Increasing trends in local content requirements affecting drive for FDIs
“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 is negatively affecting the government’s drive to improve the ease of doing business, attract foreign direct investment (FDI) and promote overall economic growth. Local content requirements may be described as regulations, laws and policies that require foreign companies to involve, prioritise or include local companies in their procurement and provision of goods and services.
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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 and leading to higher consumer prices. On the other hand, enacting, implementing and monitoring such requirements also come at a huge cost to regulators and usually affect the organic growth and competitiveness of local firms.
Local content activities of EBO and AMCHAM members
Without legislating local content requirements, foreign businesses in Ghana including members of the European Business Organisation (EBO) and the American Chamber of Commerce (AMCHAM), support local employment, employing about 96-98 per cent of Ghanaians in their organisations. Within their supply chains, EBO and AMCHAM members ensure continued transfer of skills and technology to local companies. These companies are actively involved in education and skills training of Ghanaians, creating opportunities for nationals to work in highly skilled roles in their respective sectors.
Members of EBO and AMCHAM are responsible corporate citizens who pay their taxes and carry out statutory obligations, thereby contributing to the country’s revenue generation efforts.
The Corporate Social Responsibility (CSR) programmes of foreign companies where they undertake activities to support local economic development have been a major contributor to local content development in the country.
Impact of local content policies on Ghana’s international trade obligations
Due to globalisation, the economies of the world are interwoven in many ways and for that reason, we are asking the government of Ghana to:
• Study the consequences of every proposed local content law on Ghana’s global trade position, especially with ECOWAS, AU, the European Union, the WTO, China, India, United States of America, Brazil and other major trade partners and donors.
• Study the consequences of local content laws by consultations of all national and international stakeholders and to audit, calculate and include preliminary impact assessment studies, especially studying universal compliance laws, food safety, impacts on our eco systems, impact on FDIs, international agreements and worldwide regulations and not to forget protection offered to foreign investors under the GIPC Act 2013.
• Wrongfully introduced local content laws can hurt Ghana’s development, employment, FDIs and Ghana’s future for long periods of time.
Excessive focus on ownership
The EBO and AMCHAM believe that not allowing global companies to have a majority stake in their own companies in Ghana will lead to a steep decline in FDI. Access of foreign investors to Ghana will result in Ghana’s access to the latest technology, working skills and methods into the country and lead to the development of Ghana in a competitive world. The policies should focus on value addition to Ghana rather than ownership since local ownership is no guarantee for value creation as noted by many experts. Local content is measured as direct, indirect and induced impact on the economy. Focusing on ownership alone overlooks the value-added benefits of economic output, employment and human capital development.
We urge the government to understand that in today’s world and a global economy, local ownership is not the key element of running a business. Today, many international businesses are either owned or registered in other countries than where they originated from.
Today’s most important issues for any government are:
Where are the jobs being created? Where are the taxes paid? How do we make our country the most competitive country to invest in? How do we protect our small companies against large companies? How do we position ourselves, competition wise in our region?
When we manage to concentrate on these questions, we will be assured of a steady growth and development of Ghana.
The AMCHAM and EBO, with membership of over 250 companies, have over the years contributed significantly to the economic development and transformation of the country. Our member companies and their relationship with Ghana dates back many years. Our members believe that the objectives of the local content regulations are very clear and focused on one key area - the development of Ghanaians to quickly fill highly skilled jobs.
Not only that.If done properly, a local content regulation will create a win-win for FDIs and the people of Ghana by providing skilled labour and services at competitive rates that lower industry operating costs by reducing the reliance on expatriates.
About EBO-GHANA
EBO-Ghana is part of the global European Business Organisation Worldwide Network (EBOWWN) which is present on all continents in non-European key import and export markets of European enterprises.
Local EBOs are highly integrated and localised European organisations within the markets in which they operate and are often administrated by nationals of the host country or by Europeans who have extensive knowledge through long residence and business involvement in the host country. They promote and advocate free trade in general and between the European Union and third markets.
The EBO sources market information on its market for European business and local and EU market information for its local entrepreneurs who do or intend to do business with Europe. It also advices and informs all stakeholders, being businesses and governmental institutions in the host countries in which they are present, and advocates and promotes best business practices and standards in third markets.
About AMCHAM GHANA
AMCHAM Ghana is a representative arm of the US businesses and subsidiaries in the country, including Ghanaian businesses with strong US ties. It is affiliated with the United States Chamber of Commerce which is the world’s largest business organisation, representing over three million members and 177 affiliates all over the world. AMCHAM Ghana is also an active member of the Africa Business Centre which is the continent’s arm of the US Chamber of Commerce.
The core mandate of AMCHAM is to advocate for US businesses and by extension the promotion of the FDIs into Ghana; creating an enabling environment for businesses in which Ghanaian and US businesses can thrive, promoting the spirit of free enterprise, creating opportunity and prosperity for our two countries.
The article was jointly authored by the European Business Organisation (EBO) & American Chamber of Commerce (AMCHAM)