|
|
Protectionism at whose expense?
By Thompson Ayodele and Olusegun Sotola
Friday, 16 Jul 2010
The Ghana Investment Protection Council, GIPC, recently
revived a
regulation that requires foreign-owned businesses based
in Ghana to raise at least
$300,000 before they are allowed to operate. These
measures are imposed to shield
indigenous business owners from foreign competitors.
This is hinged on the belief that there is a need to
curtail the influx of
neighbouring countries‘ nationals from crowding out
local business
interests and creating job loss for Ghanaians.
Although the argument that the policy is designed to
witch-hunt the
nationals of any country has been debunked by the
Ghanaian authorities, industry
watchers and experts are not convinced. What is evident
in view of the investment
pattern is that the regulation is directly aimed at
local entrepreneurs from West African countries
who want to invest in Ghana
and not against Chinese or Indian entrepreneurs whose
chunk of foreign investments‘
loans are guaranteed by their governments.
Thus, raising the specified amount won‘t be a problem
for the Chinese and the
Indians. By and large the policy will have more direct
bearing on small and medium,
scale businesses owned by nationals of West African
countries as they do not enjoy the protection
offered by their Chinese and
Indian counterparts.
The GIPC merely re-enacts the age-old mercantilist
argument which seeks to
protect local industry. This is premised on the belief
that intense foreign
participation in the economy has the tendency of
disrupting domestic social
stability. Local industry protection has been part of
industrialization policy in West African
countries over the years. Rather
than having the protected industries maturing,
they are either producing
inferior goods or unable to compete. Fundamentally
protected local industries
will have little incentive to increase productivity.
Regulation of this nature, anchored on the fear of job
loss and foreign domination,
are usually mistaken and amounted to
do-it-yourself-economics.
Whether this policy is directly aimed at Nigerians who
have recently seen business
opportunities in Ghana or not is immaterial. It is,
however, important to access
the implication of the policy on Ghana itself and
regional trade, given the fact that the reason
behind the establishment of
the Economic Community of West African States is
primarily to foster regional
integration as well as economic cooperation.
Granted that the policy will enable indigenous
businesses in Ghana to have
much leeway to out-compete some foreign-owned company,
the possible short-term gain
dwarfs the danger and economic loss it would attract in
the medium- to long-term. First, raising the bar
for business to be set up in
Ghana has the potential to reverse Ghana‘s recent
economic growth.
Secondly, there is the tendency that the regulation will
stifle growth and undermine
economic development.
Lastly, there is the possibility that there might be
industry capture in the
future, as those in other sectors might be tempted to
prevail on officials to roll
out regulations to further stifle competition. It is
recognized that competition, when allowed to flourish,
brings about
creativity, thereby enhancing products quality and
efficient services to
consumers. When competition is slaughtered, lethargy and
stagnancy will ensue.
Ghana and its other neighboring countries have been
trading partners. Aside from
being within the same region, individuals within the
region were used to trade with
one another before colonialism. It is not by
accident that the trade volume between Nigeria
and Ghana in recent years has
quadrupled. In 2008, the volume of export trade between
Nigeria and Ghana was
$525million. Out of this figure, Nigeria earned $89
million non-oil exports to
Ghana, while the value of Ghana‘s exports to Nigeria
was $25 million. Nigerians have investments of
nearly $6 billion in Ghana.
Such a huge capital injection has boosted jobs, enhanced
wealth-creation and bolstered
taxable revenue.
What is likely to happen is that the effects of this
policy will transcend the
borders of Ghana when it is fully mature and ultimately
further shrink the intra-trade
within West Africa and movement of people within the
region. Already, mobility within the ECOWAS sub
region is low. Only three per
cent of West Africans live in other West African
countries. According to the
Africa Economic Outlook report 2010, only 10 per cent of
the continent total exports
are traded within the region. This is against the
60 per cent and 56 per cent volume of intra-trade
within the Association
of South East Asian Nations (ASEAN) and North American
Free Trade
Agreement (NAFTA).
The proponents of the regulation think that migrant
entrepreneurs take away local
jobs. This is absolutely incorrect. Migrant
entrepreneurs create more jobs
than they take away. The fear of job loss and
displacement of locally owned businesses in Ghana
are similar to the ones
expressed by the anti-globalists. Many years down the
lane, the reality has shown
that instead of the job loss, globalization has indeed
created more jobs.
A key fact that framers of this policy probably did not
take cognizance of is that
migrant entrepreneurs take out less of what they brought
into any economy. The balance
between what they brought in and what they are able
to take out adds to the growth of the local
economy. This is one of the
benefits of foreign investment.
In addition, new ideas and techniques
cross borders with foreign capitals. Even if
investors are able to divest
or remit all their capital due to certain circumstances,
they will not be able to take
away other non-physical assets like knowledge, skills
and technical know-how.
It is a conundrum why a country that seeks and spends
fortune to attract foreign
investment should be hostile and encourage unfair
treatment and give undue
advantages to local businesses at the detriment of
investments from firms and
individuals from other West African countries. Early
this year, one of the telecom
operators in Nigeria, Globacom, indicated its
intention to pull out of Ghana on account of the
hostile business environment.
The telecom giant complains of vandalisation of its
masts and the inability of
security agencies to protect its property.
Also early last year, the Bank of Ghana issued a
directive that all
foreign-owned banks should raise their capital base to
GH¢60million by the close of
that year. Indigenous banks were given three more years
to meet the new capital base.
While such actions might invite retaliatory measures
from other West African countries, an industry
being shielded might not
achieve the required growth and ultimately drive down
its potential.
There are reports that a foreign actor who wants to
feature in any movie produced
in Ghana must pay the mandatory sum of $1000, all in the
name of protecting local
actors and raising Ghana‘s Ghollyhood to enviable
height.
All over the world, the entertainment sector survives on
creativity,
talent and innovation. Since government cannot legislate
talent and
creativity, this new requirement will not only tax
talent but also reduce the
vibrancy in the movie industry. The fee will discourage
non-Ghanaian actors from
taking up roles in movies produced in Ghana and Ghanaian
producers who needed actors elsewhere will have
to pay more to get them.
Those who bear the brunt are ordinary Ghanaians who
would have to pay more for
movies, thereby freezing resources that can be used
elsewhere.
What cannot be disputed is that West African countries
share common history and
problems. That informed the creation of a platform on
which solutions to challenges
facing them could be collectively tackled by the
founding fathers of the sub- region. The current
policy no doubt raises a red
flag about Ghana as preferred investment destination. It
consequently risks retaliatory
measures as citizens affected by the policy might
pressure their respective governments to impose
more punitive measures
targeting Ghanaians business interests. It is not too
late for this regulation to be
reversed.
Ayodele and Sotola are with the Initiative for Public
Policy Analysis, a public
policy think-tank based in Lagos.
Thompson Ayodele
Director
Initiative for Public Policy Analysis
P.O.Box 6434
Shomolu,Lagos
Nigeria
Email:thompson@ippanigeria.org
Backup: thompson.ayodele@gmail.com
Website: www.ippanigeria.org
*****Good Public Policy is Sound Politics**********
|
