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Investing in Ghana

Cynthia Jumu outlines the incentives and opportunities available for Chinese companies in one of Africa’s most stable and mature economies.

 

Introduction

Ghana has a serious interest in promoting foreign direct investment. The government has voiced its determination to ensure an environment beneficial to both Ghanaians and inbound investors. A stable political environment, and a sound macroeconomic policy, coupled with a competitive, skilled and trainable workforce has made it the destination of choice for many investors looking at investing in sub-Saharan Africa.

Since 2007 Ghana’s oil and gas industry has been the focus of global interest, with offshore exploration yielding commercial quantities of crude and natural gas. Ghana
is now positioning itself to become one of the top five oil producing nations in sub-Saharan Africa and a net energy exporter by 2015. Throughout the oil and gas value chain opportunities abound as the nation seeks to strengthen its existing downstream petroleum industry .

Ghana also has a long and prosperous mining history. More than 100 years ago, it was one of the first countries in West Africa to develop gold mining. Today, Ghana produces over two million ounces of gold per year. Minerals , including gold, manganese, bauxite and diamonds, make up 35%

of the country’s export income with gold as the leading money-maker. Ghana’s other great asset is cocoa. Ghanaian cocoa is regarded as the world’s finest, and commands premium prices on the commodity markets. The industry is, however, recognised by the Ghanaian government as being underdeveloped and capable of a three or four-fold increase in capacity.

 

Ghana Investment Promotion Centre Act, 1994 (Act 478)

The Ghana Investment Promotion Centre Act, 1994
(Act 478), (GIPC Act) provides a legislative framework affording guarantees to all enterprises with respect to: free transferability of dividends or net profits attributable to a foreign investment, payments in respect of loan servicing where a foreign loan has been obtained, remittance of proceeds in the event of sale or liquidation of the enterprise or any interest attributable to the investment.

The GIPC Act establishes the Ghana Investment Promotion Centre (GIPC) as the agency responsible for coordinating and

monitoring all investment activities except investments in the mining and petroleum sectors.

Under the GIPC Act non-Ghanaians may invest and participate in the operation of the majority of enterprises in Ghana. Such an enterprise must, however, be incorporated or registered under the Companies Code and registered with the Ghana Investment Promotion Centre (GIPC). A non-Ghanaian engaged in an enterprise in Ghana must
also invest certain prescribed capital sums (in US dollars), depending on whether the enterprise is a joint venture, wholly foreign-owned, or engaged in purchasing and selling goods. These minimum capital requirements do not apply to portfolio investments and enterprises set up solely for export trading.

 

Duties and other taxes

Registered enterprises are entitled to such benefits and incentives as may be applicable under the Internal Revenue Act and the Customs Harmonised Commodity and Tariff Code (Harmonised Code). The legislation specifies items that have been zero-rated under the Customs and Excise (Duties and other Taxes) Act, 1996 (Act 512). Where the plant, machinery, equipment or parts of any enterprise are not zero-rated under the Harmonised Code, the enterprise may submit an application to the Centre for exemption of import duties, sales tax or excise duties. Such applications are
usually granted.

 

Special incentives

The GIPC Board may negotiate special incentive packages with the approval of the President in order to promote identified strategic or major investments. Tax exemptions have been granted where the beneficiaries are engaged in projects of strategic importance to the Ghanaian economy, or where the project is one that serves as a primary project from which other secondary projects would evolve.

 

Ghana Free Zones Act, 1995 (Act 505)

This Act provides for a range of incentives to encourage inward investment in Ghana, key amongst these are: imports of a free zone developer, subcontractor or enterprise into a free zone are exempt from direct and indirect taxes and duties;

  •  free zone developers and enterprises enjoy a ten-
    year tax holiday from the date of commencement of operations. Such enterprises also enjoy a concessionary post-holiday tax rate of 8%;
  •  foreign employees are totally exempt from payment of income tax in Ghana on income earned in the free zone, subject to the existence of a double taxation agreement between Ghana and the government of that foreign employee;
  •  shareholders of free zone enterprises are exempt from the payment of withholding tax on dividends arising out of free zone investment;
  • both foreign and local investors may hold 100% shares in a free zone enterprise; and
  • free zone enterprises are guaranteed unconditional transfer through authorised dealer banks in freely convertible currency of dividends or net profits attributable to the investment.

 

A case study: cocoa

Cocoa is one of Ghana’s great natural resources. Widely regarded as the highest quality cocoa in the world and second only to Cote d’Ivoire in terms of production volume, Ghana cocoa offers a dollar return on investment of up to sixteen times that of gold, when the cost of extraction and tooling up are taken into account.

The Ghana authorities, through the Ghana Cocoa Board, have identified a number of areas within the industry where outside investment would be particularly encouraged. These include: increasing acreage under cultivation; scaling up processing capacity within Ghana; manufacturing within Ghana of consumables used in the industry; research and development, manufacturing and export of cocoa-related products all within Ghana; and warehousing.

Of these the most attractive to Chinese investors are likely to be investments in the domestically based manufacturing of consumables. Direct investment in acreage and production is more challenging because land acquisition in Ghana is a complex process for inbound investors and the aggregation of existing smallholding farms into larger conglomerations is extremely challenging.

The other opportunities, however, are fully open to direct inward investment under the extremely supportive framework of the GIPC Act.

As an illustration, the Ghana cocoa industry currently uses approximately 1.6 million specially manufactured jute sacks per annum. These are manufactured and imported mainly from Pakistan. All other producing nations in Africa, including Côte d’Ivoire, use the same source. A manufacturing operation based in Ghana could service this large market, potentially competing effectively against imported products at high margins.

In this example and others, the government is ready to support any credible investor who will contribute to the development of the industry and a Chinese company seeking to exploit this opening would be able to take full advantage of all the incentives offered by the GIPC Act and the Export Processing Zones legislation.

 

Bilateral treaties

Ghana has concluded bilateral investment treaties for the avoidance of double taxation (DTAAs) with a number of countries including the United States, United Kingdom, the Netherlands, France and Germany. A DTAA has also been agreed with Mauritius and is currently awaiting signature. Ghana has also ratified the Convention on Settlement of Investment Disputes between States and Nationals of Other States (ICSID). Further, as a member of the World Trade Organisation (WTO), Ghana has signed WTO investment rules, which are the Agreement on Trade-Related Investment Measures (TRIMS), Agreement on Trade-Related Intellectual Property Rights (TRIPS) and the General Agreement on Trade in Services (GATS).

 

Conclusion

Ghana is open for business with Chinese investors and has a track record of providing Chinese companies with attractive, and mutually profitable opportunities across the full range of industry sectors it hosts.

The highly stable investment environment, with English as its first language, combined with a proximity to the large bloc of francophone OHADA countries, makes it a perfect base for Chinese companies to operate in West Africa.

Navigating the local business environment and working with the government and regulators, does require specialist guidance, as everywhere in Africa, but with local help Chinese investors will find Ghana a welcoming destination.

 

Published in 2011 in The Investment Guide to Sub-Saharan Africa: Chinese Investor Need to Know 2011.

 

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