In the zone: Using various incentives to attract new and foreign capital

Industrial activity in Ghana is supported through the work of a range of ministries, agencies and parastatal groups. Among these, two organisations have been designated as the leading promotional bodies: The Ghana Investment Promotion Centre is tasked with facilitating investment into industrial activity geared toward the domestic market, and the Ghana Free Zones Board (GFZB) is in charge of attracting companies focused on exports.

As of mid-2012 there is just one active free zone in Ghana, the Tema Free Zone, located in an industrial area on the outskirts of the capital. While three free trade zones are planned or under development, in the meantime it is possible for firms to enjoy the benefits of free zones without actually being in one, an arrangement known as a “single-factory enterprise”. Ghana has permitted these exclave operations to flourish under certain conditions, especially for industries that want to locate close to a natural resource deposit serving as a basic input.

MULTIPLE BENEFITS: Benefits in GFZB facilities are similar to those found worldwide in economic zones, including a mix of tax holidays, support services and input guarantees. Companies pay no corporate taxes for 10 years, and after that pay a maximum of 8%, compared with a typical rate of 20% or higher, said Joseph Akiota, the monitoring manager for the GFZB. Tax rates at lower than 8% are available for those willing to locate in priority areas for development, such as Ghana’s northern regions.

Those willing to operate within a designated zone have the benefit of receiving electricity direct from the supply source, the Volta River Authority, rather than tapping into the national grid. This means fewer outages and alleviates the need to invest in diesel-powered generators for backup, which is far more expensive per kilowatt hour.

CRITERIA: Qualified companies must export a minimum of 70% of their output and agree to pay import taxes on the remainder sold domestically. As part of the application process, they must present a memorandum of understanding from foreign customers that formalises the supplier-buyer relationship.

According to Akiota, some 209 companies are currently operating under Ghana’s free zone programme and have created 39,000 jobs. Indeed, low-cost labour forms part of the package for businesses establishing operations in Ghana, said Patience Acorlor, the GFZB’s deputy executive secretary. “Ghana has a broad base of raw materials, but low labour costs can also be a competitive advantage,” she told OBG. “Minimum wage for a general unskilled worker is GHS80-100 ($47-59) per month.”

The target for 2012 is to get a second free zone operational at Sekondi, a city near the developing onshore oil and gas centre of Takoradi. There are two special economic zones to be developed, one to be located in Shama, around 20 km east of Takoradi, and the second in Ashanti, a densely populated region in the south-central part of the country.

INLAND PORT DEVELOPMENT: Another long-term project in the works is the development of an inland port in Boankra in the Ashanti region so that goods may be packaged and processed for export on land, and then trucked to ports on the Gulf of Guinea for shipping. The idea is to cut down on processing time and relieve congestion at the seaports in Tema and Takoradi, as well as preparing goods to be exported overland to northern neighbours such as Burkina Faso or Niger. However, despite the enthusiasm and potential of the project, progress has been slow due to funding shortages, as well as the poor quality of the railroad system, a crucial component of the scheme.

Another potential change to free zones could be a legislative reform eliminating the option to locate outside a zone but still get the benefits. The change could come because companies have been circumventing regulations and illegally selling into the market, directly violating the 70:30 export-import rule and creating an unfair advantage for their goods.