Take another look at incentives for FDI - Fellow Economic Affairs

Accra, Nov. 14, GNA - Dr John Asafu-Adjaye, a Senior Fellow of the Institute of Economic Affairs, on Monday suggested a shift of focus from the use of mainly tax incentives to help stimulate the flow of Foreign Direct Investment into the country.

Policy makers, he said, would be attracting more FDI if they paid attention to improvement in macroeconomic and political stability, ensured industrial peace, promoted good governance, enhanced infrastructure and maintained a skilled workforce, which were enough incentives to attract investors to the country. Besides there was the need to deal with the energy and water supply problems, which currently imposed untold economic costs on businesses and households.

Speaking at a forum on Economic Freedom, Dr Asafu-Adjaye said while tax incentives in themselves were not bad in attracting FDI, empirical evidence had shown that focus on non-tax aspects of the economy might be the most efficient way to attract FDI.

The conference organized by the Institute of Economic Affairs in collaboration with the Friedrich Naumann Foundation is to examine how economic freedom could impact on a country's economic growth. Dr Asafu-Adjaye said pursuit of policies that went to deepen economic freedom could help to attract more FDI and contribute directly to enhancing development.

While the adoption of policies that enhanced economic freedom might in the short term not yield any benefit and might be politically suicidal, Dr Asafu-Adjaye said, experience from countries with high levels of economic freedom had shown that the long run benefits clearly outweighed the political costs. Professor George Ayittey, an economist, asked policy makers to shift the emphasis from foreign investment and rather concentrate on how to encourage domestic investors to put their money in projects that could generate employment.

He said it was important to remove the disincentives that worked against attracting local investors and also ensured that an enabling environment was created to enhance investment flows. Prof. Ayittey mentioned security of persons and property, the rule of law, basic functioning infrastructure, a system of incentives and stability, among other things, as some of the factors needed to ensure FDI flow into the economy.