RED FLAG: Investor Anxiety Heightening in Ghana?

Tuesday, March 24, 2009

By Franklin Cudjoe & Bright B. Simons 

Atta MillsAt a forum in Accra on Tuesday, the 24th of March, 2009, called to discuss the Global Economic Crisis, a number of highly informed speakers mentioned a growing perception that Ghana’s investment climate risks are deteriorating.

While, the empirical evidence is patchy at present, there is a clear trend of accelerating capital outflows. Some have attributed this to an increase in capital repatriation by overseas operators in our economy compelled to move money out of frontier markets to: 1) restructure the risk profile of their portfolios (for instance by buying gold or American gilded securities); 2) strengthen their balance sheets by increasing discretionary cash holdings; and 3) to take advantage of collapsing asset prices, locking in high margins, at a time when speculation is rife that many assets are at the bottom of their price cycles.

Reasonable observers can disagree as to the contribution of each plausible factor to the ongoing capital outflows. And the analysis is further complicated by ongoing balance of payments pressures and external debt servicing constraints, amongst other macroeconomic concerns.

Because of all the foregoing reasons, it will be extremely difficult to definitively ascribe the recent capital movements to a heightened sense of investor anxiety. Except, of course, if you are happy to settle for anecdotal evidence, in which case the matter is more straightforward. Most business players we are in touch with concur with the notion of a prevailing mood of unease but refuse to admit that their own business decisions are being influenced by the gathering dark clouds. This doesn’t make the matter any easier to dissect.

Consider for instance the offsetting of stakes in Ghana’s oil industry by the few Ghanaians present on the investment side of the sector. Sabre Oil, part owned by Kofi Esson, has confirmed to analysts that it is offloading its combined 5.85% share ownership in the Deepwater Tano and West Cape Three Points concessions. Credible sources inform us that EO Group, part-owned and part-managed by Derrick Agyare, Ambassador Bawuah-Edusei and George Yaw Owusu, is actively soliciting for dealmakers.

A plausible account would be that it is simply a great time for these
farsighted investors to cash out. Many of them got involved in Ghana’s oil industry when it was but a low-prospect, backwater, affair, and none of the majors would touch it.  They’d probably rather focus on the oil services sector where their windfalls will prove more useful than spend their money tagging along the likes of Tullow and Kosmos. An "exit strategy" is after all an expected component of every investment commitment, including the longest-term ones.

The darker alternative explanation is that the Ghanaian players are finding it difficult to raise their share of the funds required to develop the concessions, a state of affairs that would be clearly attributable to the aforesaid notion of increasingly negative investor risk perception.

There is anecdotal evidence in other sectors too of growing non-viability due to a souring investment climate. Fruit juice processors, and even some cocoa processors, operators in the timber trade, ICT service providers, and ceramics manufacturers have certainly always been under stress from structural problems, such as raw materials sourcing and infrastructure weaknesses, but there are growing accounts of a deteriorating financial investment context as well. Here too, as in the above cited oil sector, the anecdotal evidence can be interpreted in different ways, and a clear empirical finding would probably elude even our most meticulous researchers.

Nevertheless, it still makes a lot of sense for Government to begin moving beyond "positive rhetoric" about Ghana’s investor-friendliness, and to start considering the introduction of a number of inter-sectoral programs designed clearly to boost business confidence. If bipartisan support could be garnered for national endeavours of this nature, so much the better!
Examples of possible initiatives abound, including one offered in the above mentioned 24th March Forum: re-balancing the utility tariff structure in favour of industry at the expense of residential users, for instance.

In periods of such "superstitious" foreboding it almost doesn’t matter what initiative is introduced so long as it is aimed at the perception of "investors". Government could try "this thing" or "that thing", but above all it should try "something"!

The Authors are affiliated with IMANI: the Center for Policy & Education and