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13.10.2005 Business & Finance

Use FDI to advantage - IEA

By GNA
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Accra Oct. 13, GNA - Dr. John Asafu-Adjaye, a Senior Fellow at the Institute of Economic Affairs on Thursday urged the government to target Foreign Direct Investment (FDI) into areas where the country has comparative advantage to ensure higher economic growth. He said there was a need for a long-term development plan to improve the enabling environment for both domestic and foreign investors, as it would be a better policy option other than devising incentive packages for specific firms or projects.

" A country that wants to attract a lot of FDI must have the absorptive capacity to host sufficient human capital, infrastructure and macroeconomic and political stability".

Dr Asafu-Adjaye made the observation when he presented a paper on the topic: "What has been the impact of Foreign Direct Investment in Ghana?" at a roundtable in Accra on the Impact of FDI on Poverty Reduction.

He said research had established that conditions required to attract inward FDI included political and macroeconomic stability, taxation, investment policies and improved infrastructure. Giving an overview of the national FDI trends, Dr Asafu-Adjaye, mentioned political uncertainty as a major factor that affected FDI flow, saying, "a decline in FDI flows since 2001 can partially be attributed to the global economic slowdown.

Listing the benefits of FDI's, DR Asafu-Adjaye said FDI brought in new technology, which enhanced productivity and had demonstration effects on domestic firms.

FDI increases economic growth, contributes to poverty reduction and increases political stability.

"FDI brings in much needed foreign exchange and international market connections that generate new export opportunities," he added. However, Dr Asafu-Adjaye said FDI had disadvantages as there was the tendency for foreign firms to capture market share at the expense of domestic firms and there could be excessive outflow of capital, which could have a negative effect on economic growth. He said Ghanaians living outside the country should be encouraged to buy shares in public companies slated for privatisation, adding that such investor would not only have a financial interest but also a social one.

Dr Asafu-Adjaye described Ghana's economy as cash-based, which created inefficiencies in business transactions. He said there was an urgent need to move from the current system to an electronic transaction system.

Dr Asafu-Adjaye said providing a good business environment, as well as removing disincentives in the economy will benefit both domestic and foreign investors and enhance economic growth. He said the Ghana Poverty Reduction Strategy should have "a comprehensive tong-term development plan which provides not only a vision for where the country should be by 2015, but also a road map for achieving this vision."

Dr Asafu-Adjaye said "within this plan, Ghana should identify its main comparative advantages and develop policies to develop its strengths in these areas with view to attracting FDI." 13 Oct. 05

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