Q&A – Foreign Direct Investment In Ghana

1. Which sectors are seeing the most investment and why?

Over the past decade, there has been a gold rush in Ghana. The mineral sector has attracted over USD 2 billion investment in the form of Foreign Direct Investment (FDI) representing over 56%, total FDI to Ghana over the same period for mine expansion and rehabilitation, mineral exploration, and mines development, with over 80% of the investment going to the gold mining sector. Over thirteen large-scale gold mines quickly got established, employing cyanide heap-leach processing method and capital-intensive machinery with minimal labor requirement. The now privatized state-owned gold mining companies were also bought by the foreigners.

Natural resource endowed Ghana, desirous of quick economic growth and development, under the pressure from her creditors such as the World Ban/IMF and other donors, turned to her commodity of precious minerals particularly gold and have changed the investment laws in the mineral sector to enhance their attractiveness for FDI flow into the mining industry. As a result, the World Bank/IMFled Mineral Sector Reform in 1986 was born which brought in significant FDI to the mining sector leading to a mining boom with increased national mineral output over the last decade

The mining industry is the largest tax-paying sector in the country and makes a significant contribution to gross domestic product (GDP) and employment. The mining sector contributes 37 percent of export revenues and 19 percent of all direct tax payments in Ghana.

Gold is the most commercially exploited mineral in Ghana, accounting for about 95% of the country’s mineral revenue. Today, Ghana is Africa’s largest gold producer, having overtaken South Africa in 2019 with 4.8 million ounces in output compared to South Africa’s 4.2 million ounces.


2. Which countries are currently the biggest investors in Ghana? Why are these countries attracted to Ghana as an investment destination?

China has the highest number of investment projects registered with Ghanaian institutions, followed by India, the United Kingdom, South Africa, Turkey, Mauritania and France. According to UNCTAD’s Global Investment Trends Monitor, FDI flows to Sub-Saharan Africa decreased by 11% to an estimated USD 28 billion in 2020 due to the COVID-19 pandemic.

These countries are attracted to Ghana as an investment destination because of the Corporate Income Tax Rates Incentive. At various stages in Ghana’s economic development, corporate tax cuts have been offered as a deliberate strategy to stay ahead of other African countries in the competition for Foreign Direct Investment.

Corporate income tax in the mining sector for instance was cut from as high as 45% in 1986 to 25% in 2011. At the same time initial capital allowances were increased (from 25% in 1986 to 80% in 2011), as well as a long mining list of exemptions and other expatriate employee tax incentives all in line with the attempt to attract investment thereby watering down tax rates. Several other tax incentives in the agriculture manufacturing sectors have all conspired to create a tax competitive environment by reducing the effective tax rate.


3. When it comes to foreign direct investment, what distinguishes Ghana from other African countries?

The authorities in Ghana have been pursuing efforts to simplify the complex and lengthy procedures while also offering tax incentives. Additionally, Ghana is one of the most democratic countries in Africa, and it counts a large and inexpensive labour force, a substantial agricultural base, numerous natural resources, and stable institutions. It is also one of the more open economies to foreign equity ownership in the region. However, the burdensome bureaucracy, weak productivity, costly and difficulty in obtaining financing services, under-developed transport infrastructure, ambiguous property laws, frequent power and water cuts and an unskilled labour force are the main factors that hinder FDI.

In the World Bank’s 2020 Doing Business Report, Ghana ranked 118th worldwide for the ease of doing business, losing four positions compared to the previous year. In 2019, the government announced it would implement ten major reforms to secure more foreign investments. The measures include dematerializing tax, legal and business registration processes. Also, issuing construction permits, operating permits and identification numbers will be automated and digitalized.

In addition to these reforms, a scheme to boost the performances of the power sector was initiated.

In recent years, the country has poured substantial amounts into its oil and gas operations, but also in agriculture and industries. Economic diversification, abundant labour, and the government’s efforts to simplify investment procedures are all positive assets for the country.

However, some challenges impairing investments remain. Some of these include cumbersome administrative processes, corruption, weak productivity, and unskilled labour.

Other major issues include insufficient water and power supply. Access to electricity, the resolution of insolvency problems and the protection of investors are points on which the country has a large margin of progress.


4. Does Ghana have any special measures to attract and facilitate foreign direct investment?

i. A reduced corporate tax rate of 8% is available for companies engaged in “non-traditional exports,” and a 20% rate applies to financial institutions on income from loans granted to farming enterprises and leasing companies.

ii. Free Trade Zone (FTZ) companies have a 10-year exemption period after which they pay corporate tax at 15% on export sales.

iii. A rebate is granted to manufacturing companies located outside Accra and Tema. In regional capitals (other than Accra and Tema), the rebate is 75% of the standard corporate tax rate of 25%, and in all other places, it is 50% of the standard tax rate.

iv. Tax holidays are granted, from the beginning of the operations, in the following cases:

(a) Agricultural enterprises, agro-processing and waste processing companies, rural banks and venture capital financing companies pay 1% corporate tax for periods ranging from five to 10 years.

(b) Real estate companies pay 1% corporate tax for five years on income from certified low-cost housing, with some limitations.

(c) Entrepreneurs aged 35 years and under are granted a five-year corporate tax holiday if they are engaged in specific businesses. Businesses that qualify for the exemption include manufacturing, ICT, agro-processing, energy production, waste processing, tourism and creative arts, horticulture, and medicinal plants. Such entrepreneurs also enjoy a rebate on corporate tax rates ranging from 5% to 15% for five years after the tax holiday.

(d) Privately-owned universities are exempted from corporate tax if they reinvest 100% of their profits into the operation of the university.

(e) Employers receive an additional tax deduction for employing new graduates as part of their workforce that ranges from 10% to 50% of the salaries or wages of such employees.

v. There are no restrictions on the transfer of capital, profits and dividends and Ghana is a signatory to the World Bank’s Multilateral Investment Guarantee Agency (MIGA) Convention.


5. Ghana is focusing on renewable energy as a solution to its growing energy needs. Switzerland and Ghana have recently signed an agreement on solar energy projects for commercial and industrial purposes. Do you expect other countries to follow suit?

The agreement signed between Ghana and Switzerland which was in accordance with Article 6 of the Paris Agreement has helped set a precedent for other countries to follow. As the increase in Africa’s population is increasing the demand for electricity, many countries are looking for reliable and cost-effective sources of energy to help alleviate poverty as well as modernize agriculture, increase trade as well as boost the economy overall.

Many of these countries have sustainable renewable energy sources that are heavily under-utilized, therefore, Ghana’s agreement with Switzerland is going to give other countries the much- needed incentive to follow suit.

In doing so, they firstly minimize the adverse effects other means of energy production has on the environment as renewable energy sources barely contribute to greenhouse gas emissions.

Other incentives available to countries includes investing in the renewable energy market would enable value creation and economic growth especially as the manufacturing and assembling of renewable energy technologies will stimulate sustainable growth of their economies and contribute to the overall development of the African renewable energy market. Aside from the opportunity of job creation, renewable energy also possesses the capability of lowering the costs of electricity as combining this with existing energy infrastructure would reduce the stress on grid-power therefore lowering the cost of electricity.

There are also social benefits to these countries which includes renewable energy sources such as biogas serving as an alternative cooking fuel source especially in areas that are heavily dependent on using charcoal and firewood. By using biofuel instead, women, who are traditionally involved in collecting and using charcoal and wood to cook, would have improved health outcomes as well as invest more time in education and other income generating opportunities as time is saved from not going to collect or produce charcoal and firewood.


6. Ghana depends heavily on agriculture for its economy. Are there any incentives in place to attract foreign investments?

i. Diversity of commodities due to diverse agro-ecological zones; this allows for easy diversification of farm production systems.

ii. Well-endowed network of water bodies which can betapped for irrigation.

iii. Comparative advantage in the production of roots and tubers can be built on to enhance food security and increase agricultural trade.

iv. A well-established agricultural research system: Cocoa Research Institute of Ghana(CRIG), Oil Palm Research Institute (OPRI), Agricultural Colleges and Universities have all been very successful in crop improvement (e.g. cassava, maize, rice, cowpea etc.)

v. Relative proximity to Europe (i.e. 6 hours direct flight) as an export destination compared to competitors in Southern Africa and Central and South America.

vi. A flourishing horticultural sector with a knowledgeable private sector (e.g. established associations such as the Ghana Horticultural and Vegetable Growers Association)

vii. More developed infrastructure compared to most West African countries.

viii. Political stability (ranks 1st for the Global Peace Index in West Africa – IEP, 2020) and steady growth.

ix. Skilled and trainable labour.

x. Sizeable consumer base with an emerging middle-class hub for opportunities in other West African countries and access to other ECOWAS countries.

xi. 100% foreign ownership is permitted.

xii. Expanding stock market.


7. How does the Ghana Free Zones Board (GFZB) facilitate doing business in Ghana?

Companies operating in industries other than mining, petroleum or timber can obtain a license from the GFZB to operate as a free zone entity. To qualify for this, the entity needs to export at least 70% of its goods or services. GFZB registration enables the company to enjoy a tax holiday for a period of ten years; thereafter, it will be required to pay corporate tax of 25% on local sales and 15% with respect to exports.

The condition for a free zone investor is to export more than 70% of the products. To verify the condition, the following documents have to be attached to an application form:

(a) Business Plan

(b) Copy of Certificate of Incorporation

(c) Copy of Companies Constitution

(d) Evidence of possession or lease of real property or intent to acquire such property

(e) Memorandum of Understanding with prospective clients

(f) Environment Protection Agency Permit (where necessary)

(g) Evidence of funding/ Capital transfer

(h) Any other relevant document

When GFZB receives an application from a potential free zone investor, GFZB examines it in relation to the Free Zone Regulation and then issues a license to the investor provided all requirements and financial obligations are met. Licensed investors are liable to the following responsibilities:

(a) The investor is required to pay license fees

Activity / Initial Fee / Annual Renewal Fee

Developer / US$ 5,000 / US$ 4,000

Manufacturing / US$ 3,000 / US$ 2,500

Service / US$ 4,000 / US$ 3,000

Commercial / US$ 10,000 / US$ 5,000

(b) The investor is required to start operations within six months of receiving approval to operate as a free zone enterprise/developer.

(c) The investor has to report its activities every quarter to GFZB.

On the other hand, GFZB monitors whether free zone investors fulfil their duties and obligations. Also, GFZB provides assistance and guidance to facilitate their activities.


8. Despite the pandemic, Ghana’s FDI inflows grew over 400% in the first half of 2020, primarily in general trading and mining. Ghana plans to raise $3bn in foreign direct investment in 2021. Is there a plan to expand investment facilitation measures in other fields, such as Fintech?

The payments industry is the indisputable flagship sector of FinTech in Sub-Saharan Africa, a region where historically more than 90 percent of the economy has been cash-based. The impact of financial technology on Africa’s financial sector and other key sectors has been phenomenal as a key driver of growth in the region, fintech creates an enabling environment that opens up the financial sector’s value chain and promotes efficiency gains.

Ghana has as such directed a lot of energy into the FinTech industry in order to attract more and more investment into the sector as the sector is one that is seen to be one of most pertinent sectors to drive the growth of the economy moving forward and further into the future.

With increasing smartphone penetration and a regulatory regime that is already embracing innovation in payments, the Ghanaian FinTech firms that are active in the payments space are already well placed to mobilize and grow.

Ghana launched a digital financial services (DFS) policy which calls for actions to support fintech innovation that could lead to a more enabling environment for remittances, e-commerce and contactless merchant and utility payments. The policy also calls for setting up a regulatory sandbox that would allow innovative new products and services to reach market.

The Bank of Ghana announced the establishment of a new fintech and innovation office and this will help the Bank’s cash-lite, e-payments, and digitisation agenda. The emergence of fintech solutions has introduced significant complexities that require the sector supervisor’s focus, to understand and supervise effectively and the justification behind the new office.


9. Is the potential ECO adoption, the single currency that is projected to be used by the Economic Community of West African States (ECOWAS), likely to lead to increased FDI into Ghana?

It is worth noting that adopting a single currency is a very credible commitment to exchange rate stability and has the advantage of reducing transaction costs that would otherwise occur, irrespective of the degree of volatility. This promotes trade among member countries compared to those from outside the union. The prices of goods that can be equally be produced within the union, hereafter domestic becomes cheap and very competitive, creating bigger domestic market for those goods.

With the African Continental Free Trade Area (AfCFTA) agreement set to eliminate tariffs on goods and services, the adoption of a single currency, if successful, will facilitate trade, lower transaction costs and facilitate payments among ECOWAS countries. If implemented, countries across the region will be able to move and spend money across different countries without any concerns about exchange rate costs. To begin with, exchange rates in the region are relatively volatile. A case for a monetary union or integration will help address the issue of multiple currencies and exchange rate fluctuations that affect intra-regional trade, thus strengthening the need for the adoption of a single currency.

Furthermore, should the single currency be properly implemented, it is assumed to have a huge potential that allows each country to specialize in production. This will further allow a smooth exchange of goods between the member-states to be produced more efficiently and allowing for lower transactional costs. It is also very important to recognize that economic gains from a common currency are not mutually exclusive to infrastructure developments, more especially that one of the sought-after benefits from the Eco is intraregional trade.

Despite these possible benefits, proponents of the integration, remain worried about the lack of integration (policies among member countries in the region).


10. In support of the company’s efforts to improve service across Africa, Twitter announced the opening of an office in Ghana. Are you expecting to see more foreign internet/tech companies do the same in the near future?

The opening of the Twitter in Ghana has set the precedent for other Tech companies to do same. Ghana, being a champion of democracy and a supporter of free speech, online freedom, and the Open Internet are some of the main factors that attracted Twitter to Ghana.

In addition to this, Ghana’s recent appointment as host of The Secretariat of the African Continental Free Trade Area (AfCFTA) cements Ghana’s place as a hub of technological advancement and opportunities, and further boosts Ghana’s trading position in the global market.

In line with this, Ghana has adopted many initiatives whose implementation would promote socio-economic growth development. This includes the use of mobile money and e commerce in Ghana.

Ghana’s economy is one of the fastest growing in Africa and is home to many tech firms and startup ideas that have received funding from the government to boost their growth.

The median age in Ghana is 21 years old and the future of Ghana is heavily reliant on its young citizens to develop and further produce technological solutions with firms like Meltwater Entrepreneurial School of Technology (MEST) in Accra, providing complete IT training, funding for software startups and mentorships for all students.

With these incentives in place, many foreign internet/tech companies are very likely to set up in Ghana as the country has the right ecosystem and skillset for these companies to grow.


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