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Europe, the United States and other developed countries are losing markets in Africa.
It doesn’t look like the latest news or like a shock to many of us, after all, producing capital and consumer goods has become expensive in Europe and the United States.
Africa has become “less” dependent on the old economies and is becoming more and more involved in business with the rising and new economies like China and India but also with Russia, Brazil and even more with Turkey who has rolled out a serious expansion in Africa.
Infrastructure and many other sectors profit from cheaper labor costs and services provided by companies of new economies and countries on the international markets.
For a developing country with limited means (real money) it’s an easy choice; get 3 European km highway for 1 million dollars or get 10 kilometer Chinese highway for 1 million dollars. I personally think that’s a good thing, although we know that the European highway will last 25 years and the Chinese highway mostly only 8 years, but we can’t afford to wait and save for the next 7 km.
We also see that many African economies are following the world’s trend of closing their economies for foreign investors and companies. These are worrying aspects for solid and transparent countries and economies resulting in fewer investments in countries closing their markets.
China, India, Russia, Brazil, Turkey and other upcoming economies are investing more in Ghana and Africa than their European and other developed business counterparts. Partly because of an economic comparative advantage on the price of infrastructure and exportable products but also because Local Content laws and other blockades of foreign business doesn’t affect these investors as much as others, simply because many of them are used to doing business in a more “rogue” business culture.
If a certain Local Content Regulation in Ghana stipulating that a Ghanaian company in a certain sector should have a Ghanaian majority shareholder, the average European Company will decide not to invest in Ghana.
The new economies however are less scared because they know, can and will use different methods to work around that because in their countries the business atmosphere is not as regulated as in Europe, the United States and in many other developed economies.
Fronting is, next to other possibilities a simple solution. Sale of shares or options to buy shares, lease constructions on ownership of essential equipment are others.
The top 10 investors in Ghana have over the last 15 years shifted from countries in the top 1-20 of the Transparency International Index shifted to a top 10 investors in Ghana between positions 60–136 obviously with a much more “loose” business culture.
In other words, the current investors in Ghana are at least “lenient” with the laws of Ghana and not easily scared by restrictive business regulations of Ghana.
Investors of “rogue” countries are experienced in avoiding taxation and bring that experience from their home countries to Ghana. This has negative impacts on Ghana’s economy through actions like:
Under invoicing imports, with help of (bribable) Custom officers
Bribing public servants to avoid taxation
Illegal connection of water and electricity, often with help of public servants
Avoiding legal requirements, also with help of public servants
Changing company names, activities, closing and opening companies to avoid taxation or profit of exemption period limits.
Illegal export of hard currencies out of Ghana
Bringing high numbers of trusted compatriots illegal into the country on tourist visa
Using front man/woman for their activities
In case of mining and deforestation involvement polluting without cleaning replanting
All these are activities in which Ghanaians are also active, although that is neither good for Ghana’s economy at least most of them keep and reinvest their profits in Ghana.
I am not saying that Europeans, Americas and other citizens of developed countries are never involved in these activities, just that for them the consequences are dear and the chances of getting caught in Ghana or even in their own countries for activities they under take or have under taken in Ghana are much higher, so they mostly refrain from these activities or are involved in a much smaller scale.
I am just a worried Ghanaian citizen, not because I don’t like Chinese, Turkish, Indians, or other nationals in Ghana but I am worried about their “I don’t care what happens to Ghana after I have what I want” mentality.
We have all seen what the consequences can be because of illegal mining; less visible are other ways of polluting Ghana but at the end of the day Ghana and Ghanaians pays the price.
Because most of these “rogue” economies are dictatorships most of these “rogue” investors have a developed a natural way of “laying low” to void attention and some are or have been operating in Ghana for years or decades.
Often, they can only be more competitive because of the use of their illicit ways of doing business, and by doing so pushing more solid investors out of the market on that advantage.
Ghana and other African countries should be alert and raise “red flags” as soon as European investors decline because of Local Content regulation and other restrictions when investors of these new economies don’t mind.
Although I always complain about Ghanaians’ “natural distrust” mentality I think in this case a good dose of African distrust should be in place.
