African economies have seen a dip in Foreign Direct Investments. FDIs fell by a third to $38 billion in 2015 according to recent data released by United Nations Commission on Trade and Development (UNCTAD), the UN body responsible for global trade. Overall, in the international trade, FDIs rose by 36%. This is a bad signal for African economies and Ghana. The United Sates and other developed economies in the European Union saw some sharp rise in FDIs in the same period according to the latest report by UNCTAD.
Ghana like any other African country depends substantially on Foreign Direct Investments and sometimes creates special economic policies to make the country attractive for investors. The recorded dip in FDIs may not go away soon, and could intensify with the current global trends. The developed economies have the best of infrastructure and business conditions to attract investments, but over the years, it was argued their competitiveness waned due to the financial crises in 2008. Africa picked up and the popular public relation mantra-Africa Rising was in vogue. But with the west resurging according to these latest reports Ghana and Africa countries should lay down the right policies for growth and development to counteract this development.
Aside the general challenge of the sub-region, Ghana has had its own peculiar issues. The erratic power supply over the last two-and-half years is a major contributing factor. Though the government has given several assurances to solve this economic challenge, the international investment community has responded negatively to direct investments in Ghana. In coping with this challenge, several multi-nationals in the country have had to invest in alternative power supplies.
The World Bank’s Ease of Doing Business Reports shines an attractive light on Cote d’Ivoire. “Cote d’Ivoire in 2012 made starting a business easier by reorganizing the court’s clerk’s office where entrepreneurs file their company documents.” The reverse is the case in Ghana, which in itself becomes disincentive for business registration. The bureaucratic bottlenecks are age old phenomenon which should be reversed. Also, Cote d’Ivoire had some favorable economic growth indicators; for example, interest rate in that country is 3.5 percent while its 32 percent in Ghana. Inflation was at a low of 1.3 percent compared to Ghana’s high of 17.6 percent as at December 2015.
Additionally, is the decline in the global demand for commodities have hit hard on the country and African countries in general. It was a major source of FDI inflows for a lot of African countries including Ghana. International investors have taken a pause, and have downplayed plans of expansion at a time of weak prices. In the last quarter of 2015, Randgold Resources cancelled a planned deal with AngloGold Ashanti which may have dire consequences on the local economy, going forward. Economic analysts believe value addition to the raw materials in Africa, from the mineral resources to cocoa and timber will make the Ghanaian local economy competitive, and will make up for the shortfall in FDIs.
But all may not be lost for the continent. Interest in growth areas for the continent’s economies, such as telecommunications, consumer goods and financial services, is rising. Private equity investment grew by 51% last year, with companies looking to tap into these growing areas of the continent’s economies. And with the right policy frameworks in place Ghana stands a chance to capitalize on these prospects.
Author: Paa Swanzy-Essuman || p.swanzy@ghanatalksbusiness.com
