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29-Jan-2015  
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Having been ushered into the lower middle income category, with the discovery of oil, Ghana was set to attract massive foreign direct investment (FDI), with expected high and unprecedented growth in her Gross Domestic Product (GDP).

But after a one-time impressive GDP of 14.4 per cent (due to oil) in 2011, Ghana’s growth slowed down to 5.5 per cent in 2014 according to figures from the World Bank and may further slow down this year.

Even though Ghana’s reputation for political stability remains intact and indeed serves as a major attraction for investment, one of the major drivers of the world economy is energy (power).

Indeed, the driver of every economy is energy which contributes immensely to a country’s GDP so that if a country lacks adequate supply of energy, its overall development is bound to lag behind. 

This is so because industry, services and even agriculture all depend on energy sources.

Chief Executive Officer of Royal Dutch Shell, Mr Peter Voser confirmed the pivotal role of energy in business when he stated in a recent report titled “Energy: The Oxygen of the Economy,” that “without heat, light and power you cannot build or run factories that provide goods, jobs and homes, nor enjoy the amenities that make life more comfortable and enjoyable.”

The Business Barometer Indicator (BBI) of the Association of Ghana Industries (AGI) which on quarterly basis  measures the level of confidence in the business environment has consistently over the past four years mentioned inadequate power supply, exchange rate volatility and access to credit as the top three challenges facing Ghana’s industrial sector.

In fact the BBI’s third quarter (Q3) report for last year identified the non-availability of power supply as number one challenge, especially with frequent increases in the cost of power as well as its unreliable supply.

It is a well known fact that the demand for energy in Ghana far outstrips its supply. The country has accumulated an energy deficit over the past years with a yearly growth in demand of between 220 and 230 megawatts which is hardly met.

This has culminated in industries being unable to operate at optimum levels. The worst is that industrial enclaves are now under the load shedding programme of the Electricity Company of Ghana (ECG).

It’s important to state that most of the large companies are located in the industrial enclaves and strenuous efforts were hitherto made to ensure consistent power supply.

It is not surprising, the concerns from the business community especially multinational firms over Ghana’s worsening power situation and to the effect that it has the tendency in the long term (if not fixed) to cost the country its competitiveness in the West African sub -region.

Investor decisions are largely based on reliable electricity supply, market potential, access to finance, good infrastructure and fair regulatory and legal regime.

Energy experts are of the view that the worsening power situation sends wrong signals to industry and every effort must be made to improve the situation.

Director of Policy and Research at Africa Centre for Energy Policy (ACEP), Mr John Peter Amewu maintains that some industries are bound to shut down and possibly relocate to neighbouring countries and “Ghana will no doubt lose that competitive edge to countries that are doing better as far as energy supply is concerned.”

He explains that if a country like Ivory Coast has all the energy to operate at full capacity then economies of scale dictates that “the more you produce, the more your costs of production will come down and that becomes a competitive platform where people will see your neighbours as doing well in terms of what is driving the economy.”

Ghana was last year ranked 111th out of the 144 economies in the Global Competitive Index (GCI), a position civil society groups described as an improvement over the previous ranking.  

Even though government has put a lot in place in terms of the generation capacity, Mr Amewu notes that the targeted 5,000 megawatts by 2016 remains woefully inadequate in terms of driving the industrial base of the country.

“We should begin to look beyond the 5,000 megawatts if we want to industrialize, attract and retain foreign direct investments,” he pointed out.

The 5,000 megawatts, according to him, translates to 14watts per capita and is unlikely to afford Ghana the opportunity to industrialize. Malaysia, he noted industrialized at a 100 watts per capita and South Africa at 120watts per capita.

Indeed, the $7billion agreement with energy firms ENI and VITOL for the development of oil and gas off the Western Cape three points is timely as it is expected to augment Ghana’s power needs and ameliorate the increasing power needs of the country.

The project, expected to take off in 2017 will provide over 1100 megawatts of power.

Chairman of the Civil Society Platform on Oil and Gas, Dr Steve Manteaw recognizes the fact that Ghana could to some extent lose its competitiveness but is quick to point out that there are companies in other countries such as Mali who are operating under much more difficult conditions than what obtains in Ghana.

He laments that power supply in Ghana has not been the best, forcing many businesses to make up for the power shortfall through their own thermal generation ”which is also pretty expensive so these investors may have some reason to complain.”

Dr Meanteaw who is also the Co-Chairman of the Ghana Extractive Industries Transparency Initiative asked government to as quickly as possible give Ghanaian businesses some relief by passing on the benefit of the decline in world crude oil prices to consumers.

“The benefit of passing on what accrues from the decline in oil prices is that you make Ghanaian enterprises more competitive,” he observes.

In addition to addressing the chronic power problem, captains of industry have also drawn government’s attention to other critical factors affecting businesses in the country.

They refer to the cumulative impact of tax policies on businesses and the capacity of investors to contain the gravity of the taxes being imposed by government as other major drawbacks on the investment climate in the country.

The German Ambassador to Ghana, Mr John Ruediger is on record to have stated that “Ghana’s legal framework should be designed to attract not repel investments.”

He finds restrictions on expatriates’ repatriation of profits problematic and a disincentive to German investors wanting to invest in Ghana.

“If a company operating here is not in a position to transfer profits or part of it outside because of the rules from the central bank, then the companies will not come down and those who are already here will relocate to better environments,” he stated. 

Energy is the lifeblood of the global economy and a crucial input to nearly all the goods and services of the modern world. 

Stable, reasonably priced energy supplies are central to industry and to the much needed investments. 

It is crucial that government takes decisive action to fix the power crises in order to stimulate economic growth and attract investments.
 
 
 
Source: The Finder
 
 

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