Accra, November 20, 2017//-A new joint International Financial Corporation (IFC) and World Bank study has revealed that Ghana’s inability to attract sizable domestic and foreign investment is hampered by constraints at four levels.
The report titled Country Private Sector Diagnostic (CPSD) for Ghana, mentioned small market size, macroeconomic instability, inadequate availability and reliability of basic infrastructure, and weak managerial and entrepreneurial skills, as the constraints at the four levels.
Briefing journalists on the report in Accra on 20th November 2017, Cheikh Oumar Seydi, Regional Director, Sub Saharan Africa, IFC, Mona Haddad, Director Country Engagements, IFC, Henry Kerali, World Bank Country Director for Ghana, and Vincent Palmade, a lead economist at World Bank explained that the country’s domestic demand (market size) is insufficient to attract large scale investments that could benefit from economies of scale, unless they are export-oriented.
They added macroeconomic instability creates uncertainty for investors. While, the inadequate availability and reliability of basic infrastructure, such as energy and transport, and difficult access to land deter investment.
But Mr Seydi assured, “IFC is committed to working toward creating markets and mobilizing significantly more finance in Ghana through the private sector. Better identification of targeted key sectors for growth will help us engage to encourage good policies, and interest from investors.”
“We are supporting Ghana’s government to further encourage private sector’s role in addressing development challenges and driving inclusive and sustainable growth,” said Mr Kerali,
“The study analyses all of Ghana’s economic sectors to determine how the private sector can best become the country’s engine of growth.”
The study being the kind of its in Africa noted: “After nearly a decade of strong growth fuelled by the commodities boom, which came to an end in 2010-11, Ghana’s economy remained undiversified and vulnerable to external shocks, with high levels of poverty especially in the north of the country”.
About 40 percent of workers work in non-wage agriculture and most urban workers are in low-productivity informal jobs. Ghana has also suffered in recent years from a self-inflicted energy crisis, leading to macroeconomic instability and a financial sector weakened by high levels of bad loans.
Going forward, the newly elected government’s strategy is to achieve inclusive and sustainable growth, with the private sector as the main driver, according to the report.
Opportunities
The report identified four main opportunities that exist for the private sector to make a major contribution by creating markets in Ghana.
“First, the private sector can help to develop new high-value export markets, such as horticulture and ICT-enabled services, in which Ghana is already well positioned. Second, the private sector can leverage ICT to improve the performance of Ghana’s most important sectors, including for improving government activities and services.
Third, the private sector can help to promote efficiency and innovation in the key social sectors of education and health. Fourth, the private sector can play an important role in helping to address the main cross-cutting constraints, such as facilitating trade, providing competitive green energy, opening rural land markets, developing technical skills, and financing promising small and medium enterprises (SMEs)”.
There are fewer opportunities for transformative private sector investments in the other sectors (mining, tourism, retail, construction, water and sanitation, and manufacturing). This is because it would require several years before the necessary conditions could be put in place, it added.
For instance, manufacturing would require significantly improved access to competitive energy, finance, trade facilitation and skills.
Alternatively, leading private sector players are already present in other sectors, such as in mining, tourism, retail and construction, or these sectors have limited forward and backward linkages, for example in mining, and water and sanitation.
Ghana can seize these opportunities through a mix of public and private interventions
The report therefore urged the government to pursue essential economic reforms to resolve the energy crisis by reforming the regulatory framework for electricity tariffs; facilitating trade, through customs reforms and the Ghana Community Network Systems; and improving the business environment, by passing the PPP Bill and the Company Act, providing one-stop shops, and promoting property registration and contract enforcement.
This could be undertaken through, for example, sector specific reforms in high-priority industries, such as liberalizing the seed industry, removing licensing restrictions and fees on private schools, and promoting investment and competition in ICT backbone infrastructure, according to the maiden report.
These reforms would pave the way for the private sector to invest in projects with a high development impact, including through large firms. Such opportunities already exist in Ghana in the three priority sectors of ICT, agribusiness and education that are reviewed in the report.
The government should also consider supporting the entry of ‘pioneer’ investors, which are often in the form of foreign direct investment (FDI). Beyond removing policy constraints, public support for these strategic first movers could be justified where they are instrumental in developing new high-value market/industries but face high entry costs and risks.
Public support could take the form of fiscal incentives/de-risking, the facilitation of access to land, the provision of needed infrastructure, the facilitation of investment licensing, and by developing worker the skills of workers and capabilities of local suppliers. Such support should be provided based on the key principles of economic justification (i.e., positive externalities), transparency and a competitive process.
Supporting ‘promising’ SMEs will also be critical, especially during their acceleration phase. This could be achieved through a combination of public financing and capacity building, technical support adapted to the sector in which they operate, and risk-sharing and mezzanine finance facilities. Similar to the pioneer investors, such support should be provided in an inclusive, transparent and competitive manner.
The report Country Private Sector Diagnostic (CPSD) for Ghana jointly released by the IFC and World Bank is in support of the Government of Ghana’s objective to achieve private sector-led inclusive and sustainable growth.
The CPSD used the findings of over 200 interviews with the business community conducted in March and May 2017, to identify key sectors in which the private sector can have a stronger development impact in Ghana.
Of the seven priority sectors identified, agribusiness, information and communication technology, and education emerged as sectors with the highest potential in the medium-term.
By Masahudu Ankiilu Kunateh, African Eye Report
