Lower Crude Oil Price Is The Cause Of Lower FDI – Economic Analyst

The fall in foreign direct investments (FDI) to Ghana is as a result of the lower crude oil price and power supply challenges during the past year.

Mr Courage Kingsley Martey, Senior Economic Analyst at Databank, said the situation has eroded confidence in the Ghanaian economy.

He said other emerging markets were experiencing similar lower investment levels; stating that “this is in particular to primary commodity exporting markets.”

FDI is an investment made by a company or entity based in one country, into a company or entity based in another country.

A statement issued by Mr Fidel Amoah, the Content Manager of Lamudi Ghana and copied to the Ghana News Agency, saidd Mr Martey believes that part of the reason is due to the decline in prices of Ghana’s main commodities, especially crude oil.

“The sharp decline in crude oil price saw investment slow down not only in the Ghanaian sector but other West African countries as well. As a result, it affected foreign employment levels in Ghana negatively,” he said.

The Ghana Investment Promotion Center last month released results of FDI in 2015, indicating a 31 per cent decrease from 2014’s $ 3.4 billion.

Mr Martey said apart from the adverse impact of the lower oil prices on capital investments by the foreign investors, the country had also increased its expenditure against expected crude oil revenue.

He said, however, the last two years has seen a dip in actual revenue, meaning an increase in debt finance indices and exchange rate pressures; stating that this he believes could also have been one of the reasons investors are averse to invest.

“The country’s ability to refinance its debts has been negatively affected by the lower crude oil price.

“One of the government’s debt management strategies is the establishment of the sinking fund. Its source of funding is from excess crude oil revenue above the cap on the stabilization fund.

“However, when you have a situation where crude oil price drops, revenue inflows to the sinking fund is affected. This would constrain the country’s progress towards managing and servicing its debts,” he said.

The Economic Analyst also said that the country’s power challenges could be another leading reason why foreign investment in the country has reduced.

He said power cuts also raised the cost of doing business, serving as a disincentive for investors.

Other factors he attributed to the reduction in FDI were bureaucracy and the country’s tax regime.

He said these two factors affect the competitiveness and productivity of businesses operating within that environment.

He observed that the demand for luxury housing could be affected as a result of less influx of expatriates; domestic employment however increased by over 15 per cent according to GIPC’s report.

Akua Nyame-Mensah, the Managing Director of property portal, Lamudi Ghana, said the domestic employment growth has created a great opportunity for real estate developers.

“The focus for the Ghanaian real estate market is currently luxury housing. Though the reduction in expat employment may not affect real estate business drastically, it still would have some slight implications,” she stated.

“Meanwhile, the GIPC report indicates growth in local employment. This serves as a great opportunity for real estate developers to diversify and tailor their products to this segment of the Ghanaian population,” she added.

Launched in 2013, Lamudi is a global property portal focusing exclusively on emerging markets.

The fast-growing platform is currently available in 32 countries in Asia, the Middle East, Africa and Latin America, with more than 800,000 real estate listings across its global network.

The leading real estate marketplace offers sellers, buyers, landlords and renters a secure and easy-to-use platform to find or list properties online.

Source: GNA