Can foreign direct investment lead to growth? The case of Ghana (1970-2006)

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CAN FOREIGN DIRECT INVESTME.NT LEAD TO GROWTH?

THE CASE OF-GHANA

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, By

Kwesi ASANTE

A thesis submitted in partial fulfilment of the requirements for the a ward of Master of Arts Degree in Economie Po licy and Management at the Africart Institute of Economie

Development and Planning (IDEP).

Supervisor: Dipo BUSARI, (PhD)

April2009

UNITED NATIONS

AFRICAIN INSTITUTE

FOR ECONOMIC DEVELOPMENT AND PLANNING

IDEP

This is to cert.ify thé?t

· ASANTE Kwesi

Identification No080704

has successfully defended the M.A. thesis entitled

CAN FOREIGN DIRECT INVESTMENT LEAD TO GROWTH?

THE CASE OF GHANA (1970-2006)

Approved by the Thesis Committee:

External examiner

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Elias AYUK ... · ... ~ ... M~~·b~~

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Dipo BUSARI. ...

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Aloysius Ajab AMIN ..

DEDICATION

This workis dedicated to my parents and my siblings (Kofi, Kwame, Alma and Araba) for their prayers, àdvice, support and encouragement duririg the course of my study in Sen egal. The Lord has blessed ùs again!

ACKNOWLEDGEMENT

First and foremost, 1 will like to thank the Almighty God for His care and protection during the en tire pe'riod of my stay in Dakar. lt is by His grace that 1 have come this far.

1 will also like to thank the late Hon. Kwadwo Baah-Wiredu (former Finance Minister), Dr.

Anthony Akoto Osei (former Minister of State), Prof. George Gyan-Baffour (former Dupty Minister) and Nana Juaben-Boaten Siriboe (Chief Director). for giving me the opportunity to participate in the United Nations African Institute for Development and Economie Planning (IDEP) M.A. Degree programme. To Mr. Moses Ajab (Director, Administration), Dr. lddrisu Alhassan (Director, Economie Planning), Mr. Godwin Kweku Amuzu (former Director, Economie Planning), Mr. Alexander Kwaning (Deputy Director, Administration), Mr. Samuel Abu-Bonsrah (ERM-B), Mr. Edmund Nkansah (ERM-M), Mr. Felix Oppong (P ARD), Mr.

Evans Abosi-Nyarko (EPD), Mr. Edward Abrokwa (FIU) and Mrs. Nancy Amoyaw (EPD), all ofMinistry of Finance and Economie Planning, 1 say God richly bless you.

Special thanks to my inexorable supervisor, Dr. Dipo Busari who is also the M.A programme coordinator whose thought provoking and shrewd comments have shaped this work.

My sincere thanks also go to Prof. Aloysius Amin (Acting Director, IDEP). 1 would also like to appreciate the efforts of the staff of the training division namely Madam Sanghare, Mr. Ahmed Ba and Mr. Tharcisse Ntilivamunda for their encouragement. To the interpreters, especially Mr.

Wilfred Amoako, thanks for your assistance and fatherly advice.

To my parents, Mr. F. K. Larbi and Madam Sabina Hinson, 1 am greatly indebted to you for your care, love and support. To my siblings, 1 say your love and prayers have seen me through.

To my friends notably Joseph K. Asenso, Mawuli Gaddah, Samuel Aggrey, Stalin Oppong- Sekyere, Candice Ankrah-Badu, Millicent Bakuyeya, Nelly Dodoo, Kafui Dzameshie, Nana Ama Afari-Gyan, Dorothy Adjei, Gopal Tetteh, Nancy Amoyaw, Esther Nakayima and George Effah, 1 say thanks for having my back.

To my M.A colleagues, 1 wish you all success in your future endeavours and thanks for showing me much love. 1 hope we keep this friendship forever. Finally to my flatmates; Sayi Katewale

"Papa" Magessa and Lamin Bojang, it was wonderful staying with you the entire period.

ABSTRACT

Using an Error Correction Model and an annual time senes from 1970 to 2006, the study examines the impact of Foreign Direct Investment (FDI) on economie growth in Ghana. The results indicates that FDI and openness of the economy have a negative growth impact while gross fixed capital formation positively impacts on growth both in the short-mn and long run.

The study therefore recommends that there is the need for efficient and effective policies to utilise FDI inflows and embark on export-oriented industrialisation. Secondly, there is the need to increase public investment in productive sectors and also encourage private sector participation in economie activities.

Also using the pairwise granger causality test, the study found a unidirectional causality from growth to FDI in the long-run in Ghana. The study therefore recommends that to attract more FDI, there is the need to increase income.

RESUME

En utilisant un Modèle à Correction d'Erreur et une série chronologique annuelle allant de 1970 à 2006, l'étude examine l'impact de l'investissement direct étranger (IDE), sur la croissance économique au Ghana. Les résultats indiquent que l'IDE et l'ouverture de l'économie ont un impact négatif sur la croissance, alors que la formation brute du capital fixe a un impact positif sur la croissance à court aussi bien qu'à long terme. Par conséquent, l'étude recommande qu'il y a besoin de politiques efficientes et efficaces pour pouvoir utiliser des flux des IDE entrant dans le pays et de se lancer dans l'industrialisation orientée vers l'exportation. En deuxième lieu, il est nécessaire d'augmenter l'investissement public dans les secteurs productifs et d'encourager la participation du secteur privé dans les activités économiques du pays.

Enfin, en utilisant le test de causalité de Granger, l'étude a trouvé une causalité unidirectionnelle de la croissance à l'IDE à long terme au Ghana. Ainsi, l'étude recommande que pour attirer plus d'IDE, il est nécessaire d'augmenter les revenus.

EXECUTIVE SUMMARY

With the MDGs becoming increasingly difficult to achieve, policy makers in developing countries have made it part of their strategie economie reform policies to attract much more foreign capital to augment scarce domestic resources in order to enable them finance development projects and programmes ..

Until recently, most of the FDI inflows into Ghana were going to the mining sub-sector. It has been argued that based on the structure of the Ghanaian economy, the mining sub-sector does not have the potential to generate the much needed growth linkages for the whole economy.

The objective of the study is to examine the impact of foreign capital inflows on economie growth in Ghana.

The significance of the study is anchored on the fact that it will serve as a guide to po licy makers on measures to adapt to generate FDI-led growth and how to attract FDI into the growth- enhancing sectors of the economy. The study will also add to the existing literature and also serve as a source of reference to other researchers.

There exist volumes of theoretical and empirical studies that have been carried out in this area.

Modernisation theory, which originated from the classical theories, stipulates that FDI can promote growth as a result of spillovers through technological advancement, increased efficiency and improved productivity. The dependency theory which criticises the modernisation theory argues that FDI positively impacts on growth in the short-mn through increased savings, investment and consumption but it negatively impacts growth in the long-mn and this is due to mechanisms of dependency like decapitalisation and lack of linkages.

Empirically, there have been variations in both methodology and results. Kaiphaboon (2004), using time-series data (1970-1999) analysed the impact of FDI on growth in Thailand. His results showed that the growth impact of FDI is greater under export promotion regimes compared to an import substitution regime. Bromstrom et al. (1994) found that FDI has a positive impact on growth when a country is sufficiently rich in per capita income, whiles Oteng- Abayie and Frimpong (2006) found a negative impact ofFDI on growth in Ghana.

The study utilises an annual time series data from 1970-2006. The ordinary least squares method of estimation was employed to estimate the error correction model which regressed FDI, gross fixed capital formation, govemment education expenditure, govemment final consumption, openness of the economy and population on gross domestic product per capita.

The major findings of this study are: FDI and openness of the economy negatively impacts on growth while gross fixed capital formation has a positive growth impact both in the short-mn and long-mn between 1970 and 2006. Using the pairwise granger causality test, there is evidence of a unidirectional causality from growth to FDI in the long-mn.

The implications from this study are that, there should be policies to attract more foreign capital into the growth-enhancing sectors of the economy, promote export-led industrialisation in Ghana and also encourage public and private investment in productive sectors.

ADF:

ARDL:

ECOWAS:

EPZ:

ERP:

FDI:

FINSAP:

GDP:

GEPC:

GFZB:

GIPC:

GPRS II:

HIPC:

ICC:

IFC:

IMF:

IPPAs:

ISSER:

MDGs:

MIGA:

MNEs:

NEP AD:

NTEs:

OLS:

PP:

SAP:

SOEs:

TNCs:

UNCTAD:

WAMZ:

LIST OF ABBREVIATIONS

Augmented Dickey Fuller Autoregressive Distributed Lag

Economie Community of West African States Export Processing Zones

Economie Recovery Programme Foreign Direct Investment

Financial Sector Adjustment Programme Gross Domestic Product

Ghana Export Promotion Centre Ghana Free Zones Board

Ghana Investment Promotion Centre Growth and Poverty Reduction Strategy II Highly Indebted Poor Country

International Chamber of Commerce International Financial Consortium International Monetary Fund

Investment Promotion and Protection Agreements Institute of Statistical, Social and Economie Research Millennium Development Goals

Multilateral Investment Guarantee Agency Multinational Enterprises

New Partnership for Africa's Development Non-Traditional Exports

Ordinary Least Squares Phillips-Perron

Structural Adjustment Programme State-owned Enterprises

Transnational Corporations

United Nations Conference on Trade and Development West African Monetary Zone

TABLE OF CONTENTS

Page

DEDICATION ......................................................... ii

ACKNOWLEDGEMENT .................................. iii

ABSTRACT ... iv

RESUME ........................................................ v

EXECUTIVE SUMMARY ........................................................... vi

LIST OF ABBREVIATIONS ... ~ ... vii

LIST OF FIGURES, TABLES AND ANNEXES ... x

CHAPTER ONE: BACKGROUND OF TIIE STUDY ... l 1.1 Introduction ... 1

1.2 Statement of Problem ... 4

1.3 Objective of Study ... 4

1.4 Justification of Study ... 4

1.5 Organization of Study ... 5

CHAPTER TWO: ECONOMIC PERFORMANCE AND FDI INFLOWS IN GHANA ... 6

2.1 Macroeconomie Performance ... 6

2.2 Policies to attract FDI .................................. 12

2.3 FDI Inflows, Performance and Sectoral Distributions ... 14

2.3 .1 The Trend and Performance of FDI Inflows ... 14

2.3 .2 Sectoral Distributions ... 16

2.4 Institutional Framework and Investment Incentives ........................ 20

2.4.1 The Pree Zones Scheme and FDI Flows ... 20

2.4.2 The Business Environment in Ghana ... 21

2.4.3 Ghana's Gateway Programme ......................... 22

2.4.4 Investments and Structural Reforms, including Privatization .................. 23

CHAPTER TOREE: LITERA TURE REVIEW ...... 27

3.1 Review of Theoretical Literature .............................. 27

3 .1.1 Export The ory ........................................... 2 7 3 .1.2 Market Imperfection Theory ... 28

3 .1.3 International Production Theory ... 28

3 .1.4 Modernisation The ory ... 28

3 .1. 5 Dependency The ory ... 29

3.1.6 Foreign Direct Investment and Human Capital Formation/Enhancement... ...... 29

3.1.7 Foreign Direct Investment and Technology Transfer.. ............ 30

3.1.8 Foreign Direct Investment and Business Competition ... 30

3 .1. 9 Foreign Direct Investment and Enterprise Development ... 00 . . . 00 . . . 31

3.2 Review ofEmpirical Literature ........... ; ...... 32

CHAPTER FOUR: METHODOLOGY, ESTIMATION AND ANAL YSIS OF RESULTS ... 35

4.1 Specification ofModel (OLS Method) .. oooo . . . oooo . . . oo . . . .. . . oo . . . 0000000 35 4.2 Description ofVariables ........................ o o o o • · · · . . . .. . . oo . . . .. o o o o o o · · · 36

4.3 Data Sources, Measurement and Difficulties ..... 39

4.4.1 Unit Root Test ............................................................ 40

4.4.2 Cointegration Test .............................................. 41

4.4.3 The Error Correction Mode1 (ECM) ....................................................... 42

4.4.4 Granger Causality .................................. 43

4.4.5 Diagnostic Tests .............................. 46

4.4.6 Interpretation and Analysis ofResults ................................................... 46

CHAPTER FIVE: FINDINGS, POLICY IMPLICATIONS AND CONCLUSION ... ^SO 5.1 Empirical Findings of the Research ...................... 50

5.2 Policy Implications .................................... 50

5.3 Conclusion ..................................... 52

REFERENCES ... 53

ANNEXES ... 59

LIST OF FIGURES, TABLES AND ANNEXES

A. FIGURES Page

Figure 2.1: Trend ofGDP per Capita growth rate (1970-2006) ... 9

Figure 2.2: Trends in FDI inflows and GDP Growth (1970-2002) ... 16

Figure 2.3: FDI Projects by Key Business Function (2002-2005) ... 19

B. TABLES Table 2.1: Sectoral breakdown and investrnent cost of projects (200 1-2006) ... 17

Table 2.2: Top Multinational Companies investing in Ghana ... 18

Table 2.3: FDI Projects by Source Country ... 19

Table 2.4: Performance ofNon-Traditional Exports (US$ million) ... 21

Table 2.5: Mode of Sale ofDiversified Companies ... 24

Table 2.6: FDI in Selected Non-Traditional Export Categories in 1999 (US$ million) ... 26

Table 4.1: Results ofUnit Root Tests ... 41

Table 4.2: Jo hansen Cointegration Test Results ... 42

Table 4.3: Results of the Error Correction Mode1.. ... 45

Table 4.4: Results ofGranger Causality Test (Long-run) ... .45

Table 4.5: Results ofGranger Causality Test (Short-run) ... .46

C.ANNEXES ANNEX 1: Working Data ... 60

ANNEX 2: Results of the Error Correction Model.. ... 61

ANNEX 3: Johansen Cointegration Test ... 62

ANNEX 4: Jarque-Bera Normality Test ... 63

ANNEX 5: White Test ... 63

ANNEX 6: Breusch-Pagan-Godfrey Test ... 63

ANNEX 7: ARCH Test ... 63

ANNEX 8: Breusch-Godfrey Seriai Correlation LM Test... ... 64

ANNEX 9: Ramsey Res et Test ... 64

ANNEX 10: Cusum and Cusum of Squares Tests ... 64

CHAPTERONE

BACKGROUND OF THE STUDY

1.1 Introduction

According to the International Monetary Fund's Balance of Payrnent Manual Fifth Edition (BPM5), Foreign Direct Investrnent (FDI) is an investment by a foreign direct investor to acquire a lasting interest in an enterprise resident in an economy other than that in which the foreign direct investor is based ¹• The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Transnational Corporation (TNC).

FDI is viewed as a major stimulus to economie growth in developing countries. lt is perceived that FDI has the ability to deal with major obstacles such as shortages of financial resources, technology, and skills. This has made it the centre of attention for policy makers in developing countries such as Africa. FDI refers to investment made to acquire a lasting management interest (usually at least 10 percent of voting stock) and acquiring at least 10 percent of equity share in an enterprise operating in a country other than the home country of the investor. FDI can take the form of either "Greenfield" investrnent (also called "mortar and brick" investrnent) or merger and acquisition (M&A), depending on whether the investment involves mainly newly created assets or just a transfer from local to foreign firms (FDI Survey, 2002).

FDI has emerged as the most important source of extemal resource flows to developing countries over the 1990s and has become a significant part of capital formation in these countries although their share in global distribution of FDI continue to remain small or even declining. FDI usually flows as a bundle of resources including capital, production technology, organizational, managerial skills, marketing know-how and even market access through the marketing networks of multinational enterprises (MNEs) who undertake FDI. These skills tend to spill over to domestic enterprises in the host country. Therefore, FDI can be expe.cted to contribute to growth

1 The term FDI raises important conceptual questions regarding definition and interpretation as weil as practical problerns of measurement. The classification of certain types of investrnents is sometimes based on arbitrary arguments. The WTO indicates that FDI occurs when an investor based in one country acquires an asset in another country with the intent to manage that asset. Accordingly, the management dimension is what distinguishes FDI from portfolio investrnents in foreign stocks, bonds and other fmancial investrnents.

more than proportionately compared to domestic investments in the host country. There is now a body of literature that has analyzed the effect of FDI on growth in inter-country framework and another analyzing knowledge spillovers to domestic enterprises from MNEs (see e.g. De Mello,

1997; Kumar and Siddharthan, 1997; and Saggi, 2000; for recent reviews of the literature).

Most countries in Africa are faced with inadequate resources to finance long-term development and with poverty reduction and sorne of the Millennium Development Goals (MDGs) looking progressively more difficult to achieve by 2015, the issue of attracting FDI has assumed a prominent place in the strategies of economie rejuvenation being advocated for by policy makers at the national, regional and international levels (UNCTAD, 2005). Even though the average annual FDI flows to Africa has increased nine-fold from $2 million in 1980s to about $18 million in 2003 and 2004, the current findings by UNCTAD have shawn a positive but weak and unstable association between FDI and economie growth in Africa.

FDI is a telling indicator of global economie health and stability. In 2000, global FDI inflows increased by 18 percent over 1999 levels to $1.3 trillion. The current economie downtum, however, is reversing this trend. For the first time in over a decade, FDI flows are contracting.

The World Investment Report 2001 predicts that FDI outflows will fall 40 percent in 2001, below the 1999 level to around $760 billion (FDI Survey, 2002).

FDI not only provides the developing countries with much needed capital for domestic investment, but also creates employment opportunities, helps transfer managerial skills and technology, all ofwhich contribute to economie development. Recognizing the manifold benefits of FDI, developing countries around the world have significantly eased restrictions on foreign capital transfer since the early 1980s. Furthermore, the sizeable reduction in foreign aid programs since the end of the Cold W ar has forced countries hitherto heavily dependent on foreign public aid to seek out alternative sources of foreign private capital. As a result, the annual inflow ofFDI t6 the developing countries has increased manifold from $24 billion (24 percent of total foreign investment) in 1990 to almost $178 billion (61 percent.of total foreign investment) in 2000 (World Bank, 2001). It has been also estimated that since the 1980s FDI in Europe &

Central Asia has grown by a colossal 5,200 percent, East Asia & Pacifie by 942 percent, South

percent and all developing countries by 672 percent (World Bank, 2000). This provides evidence that Sub-Saharan Africa is getting the least inflows ofFDI and the same applies to Ghana.

The relationship between FDI and economie growth has incited volumes of empirical studies in both developed and developing countries. This relationship has been studied by explaining the determinants ofboth growth and FDI, the impact ofFDI on growth and the direction of causality between the two variables. Empirical studies on the importance of inward FDI in host countries suggest that the foreign capital inflow augment the supply of funds for investment thus promoting capital formation in the host country. It can impact the host economy through a variety of channels. Principally, it helps by adding to resources available for investment and capital formation. The transfer of technology, skills, innovative capacity, and organisational and managerial practices between countries is also enhanced through the activities of foreign direct investors. Lastly but not the least is the benefit it brings by helping the host country access international marketing networks.

Inward FDI can stimulate local investment by increasing domestic investment through links in· the production chain when foreign firms buy locally made inputs or when foreign firms supply source intermediate inputs to local firms. Furthermore, inward FDI can increase the host country's export capacity causing the developing country to increase its foreign exchange earnings. FDI is also associated with new job opportunities and enhancement of technology transfer, and boosts overall economie growth in host countries.

One of the most salient features of today's globalization drive is conscious encouragement of .,.

cross-border investments, especially by transnational corporations and firms (TNCs). Many countries and continents ( especially developing) now see attracting FDI as an important element in their strategy for economie development. This is most probably because FDI is seen as an amalgamation of capital, technology, marketing and management. Sub-Saharan Africa as a region now has to depend very much on FDI for so many reasons, sorne of which are amplified by Asiedu (2002). The preference for FDI stems from its acknowledged advantages (Sjoholm, 1999; Obwona, 2001). The effort by several African countries to improve their business climate stems from the desire to attract FDI. In fact, one of the pillars on which the New Partnership for Africa's Development (NEP AD) was launched was to increase available capital to US$64 billion

through a combination of reforms, resource mobilization and a conducive environment for FDI (Funke and Nsouli, 2003).

1.2 Statement of Problem

According to the World Investment Report (2001), the amount of FDI attracted by Ghana is above the average for a non-oil producing country in SSA. Notwithstanding the significant inflow of foreign capital into the Ghanaian economy, it has not translated into the needed economie growth that will propel Ghana as a low income economy into a middle income status by 2015. Secondly, the unbalanced FDI inflows in favour of the mining sub-sector have failed to generate the necessary linkages to the wider economy for the anticipated economie growth.

According to economie theory, FDI augments scarce domestic resources, leads to knowledge transfer and above all promote economie growth. Considering the fact that Ghana has attracted quite a sizeable amount of FDI inflows and is still burdened with low human capital, high unemployment rate, among others; the crucial question this study seeks to answer is whether FDI can positively impact on economie growth in Ghana.

1.3 Objective of Study

The main objective of this paper is to examine the impact of foreign direct investment inflows (FDI) on economie growth (GDP) in Ghana.

1.4 Justification of Study

Most empirical studies have focused on the determinants ofFDI in Ghana (Asiedu, 2002) or FDI in relation to other variables such as Sustainable Development (Baah-Nuakoh, 2000) while others have analysed only the long-run relationship between FDI and .growth. A few studies have analysed the impact ofFDI on growth as well as the short-run and long-run dynamics. This study therefore seeks to contribute to filling that gap.

Oteng-Abayie and Frimpong (2006) analysed the impact of FDI and trade on economie growth using the Aggregate Production Function (APF) growth madel and the Bounds Testing (ARDL) approach to cointegration method of estimation using data from 1970-2002.

However, their method of estimation (ARDL) will not be valid in the presence of an 1(2) series since ARDL assumes that all variables are either 1(0) or 1(1), Ouattara (2004).

This study differs from theirs in the following regard;

• a larger sample size (1970-2006) is used.

• the J a hansen co integration test method will be used and this will allow us estimate our madel even in the presence of an 1(2) series.

• the Error Correction Method of estimation will be used.

• the study includes variables like human capital, population and government consumption which they did not include in their madel.

1.5 Organization of Study

The study has been organized in five (5) chapters. The remaining chapters are organised as follows: chapter two looks at Ghana's economie performance, the investment climate, FDI inflows, performance and sectoral distributions. Chapter three reviews the literature on FDI;

whilst chapter four contains the methodology, estimation technique and analysis of results obtained. Chapter five gives the summary of findings, po licy implications and conclusion of the study.

CHAPTERTWO

ECONOMie PERFORMANCE AND FDI INFLOWS IN GHANA

This chapter provides a general background to macroeconomie performance, investment climate, the trend of FDI inflows, performance and sectoral distributions; investment incentives and promotion in Ghana.

2.1 Macroeconomie Performance

At independence in 1957, Ghana was one of the brightest stars in Africa. It enjoyed the highest per capita income on the continent and had a well-earned reputation for a comparatively sizeable and well-educated middle-class. Economie growth was respectable, averaging 4 percent during the sixties. This growth was heavily driven by Ghana's most important export- cocoa, which accounted for about 70 percent of foreign exchange earnings. The country was the world's largest producer of cocoa, averaging about a third of world supply in the late fifties. The economy could be compared with sorne East-Asian countries like Singapore and Malaysia.

Foreign reserves were equivalent to three years of imports. The country is well endowed with natural resources (gold, diarnond, bauxite, manganese, forestry, etc) and has a potential for tourism. Government intervention in the economy after independence, however, adversely affected the economy.

The role of the public sector was greatly enlarged on both the productive and distributive sides.

Increasingly Prime Minister Nkrumah carried out more dirigiste policies and in 1961, he introduced officially socialist state-led planning. Deteriorating terms of trade compounded the impact of these policies. Between 1959 and 1965, the world market priee of cocoa fell substantially; the 1965 priee was only 40 percent of the 195 8 lev el. Because of all these factors, large fiscal deficits emerged, the balance of payments deteriorated significantly, and the economy took a nosedive.

Ghana's economy declined between 1971 and 1983 as a result of the first two oil shocks (1971 and 1979) to which most developing economies had not anticipated. Industrial production that was championed by State-owned Enterprises (SOEs) declined more than 47 percent, especially in the mining and construction sub-sectors. By 1981-83, Ghana's economy had deteriorated as GDP growth recorded negative figures (-3.5, -6.9 and -4.6 percent in 1981, 1982 and 1983 respectively). In 1983, a severe drought, a fall in the cocoa priee on the world market, the retum of over one million Ghanaians from Nigeria compounded the economie woes (Tsikata et al., 2000).

The currency was devalued by 43 percent in July 1967, public expenditure was reduced, and the activities of public enterprises were streamlined or eliminated. To address balance of payments difficulties, import controls were tightened and foreign debt payments were rescheduled.

Improving terms of trade enabled the govemment to reduce significantly the number of goods on the negative list for imports. With a fall in the world priee of cocoa in 1971, however, rapid import liberalization was no longer affordable. Both the fiscal and capital accounts deteriorated.

In late 1971, the cedi was devalued by 44 percent in an attempt to improve the balance of payments position. Consumer priee inflation skyrocketed, rising from 9.6 percent in 1972 to 77.2 percent by 1977. As the exchange rate continued to be fixed, the cedi was increasingly overvalued, discouraging exports. Govemment expenditures rose as the state became more heavily involved in production and regulation. These expenditures were financed by a complex and high rate of taxation on imports, goods, services and exports. Ghana experienced continued stagflation in the second half of the seventies (Tsikata et al., 2000).

On the economie front, the Armed Forces Revolutionary Council led by Fit. Lt. Jerry John Rawlings in 1982 re-imposed priee controls on consumables, raised the cocoa priee paid to farmers, evacuated sorne of the rotting coco a from rural areas with the assistance of students, and collected large amounts of outstanding tax payments during this period. While sorne of these measures were successful in the short-run, many would prove to be ultimately unsustainable (for example, the priee controls).

The general economie situation was desperate and financial liquidity precarious. Lax fiscal and monetary control over almost a decade had resulted in hyperinflation. Inflation worsened over the next two years reaching 77 percent by 1981. Production had contracted in ali sectors of the

economy. Cocoa exports, which were Ghana's leading foreign exchange earner, had declined in part due to the absence of basic transport infrastructure to move the harvest to the ports. The shortage of foreign exchange meant that critical spare parts and inputs were in short supply, adversely affecting the industrial sector performance. Not surprisingly, both social and physical infrastructure had severely deteriorated.

Ghana liberalised her economy in 1983 with the implementation of the Economie Recovery Program (ERP) to stabilize the economy. The ERP and its follow up, the Structural Adjustment Programme (SAP), received substantial assistance from the international financial institutions and donors. Rehabilitation of the country's deteriorated ports, roads and railway was prioritized earl y in the pro gram. Input and produce marketing of most crops was liberalized over the reform period. In general, priee controls on goods, and interest rates were removed. In the decade following the introduction of the ERP, real GDP growth was impressive, averaging 5 percent annually. Real income grew by 2 percent per capita during the decade. Inflation remained high and variable, however, discouraging private investment.

As shown in Figure 2.1, the trend of Ghana' s GDP per capita growth rate has been fluctuating.

The pre-ERP period was characterised by negative growth rates in per capita GDP. However, years of positive growth rates were very modest with the exception of 1970 and 1978 which recorded the highest growth rates of7.32 percent and 6.64 perecent, respectively.

The periods 1971, 1973, 1974 and 1977 recorded positive but low growth rates of2.6, 0.04, 4.08 and 0.53 percent respectively while negative growth rates of 5.14, 14.45, 4.44, 10.02 and 7.92 perecent were recorded in 1972, 1975, 1979, 1982 and 1983 respectively. It is worth noting that the years that recorded negative per capita GDP growth rates were periods characterised by coup d' etat (1972 and 1979) or a natural disaster such the famine in 1982.

However, the post-ERP period (1983-2006) witnessed relatively stable growth rates with the highest being 4.87 percent in 1984 and the lowest being 0.98 pe~cent in 1992. The period recorded an average per capita growth rate of 2.16 percent.

Figure 2.1: Trend of GDP per Capita growth rate (1970-2006)

10.00 5.00

-

-

-5.~Ç)

....,

(.)

...

a.

-15.00 -

-20.00

Years

1 ---+---

1

Source: World Bank (2007)

In the decade after 1983, Ghana's economie performance successfully turned around with GDP growth averaging around 5 percent. The Bretton Woods institutions touted Ghana as one of the success stories of the ERP. As a result of severa! polie y initiatives and economie measures taken in the 1990s, Ghana has been able to develop its private sec tor and liberalize its economy. The mostly successful adjustment was partially derailed in 1992 due in part to an election-related wage increase of about 80 percent. With loss of fiscal control came macroeconomie instability, reflected for example, in higher inflation. Much of the nineties have been spent trying to regain sustained fiscal balance. Not surprisingly, the decade has been marked by increased difficulties between the government and the Bretton Woods institutions as policy slippages occurred. On the positive side, accelerated Government efforts to increase investment paid off in the form of higher investment rates and greater foreign investment. The period aft.er the 1990s has seen sorne prudent management of the macroeconomie environment and Ghana now leads Sub-Saharan Africa as a mode! of economie, political and social development. Ghana's GDP was US$7.6

billion in 2003, and is estimated to increase toUS$ 10.3 billion in 2005. The growth rate of real GDP was 5.8 percent in 2005.

The Government had undertaken strong fiscal and monetary measures for restoring and sustaining macro-economie stability and bringing down the rate of inflation and the overall budget deficit. The stabilization measures of tight monetary policy and fiscal discipline had improved the macro economie situation considerably since the beginning of 2002. Inflation had fallen from about 42 percent in March 2002 to an average of26.7 percent for 2003, and further to 12.6 percent for 2004. Inflation for December 2005 was 13.5 percent which is slightly higher than that of 2004, mainly because of the 50 percent increase in priees of petroleum products in February 2005. Inflation at the end of November 2006 stood at 10.3 percent. Gross official foreign reserves at the end of 2005 were US $1.75 billion, which is equivalent to 3.5 months of imports. The Bank of Ghana prime lending rates decreased from 18.5 percent at the end of 2004 to 12.5 percent now. Accordingly Bank interest rates assumed a downward trend and it had fallen from 26 percent at the end of the year 2004 to 19-21 percent now. This has, to sorne extent, helped manufacturing and the import sectors by providing sorne relief to the very tight credit situation. Economie growth will be helped by government's efforts to boast infrastructure spending, emphasis on FDI and on private sector-led growth and the Presidenfs Special Initiatives in sorne key economie sectors.

Private remittances through banks are now the largest source of foreign exchange earnings.

These were expected to be approximately $4 billion in 2005. Tourism is now the third biggest source of foreign exchange eamings. Export receipts for gold, cocoa and timber were US$945 million, US$753 million and US$227 million, respectively for 2005. Non-traditional exports (bananas, fish, rubber, agricultural products, salt and textiles) have grown over the past decade and were around US$700 million in 2005.

The governmeilt has announced sorne new initiatives for the production of Cassava, textiles, Palm oil and salt. These are aimed at promoting non-traditional exports to broaden the export base and reduce the dependence on Ghana's traditional exports, which are frequently adversely affected by large variations in international priees.

Ghana is a member of the Economie Community of West African States (ECOWAS). Ghana, along with Nigeria, Guinea, Sierra Leone and Gambia, has established West African Monetary Zone (W AMZ). Under W AMZ, the monetary union is expected to commence by 1 December 2009. Ultimately, it hopes to be part of the ECOWAS free-trade zone that encompasses the 250 million people strong market covering the entire West African sub-region.

In November 2005, Ghana negotiated with its development partners including World Bank and IMF the Growth and Poverty Reduction Strategy II (GPRS II). GPRS II will be implemented for the period 2006-09, and will focus on accelerated growth through integrated approach to socio- economic development (with focus on agriculture, infrastructure and industrial development) at all levels; local, regional and national. Under this scheme, Ghana is expected to receive the budgetary support of $1.2 billion per year in form of grants and soft loans for 2006-09.

Key economie policies include: (a) a more effective control and monitoring of public expenditure; (b) reduction in the government's domestic debt as a share of GDP and using unprogrammed receipts from divesture and a portion of HIPC relief to retire domestic debt; ( c) the containment of the indebtedness of the main parastatals until full cost recovery can be achieved, ( d) the deregulation of the petroleum sector, ( e) continued monitoring and protection of the health of the banking system; and (f) the development of an effective inter-bank forex market and a vibrant secondary market for government financial instruments.

International credit rating agency Standard and Poors has retained Ghana's B rating, while another international credit rating agency Fitch Ratings has upgraded Ghana's B Positive outlook to B+. These ratings are at par with countries like Turkey, Brazil and Indonesia, in terms of sovereign credit risk, and therefore, support Ghana's sustained track record in prudent economie management and good governance.

In the Global Competitiveness Report 2005-2006 rankings, Ghana moved to 59th position ( among 117 co un tries polled) in 2005 from 68th in 2004, was d~scribed, along with South Africa, Botswana and Mauritius as the region's success stories. It is worthy to note that Ghana performed better than sorne of its peer group members in sovereign credit ratings such as Brazil

and Turkey. The World Bank/IFC' s "Doing Business 2007 Report" rated Ghana as the top reformer in Africa and among the top 10 global reformers.

Total exports in 2005 were US$2.7 billion (same as in 2004) and total imports were US$5.3 billion in 2005 (US$4.3 billion in 2004), resulting in a resource balance or deficit of US$2.6 billion. Ghana's major trading partners are the Netherlands, UK, USA, Belgium, Nigeria, France and China.

As a result of continued political stability, the strong macroeconomie performance and a number of measures taken by the government to attract foreign direct investment (FDI), foreign investment in Ghana has increased considerably in recent years. Ghana Investment Promotion Centre (GIPC) registered FDI worth approximately US$160 million in 2005. India is the largest foreign investor in terms ofnumber ofprojects, followed by China.

2.2 Policies to attract FDI

A number of measures have been taken to 1mprove the investment climate. These include investment incentives spelled out in a range of investment codes. The first was the Pioneer and Companies Act of 1959. This was followed by the Capital Investment Act of 1963 (Act 172), which sought to encourage foreign investment. The 1973 Investment Decree (NRCD 141) and Investment Policy Decree NRCD 329 of 1975, unlike the 1963 Act, were to encourage both local and foreign investors. The 1981 Investment Code (Act 437) sought to centralize investment promotion functions at the Capital Investment Board and consolidate all investment legislation.

The 1985 Investment Code (PNDCL 116) established the Ghana Investment Centre as the Central Investment Promotion Agency. All these investment codes attempted to provide a favourable investment climate by offering incentives to boost private investment. The incentives generally provided included t~x holidays, accelerated depreciation pllowances, exemption for import duties on machinery and equipment, investment allowances, and arrangements for profit repatriation. The need for constant review of the codes reflects the lack of the expected response

to the various codes. Inflows remained sluggish, averaging US$4 million per annum between 1983 and 1988 (Figure 2.2).

Other measures taken in recent years to improve the investment climate include graduai removal of administrative and other bottlenecks and review of the tax structure as it relates to private investment, e.g., reduction of corporate tax to 45 percent maximum (1991) from 55 percent previously, for sorne enterprises. Retention accounts (and foreign accounts) were established for individual companies for retention of a portion of revenues eamed from exports to finance imports of essential spare parts and raw materials or machinery, while credit expansion in 1987 and 1988 aimed to ensure adequate financial support for the priority sectors of the economy.

Finally, a major step was the liberalization of the financial system. On 29 April 1988, Ghana ratified the convention establishing the Multilateral Investment Guarantee Agency (MIGA) of the World Bank. MIGA intends to encourage equity investment and other forms of foreign direct investment in developing countries by reducing non-commercial risk. In effect, the MIGA Convention seeks to provide an insurance cover for foreign investors who participate in eligible investments in the productive sectors of the economy of developing countries. Despite the assurance of Ghana's investment guarantee under the Investment Code and the MIGA Convention, sorne countries still insist on bilateral investment promotion and protection agreements (IPPAs) with Ghana. Thus, the govemment has entered into bilateral IPPAs with a number of countries to further enhance the protection and security of the investment regime.

Ghana has also expanded the scope for FDI by reducing the number of industries closed to foreign investors.

The Ghana Investments Promotion Centre (GIPC) was set up under the GIPC Act of 1994 with the main objective of encouraging and promoting investment. The Act revised and consolidated the 1985 Investment Code to place more emphasis on private sector investments as an important element of accelerated economie growth. According to the Act, the existing code was oriented towards regulation and did not encourage the investment centre to engage in promotional activities. Also, the attitude of govemment has changed over time with a more favourable climate now than in the earl y 1980s. As part of the measures taken to make credit more readily

available to the private sector, Ghana began a process of liberalizing its financial system.

Specifically, a Financial Sector Adjustment Programme (FINSAP), was initiated and a number of institutional and policy reforms were carried out that culminated in the liberalization of the financial sector by the beginning of 1989. The response was a moderate inflow between 1989 and 1992 and a significant inflow between 1993 and 1996- with the inflow reaching US$233 million in 1994 when the GIPC was set up and the Government put Ashanti Goldfields (AGC) on the market (partial sale of AGC to the South African mining company, Lonmin).

2.3 FDI Inflows, Performance and Sectoral Distributions

Since the 1970s, Ghana has had a long, though modest, history of FDI. Ghana's chequered history of economie and political development reflects in the irregular inflows of FDI. The following sub-sections will look at the trend and performance as well as the sectoral distributions ofFDI.

2.3.1 The Trend and Performance of FDI Inflows

The historical trend of FDI inflows into Ghana can be shown three (3) phases smce 1983 (Tsikata et al., 2003).

The Pre-ERP period, that is from 1970-83 was characterised by sluggish inflows averaging about $19.13 million per annum. The highest and lowest inflows during the period were $16.30 million in 1982 and -$18.26 million in 1976 respectively. This notwithstanding, the impact of FDI inflows on the growth rate was enormous. For example, FDI fell from $67.08 million in

1970 to $30.60 million in 1971, a fall by $36 million and GDP fell from 12.3 percent to 7.1 percent. Likewise when FDI rose from $11.50 million in 1972 to $14.40 million in 1973, growth increased from -13.2 percent to 4.0 percent, which is about 425 percent increase.

The trend continued until 1984 when the ERP took off. During the post-ERP era, FDI inflows increased but did not impact that much on growth. For instance, from 1984 when the ERP took off, FDI rose from $2 million to $5.60 million in 1985, GDP actually fell from 10.0 percent to

6.5 percent. This phenomenon could be explained by the fact that during post-ERP era, other factors other than FDI contributed to growth.

The period 1989-1992 recorded moderate inflows averaging about $18 million per annum. The highest and the lowest being $14.80 million in 1992 and $22.50 million in 1990 respectively.

1993-1996 was a period of significant (remaining in three digits) inflows, which reached

$233.01 million in 1994 (with the privatization of Ashanti Goldfields Company- AGC), but fell by more than 63 percent to $106.50 million in 1995 before increasing again to $120 million in 1996.

1997-2006 saw significant but oscillating inflows, decreasing from $82 million in 1997 to $56 million in 1998 (the lowest over the 1997-2006 period), then it increased to US$243.70 million in 1999 before falling to US$165.90 million in the year 2000. FDI dropped further to US$89.30 million and US$58.90 million, respectively, in 2001 and 2002 owing to the effect of the September 2001 attack on the United States (and the consequent global FDI drop of 41 percent in 2001 and 21 percent in 2002; UNCTAD, 2003). In 2003, the FDI recovery to US$136.75 million was due to a massive boast in FDI with the merger of Ashanti Goldfields and Anglogold and the beginning of a US$400 million gold mine investment by the US firm, Newmont (ISSER, 2004).

Figure 2.2: Trends in FDI inflows and GDP Growth (1970-2002)

Trend of FDI inflows and GDP growth (1970-2006)

500.00 r - - - r 15 450.00 -

400.00 350.00 -

~ 300.00

0 250.00

~ ^200.00

fh 150.00 100.00 50.00

O. 00 -l-+-J:J~~~~'i+f!:j:!!:~~~lfll9~!::j:!!:f~+--t...-t-++...-t-t-+--+-+-+---+-f---l-l -50. O~cs S~~>'~-ŒtO:<~<à'Sb~-~~~-~~t;~~~~-ffi'-~t;~~

.... ~ ^.... ~~ ^.... ~~ ^.... ~~ ^.... ~~ ^.... ~~ ^.... ~~ ^.... ~~ ^.... ~~ ^.... ~~~ ^.... ~~ ^.... ~~ ^.... ~~-(~~ ^.... ~~'lt~'lt~'lt~~cs

Years

1- FDI ($M) -+-GDP Growth Rate(%) 1

Source: World Bank (2007)

- 10 5 - 0 -5 - -10

-15

E

ê

a..

In the 1970s, FDI was mainly in import-substitution manufacturing. In 1970, annual inflows were as high as US$68 million but declined to US$11.5 million in 1972. The decline in 1972 was

probably due to the negative economie growth rate of 2.1 percent in 1972 from a positive growth rate of 5.6 percent in 1971. FDI inflows then increased to US$71 million in 1975 only to decrease by 125.8 percent to -US$18.3 million in 1976. This decline was as a result of the world FDI downturn of 21 percent (UNCTAD, 2003). An important feature of FDI is the three-way nexus of economie growth, investment and political stability that has emerged since 1972 (Tsikata et al. 2000).

2.3.2 Sectoral Distributions The Mining Sector

This sector has been the largest recipient ofFDI over the past three decades when Ghana started attracting private foreign capital. The gold sub-sector has been attracting the largest FDI inflows compared to the other mineral sub-sectors like diamond, bauxite, manganese and others. The restructuring of the sector as part of the ERP saw investrnent soaring in this sector in the mid-

1980s. In 2007, a UK finn Tullow Oil and Kosmos Oil from the U.S.A announced the discovery of light oil in commercial quantities ( estimated at about 3 billion barrels) in Ghana and with the exploration still on-going, it is believed that more finds might be made. With this find Ghana will become the fourth oil producing country on the continent after Libya, Nigeria and Tunisia. It is the hope that the oil sub-sector will attract more investors which will bring in the much needed capital for development.

The Non-Mining Sector

This sector comprises of the Manufacturing, Services, Tourism, Building and Construction, Export Trade, Agricultural and General Trade sub-sectors. Below is the breakdown of the number ofprojects and investment cost ofthese projects from 2001-2006.

Table 2.1: Sectoral breakdown and investment cost of projects (2001-2006) Cumulative

Sept. 1994- Dec. 2000 Jan. 2001 - Dec. 2006

Total Total

Sector Total Invest. Cost Total Invest. Cost

Projects (%) (US$M) (%) ^Projects (%) (US$M) (%)

Manufacturing 300 27.68 319.82 19.88 322 29.43 2,286.09 75.28

Service 314 28.97 886.70 55.13 292 26.69 295.64 9.74

Tourism 129 11.90 25.19 1.57 113 10.33 73.14 2.41

Build. & Const. 92 8.49 111.67 6.94 79 7.22 188.37 6.20

Export Trade 82 7.56 10.89 0.69 43 3.93 19.15 0.63

Agriculture 87 8.03 177.14 11.01 65 5.94 51.68 1.70

General Trade 80 7.38 77.11 4.79 180 16.45 122.82 4.04

Total 1,084 100 1,608.52 100 1,094 100 3,036.89 100 Source: GIPC Quarter/y Investment Report, Jan. 2007, vol. 2, Issue 4 ,

Ghana Investment Promotion Centre registered a total of2,178 projects between September 1994 and December 2006. Out of this total, 311 projects (28.6 percent) were located in the Manufacturing sector whiles the Services sector benefitted from 303 projects (19.4 percent).

Building and Construction activities accounts for 86 projects (7.9 percent). General trading activities and tourism has a total of 130 projects (11.9 percent) and 121 projects (11.1 percent) respectively. Projects in the Agricultural sector are 76 (7 percent) of the total project and the Export and Trading activities takes 63 projects (5.7 percent). These projects propose an investment amount of US$ 4645.41 million. A signi:ficant proportion of the total investment outlay is accounted for by the manufacturing sector. It accounted for 58.1 percent as against 25.4 percent by the Services sector. The remairung 17 percent of the investment cost is taken up by the remaining five sectors (table 2.3).

Breakdown of FDI Projects in Ghana (2002-2006)

Locomonitor is a unique market research tool for tracking and analysing FDI project in developed and developing countries. It has tracked a total of 49 FDI projects in Ghana since 2002.

The breakdown is as follow:

./ Top Multinational comparues investing in Ghana . ./ FDI projects by source countries .

./ FDI projects by industrial cluster.

./ FDI projects by key business function.

Table 2.2: Top Multinational Companies investing in Ghana

Company No. of Pro.iects

Alcoa W orld Alumina & Chemicals 3

Gold:fields 3

N ewmont Mining 3

Red Black Mining 3

Golden Star Resource 2

Source: www.locomonztor. cam

It is interesting to note that all these multinational companies are mirung comparues and this buttress the fact that the mining sector continues to be the major destination of foreign investment. Between 2002 and 2006, only a period of 4 years, the mining sector bene:fitted from

Table 2.3: FDI Projects by Source Country

Country No. of Pro.iects

United States of America 16

Canada 5

United Kingdom 5

South Africa 4

Nigeria 3

Source: www.locomonztor. cam

The United States of America leads as the country with the most number ofFDI projects, having invested 16 projects since 2002. Canada and United Kingdom follow with 5 projects. Rand Gold and Anglo-Gold having invested in Ghana have increased the number of South Africa's FDI projects to 4. Nigeria follows with 3 FDI projects. But it is worth noting that investment from Nigeria has increased tremendously since the last two years especially in the banking and telecommunication sectors.

Figure 2.3: FDI Projects by Key Business Fonction (2002-2005)

No. of Projects

• No. of Projects

Source: www.locomonitor. cam

From the above graph we observe that in a period of four years (2002-2006), 15 FDI projects were located in both the Extraction and Manufacturing sub-sectors, 6 ~rojects were found in the Sales/Marketing and Support sub-sectors, 4 were located in the Logistics and Distribution sub- sectors and only 1 was found in the Electricity, Shared services Centre and Training sub-sectors.

2.4 Institutional Framework and Investment Incentives

The responsibility for investment in various sectors has been tasked to different governmental agencies. The main agencies responsible for investment in the mining and petroleum sub-sectors are the Minerais Commission and the Ghana National Petroleum Corporation respectively. The Ghana Stock Exchange is responsible for portfolio investment, the Divestiture Implementation Committee has oversight responsibility for investment in state diversified comparues; the Ghana Free Zones Board (GFZB) for investments exporting 70 percent or more of their products, and lastly the GIPC which handles all other investments.

2.4.1 The Free Zones Scheme and FDI Flows

In September 1995, Parliament promulgated the Free Zones Act to accelerate the exploitation of the country's general export potential. The Ghana Free Zones Board (GFZB) was accordingly established to assist and monitor the activities of export processing zones (EPZs) to be set up in the country. EPZs provide buildings and services for manufacturing, i.e., transformation of imported raw and intermediate materials into finished product, usually for export but sometimes partly for domestic sale subject to the normal duty. The EPZ is thus a specialized industrial estate located physically and/or administratively outside the customs barrier, oriented to export production. Its facilities serve as a showcase to attract investors, and as a convenience for their getting established, and are usually associated with other incentives.

A key objective of the Act was the attraction of FDI. To this end, an extensive package of incentives was offered, including the following:

• Exemption of free zone developers from income or profit tax for 10 years;

• Income tax after ten-year tax holiday, not to exceed a maximum of 8 percent;

• Exemption from withholding taxes on dividends emanating from free zone investrnents;

• Freedom for a foreign investor to hold a 100 percent share in any free zone enterprise; and

• V arious guarantees in respect of repatriation of profits and against un:feasonable nationalization of assets.

Since 1995, as shown in Table 2.6, non-traditional exports (NTEs) have increased from US$119.3 million in 1994 to US$417.5 million in 2001. This could be partly attributable to establishment of the EPZs. Given the importance of increasing market size and providing scale to attract FDI to Africa, efforts at regional integration continue to be important. The New Partnership for Africa's Development (NEPAD) could be important in this direction. Since the new government assurned power in 2001, Ghana has set up a Ministry for Regional Integration andNEPAD.

Table 2.4: Performance ofNon-Traditional Exports (US$ million)

Year 1994 1995 1996 1997 1998 1999 2000 2001 Amount 119.3 159.7 276.2 329.1 401.7 404.4 400.7 417.5 Source: Ghana Export Promotion Council

2.4.2 The Business Environment in Ghana

Ghana has made significant progress in furthering democracy and demonstrated that a stable democracy is not only possible but also sustainable in West Africa, even during economically difficult times. The country' s economie structure and performance constantly improved during this decade, de-spite her persistent dependence on a few commodities. Economie growth has stabilized; however, inflation persists.

Ghana has been ranked by the World Bank Doing Business Reports amongst the Top-Ten Reforming Countries in Africa. All of this augurs well for Ghana to achieve middle-income country status by 2015.

With its political stability, economie liberalism, abundant natural resources and infrastructure improvements, Ghana is positioned to become West Africa's premier gateway country, providing access to a regional market of over 250 million people.

Ghana' s natural resource driven economy is the third largest in West Africa. It is the second largest exporter of lurnber and gold on the continent, and the second largest exporter of cocoa worldwide. Ghana also enjoys ample mineral deposits of diamonds, bauxite, manganese and salt,

and lays claim to a vast expanse of arable land, forests and marine and fishing stocks. The existence of rich and high quality crude oil fields at Ghana's shores has been confirmed in 2007.

A number of value-added industries and produce various consumer goods, such as beverages and canned goods operate in Ghana. The country's growing tourism sector has stimulated infrastructure development and increased government revenue.

Attracting foreign direct investment has been a priority of Ghana's Government since 1983 with the establishment of an economie recovery program. FDI inflows are well above the average for non-oil producing sub-Saharan African countries. The country's top non-African investors originate from India, China, Lebanon, UK, US and Germany, while the top three African investing states are Nigeria, Cote d'Ivoire and South Africa.

Among the numerous guarantees and incentives that attract investors are: low corporate tax rates;

tax holidays; low equity requirements; custom duty exemptions for plant, machinery, equipment and parts; automatic immigrant quotas; and relief from double taxation for foreign investors.

Ghana's foreign investment code eliminates screening of foreign investment, guarantees capital repatriation, and does not discriminate against foreign investors. The only pre-condition for investment is a minimum capital-requirement.

Ghana Investment Promotion Act, 1994 (Act 478), provides guarantees to all enterprises, free transferability through any authorized dealer bank in freely convertible currency of dividends or net profits attributable to a foreign investment; payments in respect of loan servicing where a foreign loan has been obtained; remittance ofproceeds (net of all taxes and other obligations) in the event of sale or liquidation of the enterprise or any interest attributable to the investment.

2.4.3 Ghana's Gateway Programme

In 1998, The Government of Ghana launched the Gateway PrograrnlJle with the objective of promoting Ghana as the trade and investment centre of West Africa. The strategy emphasizes export processing zones and foreign investment as the main instruments for export development