Business News of Friday, 28 June 2013
The revised Ghana Investment Promotion Centre (GIPC) bill, which is before Parliament, has the potential to discourage foreign direct investment (FDI) in critical sectors of the economy and to stifle private sector growth.
After careful examination, it appears that certain provisions in the bill, if passed, will literally block foreign direct investments and have serious implications for both local and foreign-owned businesses in the country.
For instance, Clause 26 (2) (d) of the bill -- which is an amendment proposed during the bill's consideration at committee level -- states that "a person who is not a citizen, or an enterprise which is not wholly-owned by citizens, shall not invest or participate in the following activities unless there is at least thirty percent participation by a citizen, or an enterprise which is wholly owned by citizens: (a) production of packaging materials; (b) manufacture of furniture and wood products; (c) manufacture of sanitary paper products; (d) provision of all services; including mining, oil and gas; and (e) manufacture of generic pharmaceutical products."
By this clause, unless there is at least 30 percent participation by a Ghanaian citizen, or an enterprise which is wholly owned by citizens, foreign companies are debarred from venturing into the production of packaging materials, manufacture of furniture and wood products, and manufacture of sanitary products.
Furthermore, unless they comply foreign businesses cannot enter into services relating to the oil and gas, and mining industries. Neither can they venture into the manufacture of generic pharmaceutical products.
The bill in its present nature and form is leaning toward Ghanaian ownership to the exclusion of direct foreign investment in the economy. This could be a disincentive to attracting foreign direct investment, as Ghana is currently competing with other investment destinations for FDI.
Quite apart from debarring total foreign direct investment, the issue of increasing local ownership in certain industries could, in itself, be the undoing of proper growth of the private sector -- as experience has taught Ghanaians, painfully, that total ownership of businesses in certain critical sectors is not a panacea to promoting the private sector in the country.
Failed enterprises such as Ghana Water Company, Ghana Telecom, STC and Ghana Airways, just to mention a few, are enough justification that there must be a more ingenious way of encouraging local ownership of business without sacrificing foreign direct investments.
Another aspect of the bill, Clause 26 (1) (d), and a proposed amendment designated Clause 26 (1) (e), (f) and (g), reserve the following industries exclusively for citizens or an enterprise wholly owned by a citizen: "(d) the printing of recharge scratch-cards for the use of subscribers of mobile communication services; (e) retailing of Internet bandwidth and mobile telephony value-added services (f) production of exercise books and other basic stationery; and (g) importation and internal distribution of finished pharmaceutical products."
The subtext of this provision is that if any Ghanaian or wholly Ghanaian-owned enterprise already producing these items or services were to benefit from foreign equity injection of even the smallest amount, that citizen or indigenous business would cease to qualify, under the law, to provide the same services as before.
These weaknesses of the bill detract from one of its key objects, which is "the encouragement and promotion of investments and creating a congenial environment for investment in Ghana".
The bill seeks to repeal the GIPC Act 1994 (Act 478), which set up the Centre as the body responsible for investment promotion through functions such as initiating and supporting measures that enhance the investment climate for both Ghanaian and non-Ghanaian companies, and to promote investment in and outside Ghana through effective incentives and other strategies.
Act 478 stipulates that enterprises set up solely for export trading are exempted from any minimum capital requirement in order to encourage the setting-up of enterprises that have outlets and expertise in the marketing of products originating from Ghana. This provision is retained in the new bill.
Other benefits for investors under Act 478 -such as guarantees against expropriation, dispute incentives for special investments and transferability of earnings -- have been retained in the new bill.
After being in operation for a decade and a half, Act 478 has been overtaken by events in the economic and investment climate; meanwhile, recent developments in certain sectors have also highlighted shortcomings in the Act, necessitating a new policy focus.
The current bill emphasises that "there is now an urgent need to provide specialised incentives to attract and retain strategic investors to make Ghana a competitive investment destination, and to provide Ghanaians with opportunities to take advantage of the improved economic situation prevailing in the country”.
It also adds that “the bill embraces all enterprises, including mining and petroleum enterprises, which were hitherto not covered by Act 478”.