We need more partnership and less policing -let us embrace foreign investments !


We need more partnership and less policing -let us embrace foreign investments !

Last Tuesday I attended GIPC’s CEO breakfast meeting titled ‘promoting economic sustainable growth’ ; balancing FDI and local content in Ghana which was held in the Kempinski – Gold Coast City Hotel Accra.

Mr Yofi Grant , CEO of GIPC opened the session explaining that less than 5% of global Foreign Direct Investment (FDI) goes to Africa although Africa has 40% of the world’s mineral resources. Also when a  successful African Continental Free Trade Area (AfCFTA ) has been implemented , Africa will become the largest Free Trade zone . On top of that Africa has 60% of the world’s arable land and as such will be the continent that feeds the world. And Africa as a continent is only responsible for less than 5% of the carbon emissions.  Mr Grant continued stating that a major percentage (in some cases even 90%)  of platinum, cobalt, gold, chrome, bauxite, copper and lithium hails from the African continent and 60% of its population is below 30 years of age (a big consumer market).

In short the world needs Africa !

In Ghana the drivers of FDI are mining, oil, technology (mega data centres, fintech etc.), hospitality. FDI in Mining and Oil is needed for Ghana because of the huge capital requirements which cannot be found in Ghana. So Ghana needs to attract FDI which is beneficial to Ghana as well as to the foreign investors.

After Mr Yofi Grant Mr Vish Ashiagbor was invited to present to the audience. Mr Ashiagbor is senior partner with PwC and Premium Member of GNBCC. On the subject local content and FDI he started to state that synergies for growth need to be created  both beneficial for FDI as well as local content. And with local content he means local empowerment through local partnerships.

He explained to the audience that after Covid there was more asymmetry in the global economy basically meaning that poor countries became more poor. The covid effects are summarized by the word ADAPT meaning asymmetry, disruption (significant disruption was created), age (age distribution has become a challenge), polarization – a more polarized world and trust (or the increased lack of trust in public institutes) . So the above has shaped the global economy.

Since the last 40 years Ghana has seen significant flows of FDI starting in the mid 90’s with a top in 2018/2019 (before Covid) . FDI relates to cross border investing of companies who set up an operation in another country to allow for efficiency and a reduction in costs, which benefit the economy overall. Cross-border trade also increases the market size in which companies can conduct business, leading to higher revenues. On the other hand local content requirements are driven by the government . FDI remains a very important economic driver so the challenge is to balance FDI with local content. In the old days the view was that FDI would create local content (local suppliers towards the foreign investor) ; after that the view was predominantly on public private partnerships between government and foreign investor and now focus is on local requirements especially in the extractive sector such as Mining and Oil but also in Energy. Examples are the local content policies form countries such as Angola, DRC and Sierra Leone.

For instance If there is no local involvement the worst case scenario is that the local population starts sabotaging for instance the oil exploration (as happened in Nigeria) because they do not see any benefits from the foreign investment.

But FDI has significance for any economy, every economy needs FDI.  Foreign Direct Investors and local partners should become partners in growth with a focus on sustainability balancing risk and reward. FDI should have a developmental impact. For instance FDI in health and education can be seen as developmental FDI. Good FDI is partner with a Ghanaian and your FDI benefits a Social Development Goal (SDG) such as SDG 1 which is no poverty.

After Mr Ashiagbor’s presentation a panel was formed with Mr Bernard Avle from City FM as moderator. Before he invited the individual panel members to the stage he gave the word to Hon Minister Herbert Krapa, Deputy Minister of Trade and as such responsible for the local content regulations of Government of Ghana (GoG).

Hon Krapa wants to involve Ghanaians through local content because most Ghanaians do not have the capital to make such investments. He advocates in his policies that for instance procurement of goods and services for or by the foreign investor should bring in more Ghanaians (indigenous companies ). Hence using the capital from the FDI to hand it out to Ghanaians. This is what he wants for instance in the Oil and Gas industry ; part of procurement should be Ghanaian, Ghanaians should benefit. Not only in Oil and Gas but also in the power sector. Basically local content in Petroleum, Energy and Mining also because 80% of export from these sectors is in raw materials (no added value) . Avle mentioned in a reaction that our government is also very interested in tax proceeds, so the pith of the matter is always about taxation / on tax what can go to the state coffers.

Mr Avle stated that FDI in Ghana is needed due to lack of capital and lack of technical managerial skills / competence. He asked the panel to explain what good FDI is. Good FDI is used to develop your country ; so its where FDI creates value addition , technology transfers,  jobs and assist in economic transfer. It was remarked that local content should not mean that a Ghanaian company takes the order and start to import the goods instead the Ghanaian company should create local production. A discussion started in which it was remarked that Ghanaians do not produce but only do selling and buying (trading).

The best advocates for investment in your country are your current investors ; they are the ones who will be asked by potential foreign investors about the investment climate – hence the importance of GIPS’s after care division. During the discussion GIPC’s Yofi Grant mentioned an example of the negative impact of local content rules by explaining that a potential investor was interested to invest 1.2 billion US$ investment in Ghana but posed the question:  Was there a Ghanaian investor who would be able to take over 51% of the investment within 5 years – as a local content rule was demanding that the new company would have majority Ghanaian shareholding within 5 years – the answer was NO hence the investor went to invest in another country.

Avle also initiated the following debate stating that the people of Ghana just want good roads and do not bother who constructs it but when government build a road it’s political and when a company builds a road , they just want to have a good road at the lowest costs possible. As an example he mentioned that in the past mining companies have built better (and in less time) roads compared to government . It was agreed that constructing roads should be part of future FDI’s goals. In general it was concluded that there should be differences between FDI; different sectors have different needs (sectors such as land, human resources, capital and environment)

At the end the audience could ask questions; Mrs Adelaide Benneh Prempeh, our former Chair and MD of B&P Associates asked when the GIPC act would be changed – lowering or abolishing the threshold of investment which is now extremely high for especially medium sized family companies from Europe, UK or the US (US$ 250,000 with Ghana partner, US$ 500,000 without Ghana partner) . Especially the fact that you have to put this money upfront in Ghana through the Bank of Ghana and change it into Ghana Cedis, before you have even earned a pesewa.

I asked about the local content rules of the Minerals Commission; they issue every 6 months (or even every quarter) a new list of company sectors which are part of the supporting supply chain of the Mining Industry,  to oblige them to increase their Ghana shareholding and management staff to an ultimate 100%. These are companies from the logistics, warehousing, transport who happen to service or supply the Mining Industry – sometimes already for many years. No grandfathering rules are applied hence companies who have invested and have been operating during the last 30 years also have to abide to the new rules and regulations.

By law  an indigenous Ghanaian company has a Ghanaian shareholding of 51% and Ghanaian Management of 80% hence my question is why are the local content rules forcing companies to go beyond this point even up to 100% Ghanaian shareholding and Management ?

The result is often that companies are forced to divest from the Mining sector or to ‘sell out’ against unfavorable terms.

Another lady in the audience added that companies also do not get enough time to make the transition (for instance to a higher Ghanaian shareholding percentage) ; they get 6 months to comply with the new local content rule hence there is zero security for existing companies.

The answers came only partly due to time constraints and maybe other reasons not known to the author. GIPC mentioned that the GIPC law is under review and that changes will come very soon. They are also planning to introduce an investment code. They agree with Mrs Adelaide that these threshold are far too high and that it is negative towards foreign investment.

On the other hand the CEO of the AGI, Dr Kwesi Ayim-Darke held a vehement speech that these thresholds should be maintained because the foreign investor would get the benefit of the location and market of Ghana and if they cannot get these amounts they should not get the benefits of Ghana.

As a reaction Mrs Adelaide explained that due to the high thresholds companies indeed opted out and invested in Ivory Coast and / or Nigeria (with no or much lower thresholds) or they would go below the radar and invest the money outside GIPC’s view through a Ghanaian figurehead – hence no tax proceeds for Ghana government, no technology transfers etc.

At the end Mr Yofi Grant stated that a new narrative should be made : less policing and more partnership. In the discussion on the GIPC act he fully supported to lower or abandon the investment thresholds with the words: learn to walk first before you can run. Ghana does not want to lose companies who leave Ghana after 25 years and relocate to Ivory Coast . So we need a new mentality of partnership .

With the good and constructive remarks of Mr Yofi Grant the 2nd Edition of the Ghana Investment Promotion Centre's CEOs Breakfast Meeting 2023 ended.

My learning –but maybe I am wrong - was that there are still a number of Ghanaians from business as well as government , even in places you do not expect, who have a more protective attitude and basically are not so fond of or not too happy with  foreign investors  in general ( unless they are big multinationals and bring millions of US$ dollars to Ghana ).

Also at the same time there are more and more measures coming from Minerals, Energy and Petroleum commission which are introducing new rules concerning local content. New content rules which forces companies to make financial unfavorable changes or fully divest from a sector of the economy. These rules contradict the effort of GIPC to attract foreign investment.. because who wants to invest in Ghana if the investor is forced to give up ownership by these rules and lose on its investment ?  Nobody. Instead we need more partnership and less policing so let us embrace foreign investments !

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