The local content issue in Ghana compared to Zimbabwe

09-02-2018

The local content issue in Ghana compared to Zimbabwe

“We cannot grow the economy on our own and government does not have much to spend. That is why we need to rely on and/or increase foreign direct investment. Local content/participation is good but it’s about how you apply it and at what point you need to do it,” GIPC CEO, Mr. Yofi Grant

There has been an increasing trend in the enactment of local content requirements in Ghana that are negatively affecting the government’s drive to improve the ease of doing business, attract foreign direct investment and promote overall economic growth. Local content requirements may be described as regulations, laws and policies that require foreign companies to involve, prioritize or include local companies in their procurement and provision of goods and services.

Increasingly, local content requirements have been found to serve as direct or indirect forms of protectionism limiting or eliminating foreign participation in certain sectors of the economy. Eventually, such requirements curtail free trade affecting competition leading to higher consumer prices. On the other hand, enacting, implementing and monitoring such requirements also comes at a huge cost to regulators and usually affects the organic growth and competitiveness of local firms.”

This is the start of an open letter or position paper written by Simon Madjie, the Executive Secretary of the American Chamber of Commerce (AMCHAM) in a joint initiative with Nico van Staalduinen of the European Business Organisation (EBO) published on both their websites.  

GNBCC supports this letter or paper 100% . Too many mixed messages from the government are increasing and have already created insecurity amongst some foreign business investors which can put intended investments on hold.

The strange situation has now appeared that the African champion of local content laws aka indigenization laws, Zimbabwe, has changed its policies under the post Mugabe regime into a policy towards liberalization of the Zim economy because it simply doesn’t work. In some countries, such as Ghana, the debate on implementing all kind of local content policies is still hot, even under the current pro-business government. It is therefore interesting to read what has been published about these policies before they were changed in Zimbabwe.

In an article about the idigenisation policies initiated by the former Zimbabwe Mugabe government by Hanna Onifade from April 2016 she explains that “ Indigenisation policies are not new. The “sentiment of nativism,” that is, the mentality that suggests that the children of the soil should till the soil, is one that is often attempted to be enforced. However she states:

“This policy of indigenisation is very common among African countries and is a very insidious product of xenophobia. It is the reason Nigerians complain about Ghana’s government policy targeting non-Ghanaian (mostly Nigerian) businesses. It is a vicious circle that reduces trade among African countries and ensures that poverty levels remain high for much of Africa and therefore feeds nativist mentality.”

She continues to state that Implementing indigenisation policies may seek to serve some good by giving citizens (un)fettered access to capital and the labour market, however, for a struggling economy it is a bad idea which will lead to a loss of foreign investment.

The Zimbabwean indigenization polices where aimed to force foreign owned businesses to transfer at least 51 percent of their shares to Black indigenous Zimbabweans. Foreign Investors have pointed out that these laws were the biggest obstacle to invest.

Foreign investment is vital for the development of any economy; it will not only bring foreign capital to the country but also serves as a bargaining chip for allowing for instance Ghanaian Businesses expand into other countries.

She ends the article with the main argument against any indigenization policy – it is fundamentally retrogressive. She refers to the Nigerian author Erwin Ofili who stated:

 “The reason indigenisation does not work is because indigenisation is a faulty and retrogressive policy. It is a policy that rewards people for doing no work and adding no value to the economy. Indigenisation would eventually fail even if it were possible to implement it without corrupt government officials and their cronies taking over the businesses."

She finalizes her article by stating that “Indigenisation policies do not appreciate or reward hard work. It does not encourage the healthy competition required to build a vibrant economy rooted in quality products and services. Instead of the people of Zimbabwe waiting for the government to give them ownership of foreign companies, the government could implement policies that make it compulsory for these companies to invest in local production and assist in the building of new industries and infrastructure, as Ethiopia has done. Legislation which protects local businesses from being taken over by foreign big businesses should be made enforceable so that there would be no fears of having an economy controlled by foreign powers.”

Indeed this kind of legislation is a much more positive compared to the legislation which in the end chases away foreign investment through indigenization or local content laws.

Any reactions ? Please e-mail to Tjalling Wiarda at tjalling@gnbcc.net

 

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