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Opinions of Thursday, 20 April 2006

Columnist: Agbodza, Paul

Why foreign investments are not flowing into Ghana

There has been much debate about what economic model we need in Ghana or what we can do to improve upon the lives of ordinary Ghanaians. The traditional solution has been a mind-set which supposes that when foreign investors come to Ghana our economy would improve and the cost of living and monthly incomes would converge. At best, the president?s investment-drive trips bear testimony to this economic model. Let?s call this model: president?s investment-drive trip model (now PIDT model).

To make this PIDT model work we must satisfy a few conditions: For any investor in the developed world to invest into any for-profit venture, she requires information on the nature of returns on her investment. She draws up a portfolio and includes a set of assets. Then the investor examines more critically the stochastic (random) elements in the portfolio. The variables in this random part of her portfolio define the risks she is ready to take on her investment.

In Ghana two risks to investment are political stability and natural disasters. Ours is a country where one cannot predict with a higher probability, the behaviour or reaction of coup-makers to a bad government. In more advanced and well-established democracies, bad governments are changed in a peaceful manner. But in Ghana and much of Africa, the rule of the jungle is allowed to rule when there is chaos. Therefore, one element of the risk cannot guarantee the expected returns on a portfolio. So an investor cannot predict how profitable an investment in such an environment would be.

SOLUTION: those in authority must not give cause to coup-makers; who are also not needed anyway; empower institutions responsible for checking political abuse. In Ghana natural disasters are highly unpredictable. Fire outbreak could be caused by a palm-wine taper during the dry season. If an investor establishes a mechanised farm she may lose all in a day. Is there any Insurance company to insure a farm whose risk factor is unpredictable? SOLUTION: those concerned should develop warning systems and in the long-term such behaviours should be stamped out with effective measures. Thieves might never be arrested when they steal, or at best it might take donkey years to resolve the problem because of the principle of ?go-and-come?; land bought and paid for could be resold to a third party; in a country where political leaders or people in authority think they have absolute power and see themselves as demi-gods who are infallible and unquestionable; such attitudes could never serve the cause of an investor. SOLUTION: Those concerned with these areas must start working on correcting it.

There is hardly any current data on Ghana to find on the internet that enables a potential investor to model her portfolio before embarking upon a journey to invest in Ghana. How many banks are in Ghana; and what are their correct addresses? How many people are living in Ghana? How many people were reported dead in Ghana on census night, five years after 2000 census? Where can one get such data from? Who is responsible for disseminating information on the CPI of Ghana; and what formula is used to make the CPI basket? Is there a website (not private websites, some of whom are still negotiating for right to data) where all these pieces of information could be obtained without spending so much money?.

SOLUTION:

Thank you to Bank of Ghana on ( http://www.bog.gov.gh/ ); and the state must resource Ghana Statistical Service (http://www.gss.gov.gh/ updated in 2003) to be independent and must invest very heavily in this institution to create an official data base for Ghana. Give database access to institutions or university libraries for a fee to encourage much data analysis on Ghana. These and similar factors are examined before an investor decides on whether to invest in Ghana. To win investors, let us as a nation start NOW; each person in her/his own way to correct the above-enumerated deficiencies that affect the PIDT model. Let us learn from the no arbitrage principle:

?There is no free Lunch?.



Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.