The Challenges Of Growing A HIPC Economy

With the trends of failure shown by most Ghanaian businesses that are supposedly the pivot of President Kufour’s vision for a ‘golden age of business’, it’s little wonder that not much has been realised since it was launched under two year ago. The Ghanaian entrepreneur simply seems not to be ready. Or is it the policy makers who haven’t put in place the right policies to guide the ship of state through ‘the golden age of business?’ Slightly over a year ago, the President on assumption of office inherited the previous government’s mantra of “creating a golden age of business” and turned it round by dragging business entrepreneurs along, through the hosting of national economic dialogues and the institution of a number of business assistance funds. To back his words that he was really serious about the business of making the private sector the engine of the nation’s economic growth, President John Agyekum Kufuor’s administration also hosted the first ever Homecoming Summit for Ghanaians abroad, on July 23-25, last year. It was meant to encourage them to invest in the country. In what could be seen as the most laudable gesture, the Kufuor government also introduced the Fast Track Court to expedite proceedings on economic cases, and within a short period, the Court has disposed of a number of cases. But there are growing concerns that most Ghanaian entrepreneurs do not have the business acumen needed to turn things around. Or that the steam with which the whole business of creating the ‘golden age of business’ began is fading. Others say the mantra of a ‘golden age of business’ has been exactly that; a mantra without real plans to implement its ideals. The Director of Technical Services at the Private Enterprise Foundation (PEF), Mr. Jesse Clottey, disagrees. According to him, most Ghanaian businesses are just not adequately prepared for the challenges ahead. He thinks they are simply not up to the task, while some don’t just show initiative. In his view, some just go into business for the sake of doing business without first doing a good assessment of the general business environment and cost in terms of production, market, transportation, utilities, taxation and duties for importers. Another very critical area that entrepreneurs gloss over or don’t even give thought to, according to him, is government policy. But some entrepreneurs say the government has been so focussed on attracting Foreign Direct Investment (FDI) into the Ghanaian economy that it has not fully recognised the need to build local capacity first. They point to the search for FDI abroad by both President Kufuor and former President Rawlings and their results, and say that investors would not invest in the economy if local investors do not lead the way. They may be right. For though Ghana is ranked sixth among African countries with improved business environs, FDI for the period 2000-2003, according to a United Nations Conference on Trade and Development (UNCTAD/ICC) survey captured in the 2001 World Investment Report (Promoting Linkages), the country’s investment inflows continue to decline. Ghana has been missing out of the top 10 countries that have had the largest FDI inflows in Africa since 1999. On the contrary, it ranked fifth after South Africa, Libya, Nigeria and Morocco among the African countries with the highest FDI outflows in 1999 and 2000. The other five countries are Egypt, Ethiopia, Kenya, Cote d’Ivoire and Togo. Interestingly, some of the countries with the highest outflows are also among those with the highest inflows on the continent. Indeed war-ravaged Angola, Egypt, Nigeria, South Africa, Tunisia, Sudan, Cote d’Ivoire, Mauritius, Uganda, and Lesotho out-performed the rest of the countries on the continent as the 10 highest recipients of FDI for the same period. The truth, however, is that in contrast to the experience in other parts of the globe; inflows to Africa have been on the decline since 2000. FDI inflows, for example, dropped for the first time since the mid-1990s from $10.5 billion to $9.1 billion that year, the report noted. “Consequently, the share of Africa in world FDI inflows – already low – became even smaller, falling below 1 per cent in 2000”, noted the World Investment Report. It however noted that, “FDI flows into these countries – as well as to Africa as a whole - are still much higher than those at the beginning of the 1990s, mainly due to the sustained efforts of many governments to create a more business–friendly environment after turbulent and (in some countries) lost decades in the 1970sand 1980s.” A detailed analysis of the 2000 World Investment Report, however, reveals that the FDI inflows reached a record level of $1.3 trillion in 2000, with that of developing countries reaching $240 million, only to start dipping in 2001. Percentage wise, the share of the developing world in world FDI flows amounted to 19 per cent; a drop for the second year in a row from the peak of 41 per cent in 1994. This is the environment in which the Kufuor administration has been trying to attract FDI. And there have been some results, though minimal. In a half-year status report on the Homecoming Summit released in December 2001, Mr. Stephen Asamoah Boateng, Coordinator of the Non Resident Ghanaians Secretariat, noted that wholly Ghanaian-owned and/or joint foreign venture investment as a result of the Summit amounted to $30.42 million in 2001, representing approximately 30% of the $97.3 million that came into the country. But this year’s first quarter operational results of the Ghana Investment Promotion Centre (GIPC) shows a dismal registration of 26 investment projects nationwide estimated to cost US$11.73 million. It involves $9.96 million FDI and $1.76 in local currency. Fifteen of the projects are joint foreign-Ghanaian enterprises valued at $3.5 million, with 11 being wholly foreign projects estimated at $8.67 million. The initial capital transfer for the registered project, expected to employ 1,396 Ghanaians and 79 foreigners, was $2.56 million. Out of the overall sum of $11.73 million, the services sector attracted nine investment projects “involving $2.92 million, followed by the manufacturing sector with eight projects at the cost of $5.91 million in both foreign and local funding. Agriculture, Building and Construction, Tourism and General Trade sectors registered two projects each at a total cost of $2.87 million”, the report said. The Ghana Investment Promotion Centre Act, 1994 (Act 478) requires a minimum equity capital of $10,000 from any foreign investor who intends to enter into a joint venture partnership with a Ghanaian in any area of economic activity, except trading. In trading, the minimum equity capital requirement is $300,000. Interestingly, despite all the talk of creating “a golden age of business”, government is yet to put its money where its mouth is. The GIPC continues to remain largely under-funded despite its important role in investment drive and the job-creation oriented ‘golden age of business’. The Ministry of Private Sector Development ([MPSD), which has been tasked with the challenge to facilitate the development and growth of a competitive and vibrant private sector-led economy is also having its first birth pangs despite the resourcefulness of its Minister, Mr. Kwamena Bartels. The MPSD has been charged to support the establishment of at least 10 small and medium scale fruit processing plants; three tomato-processing plants as well as 10 small and medium brown sugar production plants as part of its short-term duty. It is also expected to facilitate the provision of land and machinery for salt production for export from the current 200,000 – 300,000 metric tonnes to about 600,000 metric tonnes per annum, and to provide the regulatory framework for the growth of the envisaged private sector-led economy. Despite all these, Mr Humprey Abbey Quaye, Director of Public Private Partnership at the MPSD admitted in an interview that the Ministry is still trying t put things in order. The Ministry is also yet to recruit two out of four directors needed at its office despite its current small staff-size because of revenue problems. The MPSD major partner ministries are the Yaw Osafo-Maafo-led Finance Ministry, Dr. Kofi Konadu Apraku’s Ministry of Trade and Industries, and Dr. Paa Kwesi Nduom’s Ministry of Economic Planning and Regional Cooperation. With the exception of the Finance Ministry, the other ministries are still grappling with policy initiatives and how to enhance their contributions to the “golden age of business”. Not to be left out of the dream, the Association of Ghana Industries (AGI) recently presented proposals to the government on policies and strategies that it believes can promote the private sector as the "engine of growth" of the Ghanaian economy. The proposals delivered through AGI's President, Mrs. Elizabeth Joyce Villars, calls on the GIPC in its search for foreign investment, not to marginalize or forget local investors, since their investment capacity is needed to expand Ghana's private sector. The idea is to match local investors with their foreign counterparts so that technology, managerial skills and expertise can be transferred Since then, the GIPC has started to deliberately promote local matching partners for the foreign investment it is mandated to seek. This year it is focussing on ensuring the success of Ghanaian and foreign-owned companies based in Ghana, said Mr. Kwabena Antwi, Public Relations Manager of the GIPC in an interview. For any minimum 35% of new investments in which there is a foreign component, the GIPC hopes to have a local component. But if the dream of attracting FDI must work, the Kufuor administration must show a commitment to serious adherence to the rules of contracts and recognised the need to resolve investment problems and commercial disputes quickly. According to American Assistant Secretary for Commerce, Mr. William H Lash III, there is an amazing paralysis and dragging of feet on issues that could ultimately drive investors off the country. “I see amazing lack of desire to move forward. I sense a certain a certain amount of paralysis…. Part of it is a lack of a sense of urgency. I often hear that disputes would be resolved in the future, while in the meantime that this is delaying, jobs are being lost, investments are going to other countries; trade partners are shifting”, the American public official said in his recent controversial statement on Ghana’s investment climate. The Under Secretary, who left in his wake a near diplomatic row between Accra and Washington, noted that while there was a desire and stated objective to attract investment into the country, real commitment in ensuring its realisation is lost. The interpretation: All these threaten to dwarf the Kufuor administration’s success of reducing inflation from a peak of 41.9% to about 21%, and achieving relative macro-economic stability. In simple words, the “golden age of business” has a long way to go; HIPC has a long time to stay with us. Aside the existing problems, Mr. Jesse Clottey of PEF is also much concerned about the predominant business practice in the country where entrepreneurs tend to hold small businesses close to the heart, instead of inviting others to invest in it through the Stock Exchange. He stressed that such pride does not portend well for Ghanaian businesses. This culture could be dangerous for the country’s image on the international scene and hurt the President’s vision for Ghanaian private businesses to attract partnerships to boost economic growth, he said. Due to this culture of shutting business out of the prying eyes of others, only about 23 companies are currently listed on the Ghana Stock Exchange (GSE). Mr Clottey is no doubt excited about the President’s vision for the private sector. But he says it would not be out of place if the government could offer direct assistance to entrepreneurs to facilitate this vision. The author is a former News Editor of the Chronicle and Acting-Editor of Ghana’s weekly magazine, The Nation, published by Mr Kofi Badu, formerly of the Graphic Communications Group. The magazine has currently been suspended. Ogbamey is a founding executive of the National Concord, a newspaper formed by ‘exiles’ of the Chronicle. It includes former Chronicle editors, Cofie-Ammuako-Annan, Ebenezer Kessie-Antwi (a.k.a. Steve Biko) Mohammed Affum and senior reporters Sani Siddiq and Paa Kwesi Plange.