Foreign Direct Investment (FDI) into Africa has increased over the past few years, putting the stagnation many African countries faced in the 1980s firmly in the past. FDI flows into Africa rose to US$ 46 billion, a rebound from two successive years of decline and an 11 percent increase from 2018, according to UNCTAD’s 2019 World Investment Report.

However, in comparison to regions like East Asia and Latin America, Africa’s FDI flows pale. It is quite intriguing, and sobering, to know that while Africa makes up 17% of global population, it only received 3.5% of the $1.3 trillion global FDI in 2018; developing Asia on the other hand, with 60% of global population, receives approximately 40% of the total FDI flows. The vital role FDI inflows play in encouraging economic growth and development cannot be emphasised enough.

With a rapidly swelling population, African economies require massive injections of local and foreign direct investment sooner rather than later. These investments will support governments to provide jobs, increase income and create the sustainable wellbeing demanded by their people. To achieve this, African countries cannot just wait and hope that favourable winds will blow. There is an increasing need for custom-made policies to attract international market actors and overcome daunting domestic deficiencies that may prevent the seamless incorporation of foreign and local firms, and their ability to become success stories.

FDI has not always had a great reputation among developing countries. In some instances, particularly most Africa countries where most FDI engagement with host economies is in the extractives sector, it has been become intertwined with ideas of neo-colonial exploitation of raw materials and cheap labour. While this is not entirely without truth, many emerging economies have been able to direct FDI into relatively more productive sectors of their economies where investment helps create decent jobs, inspire quality growth and elevate income levels. This means that there is a way to leverage FDI in more productive ways to achieve the goals of African countries.

For Africa to increase its per capita GDP from its current levels ($1,800) to the global average ($11,000) by 2050 – when Africa’s population is expected to have doubled, it will have to increase the size of its economy a dozen-fold: an outcome that requires an average annual growth rate of 7.4% for the next 30 years. To achieve this, African countries, Ghana included, must create a compelling case of stability and a less antagonistic policy environment to attract the foreign investment it needs.

Investment has been at the core of Ghana’s narrative for decades.  The Investment Promotion Centre Act of 1994 birthed the Ghana Investment Promotion Centre (GIPC) which is aimed at making it easier to establish businesses and attract investment. GIPC, a subsidiary of the Office of the President, is meant to be the vehicle that promotes and facilitates private sector investment in Ghana.

Ghana offers a very generous package of investment incentives. For instance, companies can enjoy tax holidays of up to ten years with a tax rate of only one per cent afterwards. Industrial plant, machinery or equipment and parts can also be imported duty-free; losses from disposal of shares or any investment made during the tax-exempt period may be carried forward to the post-exempt period up to 5 years; and foreign investors have no restrictions on profits and dividend repatriation.

In 2016, the new government under President Akufo-Addo generated a surge of hope and enthusiasm, both within Ghana and around the world. Akufo-Addo’s message of a ‘Ghana Beyond Aid’ resonated strongly with the business community, especially because of the pro-private sector orientation of the ruling NPP party. In his address to the nation, the President, stated “It is time to pursue a path to prosperity and self-respect for our nation. A Ghana Beyond Aid is a prosperous and self-confident Ghana that … engages competitively with the rest of the world through trade and investment.’ If there was ever a statement that was synonymous to “open for business”, it would be that. And yet, Ghana has not been particularly successful in attracting nor maintaining the huge investments that can transform the lives of its people, yet.

In March 2018, GIPC announced an annual target of $10billion in FDI, and between $20 and $40billion within the next six to ten years in FDI, aimed at helping government with “investments in infrastructural developments especially in the railway, health and education sector and investments among others”, according to the centre’s CEO. Unfortunately, GIPC only recorded US$3.3billion nearly matching 2017’s US$3.6 billion – the highest in its 24-year history. Still, according to  Absa’s 2018 Africa Financial Markets index, Ghana is the second most attractive financial market for international investors in West Africa. The gap between what Ghana attracted, and perceptions of how attractive it is, is perhaps telling of deep issues of passivity.

GIPC has lacked the vigour of more successful counterparts such as Singapore’s Economic Development Board which is driven by commercial objectives and dedicated to developing strategies that enhance Singapore’s economic competitiveness. They got there with a fast and efficient website, global offices and a meritocratic staff body. The EDB has a more assertive model which relies on sophisticated research, targeting of investors, and the development of policies and incentives to woo them. Their focus on remaining pro-business and improving the ease of doing business in Singapore is perhaps the reason why Singapore remains in the top ranks of all key Ease of Doing Business indicators.

It is obvious that goodwill for Ghana exists, but it must create, with urgency, the conditions needed to reel in the dollars because no country ever developed on mere perception of goodwill. If the Ease of Doing Business reports teaches us anything, it is that the protection of property rights, especially around resolving insolvency, enforcing contracts and registering property, and a predictability in policy and governance – all areas Ghana scores pitifully in – require urgent attention.

Risks to this agenda include the lack of a clear value proposition for investors. Mcebisi Jonas, former South African deputy Finance minister, who now serves as an investment envoy, recounts that ‘Investment decisions rely on two crucial factors: transaction costs and production costs. Inefficiency, burdensome regulation, contradictory policies, crime and institutional instability have all raised transaction costs; while a shortage of skills, low productivity, debilitating regulations and expensive inputs have raised the cost of production’. In Ghana, the situation is not much different. Attracting FDI will require deliberate efforts to overcome key supply constraints: low productivity; the high cost (and low quality) of utilities – particularly electricity and telecommunications; a shortage of critical skills; weak infrastructure; weak technological base; and a lack of local business partners.

Ghana business

Increasing our investment inflow is not an insurmountable task, especially as others’ experiences offer some insight. Singapore’s rise is one many in the development space are well aware of and admire for various reasons, mainly that it is simply impressive. Its GDP per capita in excess of US$ 55,000 (in current US$) is over 100 times what it was at independence in 1965. Comparatively, Ghana’s GDP per capita is only 8 times what it was at independence.  Over the past three years, Ghana has averaged per capita FDI inflow of US $114 while Sub-Saharan African hovers around US $40. East Asia & the Pacific, on the other hand, averaged $235 while Singapore alone averaged $11,717. Basically, Singapore performed over a hundred times better than Ghana. Back in 1970, Singapore only performed five times better than Ghana.  

Key to Singapore’s transformation was hard work, sweat, difficult choices and oneness in mind to execute its strategy of becoming Asia’s most preferred investment hub. By being fixated on reducing barriers and being specific with sectors that had the greatest growth potential, Singapore now hosts 7,000 plus multinationals on the island, over 50% of which have their Asian headquarters in the country. Their effectiveness depended largely on government discipline and a commitment to maintaining relationships with business for the common purpose of economic development.

While this was happening, the country was simultaneously building a more productive labour force through investments in education (technical and vocational institutions and joint government-business training centres), a meritocratic public service, and ensuring optimal use of its limited land resources through closely-guarded land Acts.

What this means is that its doable; success is preordained no more than it is anti-African.

Until govenrment is willing and able to devote significant amount of resources and time to managing the politics of policy choices and building a national consensus around the importance of growth and investment, Ghana is unlikely to succeed in positioning the country as the 'Best place to invest and do business in Africa', as GIPC wishes to do. Business, as usual, will not work and a lot will need to change:

Government must listen to business. More successful governments have spent time listening and answering to pain points of businesses and acting on their needs.

Ghana must enforce zero tolerance for corruption. Hong Kong from the late 1970s is evidence of strong policy action. In her book, “Corruption by Design – Building Clean Government in Mainland China and Hong Kong”, Melanie Manion offers that Hong Kong’s three-pronged approach which includes “enforcement to investigate and prosecute the corrupt, education to mobilize ordinary citizens to report corruption and increase psychic costs of corrupt activities, and institutional design to reduce opportunities for corruption in the organization of work” offers insight into how to tackle corruption.

It is also crucial to develop strategies that advance human capital. Without improving the quality of the Ghanaian labour force, the quest for investment may not match outcomes. This includes training institutions, quality health and education systems, etc. As far as the term ‘garbage in, garbage out’ goes, a lacklustre workforce will be unlikely to yield stellar outcomes.

The environment for doing business must also improve. The focal point of policy initiatives ought to be to reducing friction/transaction costs and creating a favourable regulatory and fiscal environment for investment.

Developing world-wide value chains will be instrumental in growing and maintaining investment flows. Countries like Singapore, South Korea, Japan and Taiwan for instance, have demonstrated the importance of backward-forward linkages in achieving growth. As their economies progress, so did they expand the range of economic activities and products produced or engaged in, domestically.

Similarly, to create the environment that helps businesses thrive, the provision of key infrastructure such as airports, industrial parks, freight facilities, energy, and port connectivity will go a long way to positively influence investor decisions in Ghana’s favour.

At the recent Tswalu Dialogue of global and African business, government and civil society leaders hosted by the Brenthurst Foundation, rich ideas on how to release capital to create real economic activity in Africa were discussed. The resulting Tswalu Investment Protocol emphasised the importance of clear investment objectives, an atmosphere of trust among government and private actors, and a business-friendly policy environment.

Ghana still has miles to go in achieving higher investment flows but that’s not a deterrent. It is, if anything, an opportunity for creativity and growth. To succeed, government must emphasise execution, excellence and delivery over ideology, inefficient banter, and finger-pointing.


Marie-Noelle Nwokolo is a research consultant at the Johannesburg-based think tank, the Brenthurst Foundation.

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