Ghana’s foreign direct investment decline: A silent crisis

Introduction

In the realm of international business and investment, perception often shapes reality. For Ghana, this reality is becoming increasingly harsh as its logistics performance continues to lag behind countries within the subregion with similar economy size, notably Côte d’Ivoire. The Logistics Performance Index (LPI) serves as a stark indicator of this decline, reflecting a country’s ability to efficiently manage customs processes, trade infrastructure, shipment costs, and the overall quality of its logistics services.

When looking at the population statistics for Ghana and Ivory Coast from 2010 to 2019, one can observe that Ghana has consistently had a larger total population than Ivory Coast over this time period. According to the data, Ghana’s population in 2020 was approximately 31 million people, compared to Ivory Coast’s population of around 26 million people.

In terms of economic indicators, Côte d’Ivoire appears to have fared better than Ghana in several key areas over the past decade. Though Ghana’s nominal GDP of $73.77 billion in 2022 was marginally ahead of that of Côte d’Ivoire at $70.02 billion, Côte d’Ivoire’s rate of GDP growth of 6.7% is slightly more than twice that of Ghana at 3.1% for the same period. Between 2013 and 2022, Côte d’Ivoire grew its GDP at an average rate of 6.87% while that of Ghana grew at an average rate of 4.52%. Côte d’Ivoire since 2013 has consistently had a higher rate of economic growth than Ghana with 2017 and 2018 being exceptions, and 2019 when parity was momentarily restored. Even at the height of the pandemic, Côte d’Ivoire grew at 1.7% ahead of Ghana who managed with a rate of 0.5%.

Some other notable differences as per the data include Côte d’Ivoire having persistently lower unemployment rate and higher GDP per capita than Ghana during the period under review. This suggests Côte d’Ivoire has been more successful at creating jobs and economic opportunities for its citizens under the period under review than Ghana.

The LPI Score Comparison

Since 2007, Ghana’s Logistics Performance Index (LPI) score has depicted an encouragingly upward rend, just as that of Côte d’Ivoire up to 2016 when it abruptly assumes a concerning downward trend while that of Côte d’Ivoire continued with its upward progress, swiftly recovering from a slight blip in the same 2016. In 2007, Ghana’s LPI score was recorded at 2.16, slightly trailing behind Ivory Coast’s score of 2.36. Over the ensuing years, Ghana’s performance in logistics has failed to advance significantly, with its LPI score remaining stagnant at 2.50 to date since dropping from the 2016 high of 2.66. This stagnation underscores a critical issue that demands immediate attention and decisive action to reverse the trend.

The steady decline in Ghana’s LPI score raises alarms about the country’s ability to effectively manage customs processes, trade infrastructure, shipment costs, and overall logistics services. In contrast, Côte d’Ivoire’s consistent improvement in logistics performance, as indicated by its rising LPI score, reflects a proactive approach to enhancing its logistical capabilities and fostering a more conducive environment for trade and investment. Its LPI score of 3.08 also places them among Africa’s top five performers in logistics capability.

Ghana’s stagnant LPI score not only indicates a lack of progress but also suggests a potential deterioration in its logistics infrastructure and services over time. This decline can have far-reaching implications for the country’s economic competitiveness and attractiveness to foreign investors as well as the rate and quantum of foreign direct investment (FDI) inflows. A strong logistics performance is crucial for facilitating trade, reducing transaction costs, and enhancing overall business efficiency, all of which are essential for attracting and retaining foreign direct investment (FDI).

The widening gap between Ghana and Côte d’Ivoire in terms of logistics performance underscores the urgent need for Ghana to address the underlying issues hindering its logistics capabilities. Failure to do so risks further erosion of its competitive position and could impede its ability to capitalise on emerging economic opportunities. Swift and targeted interventions in key areas such as customs efficiency, trade infrastructure development, and logistics service quality are essential to reversing Ghana’s downward trajectory and positioning the country for sustained economic growth and development.

The Importance of Logistics Capability in FDI

Why is this decline so concerning? Beyond the numbers lies a deeper issue of economic competitiveness and attractiveness to foreign investors. FDI inflows are often swayed by a country’s logistics capability, as it directly impacts the ease and cost of doing business. In 2022, Côte d’Ivoire’s FDI inflow surged by 15% to $1.58 billion, surpassing pre-pandemic levels. In contrast, Ghana’s FDI plummeted by a whopping 39% to $1.47 billion for the same period.

Côte d’Ivoire’s Success Story

Côte d’Ivoire’s remarkable success in improving its logistics capabilities is the result of deliberate and strategic efforts to enhance its infrastructure and services. This commitment to development is clearly reflected in its Logistics Performance Index (LPI) score, which has steadily risen from 2.36 in 2007 to an impressive 3.08 in the period of 2018-2022.

The significant increase in Côte d’Ivoire’s LPI score is a testament to the country’s proactive approach to addressing key challenges and implementing reforms to enhance its logistics sector. This upward trajectory demonstrates Côte d’Ivoire’s ability to adapt to changing global trends and exogenous shocks; emphasising its competitiveness in Africa and the global economy.

One of the key factors contributing to Côte d’Ivoire’s success is its focus on infrastructure development. The country has invested heavily in improving its transportation networks, including roads, railways, and ports, to facilitate the efficient movement of goods and reduce transportation costs. Additionally, Côte d’Ivoire has implemented measures to streamline customs processes and improve trade facilitation, making it easier for businesses to import and export goods.

Another important aspect of Côte d’Ivoire’s success is its commitment to enhancing the quality of its logistics services. The country has invested in training programs and technology upgrades to improve the efficiency and reliability of its logistics sector. These efforts have helped to improve the overall quality of the country’s logistics services and enhance its competitiveness in the global market.

In contrast, Ghana’s LPI score has remained stagnant since 2018, hovering at 2.50. This lack of progress highlights the danger in neglecting continuous investment and reform in the logistics sector to maintain competitiveness and drive economic growth while attracting investment. Ghana can draw valuable lessons from Côte d’Ivoire’s success story and use them to inform its own strategies and policies for enhancing its logistics capabilities and improving its competitiveness in the global market.

The Urgent Need for Action in Ghana

Ghana stands at a critical juncture, facing a multitude of challenges that threaten its economic stability and competitiveness. The country’s logistics performance, as reflected in the Logistics Performance Index (LPI), has been on a downward trajectory since 2017. This decline is exacerbated by factors such as excessive taxation, corruption, and bureaucracy, all of which contribute to an unfavourable business climate and logistical capability.

One of the major obstacles hindering Ghana’s logistics sector is the issue of excessive taxation. High tax rates and multiple taxation coupled with complex tax regulations not only increase the cost of doing business but also deter foreign investors from entering the economy. Corruption and bureaucracy further exacerbate these challenges, leading to inefficiencies and delays in customs processes and trade facilitation, casting the country as uncompetitive.

Additionally, Ghana’s business climate is characterised by high interest rates and inflation, further dampening investor confidence. Inflation, which reached a staggering 54.1% at one point, has since decreased but remains worryingly elevated at 25%. These economic conditions make it difficult for businesses to operate profitably and discourage investment in the country’s logistics infrastructure as well as other productive sectors.

In contrast, Côte d’Ivoire has been able to attract and sustain more investments and achieve higher levels of economic growth by implementing investor-friendly policies and reforms. The country’s success serves as a stark reminder to Ghana of the urgent need for action to reverse its logistical performance capability decline and regain its competitive edge.

To address these challenges, Ghana must prioritise investments and policy reforms in critical logistics sub-sectors. These include improving trade infrastructure, streamlining customs processes, and enhancing the overall quality of logistics services. Additionally, the government must tackle corruption and bureaucracy head-on; implementing measures to improve transparency and efficiency in the business environment.

The time for action is now. Ghana cannot afford to continue its slide into economic obscurity. By taking decisive action to address these challenges, Ghana can revitalise its logistics sector, attract more foreign direct investments, and pave the way for a brighter economic future.