In our highly globalised world, no nation can afford to stand alone. Foreign investment has become a critical necessity for development, sought after by both developed and developing countries to fuel their growth agendas. Reputation is global as are investments.
This reality underscores the importance for nations, including those in Africa, to take proactive steps to create an environment that attracts these external investments. While foreign investments are essential, they are not the sole reason for a nation to cultivate a thriving economy. A robust economic, sociopolitical, and legal framework is fundamental to successful nationhood and serves as the foundation for attracting sustainable foreign direct investment (FDI). In essence, to lure foreign investments, nations must prioritise the same elements essential for their overall development and work on its reputation
This creates a vicious cycle. For Ghana, this cycle is particularly urgent as it navigates the aftermath of the COVID-19 pandemic and the economic fallout from the Russia-Ukraine conflict. Contributing factors to its economic challenges include unsustainable debt levels and other economic missteps.
However, the necessity for foreign investment should be balanced with caution. FDIs are meant to enhance local economic activities, not undermine them. They introduce healthy competition, stimulate growth, promote skill development, and facilitate the application of global knowledge. To achieve genuine growth, Ghana must establish a legal and regulatory framework, accompanied by a strong international reputation that provides equal opportunities for both local and foreign businesses, ensuring fair competition for mutual benefit.
Ghana is talked about not only in Africa, but also elsewhere. This recent publication in a European outlet is proof of that. Titled ‘The Telecom Tightrope: Balancing Innovation, Investment, and Fair Play’ (The telecom tightrope: balancing innovation, investment and fair play – Mobile Europe) talks about what I´m talking here today: the need for long-term stable legislation.
Fair play is necessary
A conducive investment climate requires a strong legal and regulatory framework—clear, fair, transparent, predictable laws that are consistently enforced. Ghana excels in many of these aspects; the country has a solid legal foundation, and there are consistent governmental efforts undertaken to enhance the business regulatory environment. However, certain regulatory issues still hinder fairness.
For example, concerns arise when public sector entities act as both regulators and market players, as seen in the telecommunications industry. Such conflicts can compromise fairness and disadvantage competitors. A similar situation emerged in the fossil fuel sector, where the Ghana National Petroleum Corporation (GNPC) was established as both a regulator and a market participant. This conflict became evident after Ghana discovered oil in commercial quantities in 2007, prompting the creation of the Petroleum Commission in 2011 to separate regulatory and market functions.
Ghana’s business and investment climate still has room for improvement. The country’s prospects for sustained economic growth hinge on its willingness to engage in continuous dialogue about necessary legal and regulatory reforms.
The economic climate
Despite recent economic difficulties, Ghana’s market has historically been stable and attractive compared to its peers. In 2022, the World Investment Report ranked Ghana as the second-highest recipient of FDIs in West Africa. Deloitte’s 2022 Africa Investment Attractiveness Index placed the country as the second-most appealing investment destination on the continent. Additionally, in 2019, Ghana improved its position on the World Bank’s Ease of Doing Business Index, climbing from 120th to 114th, although it fell to 118th in 2020.
Ghana has also been recognised for its political stability, ranking as the second most peaceful country in Africa since the start of its fourth republic in the early 1990s. In 2024, the country achieved Tier 1 status in the Global Cybersecurity Index, becoming one of only five African nations to do so. Furthermore, Ghana boasts a youthful and vibrant population, projected to remain a dynamic demographic for the next three decades, offering substantial opportunities for sustained growth.
Yet, the challenges are undeniable. Since 2020, Ghana has experienced a sharp decline in its economic trajectory, exacerbated by the global pandemic and the Russia-Ukraine conflict. In 2022, Moody’s downgraded the country’s credit rating to Caa1 from B3.
Inflation surged, peaking at 53.4 per cent in January 2023, while the debt-to-GDP ratio reached a staggering 93.3 per cent in 2022. The IMF classified the nation as being in “debt distress with medium debt-carrying capacity.” Although this ratio has improved to around 70.6percent as of June 2024, the outlook remains concerning.
The Ghanaian cedi has faced significant depreciation, currently hovering at just over GH¢16 to the dollar. Unemployment rates rose to a staggering 14.7per cent in March 2023, disproportionately affecting women and youth. The nation’s drop in the global business ranking (i.e., from the 114th position worldwide to 118th in 2020) reflects these challenges.
Ghana’s post-pandemic recovery has been slow, and the economy requires all the positive support it can garner from both local and foreign sources to stabilise and thrive amidst high inflation, currency depreciation, and rising unemployment.
Hope at the end of it all
While Ghana is currently in an economic recession, this situation is not beyond redemption. Moody’s downgrade in 2022 was accompanied by a shift in the outlook from “negative” to “stable.” This reflects the recognition of Ghana’s significant fiscal challenges but also its historical capacity for effective policy implementation and diverse funding sources.
The country retains considerable goodwill and must focus on leveraging this to attract essential foreign investments, vital for its recovery.
Everyone needs FDIs
In 2021, President Biden emphasised the United States’ commitment to foreign investment, highlighting its importance for job creation and economic growth. His administration’s ‘Open Investment Policy’ aims to ensure fair treatment for all investors, reinforcing that no economy, regardless of size, can thrive without external capital. If a robust economy like the U.S. recognises the value of foreign investment, how much more a developing nation like Ghana, which is currently facing significant economic hurdles?
Creating a positive climate for growth
To attract investments, Ghana must enact enabling laws and policies, eliminate corruption, and invest in essential public infrastructure, such as transportation networks and internet access. Rwanda serves as an example of effective policy reform, having streamlined its business processes and implemented anti-corruption measures, resulting in a favourable ranking in the World Bank’s Ease of Doing Business Index and increased foreign investment. The country currently ranks 38th out of the 190 countries worldwide!
Ghana has the potential to follow a similar path, utilising its strengths and addressing its weaknesses to foster a thriving economic environment for both local and foreign investors.
The writer is the business editor of Ghanaian Times
BY DAVID ADADEVOH