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IMANI: The Anti-ECOWAS Foreigner Trading Policy is Incoherent

IMANI: The Anti-ECOWAS Foreigner Trading Policy is Incoherent

Last month, the Government of Ghana was expected to begin a rigorous enforcement of the Ghana Investment Promotion Centre Act of 1994 through an “inter-Agency Taskforce”.

What this really meant was that members of the taskforce, backed by security officers, will move through various markets to ensure that foreigners (who are the main subjects of that law) not meeting the statutory requirements are prevented from continued trading. We come to this conclusion because all comments by Ministers and taskforce spokespersons to date have focussed on the trading provisions in that Act and little else besides.

Why as a country we have waited for more than 15 years to “enforce” our laws on “trading” is a question for another day.

In the circumstances, the enforcement exercise was postponed from last month to the current month, but the concerns remain.

Concerns have been rightly raised about the consequences of this new focus on enforcement for our obligations to ECOWAS treaties and covenants. Some observers worry that ECOWAS nationals are not provided with special safeguards in the GIPC Act, and that to advance the objectives of the custom union and to promote the ideals of the common market, not even to talk of pan-Africanist solidarity, such safeguards ought now to be provided. This matter deserves additional attention, and in due course the debate will be joined.

IMANI’s immediate concerns about the impending exercise are however focused on the quality of the GIPC Act itself, whether it advances our nation’s economic interests, whether it contributes to sound policymaking, and whether in fact it makes coherent sense.

We note that it has been 5 years since the Ghanaian cabinet was advised by the GIPC of the need to update the Act. We have not seen any policy paper from the government in connection with the need to upgrade the investment laws of this country to align with the country’s current and evolving needs.

The proposed enforcement exercise is therefore based on a superficial appraisal of the current challenges within our investment climate. We will explain.

Except for the special regimes in the Act for sectors such as fishing, forestry, mining and banking, and the wholly separate sector of petroleum, where foreign participation is governed by its own exclusive set of laws, the Act is fairly consistent in what it requires of non-Ghanaians seeking to do business in Ghana.
Indeed the overall state of affairs is summed up in this popular, rather liberal, provision:
“An entrepreneur, irrespective of nationality, can set up a business enterprise in Ghana in accordance with the provisions of the Companies Code, 1963 (Act 179), the Partnership Act, 1962 (Act 152), or the Business Name Act, 1962 (Act 151).”

The liberality of the provision is however qualified by the minimal capital requirements set out in the Act. The Act permits foreigners to engage in all non-exempted business provided they invest a minimum of $10,000 and engage a Ghanaian partner. Though the law does require the Ghanaian partner to also invest a minimum of $10,000, there is no stipulation as to the extent of Ghanaian equity.
Theoretically, the partners can enter into a shareholder agreement granting the foreigner considerably higher equity and the arrangement will still be deemed as complying with Ghanaian law.

In fact, should the foreigner so wish, they can invest $50,000 or more and do away with the need to secure a Ghanaian co-investing partner.

In the case of what is obliquely referred to as: “trading enterprises”, there is a requirement that the investor puts up a minimum of $300,000 in capital and employs 10 Ghanaians. There is also a schedule to the Act, titled section 18, that stipulates that foreign traders cannot do businesses from “kiosks”, or engage in what is referred to as “hawking” or “petty trading” without any definitions whatsoever in the “interpretation” section of the Act.

The perverse implications of these arbitrarily thrown together provisions mean that there is virtually no proper elucidation of real-world supply chains. There are no guiding principles for wholesale, distribution, retail, logistics, or cartage.

There is absolutely nothing in the law that stops 200 foreigners from forming a cooperative with 10 Ghanaians, pooling up the minimum capital, and registering the cooperative as a business with the members identified as employees, and then operating from the backs of minivans as is the practice in many countries.

Even worse, since the law precisely defines a “trading enterprise” to mean a business “involving ONLY the purchasing and selling of goods”, any value-added services render the meaning of the act unclear. For example, a meat trading enterprise that also offers dressing, cold storage, and cartage may or may not fall within this category. It is similarly unclear if a distributor that receives consignments of products from a wholesaler and distributes same for commissions (i.e. does not “buy” but only sell) shall be operating within the letter of the law.

Nor is it clear to anyone why it is alright for big foreign traders to invest in Ghana but not small foreign traders. If the goal is, as many
have interpreted it, to “protect” small Ghanaian traders from marauding foreigners, what is the logic behind allowing big trading entities to set up marts and malls here then? Aren’t small-scale Ghanaian traders more threatened by giant retailers and commodity distributors? As someone has observed, one giant supermarket in a convenient location in Accra could easily wipe out 10,000 traders, something 1000 petty-trading foreigners may not be able to achieve.

The blind enforcement of this incoherent regime has also led us to the bizarre situation where even as we preach regional integration we are blocking other ECOWAS nationals from participating in our economy because they cannot afford $300,000 at get-go, knowing very well that business success is rarely about start-up capital and almost always about entrepreneurial energy, management and dedication.

It is important for policymakers to realise that Ghana is now in the shrinking minority of countries that insists on arbitrary minimum capital requirements for entrepreneurs and investors from outside seeking to participate in the economy.

As things stand now, the GIPC Act is a bundle of confusion when applied to the subject of foreign participation in trading enterprises in Ghana. Any policy anchored to it shall be similarly confused and incoherent. The government clearly needs to wait until after a review of the Act, taking into account our ECOWAS obligations, before embarking on any mass enforcement of trading rules and regulations on legally resident foreigners, whose only crime is the urge to contribute to wealth creation in this country.

As far as standard regulations regarding such issues as taxation are concerned, the law of the land should apply consistently and with equal force to all residents, and if it does, the wealth-generating power of business shall be evident for all to see.

Credit: IMANI-Ghana (www.imanighana.org) and www.AfricanLiberty.Org

Written by iselorm

1 Comment

  1. william Awinador-Kanyirige · March 27, 2013

    Very refreshing to see that a West AFRICAN think tank is engaging in a regional integration discourse. We need our think tanks to accompany our national governments and the ECOWAS Commission to help address key issues of strategic planning and policy making including mainstreaming gender, children issues and youth empowerment; the major deficit in national implementation;capacity and appropriate facilitation capacity by our regional bodies; national and cross-border industrial and productive capacity; quality education and regional labour mobility; peace and security; democracy, accountable governance and the rule of law; poverty reduction; sustainable development and the promotion of the national side by side with the community spirit.
    Hope IMANI Ghana can also consider helpi do what has been previously attempted without success: create a West African Network of Think Tanks( WAN Think Tanks) to help lubricate the wheels of national and regional development. The ECOWAS Commission has equal responsibility to partner IMANI in such an endeavour.

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