GNBCC’s IMANI Business Breakfast on Ghana’s Business Climate

05-05-2024

GNBCC’s IMANI Business Breakfast on Ghana’s Business Climate

Last Tuesday morning the 30th of April GNBCC in collaboration with IMANI organised it’s 1st business breakfast of 2024 at the Villa Boutique Hotel. For about close to 50 participants comprising of GNBCC Members, colleagues from other Business Chambers, EU and Dutch Embassy staff,  IMANI and GNBCC staff and Ghana press (i.a. TV3)

The breakfast was ready as of 8 am and slow but steadily the invited guests arrived. Around 9.15 the morning programme was opened by Tjalling Wiarda , GM of GNBCC who welcomed the guests and explained the programme of the day. He introduced Mr Dennis Asare who presented on the results of the survey on Ghana’s business climate held among GNBCC Membership. The report has the title: Reviewing Current Economic and Investment Challenges and Opportunities for Shared Benefits and Growth – a focus on the Members of the Ghana Netherlands Business and Cultural Council (GNBCC) . After Mr Dennis Asare’ presentation questions could be asked by  the audience.  After this first part  Wiarda introduced Mr Francois Meysembourg who presented and introduced a new booklet published by GNBCC on Doing Business in Ghana – a business guide for investors. The result of 6 month work and preparation of several business chambers from Ghana including the Eurocham, Amcham, CCI France Ghana and others.

Below this article you will find the full report for downloading. Below the executive summary.

Executive Summary

Foreign Direct Investment (FDI) remains critical to Ghana’s economic development. On average, net FDI inflows over the last decade represent about 5.5 per cent of Gross Domestic Product and about 75 per cent of personal remittance flows in Ghana. The effects of the COVID-19 pandemic combined with external global shocks and domestic fiscal weaknesses have severely affected Ghana’s economy, leading to slow growth, high inflation, and an exchange rate crisis. These have contributed to increasing the cost of doing business and heavily affected FDI flows after the pandemic. The government is implementing a raft of economic reforms under an extended credit facility with the International Monetary Fund (IMF). However, the reforms have also been accompanied by fiscal reforms that have further compounded the high cost of doing business in Ghana.

In such an uncertain business and investment climate, the relevance of investor relations cannot be overstated. To this end, IMANI and the Ghana-Netherland Business and Culture Council (GNBCC) have undertaken a critical assessment of the business environment from the perspective of investors under the GNBCC to understand the challenges to doing business and increase government attention to the feasible pathways to durably growing FDIs and create a conducive investment environment. This project is expected to contribute to advocating for reforms that can effectively improve the business environment and support the government’s efforts to make Ghana an investment destination in Africa.

Key Objectives of the Project

  1. Understand the investment challenges from the perspective of the members of GNBCC.
  2. Identify the feasible solutions to improve the investment climate and business environment in the (horticulture) industry and its supporting value chain.
  3. Increase government awareness of the challenges in the (horticulture) industry and its value chain, and the solutions to boost investment in the sector.

Key Findings

Firm Characteristics, Job Creation, and Financing

  • About 6 out of every 10 of the businesses engaged are subsidiaries of foreign companies, and 4 out of every 10 of the businesses were wholly established in Ghana.
  • Most of the businesses are limited liability companies and relatively young (established between 2011 and 2020). This reflects the increased investment attraction that accompanied the relatively stable growth recorded between 2011 and 2020.
  • About 60 per cent of the businesses operate in the service sector. reflects the pattern of non-household establishments, where most of the businesses operate in the services sector. Furthermore, this pattern reflects the trend of project investments at the GIPC,
  • where the services sector tends to receive a lot of projects. For instance, the service sector has been the main sector receiving the largest number of projects since 2020.
  • Most of the businesses have a staff size below fifty, which is typically the size of an SME based on the definition of the Ghana Enterprise Agency. Furthermore, Ghanaians represent more than 50 per cent of the total employees in the business engaged, and the staff size of most of the businesses has remained the same between 2022 and 2023, however, about a third of the businesses have increased employment and a fifth of them have downsized over the same period.
  • High job creation was identified among the businesses in the agricultural sector and high downsizing was identified among those in the wholesale and retail sector. This reflects the stable growth of the agricultural sector and the shocks to the wholesale and retail sectors during and after the pandemic.
  • There was a high incidence of blended finance, where most of the business relied on both external and domestic finance.

Cost of Doing Business, Return on Investment and Profitability

  • Labour, energy and utilities, regulatory and compliance, and import and export duties and fees are the top cost components for most the businesses.
  •  Most of the businesses have experienced an increase across the cost components, especially the core cost components.
  • About 60 per cent of the businesses have experienced their cost components increase between 25 per cent and 50 per cent.
  • About a quarter of the businesses have investments in other African countries, and 55 per cent of them have experienced a somewhat low cost of doing business compared to Ghana. Also, about 45 per cent of the businesses reported a fairly low cost of doing business outside Ghana. 
  • Despite the high cost of doing business in Ghana, most of the businesses reported an increase in profit margins, and comparatively better revenue, profits and return on investment performance in Ghana compared to other countries.

Perception of the Current Business and Investment Climate in Ghana

  • There was a strong disagreement about the supportiveness of the electronic infrastructure to investors, indicating a relatively negative experience with the existing electronic infrastructure for business engagement.
  • Furthermore, most of the businesses reported a strong disagreement about the supportiveness of regulatory institutions, indicating a negative experience in their interface with regulatory officers.
  • Most of the businesses reported paying some form of unofficial fees to facilitate port clearance activities. 
  • Also, there was a strong disagreement about the reliability of the power supply for the businesses to effectively run their operations.
  • Most of the businesses perceive the cost of doing business in Ghana as unpredictable, and business policy as unsupportive.
  • Overall, most of the businesses perceive the business and investment environment in Ghana as unstable and the regulatory environment as opaque. However, they demonstrated a positive experience with the political environment and identified it as relatively stable.

Challenges to Doing Business in Ghana and Future Investment Outlook

  • Complex regulatory and compliance procedures, excessive taxation of foreign companies, bureaucratic discretion of public entities, improper business planning and lack of institutional coordination are the top challenges to doing business in Ghana.
  • Despite these challenges in the business environment, most of the businesses were optimistic about the future investment outlook in Ghana. About 61 per cent of the businesses are planning to increase their investment in Ghana, and a fifth will keep investment at the same level. Only 11 per cent of the businesses have plans to decrease their investment in Ghana.
  • There was high certainty of their future investment outlook. About 40 per cent of the businesses were very certain of their future investment plans, and 18 per cent were very uncertain of their future investment plans in Ghana. About a fifth of the businesses are equally somewhat certain and uncertain about the future investment in Ghana.
  • Also, the businesses indicated high certainty of increasing investment and keeping investment in Ghana. Even those that plan to decrease their investment, a greater number of them were uncertain of that decision.
  • The market size, the tax regime, the political environment, the legal and regulatory environment, interest rate, and investor protection will be the key factors shaping the investment decisions of the businesses engaged.

Key Recommendations

  1. Streamline regulatory compliance processes and deepen digitization in public service to address firms' exposure to corruption. High regulatory and compliance cost is identified as one of the key cost components for the firms, and the less synchronization of regulatory and permit processes leads to firms paying extra costs through unofficial channels. Thus, the government must deepen the existing e-government services to ensure that the services are delivered efficiently and reduce the cost of compliance. This will help to reduce the bureaucratic interference of public agencies in the activities of investors.
  2. Review the existing tax regime. Given that the existing macroeconomic challenges have already increased the cost of doing business for firms, the government must review and align the tax frameworks to minimize the incidence of “duplicating taxes” that make it expensive for businesses to operate in Ghana. Reducing the tax burden on businesses is crucial to making the firms competitive and increasing FDI attraction. Furthermore, the government must engage foreign investors to enhance their understanding of the tax administration system and how they can use the electronic platforms to their advantage.For instance, the government must provide capacity building on how firms can access tax exemption available in the provisions.
  3. Collaborate with business chambers to regularly understand the challenges of investors. The findings indicate that most of the businesses heard the investment opportunities through GNBCC, which also suggests that the GNBCC will be their first point of contact when they face challenges. The government must collaborate with the chamber of businesses to be ahead of addressing the obstacles to investment.
  4. Increase investors' access to information on support programmes available to investors. Limited access to information was identified as one of the obstacles to doing business in Ghana. The government can work collaboratively with the chambers of businesses to consistently provide regular information on government support in the form of tax reliefs, exemptions, and financing opportunities to investors.

Please download the full report here

Please see also another article from the press in this Newsletter about Tuesday’s event

 

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