Masaryk university faculty of social studies
Foreign Direct Investment
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- 5.3.1 Value of Chinese FDI in Ghana
- 5.3.2 Chinese FDI in Extractive Industry Sector
- 5.3.3 Chinese FDI in Non-extractive Industry Sector
- 5.3.4 Analysis of FDI
5.3 Foreign Direct InvestmentGhana is considered one of the most lucrative and profitable business destinations in Africa (Frimpong 2012, 56). In order to attract foreign businesses, Ghana Investment Promotion Center (GIPC) was established in 1994 (Idun-Arkhurst 2008, 15). Chinese FDI in Ghana is directed by the bilateral trade agreement and WTO’s free trade arrangements. The bilateral agreement was signed in 1989 and entered into force in 1991 (UNCTAD 1989, 2012). The foreign companies are obligated to register with the GIPC and announce the amount of planned investment, specify the field of investment, provide information on capital transfer, number of employees concerned and environmental impact. Sectors exclusively reserved for Ghanaians include retail trade, lotteries, taxi and car rental services, beauty and barber salons. Apart from mining, fishing, postal services and Ghana Stock Exchange, the remaining sectors of Ghanaian economy do not have any requirements for FDI (Tsikata et al. 2010, 7-8). The Chinese state-funded projects in energy, construction and engineering services are effectuated by Chinese SOEs and funded by China Exim Bank. The SOEs’ investments are characterised by long term motivation and concentrate mainly on the sectors of natural resources and infrastructure (Sanfilippo 2011, 9). In Ghana majority of the Chinese FDI comes from the small and medium-sized enterprises (SMEs) (ACET 2009, 10). 5.3.1 Value of Chinese FDI in GhanaThe value of the Chinese FDI increased from $4.8 million in 2000, to $126 million in 2011, while the value of total FDI in Ghana rose from $132 million in 2000 to $6.82 billion in 2011. The trend of Chinese share of the total FDI in Ghana is highly erratic and does not show any particular trend. The average Chinese share as a percentage of the total was 3.5%. The highest share of 8% was in the year 2005, when Chinese FDI valued at $17.2 million. The sudden increase of Chinese FDI in 2007 to $153.7 million was due to the investment in Sunon Asogli Power Plant (Tsikata et al. 2010, 10). Figure 9 – Share of Chinese FDI in Total FDI in Ghana (in million USD) Source: GIPC, ACET 2009 5.3.2 Chinese FDI in Extractive Industry SectorThe multinational companies such as Kosmos Energy, Newmont, Tullow Oil and South African Anglogold control Ghana’s extractive sector, hence this sector does not attract much Chinese FDI (Idun-Arkhurst 2008, 16). In 2010, Chinese Bosai Minerals Group invested $1.2 billion in the bauxite and aluminium industry (CCS 2010f, 18). The Minerals and Mining Law bans involvement of foreign workers in small-scale mines, however many cases of illegal engagement of Chinese gold miners were reported. During 2011, 4 Chinese miners were arrested, followed by 202 in 2012 and 3 Chinese workers were killed (Lianxing 2012, Bax 2012, Kwame 2013). The miners had not obtained license and used unauthorised heavy machineries. In April 2013, Ghana Immigration Service (GIS) imprisoned 125 Chinese illegal miners and pointed out that the illegal engagement has reached alarming proportion (Graphic Online 2013). The discovery of off-shore crude oil in Ghana was made by Kosmos Energy and Tullow Oil in 2007. The production is estimated at 490 million barrels and the price of the oil calculated at $20 billion for next 20 years (Mohan 2010, 5; WB 2009, 19). China National Off-shore Oil Corporation (CNOOC) attempted to purchase Ghanaian stakeholder Kosmos Energy and gain $4 billion stake against Exxon Mobil (CCS 2009c-d, 15). In 2010, Ghana disregarded the agreement with Exxon Mobil and negotiated a $15 billion oil infrastructure development plan in 2010 (CCS 2010a, 16). 5.3.3 Chinese FDI in Non-extractive Industry SectorThe non-extractive sector receives majority of the Chinese FDI. While general trade, manufacturing, infrastructure, tourism and service sectors target much of the Chinese FDI, agriculture, and construction sectors attract less attention. With $75.8 million over the timeframe of 1994 to 2007, China was Ghana’s sixth largest investor (Idun-Arkhurst 2008, 17). While Chinese SOEs concentrate in the extractive sectors and are motivated by resource-seeking factors, the SMEs invest mainly in the non-extractive sectors and are motivated by market-seeking factors (Gu 2011, 14). General trade and manufacturing were the focal points of Chinese FDI in the period of 2001 to 2006 (Tsikata et al. 2008, 10). Chinese SMEs invest into food and timber processing, cement manufacturing, salt, calcium and kaolin production (Tsikata et al. 2010, 20). Ghana suffers from high losses of energy and water which result in infrastructure funding gaps estimated at $400 million (Foster and Pushak 2011, 2). Shezen Energy Investment Company and China Africa Development Fund (CADFund) invested $134.4 million in 2007 into Sunon Asogli Power Plant, a gas-stream combined cycle power plant (Tsikata et al. 2010, 19). The project consists of three phases – the first finished phase required $200 million and produces 200MW, the second phase is being constructed and should deliver 360MW and the last phase is expected to bring 440MW (Attenkah 2012). In 2008, Ghana obtained $150 million for National Fibre Communications Backbone Infrastructure Network (CCS 2008a, 18-9). In 2011, Vodafone Ghana and Huawei signed a managed services agreement valid until 2016 (CCS 2011a, 13). Chinese services provided to Ghanaian population include transportation, pharmaceutical and medical services, retail and wholesale commerce, and hospitality. In 2010, the Chinese government encouraged its citizens to travel to Ghana. A total of 10,386 Chinese tourists and businessmen visited Ghana in 2009 (Daily Graphic 2010), an increase of 12% from the previous year. 5.3.4 Analysis of FDIThe low ratio of employment of local workers in the infrastructure projects has been widely criticized by the African society (Rocha 2007, 25). The majority of the workers in Chinese SOEs and SMEs are Ghanaians, however they mainly occupy unskilled or low skilled positions (Dziedzom Akorsu and Lee Cooke 2011, 2739). Ghana has a lack of highly skilled workers due to the underdeveloped tertiary educational system, which produces only middle-level human resource and does not support hard sciences and technology (Osabutey and Debrah 2012, 451-5). In his study on neo-colonialism, Nyikal (2005, 8) contends that lack of private capital and local entrepreneurs results in repatriation of profits by foreign investors. Such repatriation is negative, as the profits do not contribute to country’s development. Chinese SMEs scarcely use local equity and loans and language barrier impedes smooth business cooperation. The Chinese SMEs are open to local sourcing linkages but unavailability of high-quality local resources, their high price and absence of skilled workforce oblige them to import the supplies (Tsikata et al. 2010, 21; Idun-Arkhurst 2008, 21). Due to need of development of local infrastructure, Ghana accepts Chinese projects without public project tendering, breaching Ghana’s National Procurement Act. Two Ghanaian companies, Epiferm Ghana and Varmed Engineering, won a bid for a construction of football stadiums in Accra. The top officials were found to be corrupted and recipients of $20 million from Shanghai Construction Group of China which was later licensed to construct the stadiums (Idun-Arkhurst 2008, 21). Corruption effectuated in order to ensure contracts for turnkey projects or access to raw resources is a determinant of neo-colonialism (Lutta 2011, 2). The Chinese FDI has a positive impact on economic diversification, development of various sectors and services, and increased government revenues. Additional advantages include expansion of export and ameliorated industry competitiveness (Tsikata et al. 2008, 10; Tsikata et al. 2010, 19; Idun-Arkhurst 2008, 20). Joint ventures between Chinese and Ghanaian companies increase local economic dynamics and create spill-over effects. The drawbacks include limited technology and skills transfer, illegal engagement in retail and mining sectors, lack of partnership with local companies and abuse of labour standards (ACET 2009, 23; Tsikata et al. 2010, 19). Download 289.25 Kb. Share with your friends:
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