. The organisation’s figures show the country receiving $32.5bn in FDI over the period, the second most in West Africa after Nigeria, with $45.1bn.
The Covid-19 pandemic, however, saw FDI flows fall worldwide, with Africa as a whole down 16% in 2020. Ghana was no exception: FDI declined from 4.4% of GDP in 2019 to 2.7% of GDP in 2020. Restoring robust inward investment is a major focus of government policy in 2022, with an “aggressive FDI promotion drive” promised in that year’s budget. The hope is that FDI can fund a greater share of infrastructure development projects, thereby taking pressure off the public debt, while strengthening the domestic private sector through job creation and knowledge transfer.
More than Minerals
The mining sector has historically been the main destination for FDI in Ghana, accounting for some 56% of all FDI between 1991 and 2001. Beginning in 2007, when oil and gas were first extracted in significant quantities, the energy industry helped fuel an increase in FDI, which rose from $145m in 2005 to $2.7bn in 2008. Economy-wide FDI has continued to grow since then, reaching a high of $3.9bn in 2019.
Government policy has facilitated the rise in investment, as successive administrations recognised the importance of FDI to overall growth. Ghana’s political and economic stability, including reasonably predictable inflation and exchange rates, have also proved attractive to investors. The country also benefits from relatively advanced hard and soft infrastructure, which new companies can tap into, along with a dependable legal system.
The automotive industry has been a non-traditional beneficiary of the confluence of domestic policy and foreign business interest. Under the 2019 Ghana Automotive Development Policy, a number of original equipment manufacturers (OEMs) such as Volkswagen, Nissan, Toyota and Suzuki signed agreements to assemble vehicles from kits in-country. In 2020 the government supported this with a Customs amendment granting tax holidays of five to 10 years for assemblers, along with a range of Customs duty exemptions and value-added tax waivers, among other benefits. The authorities hope that Accra will become a regional centre for OEMs and other automotive stakeholders interested in the region, given that the Africa Continental Free Trade Area (AfCFTA) Secretariat is based there.
Ghana recently launched a raft of new initiatives that should help attract further investment after the pandemic-induced dip in 2020. One such scheme is the Securities and Exchange Commission’s first Capital Markets Master Plan, published in May 2021. Over a 10-year period it aims to make the Ghana Stock Exchange a leading source of long-term financing for domestic businesses, while also facilitating foreign companies’ investment in the country (see Capital Markets chapter).
The capital markets are helping to fund the ongoing rollout of the Ghana Covid-19 Alleviation and Revitalisation of Enterprises Support (CARES) programme, the government’s pandemic response package valued at GHS100bn ($17.1bn). Introduced in November 2020, the programme was in its second of two phases – which focuses on revitalisation and transformation – as of early 2022. Some GHS70bn ($12bn) of the programme’s total cost is envisioned to be provided by the private sector.
Ghana CARES includes the creation of the Development Bank Ghana (DBG) with a €170m loan from the European Investment Bank. The DBG will issue loans and credit guarantees to local businesses in agriculture, ICT and manufacturing, in particular, stimulating investment and supporting start-ups. The 2021 conversion of the Ghana Amalgamated Trust – a special purpose vehicle to support local banks – into a permanent operation is also intended to help local lenders extend finance to businesses, increasing the latter’s ability to invest and develop.
New Jobs & Businesses
Ghana CARES also funds the YouStart Initiative to create 1m jobs over three years by facilitating young Ghanaians’ access to capital, training and mentorship to launch or expand their own businesses. This addresses a growing challenge in Ghana, where approximately 10% of the 200,000 high school graduates who enter the job market on average each year find jobs in the formal sector. Ghana CARES aims to raise that to one-third by the end of 2023, with 85% of the jobs created in the 2020-23 period to be in the private sector.
The jobs programme will involve the Enterprise and Youth Support Fund (EYSF), managed by the Venture Capital Trust Fund (VCTF). The EYSF plans to create an online investment platform and a “youth bank” that will specifically target start-ups run by young Ghanaians. The VCTF itself is being strengthened with a $45m capital injection from the Ghana Economic Transformation Project, a World Bank-supported initiative. A $500m private equity fund, the Ghana Century Fund, will also be established to provide medium- and long-term financing for small and medium-sized enterprises. The new businesses are expected to be in a variety of sectors, with agri-business, light manufacturing – particularly food processing – pharmaceuticals, textiles and garments, housing and construction, and the digital economy particular targets.
A longer-term goal is to establish Ghana as a regional centre for manufacturing and agri-business, with the government’s business regulatory reforms programme being fast-tracked to create a positive environment for FDI in these sectors. Capacity-building for the Ghana Free Zones Authority and the Ghana Investment Promotion Centre also come under the business reform initiative, which seeks to digitise operations and licensing.
The Ghana CARES programme aims to bring $3bn of FDI to the country each year – a reasonable goal given that all years between 2011 and 2019 saw this amount or more – with half of this going to agri-business and manufacturing. At the same time, around $3bn in public-private partnership (PPP) investment is targeted, principally to build infrastructure. The PPP Act, which came into force in December 2020, is underwriting this effort. It strengthens the regulatory framework around projects, introducing new financial thresholds for approvals, as well as an overhauled dispute-resolution process.
The Ghanaian Infrastructure Investment Fund (GIIF) has been tasked with spearheading a new PPP drive. According to the government’s 2022 budget proposal, areas being targeted for investment include water resource management, maintaining coastal and protected areas, transport, ICT, drainage and flood control, construction industry development, disaster management, electricity infrastructure, and health and education facilities.
More affordable housing is also a goal, with a National Homeownership Fund established to address what the Ministry of Finance quantified as a national deficit of 2m housing units in 2019. The GIIF will enable participating banks to offer mortgages at 11-12%, rather than previous market rates of 25-26% (see Construction & Real Estate chapter).
The government’s agenda is therefore a full one, with an environment being cultivated for the private sector to play a growing role in meeting various goals. Improving business sentiment to bolster FDI inflows is therefore key, with tentative signs of economic recovery both locally and globally throughout 2021 supporting Ghana’s investment outlook.