Hub Aspirations: Ghana and the Regional and International Environment

Hub Aspirations: Ghana and the Regional and International Environment

“Can Ghana he the hub for West Africa?”:This question, posed in a promotional cover wrap on a limited number of copies of The Economist of October 26th – November 1st 2013 to occasion the Ghana Investment Summit 2013, reveals a not-too-hidden agenda of the small but efficient West African country to be a major driver of the sub-region’s economy.

Ghana has a relatively small population of 25 million out of ECOWAS’s 300 million, but to sustain and improve upon its impressive economic performance, over the past decade, the country must consistently punch above its weight.

“In terms of countries’ GDP ranking within ECOWAS we are the second to Nigeria. We have gone through some challenges over the last few years but we still have reasons to be optimistic about our aspirations of being a major business hub in our sub-region,” said Minister for Foreign Affairs and Regional Integration, Hanna Tetteh, at the recent Economist Intelligence Unit, Ghana Investment Summit 2013, in Accra.

Ghana is a distant second behind Nigeria with its annual GDP, estimated at about US$68 billion in 2012, approximately only a tenth of the latter’s although, Nigeria hosts about half the total population of West Africa.

“Being able to expand opportunities in our economy, especially for the manufacturing sector, involves being able to improve access to markets.
“For us, that is the reason why ECOWAS and the African Union (AU) is the focus, while also improving relations with our existing trading partners within the European Union.” Tetteh also hinted that Ghana may, of a necessity, be towing a different line from sub-regional economic juggernaut, Nigeria.
“We get the impression Nigeria believes it is so big it can go it alone, but our national economic imperatives dictate that we do some things differently, if we are to realise our desire to make life better for our people and businesses.

Instructively, recent round figures show that Ghana is succeeding at rapidly diversifying away from a primary economy, which gives it a fair enough chance to weather inevitable periodic shocks and thereby position the country as a sub-regional economic driver.

“In 2010, the contribution of agriculture to GDP was US$4.9 billion, in 2011 it was US$14.1 billion and in 2012 it was US$15.4 billion. Industry, including oil and gas, minerals and mining, in 2010 was US$8.2billion, in 2011, US$14.3 billion and in 2012, US$18.5 billion.
“The services sector, in the year 2010 contributed US$22.1 billion to GDP and that was the second year that the services sector took over as the largest contributor to GDP. In 2011, it was US$26.8 billion to GDP and in 2012 it was US$33.2 billion. Our total GDP in 2012 was US$67.3 billion and so you can see that the services sector accounted for almost half of our GDP within that period.

“And so I think that to only focus on commodities and the shocks that we are having to face because of the [current] fiscal situation, doesn’t tell Ghana’s entire story. For that reason, there are many more interesting things ahead for us,” Tetteh explained.
On the foreign trade front too, the dynamics are changing.

“Our trade with ECOWAS, on the average over the past 4-5 year period, has been growing,” Tetteh observed but also noted that much of that goes on more informally; given that, within West Africa, borders are so porous the trade that goes on informally is not captured and trade data may therefore be an underestimation of the actual volumes.

“Of Course our trade with the larger African market is going to be more specific simply because that requires more documentary support and having to use export facilities, where data is captured,” Tetteh said.
Trade with Ghana’s biggest traditional export market, the EU, has experienced some decline in volumes in recent years “but it’s still there. Within a period of 4-5 years, we have an average of about 35% of our exports going to the EU, so it’s still very much a significant export destination for us,” Tetteh disclosed.

But for the rest of the world, Ghana has not been able to take a good advantage of opportunities that exist from innovations such as the Africa Growth and Opportunity Act (AGOA), which provides duty and quota free access to the US market.

Generally, it has not been just about an inability to meet demand volumes; “but it also has to do with some of the health and safety issues and being able to meet the rules and regulations of the markets you’re exporting to,” Tetteh noted.
“I’ll be the first to admit that the ECOWAS system we have is quite a serious regime. The trade liberalization scheme that we have is detailed, and has been in existence for decades, but it is not being implemented as we would have wished.

For Ghana, therefore, the question is; what needs to be done differently?
“From the point of view of the government of Ghana, it is about making sure that we have a uniform process of evaluating the application of different companies that wish to export across the ECOWAS sub-region so that, as member states, we can be satisfied that when a company obtains ETLS (ECOWAS Trade Liberalisation Scheme) registration, indeed its product meets the requirements of the Scheme, so that we can apply the existing inspections that are designed to make us more competitive within our various countries.

“There is also a case for harmonization of standards; because as it stands, manufacturing in Ghana and exporting to the ECOWAS market requires registration with the standards boards of all the individual ECOWAS member states that you want to export to. This does not happen within the EU.

Small business operators in Ghana must be able to manufacture for the West African market because, of course, that is when there is the incentive for bigger investments.

Yet another condition that requires a major change, soon, is the region’s transportation infrastructure.
Within West Africa, most transport is still by road, which is inimical to efficiency, and the little transport infrastructure that exist is geared towards moving goods from the interior to the ports, thus not helping countries to do business with each other.

“We should have a situation where – using the example of Guinness Ghana Limited, which has started a new product that is manufactured with 50% of locally produced cassava – if there’s not enough cassava in Ghana, it can be imported from Cote d’Ivoire or Togo to make up the volumes for production and supply in substantial volumes, thereby doing more with cassava and thus creating the opportunity for industrial growth,” Tetteh explained.

A proposal, currently receiving serious governmental attention, for a 1,179km stretch of a seamless, fast and affordable High Speed Rail (HSR) and Light Rail (LR), along the coast linking the five adjoining countries running from Nigeria in the east, through Benin, Togo, and Ghana to Ivory Coast in the west would provide the solution in the medium to long terms.

This will cut out border delays and other administrative bottlenecks associated with the movement of people and goods by road transport. But this will only enhance trade between the southern coastal countries of West Africa.

Investments in surface transport arteries to neighbouring countries to the north of Ghana have become even more critical as the country has now established itself as the aviation hub in the sub-region, with ongoing expansion works at Accra’s Kotoka International Airport set to further enhance that status in the short to medium terms.

Yet other expansionary works on the Tamale Airport, for which a contract of US$100 million has been signed between the Ghana Airports Company Limited and Brazilian construction firm, Queiroz Galvao, will improve travel between the country’s north and south, while a proposed upgrade over the long term is expected to help the country capture more business in West Africa’s Sahel belt.

A proposed modern international airport in Greater Accra’s Ningo District, complete with four-lane dual carriage ways linking it to the industrial hub of Tema and Accra, also aims at facilitating the country’s business hub aspirations.

Additionally, massive expansion works, currently ongoing, at the country’s two sea ports of Tema and Takoradi is bound to exponentially improve the growing use of these ports by the landlocked countries of Burkina Faso, Mali and Niger to the country’s north.

Obviously, road transport would not be an efficient option in the envisaged situation thereby necessitating a serious consideration of a modern rail line linking the south to the north.
It also is the case that whiles West Africa’s banking and the financial services sector has been expanding, it hasn’t been expanding fast enough to be able to meet the challenge of helping to improve intra-regional trade.

“With the cumbersome payment system, where exporting products to Nigeria requires that payment be made in Ghana, makes it impossible to actually get the value of exports at the quoted prices without additional bank and service charges. This makes it possible to continue doing business on a long term basis,” Tetteh reasoned.

She notes that because ECOWAS has not been able to establish an effective ETLS framework, the opportunities for fraud within the ETLS system do not create the incentive for member states to apply.

“This is because, I don’t want to lose revenue as government of Ghana, in terms of giving exemptions for a product that is not compliant with the ECOWAS Trade Liberalisation; meaning at least 30% of the product should be originating from an ECOWAS country,” Tetteh said.
The point is that a supposed local manufacturer of , for example, may claim to be using local fresh produce, but actually imports tomato concentrate from China, and import cans from somewhere else only to repackage forre-export to the ECOWAS market.

“I will say that while as a government we do respect the ETLS, because we see it as a vehicle for improving the volumes of mutual trade, we recognise that the first step to creating the incentive for people to invest in the financial services, in the industrial infrastructure, in the things that will help us grow the economies of West Africa by way of trade and bring in a lot more dynamism, is to get the ETLS reviewed in a way that makes the system work,” Tetteh opined.

A combination of a strong desire to turn its economic potential (the Economist Intelligent Unit predicts this will grow by a total of 40% in the next five years) into business opportunity by accessing bigger markets, and the slow-paced and cumbersome integration of the wider ECOWAS economies into one seamless market, is forcing Ghana to look further afield.

“We’ve been able to do a number of things recently, which have indeed helped improve harmonisation across the region,” Tetteh says, but cautions that countries in the other regions in Africa already have a significant degree of harmonisation and integration and could be integrating faster into the global market while West Africa lags behind.

She mentions the ongoing tripartite negotiation that will create a free trade area for eastern, central and southern African countries.
“When I was at the Ministry of Trade and I heard about these negotiations going on, quite frankly, I panicked because if they come together and agree on a framework that comes into effect by 2017, and they have a coast that faces Asia, what then happens to those of us on the west coast?

Ghana’s concern is that the East African region is looking to expand its economy and increase international trade as it becomes a seemingly attractive destination for low-end manufacturing, thereby attracting all the attention from the big economies to the detriment of a sluggish West Africa.

“Because everything will move in one direction to that side of the continent, within the framework AU, we agreed on a coalition of the willing and, in this regard, you don’t have to wait to see if ECOWAS will go along. We prefer to go on a regional basis, but if we have to go alone, we will do that as well,” Tetteh said, hinting at Ghana’s determination to go it alone due to the frustratingly slow developments in West Africa.

She explains that cooperation with those southern African countries; “with whom we seek integration, will ensure the obligations that has to do with health and safety regulations, phytosanitary regulations and, where possible, to see what we can do about the tariffs; of course in conformity with the regime of ECOWAS.

“And we will focus more importantly on the transport infrastructure that supports exports in our part of the word and makes us more competitive. We believe that while we may not be able to join that continental free trade area in 2017, if it is established, we will be taking the steps to do so as quickly as possible so that we can also take advantage of that market, in as much as they will also do more exporting to our market,” Tetteh disclosed, about Ghana’s determination to take on bigger challenges if needs be.