State-Business Relations

The Institutional Context of Industrial Investment Selection: A Case Study from Ghana

Nowadays, virtually anyone interested in development understands that investment is critical for sustained economic growth and improving living standards. Thus countries investing little (say 10% of GDP or even less) rarely grow for long and their living standards usually stagnate or fall. Conversely, countries investing a lot (say over 20% of GDP) usually do much better. However, the story is not quite that simple since some countries invest a lot and still do not grow much. Thus what matter is not just how much investment goes on, but how productive it is on average across the economy.

This project on investment selection is studying exactly this issue, taking Ghana as the key country on which to focus the research. Ghana is an interesting country for our purposes, because after some decades of post-independence stagnation it seems to have found its way in the last decade, achieving decent growth rates, noticeable improvements in living standards, and very respectable rates of investment. Nevertheless, there are widespread feelings in the country that it could be doing even better, and problems with the investment environment might well form part of the explanation.

Accordingly, the first stage of this research involves an assessment of the general investment environment in Ghana, based on a mix of desk research and interviews with government personnel, public agencies and other organizations based in Accra. The interviews are already proving quite revealing, suggesting problems for investment in all sorts of areas from obvious ones like poor infrastructure (e.g. non-existent or unreliable electricity supply) and complex regulations to less tangible ones to do with the 'political culture', and poor coordination of business taxes between the national and local levels, creating much confusion for firms. According to one of our informants, local governments should be competing to attract firms rather than over-taxing those already there.

These and other ideas will feed into the second stage of the research, a firm-level survey of investment behaviour in around 50 firms in each of two sectors of Ghanaian industry. The selected sectors are expected to be: wood processing and wood products; and food processing. Firms will be asked about their experience of investment in the past five years, focusing both on economic aspects like finance and markets, and on political and cultural aspects such as local 'influence' on investment scale and location, together with a wide range of impediments and obstacles to investment. Our aim is to find out how the existing institutional conditions impact on investment at firm level, and to draw out policy lessons from firms' experiences.

State-Business Relations and Economic Growth in Ghana

The relationship between the state and business community in Ghana has varied since independence. Though each government has had distinct relations with business and private sectors; civilian governments have generally promoted and enjoyed good repport with the business community while military governments, especially in the 1980s, have tended to clash with the private sector. The state in Ghana comprises of formal institutions like the executive, legislature, judicary, ministries, departments and agencies (MDAs) and regulations such as the 1962 Companies Law, Ghana National Investment Code, tax and patents regulations among others. The business community includes formal and informal institutions and organisations that operate in the country's private sector. Formal private sector organisations include multi-national firms registered in the country, locally owned firms registered by the state, self-regulating bodies such as the Association of Ghana Industries (AGI), Empretec Business Forum of Ghana and some non-profit organisations which have legal status. Most sole proprietor organisations which are not registered constitute the bulk of Ghana's large informal economy which employs over 80% of the workforce. In sum, firms, research and development institutions, educational institutions, the government, the regulatory agencies, information networks, financial institutions and the market all constitute the principle operating components of Ghana's state-business relations.

The study examines the efficacy or otherwise of policies and initiatives implemented to promote state-business relations aimed at promoting economic growth and reducing poverty. In addition, it addresses the question of how can such relations be made more effective for them to be more viable and proactive in dealing with proverty issues.