In the wake of a tumultuous economic period that has been the last four-plus years, Ghana appears to be on the mend but with many apparent drawbacks. Once hailed as the ‘Black Star of Africa’ and a beacon of stability in a volatile region, the former Gold Coast is recovering from the aftermath of a severe economic crisis.
With inflation soaring to a staggering 54.1% in December 2022 and the Cedi depreciating by over 50% against the US dollar in the same year as investors flew to safety, Ghana’s economy was brought to its knees.
The country’s debt-to-GDP ratio reached an alarming 88.1% by the end of 2022, forcing it to seek a US$3 billion bailout from the International Monetary Fund (IMF).
The metrics have improved, with better than projected real GDP growth and trade surplus by the midpoint of 2024. But the coast is far from clear and as the country embarks on the arduous path to recovery, one truth becomes increasingly clear: the nation’s economic resurgence hinges critically on its ability to attract and retain foreign investment.
The World Bank is clear, public services play a crucial role in business operations, and Ghana’s current performance in this area indicates areas for growth.
According to the World Bank’s Business Ready 2024 report, there is a need for improvements in administrative processes, particularly in areas such as obtaining permits, accessing utilities, and streamlining government services.
Enhancing these services would not only reduce operational costs for businesses but also create a more investor-friendly environment. There is an opportunity for aligning Ghana’s legislative environment more closely with international best practices for ease of doing business and supporting long-term economic growth and job creation.
The Promise And The Paradox
Ghana’s potential as an investment destination par excellence is undeniable. Blessed with abundant natural resources, including gold, cocoa, and oil, the country has long been viewed as a promising frontier for economic growth.
Its track record of democratic governance and political stability in a region often marred by unrest has historically set it apart. Moreover, with a growing consumer market of over 31 million people and its strategic position as host to the African Continental Free Trade Area (AfCFTA) Secretariat, Ghana seems poised for economic takeoff.
Yet, a paradox persists. Despite these apparent advantages, Ghana struggles to fully capitalise on its potential. The World Bank’s Business Ready report 2024 painted a picture of a nation caught between progress and stagnation. While Ghana scores relatively high in areas such as labour dispute resolution mechanisms and transparency in utility services, it falters in the more technical aspects of business entry and market competition – critical factors for any investor looking to establish a foothold in the country.
The Digital Divide
At a period in history, when digital transformation was synonymous with economic progress, Ghana’s lacklustre performance in this arena was particularly concerning. The country’s digital services related to business operations were either incomplete or non-functional, according to the World Bank study. The absence of a comprehensive online platform for issuing building authorisations, environmental permits, and property registration creates a labyrinth of inefficiencies that potential investors must navigate.
Consider this: it takes an average of 57 days for a domestic firm to complete the registration process in Ghana. In a global economy where time is money, this figure is nothing short of uncompetitive. The implementation of a fully digitised business registration and property transfer system is not just a matter of convenience; it’s an economic imperative. By reducing bureaucratic red tape and enhancing transparency, Ghana could demonstrate its commitment to creating a business-friendly environment, thereby attracting the foreign capital it so desperately needs.
The Competition Conundrum
The country’s performance in fostering market competition is another area of grave concern. The country’s score in this category is among its lowest, reflecting a rigid business environment that hampers innovation and restricts market entry. For foreign investors, particularly those in industries like technology, financial services, and manufacturing, a competitive market is not just desirable – it’s essential for growth and profitability.
The telecommunications and internet sectors, tightly controlled by a small number of dominant players, serve as a microcosm of this larger issue. Liberalising these industries would not only allow foreign investors to enter and expand their operations but would also foster innovation and lower costs for consumers.
Similar reforms in sectors like energy and financial services could send a clear signal to the international community that Ghana is truly open for business.
The Achilles’ heel of Infrastructure
While West Africa’s darling has made strides in establishing mechanisms for monitoring service quality, the actual delivery of services – particularly electricity – remains a significant deterrent for investors.
Addressing this infrastructure gap is crucial for attracting capital-intensive industries. While the government has taken steps to improve power generation, including the development of the 400MW Bridge Power Project, more must be done to ensure stability and reliability of supply.
Investment in renewable energy presents a unique opportunity in this regard. Not only does Ghana have vast untapped solar and hydroelectric potential, but developing this sector would also align the country with global sustainability trends, making it an attractive destination for environmentally conscious investors.
Bridging the Financial Services Gap
The difficulty of securing loans remains a major obstacle for businesses in Ghana. With an average of 24 days to obtain a loan and unfavourable collateral requirements, many firms find themselves starved of the capital necessary for growth and expansion.
This not only hinders domestic businesses but also makes Ghana less attractive to foreign investors who may need to rely on local financing for their operations.
To address these challenges, Ghana must focus on improving the efficiency of its credit infrastructure. Establishing a robust collateral registry and ensuring that credit information is updated promptly would make it easier for businesses to access financing.
Furthermore, fostering the growth of fintech companies could bridge the gap between traditional banking services and the needs of smaller firms or startups, which often struggle to secure loans.
The way forward
On the path to full economic recovery, the country’s ability to attract and retain foreign investment will be crucial. This will depend on its willingness to enact meaningful reforms in key areas such as business entry, market competition, infrastructure, and financial services.
First and foremost, the government must further enhance the digitalisation of its public services. A fully integrated digital platform where investors can register businesses, apply for permits, and pay taxes online would significantly reduce bureaucratic hurdles and enhance transparency.
Secondly, steps must be taken to enhance market competition. This includes further liberalisation of key sectors like telecommunications and financial services, allowing for greater foreign participation and fostering innovation.
Thirdly, addressing the infrastructure gap, particularly in the energy sector, is crucial. Investments in renewable energy could not only solve the power supply issues but also position Ghana as a leader in sustainable development in Africa.
Lastly, strengthening the financial services sector by improving credit infrastructure and fostering fintech growth would make it easier for businesses to access the capital they need to thrive.
The road to economic recovery is never easy, but for Ghana, the path is clear. By creating a more conducive environment for foreign investment, the country can unlock its vast potential and reclaim its position as a leading economic force in West Africa. The time for bold reforms is now. Ghana’s future depends on it.
By Jamila Akweley Okertchiri