Ghana’s Automotive Industry: A Burgeoning Market for Investment

“This is the first, and there will be many more to come’’. These were the words of President Nana Addo Danquah Akufo-Addo when the German car maker Volkswagen officially unveiled its first ever range of locally assembled cars.

The VW story was birthed in 2018 when the German Chancellor Angela Merkel visited Ghana to strengthen diplomatic and development ties. This saw the German car manufacturer VW, become the first company to sign a Memorandum Of Understanding (MOU) with the Ghanaian government for the assembling of vehicles in the country. The car manufacturer subsequently registered its local company VW Ghana; a 100 percent subsidiary of VW South Africa to manufacture six of its models, the Tiguan, Teramont, Amarok, Passat, Polo and Caddy.

The official unveiling of the six models on August 3rd,2020 was the pinnacle of the success story for the first phase of  VW’s car manufacturing project valued at 10.5 million dollars.

In coming months, the company is expected to roll out a second phase worth US$22 million dollars to produce an average of 10000-20000 cars annually according to data by the Ministry of Trade and Industry (MOTI).

But the story of VW as stated by the president, will be one of several car manufacturers expected to commence the assembling of cars in Ghana under the government’s automotive industry hub; where Vehicle Assemble and Automotive Components manufacturing has been identified as a strategic industry to be supported as part of the nation’s Ten-Point-Plan for industrial development.

According to the Trade Minister Alan Kyeremanten, imported vehicles were among the top three import commodity items in the country. It represented 12.5 percent of the nation’s total import bill for 2018 which was estimated to be around US$12 billion – clearly depicting a very high demand and market for vehicles in the country. As a result, government plans to halve the high vehicle import by inducing the local production of vehicles through the Automotive Policy and developing car financing schemes to facilitate the purchase of new cars.

In the months ensuing, government is upbeat about more automobile manufacturers launching their operations. “Renault, Suzuki, Nissan and Toyota are some of the brands that have expressed interest to come in and start production. There’s also SinoTruck from China who is already assembling here for the market, while discussions are ongoing with Honda to also begin production’’ said  Yofi Grant- CEO of the GIPC when questioned on what to expect after the VW official launch in a recent engagement with the media.  He went on to explain  that the primary objective of the automotive industry hub concept was to create jobs, induce industrial growth and spur economic development in the country, contrary to agitations from second hand car dealers.

The framework of the automotive industry hub is now set in the recently developed automotive development policy by the Ministry of Trade and Industry. The initial scope of the policy  is to provide the necessary framework to establish assembly and manufacturing capacity in Ghana. The initial coverage of vehicles to be assembled under the policy includes new passenger cars, SUV’s and light commercial vehicles such as pick-ups, mini-buses and cargo vans. Additional Policy interventions are being introduced in the course of the implementation for assembling medium and heavy-duty vehicles and buses.  

The policy further provides a number of fiscal incentives under the nation’s Tax Act such as; Corporate tax holiday of 5 years for Enhanced Semi Knock Down (SKD) registered assemblers and 10 years tax holiday for Completely Knocked Down (CKD) registered assemblers. Again, the policy provides for a waiver of the import duties and related charges on any plant, machinery, equipment or parts of the plant, machinery or equipment imported for SKD and CKD Auto Assembly.

The recent passage of the Customs Amendment Bill which placed restrictions on the importation of over-age and salvaged cars also bodes well for the establishment of this automotive industrial hub by dealing with the problem of grey markets.

Notwithstanding the fact that used cars make up the chunk of the Ghanaian car market, recent trends have also shown a gradual increase in demand for luxury and new vehicles in Africa due to a burgeoning middle class. This therefore augurs well for Ghana’s developing automotive industry which will not only serve local demand but the larger West African market, a region with more than 380 million people.

This ready market together with a conducive environment backed by policies places Ghana as the most visible location for a full blown automotive industry with endless opportunity for investment across the automotive value chain, which includes vehicle sales, aftersales, vehicle assembly and production.

With time, the domestic production and assembly of vehicles will have substantial multiplier benefits for the country by reducing the overall price of cars, thereby increasing purchases as well as boosting employment opportunities, technology transfers, industrialization and export revenues for sustained economic growth.

Source: GIPC

Government’s COVID-19 Incentives Cushion Foreign Investors in Ghana

In the face of the hardships presented by the COVID-19 pandemic, the roll out of distinct interventions by government has alleviated the harsh impact of the pandemic on foreign businesses.

The extension of due dates for the filing of tax, reduction in tariffs on imported inputs, low interest loans and reduction in utility bills according to most businesses had played a significant role in dealing with the adverse impact of the pandemic on their activity.

Foreign Investors operating in the country are estimated to have experienced an average revenue loss of $75,000 in the second quarter of the year due to the COVID-19 pandemic according to the Ghana Investment Promotion Centre’s recent “Survey on the Impact of Coronavirus (COVID-19) on Foreign Investors in Ghana” conducted between April 1-June 12, 2020.

Per the findings of the survey, a majority of businesses which represented 51.43 percent of the respondents had been severely impacted by the pandemic. In terms of revenue, 51.4 percent of the respondents sampled by the Centre had experienced losses in excess of 100,000 dollars whiles the rest pegged their losses between 100,000 dollars and less than 1,000 dollars. The impact of the pandemic according to the survey was unraveled with the strict lockdown measures imposed worldwide – which caused a severe disruption to demand and supply value chains.

This saw most companies experience payment and repayment delays, financial constraints and a reduction in demand for products and services which translated into revenue losses. With regards to employment, 40 percent of foreign investors foresee a permanent reduction in their workforce in the ensuing months. Meanwhile most workers have had to stay home temporarily due the pandemic.

Despite the downturn in activity experienced by various industries and businesses, sectors such as manufacturing, food processing, e-Commerce, agriculture and healthcare have remained resilient and present opportunity for growth and investments. 

Moving forward, more interventions such as a reduction in the cost of data, further reduction in taxes for manufacturers, tax exemptions on Capital Expenditure as well as the re-opening of borders will be required to cushion businesses as the detrimental effects of the pandemic unfolds. Impact of covid-19 on FDI flows The COVID-19 pandemic came at a time where global FDI had been experiencing a downward trend. Accordingly, the pandemic has exacerbated the decline in the flow of FDI. The United Nations Conference on Trade and Development has projected FDI to drop by 40 percent due to the disruptions to Global Value Chains (GVC) influenced by the lockdowns.

In the case of Ghana, the survey revealed a downward trend in FDI flow from the month of April to June 12, 2020 when the survey was completed. Within the period, the Ghana Investment Promotion Center registered 13 projects with an FDI value of 9.29 million dollars.

Regardless of the initial slowdown in FDI values as indicated earlier, a total of 21 projects had been registered by the end of the quarter, i.e. June 30, 2020 which saw the value of FDI shoot up to 207.98 million dollars. The development therefore places a positive outlook on the flow of FDI into the country and indicative of a better trend for economic recovery post COVID-19.

NB: Despite the intention to have a much bigger sample size for the survey, implications of the pandemic made it difficult for responses to be collected. However, we recognized a common trend with the responses.

Kindly click on the link below to read the full report.

https://bit.ly/34AeTSs

Ghana’s Exchange Rate Improved, Come Home to Invest – Diasporans told

Ghanaian investors in the diaspora have been told that the economy of the oil-producing West African nation has seen massive improvement over the years. Therefore, they should return to Ghana their homeland to invest in the local economy.

Speaking during a webinar organized for over 100 Ghanaians in the diaspora via Zoom on the topic ‘Ghana, An Ideal Destination for Diaspora Investments’ and organized by Bank of Africa (BoA) in partnership with the Ghana Diaspora Monetary Fund on Friday, August 21, BoA’s General Manager in charge of Enterprise Risk, Mrs. Akofa Dakwa, revealed that Ghana has witnessed a positive trade balance and improvement in the exchange rate.

She explained that since 2017, the country has been exporting more than its importation, a situation that has resulted in the improvement of the exchange rate.

“There has been an improvement in the exchange rate due to the positive trade balance,” she told the diasporans, adding: “Since 2017 our exports have been more than our import” through policies that encourage the consumption of locally produced products like rice and poultry products.

Mrs. Dakwa also revealed that the services sector grew by 7.6% in 2019, becoming the best growth performing sector of the economy for the first time since 2015, from the 2.7% registered in the previous year. Subsectors with considerably strong performances, she said, were Information and Communication (ICT and Real Estate, with growth rate of 46.5% and 19.9% respectively in 2019 compared to 13% and -6.5% respectively in 2018.

In the area of agriculture, she explained that the sector has declined in its contribution to the Ghanaian economy largely because most Ghanaians are doing peasant farming. However, she said, the trend is changing with the implementation of government’s policy – Planting for Food and Jobs (PFJ).

Again there is the introduction of One Village One Dam that seeks to improve irrigation. This will ensure that food production can be carried out all year round. Mechanized farming methods have also been introduced and that will increase farming yields in the future. She further explained that there was a steady improvement in Agric sector as at June 2020 with the sector showing year-on-year improvement in growth rate. To that end, Mrs. Dakwa called on the diasporans to return to the country to invest in the economy.

For his part, the Chief Executive Officer of the Ghana Investment Promotion Centre, Mr. Yofi Grant, said the Government of President Nana Addo Dankwa Akufo-Addo takes the issues of Diasporans seriously.  He said the clean-up of the banking sector has brought sanity to it and that the banks are now poised for partnership that will see to the protection of their investment.

Bank of Africa with its strong presence in 32 countries in Africa, Europe, China and North America is ready to offer business advisory services and also facilitate the trade needs of its customers. A Deposit Protection Scheme has been created under the Ghana Deposit Protection Act 2016, Act 931, to protect depositors of their funds with financial institutions. The Scheme is at no cost to customers of banks and special depositing institutions which gives comfort to all depositors.

The Global Allied Diaspora Initiatives for Africa (GADIA), an association of Ghanaians in the Diaspora, is also mobilizing Ghanaian investors abroad to come back home to invest. Director of the GADIA, Robert Couston, said that Ghanaians in the diaspora desire to return home to invest in the economy.

“There is a huge potential amongst Ghanaians in the diaspora looking for investment opportunities,” he said.

Source: Ghanaweb