Business & Finance INDUSTRY Politics

WHAT YOU SHOULD KNOW ABOUT DOING BUSINESS IN GHANA

What does it take to start a business in Ghana? According to data collected by Doing Business, starting a business in Ghana requires 8 procedures, takes 12 days, costs 19.2% of income per capita and requires paid-in minimum capital of 2.8% of income per capita.

Reasons Foreigners Invest in Ghana is that the economic policy generally welcomes foreign investment, viewing it as a means to promote capital formation, employment, productive capacity, and new technology. To reduce risks, companies and individuals need to spread their investments worldwide.

Ghana is viewed by many as the ultimate haven in Africa for preservation of capital because of its political and economic stability. The country holds the eighth spot in a ranking by Slate of Africa’s safest countries, thanks to its relatively low level of unemployment and the absence of conflict in recent years.

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Furthermore, the country ranks sixth among African countries in the Doing Business 2014 report and is one of the countries with the highest progression over the last five years. This explains why the country is attracting so many foreign investors and private equity funds such as Amethis Finance, which invested $10 million in UT Bank. ENI and Danone are also pursuing expansion on there.

This article therefore throws more light than ever before on some of the modern trends shaping the new phase of Ghana’s economic growth, which type of business might benefit the most, and what could potentially go wrong. It also outlines what is involved in building a successful and profitable business in Ghana today as a foreign company.

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1.Trends Shaping Growth and Creating New Opportunities in Ghana

Economic Growth

Ghana’s economy has maintained commendable growth trajectory with an average annual growth  of about 6.0% over the past six years. In 2013 growth decelerated to 4.4%, considerably lower than the growth of 7.9% achieved in 2012. Growth has, however, been broad-based, driven largely by service-oriented sectors and industry, which on average have been growing at a rate of 9.0% over the five years up to 2013.

The Ghana Investment Promotion Center estimated that the provisional figures for foreign direct investment in Ghana would reach $1.3 billion by the end of 2014, this is almost a 100% increase from that of 2013.  Foreign direct investment in Ghana is still at one of its highest levels in the last 10 years, and growth trends suggest this will continue for the foreseeable future.

Over the past 30 years, the Ghanaian governments have allowed for foreign companies to participate in its domestic economic growth. As stated earlier, The Ghanaian economy revolves around the services sector, which accounted for approximately 50% of GDP in 2010 and employs majority of Ghanaians.

The economy continues to rely heavily on agriculture which accounts for 30.2% of GDP and provides employment for 56% of the work force mainly small landholders.

The contribution of net exports and real estate to economic growth, infrastructure and domestic consumption has increased as traditional and new sources of growth for the economy, respectively rises. The current growth of the Ghanaian economy depends on some factors listed below.

Population Growth

According to the World Bank, Ghana had an estimated population of 18.83 million in 2000, which has increased to an estimated 25.37 million in 2013. By 2050 the population is expected to increase to almost 40 million. Furthermore, between 2013 and 2050, Ghana’s active/working age population will grow from 56% of the country to 66%; a striking contrast to more mature developed countries whose populations are aging and moving into the dependent category, i.e. 65 years or older. Accordingly, expansion of the economically active population will lead to increased demand for goods and services.

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Decrease in Poverty

Poverty levels in Ghana are projected to fall to 20% of the population by 2020 from nearly 45% in the 1980s. In fact, Ghana’s GDP is growing even faster than its rapid rise in population.

Government policy continues to be the critical shaping force 

As the factsheet delivered in the second quarter of 2014 demonstrates, the government still controls the ability to push GDP growth rates up and down quite rapidly. In other ongoing government initiatives, Ghana experienced three difficult years characterized by declining economic growth, increasing inflation rates, rising debt levels and financial vulnerabilities. In 2014 economic growth reached its lowest level in many years, with non-oil GDP growing at 4.1%, in the context of high interest rates, a fast depreciating currency, low aggregate demand and a deepening energy crisis.
In an attempt to curb this, a Eurobond (USD1bn) and the annual Ghana Coco Board syndicated loan (USD1.7bn) alleviated some short-term pressures on reserves and the currency. The Government of Ghana petitioned the IMF in 2014 for a possible bailout because of high inflation rates, depreciation of the cedi, huge wage bill, among others. The Ghanaian Government reached an agreement on the 25th of February to receive about US$940 million from the International Monetary Fund (IMF), to help the country turn the ailing economy around.

Governmnent Policy

Foreign Investors
In Ghana currently, non-resident foreign investors can now hold more than ten percent (10%) of any security listed on the Ghana Stock Exchange. Some few years ago they were only allowed a limit up to ten percent. Non-resident foreigners are permitted to invest in money market instruments of a tenure of three or more years. Again non-residents are also allowed to maintain foreign currency accounts with local banks, which can be credited with transfers in foreign currency from abroad or other foreign currency accounts. These are very positive changes that will go a long way to boost the market.

To be Continued……..

Culled from Doing Business In Ghana 2015 – Goodman AMC

Authors : Isma-il Sulaiman and Bernard Boachie-Danquah are the Founding Partners of Goodman AMC, and are both renowned strategy consultants with extensive experience on the African market.

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