Investment: Sea-Change in Law

\GIPC (FIN)

Ghana’s Investment Council Act of 1994, has not seen any changes 14 years after it was passed into law. To reflect global changes and local demands and requirements the GIPC has reviewed the Act and presented it to the Office of the President for consideration and passage into law. Boahene Asamoah talks to the CEO of GIPC on how the revised act could impact positively on the local entrepreneurs and also bring in the much needed FDI.


Mindful of the increasing attraction of the country as an investment destination within the sub-region, a revised investment and promotion law by the Ghana Investment Promotion Council (GIPC) which takes into consideration the realities of the country’s development agenda has been proposed for consideration.
Under a “Ghana Investment Council Act 2008”, the proposed revision of the law also seeks to empower Ghanaian entrepreneurs to actively take advantage of the emerging economic opportunities in different sectors of the economy and also cover broad areas under the Growth and Poverty Reduction Strategy (GPRS 2).
The revision of the law comes at a time when many traders, especially members of the Ghana Union of Traders Association (GUTA) have complained of foreigners taking over their trade without due regard to country’s investments laws.
The oil find and the progressive reforms undertaken by policy makers over the past years, to position Ghana as an investor-friendly destination for businesses within the sub-region, has resulted in record investments into the economy.
However, investment analysts have pointed to weak monitoring and supervision of the investment laws as some of reasons for influx of foreigners into trading activities.
The revised act, hopefully if passed into law by the end of the year, would thus, bring a huge sigh of relief to many such traders.
“ The revised laws takes into consideration the development needs of the country”, Mr Robert Ahomka-Lindsay, the Chief Executive Officer (CEO), of the GIPC, told the Graphic Business in an interview.
Among some of the proposals in the revised law, was the need to upgrade the act and threshold of investment requirements from as low as the current US$10,000 to US$1 million for trading activities.
“We need to scale up the investment ladder to attract the right investments and investors”, the CEO stated.
Under the Ghana Investment Promotion Centre Act, 1994 (Act 478), a foreign investor may team up with a Ghanaian entrepreneur or company for a joint venture, usually in the form of a partnership or a limited company.
Under the same law, however, a minimum equity capital of US$10,000 is required 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 US$300,000 in either goods or cash.
“This threshold is rather too low”, says Mr Ahomka-Lindsay, adding that
“the GIPC has proposed for instance that foreign investments in trading activities be pushed to US$1 million cash.”
Again, GIPC under the proposal, which is model along the Korean and Malaysian models, has proposed that 25 per cent of all goods on the shelves of foreign traders should be goods produced in Ghana.
The new proposal have suggested the establishment of a Negative Lists, which is currently being developed, which would delineate activities reserved for Ghanaians and majority owned Ghanaian companies.
‘This is tailored to ensure that Ghanaians play an increasingly prominent role in our economy and stimulate the effective development of indigenous capabilities’, Mr Akomka-Lindsay stated.
Under the negative list, for instance, the GIPC has proposed that all services and supplies related to the mining and oil explorations must be sourced from local entrepreneurs.
Again, trading in second-hand spare parts and clothes would be restricted to Ghanaians or foreigners with local partners.
Importation and distribution of pharmaceutical products and textiles have also been limited to Ghanaians.
Many traders would see this as welcome news for Ghanaians and timely intervention especially coming at time where there is unbridle competition from India and China in respect to pharmaceutical and textile products on the local front, leading to the near collapse of the textile industry.
According to experts, there is a potential $5 billion annual revenue that the country could derive in terms of services to the mining and oil sectors alone and this cuts across, food, advertising, hospitality, apparel, transportation, stationery, banking, insurance and many other services that comes with the activities of these two sectors.
Another interesting aspect of the revised act, is the targeted foreign direct investments, which seeks to attract FDI in very core areas of the country’s developmental challenges and focus GIPC more on attracting investments into these areas, rather than the general FDI attraction.
To ensure that these targeted FDI are attracted to the country, specific incentives have been designed for these sectors.
This policy, according to the GIPC was started at the beginning of the year and has already started bearing fruits with year forecast of FDI exceeding its target as of the first half of the year.
The GIPC projected FDI inflows for this year at GH¢1.5 billion, however, as of the end of the third quarter, FDI inflows have hit record high of GH¢2.66 billion from 227 new projects with estimated value of GH¢4.61 billion.
Seven major areas have been identified by the GIPC as priority areas that needed special attention under the targeted FDI drive.
These are; agriculture and agricultural processing; infrastructure, including utilities, railways and power; tourism;, information, communication technology (ICT); financial services; industry; mining and petroleum.
“ We intend to align these areas alongside the national growth strategy and priority areas.”, Ahomka-Lindsay stated.
Many analysts in the oil industry, say Ghanaian entrepreneurs may lack capacity in certain service areas, but Mr Ahomka-Lindsay was upbeat saying, “we have to start from somewhere and gradually build up capacity.”
However, other industry experts believe that with respect to the mining industry, the country do have the requisite capacity since mining has been part of the economic activity for decades.
The GIPC, has also beefed up its human resources to reflect the challenges that would come with the revised law and stand ready to offer technical assistance and advice to investors.
Some investment lawyers are of the view that the revision of the law would be a feather in the cup of the country, having been adjudged two years ago as one of the leading reforming economies with good business climate.
However, others are worried that other neighbouring countries and trading partners of the country would also impose stiffer investments laws as recipocral gesture to the GIPC.
But Ahomka-Lindsay disagrees, saying most countries have a negative list and Ghana was not alone in this, adding that the centre studied about 80 countries investment laws to fashion out what was best for the country.
To ensure continuos monitoring of the investment climate, GIPC intends to review its policies every two years in order not to be overtaken by events in the global investment climate.