As Oil Eludes Ghana, It Attracts FDI to Chad And Sudan

8 September 2003
In Economics

By Amos Safo, Public Agenda (Accra)

ACCRA — Ghana’s economy is among a number of African economies that have been hit hard by a global down turn in Foreign Direct Investment (FDI) flow in 2002.

According to the United Nations Conference on Trade and Development (UNCTAD) 2002 World Investment Report released last Friday only ten countries benefited marginally from FDI flows across the world. Topping the list of African beneficiaries are Angola, Nigeria, Algeria, Tunisia and the surprise of the pack, Chad, which is less endowed with natural resources, safe oil.

The remaining five include, South Africa, Sudan (another surprise pack), Egypt, Morocco and Mozambique. Ghana is not the only country affected, though. The report clearly shows that FDI flows declined in both developed and developing countries. For developed countries, the decline was the second in a row dropping to $460 billion in 2002 from $590 in 2001. Statistics have shown that the major areas that caused the decline were; the reduced cross-border mergers and acquisitions and the fall in the intra-company loans.

The Executive Director of the Ghana Investment Promotion Centre, Kwesi Abeasi acknowledged that in the past the above areas made the difference in developing countries attracting investments. “Until recently we in Ghana have not had the fortune of encouraging these activities in these areas.”

Oil discoveries is proving to be a major lubricant for FDI inflows, but this black gold as it is called in Ghana has proved too painful to discover. Ghana has sunk millions of dollars in explorations, which are to yield even a barrel of oil. At the last mention of oil exploration in Ghana, it was a Nigerian registered ship that had bolted with a consignment of oil discovered at the Saltpond fields. Oil imports take nearly two-thirds of Ghana’s annual import expenditure.

Surprisingly, Chad was the star African performer in attracting FDI in 2002. The country, which had received no FDI at all in 2001, last year registered inflows of over $900 million. Much of this investment is related to the proven oil reserves in the Doba basins of Lake Chad. Chad thus became the fourth largest recipient in Africa and the second largest among LDCs after Angola.

Ghana and for that matter a lot of African countries of late have been attracting resource seeking investors. In the case of Ghana, the attraction is gold, which is not drawing new investments. The trends of FDI flows however show that many investors in the last two years have tended to be seeking new markets and competitive bases for export production. This explains why FDI probably dropped.

Ghana is however cited as one of the best performers in outward flow of FDI. The report says outward FDI from Africa last year recovered from its negative performance in 2001, but remains small and dominated by six countries: Ghana, Kenya, Liberia, Morocco, Nigeria and South Africa

‘The performance of Ghana in attracting FDI has not been bad in view of the world trend”, argues Abeasi. But he was quick to add that the resources at the disposal of the GIPC and other promotion agencies are woefully inadequate. He said the challenge for Ghana is to ensure that agencies leading the country’s investment drive are properly resourced to meet the competition head-on.

The downturn in FDI is general reflection of the sluggish growth of the world economy, which has even affected giants like the United States and Japan.

The report says FDI inflows to Africa declined in 2002 by 41%, although in 30 of the region’s 53 countries inflows actually increased. This downturn – from $19 billion in 2001 to $11 billion last year occurred at a time of worldwide slumps in FDI flows and largely reflected two cross-border mergers and acquisitions (M&As) in South Africa and Morocco in 2001, of a magnitude not repeated in the region in 2002.

But there is light at the end of the tunnel. The report says the outlook for FDI flows to Africa in 2003 is promising. Three major factors are likely to lead to a recovery: expanded exploration and extraction of natural resources (particularly petroleum), continued and enhanced implementation of regional and interregional free trade initiatives and advances in privatization programmes. Angola, Chad, Equatorial Guinea, Mauritania, Nigeria, Sao Tome and Principe and the Sudan are among the hopefuls for new FDI flows into the petroleum industry. Morocco, Nigeria and South Africa may further implement privatization programmes

of their major public enterprises. Botswana, Kenya, Lesotho, Mozambique, Namibia, South Africa and Uganda are good examples of countries that can be expected to make gains as transnational corporations (TNCs) position themselves to benefit from advances in the African Growth and Opportunity Act (AGOA) and Everything but Arms (EBA) initiatives.

According to UNCTAD’s survey of investment promotion agencies (IPAs), investment prospects in Africa would also be enhanced if the expected improvements in the investment climate were realized.

In 2002, African countries generally improved their FDJ policies and participated increasingly in international investment agreements.

More than half of the countries marginally expanded their FDI inflows, while inflows for the others either remained the same or declined, Top FDI recipients, in 2002 -Angola, Algeria, Nigeria, Chad and Tunisia – together accounted for half of all inflows. Some traditional best performers, such as Morocco and South Africa, were displaced in 2002 by newcomers (least developed countries, such as Angola and Chad) that were relatively unknown as hosts to FDI flows into the region .

South Africa is still the largest source of investment oufflows and is home to all three of the African firms on UNCTAD’s top 50 developing-country INC list. South African TNCs have traditionally invested abroad in the mining sector, but their recent focus has been on telecommunications. MTN and Vodacom SA both made inroads into the telecommunications industries of many African countries. South African Breweries recently bought a 64% stake in Miller Brewing Co. of the United States, becoming SABMiIIer. SABMiller then went on to acquire Bira Peroni (Italy) and Harbin Brewery (China) this year.