1. What makes Ghana a unique investment destination?
Ghana has experienced strong economic growth over the past two decades and made significant strides in regard to poverty alleviation. Ghana has experienced steady economic growth, with GDP growth averaging at 8% between 2003 and 2013. Although GDP growth is forecast to decline to 4% in 2014, the medium to long-term growth outlook remains strong. Ghana has a stable, multi-party political climate evidenced by, among other things, 20 years of peaceful elections and the decision of the European Union to class Ghana as a mature democracy that no longer requires election monitoring. This, along with a low crime rate and effective judiciary contributed to Ghana ranking first in West Africa and in the top half overall in the 2014 World Bank Group ease of doing business index. Ghana is also endowed with a wealth of natural resources including over four trillion cubic feet of natural gas reserves and estimated crude oil reserves of five billion barrels as well as precious and industrial minerals including gold, diamonds, manganese and bauxite. Crops and timber thrive in Ghana’s tropical climate and in 2013 Ghana’s agricultural sector contributed approximately 22% to the national GDP of which 16.9% was generated from cash crops including cocoa, pineapple and banana. Ghana has a young and population with a median age of 20.7 and a working-age population of 57%, providing a ready supply of labour which, with under-25s constituting 46.5% of the nation’s population, is expected to grow at a rate which is faster than the rate of population growth over the next decade. With improving levels of education, a higher proportion of Ghana’s working population would have completed secondary education at the minimum and there will be greater demand for skilled labour.
2. What are the main drivers for investors moving to Ghana?
Ghana has experienced steady economic growth, with GDP growth averaging 8% between 2003 and 2013. This above-average economic growth has been sustained, in a period of slowed global growth, by a high demand for fast moving consumer goods, generated by a growing consumer class. In 2013, the associated increase in consumer spending contributed to an increase in the services sector, which contributes nearly 50% to Ghana’s GDP, of nearly 10%. Also, through Ghana businesses have access to all the markets within the Economic Community of West African States (ECOWAS). FDI friendly policies including generous tax holidays and incentives, bilateral investment treaties, multilateral trade agreements and double-taxation treaties with Britain, Italy, France, Belgium, South Africa and Turkey, limited restrictions in respect of the types of businesses in which foreign investors may engage and a liberal foreign exchange regime have also fueled in-bound investment. In particular, opportunities in the oil and gas sector and the information and communication, hospitality and financial services sectors attracted investors. Crude oil production grew by 37% and the information and communications sector grew by approximately 25%.
3. What are the key growth sectors and market opportunities of the last 12 months?
Since the discovery of commercial oil and gas in 2007, there has been significant foreign direct investment by international oil companies in Ghana, spurred by the high international and local demand for petroleum products. The relatively young petroleum industry in Ghana presents opportunities in the upstream and downstream markets, as well as in associated oil and gas service businesses. Ghana is the second largest user of internet mobile services in Africa and improved capacity and connectivity, with the introduction of fibre-optic lines and 4G services, along with greater cell phone penetration with the number of users increasing from 12 million in 2013 to 16 million in 2014, presented opportunities for growth in the data services market. Total assets in the financial services sector grew by 33.1% and the aggregate loan book grew by 32.8% according to a seven-year compound annual growth rate. Ecobank, Cal Bank, GCB, HFC Bank and Ecobank Transnational all saw their share prices appreciate by at least 50%. An increase in the capital adequacy requirements by the central bank has created a demand for capital infusion into local banks that present investment opportunities for investors in the financial sector. The rate of private sector participation in the construction and real estate sectors continues to increase, given that the demand for housing has far outstripped supply. The government has admitted that it is unable to meet the growing demand for housing on its own. The agricultural sector, which accounts for over 20% of the national GDP and employs over 50% of the population, also presents investment opportunities particularly in agro-processing in the food and beverage industry. Ghana, like most of its sub-Saharan neighbours, suffers from inadequate infrastructure particularly in respect of power, water and transportation. In addition to the entry of several independent power producers into the Ghanaian electricity production market, Ghana has signed a Millennium Challenge Compact that will provide the nation with a $500 million grant focused on power sector reform and, among other things, increasing private sector participation in the power sector.
4. What are the key economic risks that international investors have faced when doing business in Ghana in the last 12 months?
Though the depreciation of the Ghanaian currency over the last year has increased the purchasing power of foreign investors and made Ghanaian exports cheaper for the international market, it has also affected growth and fuelled inflation in Ghana. As part of a sustainable and long-term solution to stabilize the cedi, the government of Ghana has increased interest rates and is in talks with the IMF to agree a recovery plan. Over the last 12 months, there have been increases in respect of value added tax rates, the withholding tax rate on commercial rents, and management and technical service fees. There has also been an expansion of the scope of certain taxes, including capital gains taxes; and the proposal of new taxes such as the windfall profit tax.
5. What are the key regulations that govern in-bound FDI?
The key laws that govern in-bound investment are the Ghana Investment Promotion Center Act, 2013, the Free Zones Act, 1995 and the Foreign Exchange Act, 2006. The Ghana Investment Promotion Centre (GIPC) Act, 2013 governs investment in a majority of the sectors of the economy excluding the mining, petroleum and free zones sectors. It specifies the areas of investment reserved for Ghanaians and establishes certain minimum capital investment requirements required from foreign investors. Registered businesses receive benefits that include taxation incentives, absolute protection from any legal requirement to cede an interest in a company to any other person, or nationalisation or expropriation, a quota of employer-sponsored work visas based on the company’s paid-up capital and a guarantee that capital, dividends and net profits may be transferred outside Ghana in freely convertible currency. The Free Zone Act, 1995 established a Free Zone Authority which confers free zone status onto enterprises that export at least 70% of their annual production. Free zone status guarantees an enterprise preferential tax treatment such as an exemption from the payment of income tax on profits for the first ten years with a preferential tax rate thereafter, relief from double taxation and an exemption from withholding taxes on dividends from free zone investment. The Foreign Exchange Act, 2006, regulates the exchange and use of foreign currency in Ghana. It limits the use of foreign currency in transactions in Ghana and regulates the transfer of foreign currency out of Ghana. The rules permit Ghanaian residents to hold foreign currency in onshore and offshore accounts held with local authorised dealer banks and to make payments in and out of those accounts subject to the submission of certain documentation. The rules permit the repatriation of interest payments, loan principal repayments, dividends and return of capital by investors. Certain sectors, including the banking, securities, insurance, fishing and real estate sectors have specific laws that regulate in-bound investments as well. Where there are applicable laws that apply to a foreign investor’s sector, the requirements of those sector-specific laws must be satisfied in addition to the GIPC Act.
6. What Free Trade Agreements does your country currently enforce and what are the prospective additions for the next 12 months?
Notable free trade agreements to which Ghana is a signatory include the ECOWAS Trade Liberalisation Scheme (ETLS) and the African Growth and Opportunity Act (AGOA). The ETLS allows the free movement of goods and services among member states. AGOA, a United States Trade Act, enhances market access to the US for qualifying Sub-Saharan African (SSA) countries, including Ghana. AGOA extends duty-free benefits to certain “AGOA products” including items such as apparel and footwear, wine, certain motor vehicle components, a variety of agricultural products, chemicals, steel and many others. AGOA is currently set to expire at the end of 2015. The Economic Partnership Agreement between the ECOWAS and EU states (EPA) has been negotiated and agreed in principle. When signed, the EPA will grant 16 West African Countries duty-free access to EU markets and in return allow EU member states tariff-free access for approximately 80% of the goods exported to ECOWAS member states.
7. What exchange controls exist that affect the flow of capital in Ghana?
Ghana operates a liberal exchange control regime that empowers the Bank of Ghana and the Minister of Finance to regulate the importation and exportation of foreign exchange. The Ghana cedi is the sole legal tender and, unless authorisation to do otherwise has been granted by the Bank of Ghana, it should be used exclusively in pricing, advertising, invoicing, receiving, and making payments for goods and services. There are no restrictions on the transfer of foreign exchange through a licensed dealer bank where the transfer is to meet legitimate external payment obligations. Documentation must be provided to substantiate business-related transfers abroad of amounts greater than $50,000 or where the Bank of Ghana, at its discretion, so requests. Banks resident in Ghana may grant foreign currency loans for trade-related transactions with an international element. Export earnings must be repatriated to Ghana and at least 40% must be converted to Ghana cedis within 15 working days of repatriation. Exporters may hold the remainder in Foreign Exchange Accounts (FEAs). Exporters may receive payments in foreign currency providing the payer is a non-resident and the payment is made into the recipient’s FEA. Exchange control measures include an annual limit of $10,000 of over-the-counter cash withdrawals from foreign currency accounts and FEAs.
8. What pitfalls should international investors be conscious of and what can investors expect when negotiating in Ghana?
One area which international investors must be cautious with is land acquisition. This is because land may be acquired from different sources such as the state, traditional rulers, family heads or individuals. Generally ascertaining the true ownership of land is not always a straightforward process, as all lands are not centrally registered. The need for professional advise in this undertaking can therefore not be over emphasized. It must be noted that under Ghana’s constitution, foreigners may not hold land for more than 50 years at a time. International investors may also find that the negotiation and conclusion of business processes in Ghana may take longer than in other jurisdictions they may be used to. In order to manage their frustrations, it might be useful to build extra time into the time lines they set for themselves, within which they expect to execute various transactions.
9. What restrictions are there on the involvement of international counsel?
Generally there aren’t any restrictions on the involvement of international counsel. A private party may freely engage the services of international counsel and international counsel may advise on corporate and commercial transactions in Ghana. However, only lawyers called to the Ghana Bar may appear before the Ghanaian courts and under the Petroleum (Local Content and Local Participation) Regulations, 2013, investors involved in the upstream oil and gas sector activities are only supposed to retain Ghanaian counsel, though it is unclear the extent to which this requirement is being enforced.
10. What regulation of competition is there in Ghana?
Ghana does not have a functional competition regime. No statutory body has been established to govern competition in Ghana and there is no competition policy save for some statutory protections contained in the Protection Against Unfair Competition Act, 2000 and the Public Utilities Regulatory Commission Act, 1997. The protections in the Protection Against Unfair Competition Act, which are untested, include protection against practices that in the course of industrial and commercial activities discredit a person’s enterprise or activities, cause confusion or are likely to cause confusion with respect thereto; mislead the public, disclose confidential information without the consent of the rightful owner and in a manner contrary to honest commercial practices, damage another person’s goodwill or reputation or that result in the breach of applicable national or international laws or regional obligations. The Protection Against Unfair Competition Act provides for both monetary and non-monetary remedies.