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Opinions of Friday, 27 August 2010

Columnist: Ayodele and Sotola

Ghana’s Anti-Business Clampdown

*By Thompson Ayodele and Olusegun Sotola*

Nigerian traders in Ghana claim the authorities are closing them down under a long-ignored 1994 law that demands a minimum investment of US$300,000. Ghana denies anyone is being targeted but the law itself is a barrier to trade, foreign investment and cheaper prices for Ghanaians: no wonder Ghana is falling down the rankings of good places to do business.

”The policy was not designed as witch-hunt against the nationals of any country, whether Nigeria or others. To us, it is an investment promotion strategy,” Ghana Investment Protection Council (GIPC) official Mr. Matthew Gyamfi told Nigeria’s Punch newspaper in June. But Nigerians and other West Africans make up a large proportion of traders: the investment threshold for trading companies of US$300,000 is sharply higher than the US$50,000 for any other kind of foreign-owned firm and the mere US10,0000 for foreign-local joint ventures, under the misnamed Ghana Investment Promotion Centre Act.

This law shows that Ghana considers trade to be a threat, along old protectionist lines, believing imports suck the money out of an economy. In fact, trade is what makes countries prosperous and competitive--and they can only import if they already have foreign currency to buy things with: Ghana’s huge trade imbalance with Nigeria just means it is earning money from exports elsewhere.

The reality directly contradicts Vice-President John Dramani Mahama’s statement drumming up investment from businesses in London in mid-July: “Government recognises the importance of competition, diversification and infrastructure development in economic growth, as well as in the attraction and retention of Foreign Direct Investment.”

In fact, Ghana has fallen to 92nd from last year's unimpressive 87th (out of 183 countries) in the World Bank's Doing Business rankings.

Protectionist "industrial policy" has long blighted West Africa. Instead of protected local industries and businesses maturing, they produce inferior goods or are unable to compete on price because they have little incentive to increase productivity.

Ghana’s investment rules can protect some indigenous businesses against some foreign companies in the short term, and to the detriment of consumers, but this is dwarfed by the economic loss it will cause in the medium to long term. Once "fledgling industries" get protection, they always want more.

If indeed Ghana is going to impose the 1994 investment threshold consistently, it has to understand the implications for Ghana itself and regional trade: as a member of the Economic Community of West African States (ECOWAS) it is supposed to foster cooperation.

Despite the obstacles, trade between Nigeria and Ghana in recent years has quadrupled to US$525million 2008--but mainly consists of oil. Nigeria earned US$89 million in non-oil exports to Ghana (out of US$500 million overall exports), while Ghana’s exports to Nigeria reached US$25 million.

Nonetheless, Nigerians have investments of nearly US$6 billion in Ghana, boosting jobs, creating wealth and bolstering taxable revenue.

But it is still not enough. According to the Africa Economic Outlook report 2010, only 10% of the continent’s total exports are traded within Africa: trade barriers between African nations are the highest in the world. This is against the 60% internal trade within the Association of South East Asian Nations (ASEAN) and 56% in the North American Free Trade Agreement (NAFTA).

Many decades of success show that globalization has created jobs, imported new ideas and techniques and offered lower prices to consumers.

But Ghana is bucking the trend. Early this year, Nigerian telecoms operator Globacom indicated its intention to pull out of Ghana because of the hostile business environment.

In 2008 the Bank of Ghana directed all foreign-owned banks to raise their capital base to GH¢60million (now about US$40 million) by the close of 2010. Local banks were given two extra years.

So ordinary Ghanaians have to pay more for mobiles and finance and anything else that foreign businesses can do well. Mobiles have given a huge boost to small farmers and traders even in countries, such as Kenya, with important barriers to business and trade.

Ghana congratulates itself on massive increases in foreign investment on big-ticket projects, up 800% at US$161.34 million in the first quarter of 2010, but business and trade restrictions make Ghanaian consumers suffer higher prices and undermine sustainable, widespread economic growth.

The current recession means every country needs all the trade and investment and development it can get: Ghana must demolish these investment barriers right now.

*Ayodele and Sotola are with the Initiative for Public Policy Analysis, an independent public-policy think-tank in Lagos*