By Amma Gyampo, CEO of GVCA
As Ghana’s Minister of Finance, Dr. Ato Forson, prepares to deliver the mid-year budget review on July 24th, private equity capital investors and institutional investor trustees are keenly focused on specific policy announcements. Their expectations revolve around creating a more conducive environment for domestic capital to attract foreign investment, drive industrialization, job creation, and ultimately, expand Ghana’s tax base. Here are three priority areas:
1. Macroeconomic Stability
What investors want to see: A clear and sustained commitment to macroeconomic stability, particularly through fiscal discipline and prudent monetary policy. This includes concrete measures to control inflation, stabilize the cedi long-term, and reduce government borrowing from domestic markets.
Rationale: Private equity and institutional investors, by their nature, are long-term capital providers. High inflation erodes the real value of investments, while cedi volatility introduces significant currency risk, making it difficult to project returns. When the government competes heavily for domestic capital through high-yield short-term instruments, it crowds out private sector access to affordable financing. Stable macroeconomic conditions reduce uncertainty, allowing investors to confidently deploy capital over extended periods, which is crucial for the gestation of enterprise growth and industrial projects.
Impact on Taxes and Job Creation:
- Taxes: A stable economy leads to predictable business environments, encouraging existing businesses to grow and new ones to emerge. This translates to higher corporate profits and increased consumption, thereby expanding the corporate income tax and VAT base. Reduced currency depreciation also means less reliance on inflation-induced revenue, leading to more sustainable tax collection.
- Job Creation: When businesses operate in a stable environment, they are more likely to invest in expansion, adopt new technologies, and hire more employees. Predictable costs and a growing market foster confidence for long-term hiring strategies, creating decent, sustainable jobs across various sectors.
2. Regulatory and Policy Reforms for Domestic Capital Allocation
What investors want to see: The budget review should signal accelerated implementation and robust enforcement of regulatory reforms designed to channel domestic capital, especially pension funds, into productive private sector investments. Specific focus areas include:
The Limited Partnerships (LP) Act: Clear legislative timelines and details on operationalizing the LP Act, which provides a familiar and robust legal framework for private equity and venture capital fund structures, aligning Ghana with international best practices. Having an LP option under the Office of the Registrar of Companies will make Ghana a more competitive jurisdiction for private equity funds.
5% Alternative Asset Mandate and NPRA Reporting: Reaffirmation of the National Pensions Regulatory Authority’s (NPRA) guidelines and reporting requirements to ensure pension funds allocate at least 5% of their assets to alternative investments like private equity and venture capital by 2026.
Rationale: The LP Act is crucial for creating legal certainty and a standardized structure that reduces transaction costs and attracts both local and international limited partners (investors) to Ghanaian funds. A 5% mandate, which could unlock over GH¢5 billion, is a game-changer, shifting pension funds from primarily passive, short-term government debt instruments to long-term, growth-oriented private sector investments. These reforms are essential for building a thriving local capital market that can effectively pool and deploy patient capital.
Impact on Taxes and Job Creation:
- Taxes: By directing a small percentage of pension funds into private enterprises, the budget will facilitate the growth of key sector businesses, increasing their profitability and, consequently, their corporate income tax contributions. Increased investment in sectors like manufacturing and agribusiness will diversify the tax base away from reliance on traditional revenue streams.
- Job Creation: Directing patient capital to SMEs and high-growth companies enables them to scale, expand production, and invest in human capital. This provides a direct boost to job creation, particularly skilled and semi-skilled positions in emerging industries, contributing to higher employment rates and improved living standards. Pension funds themselves will enjoy the long-term benefits of salaried employees making contributions to schemes and reducing pension poverty.
3. Promoting Domestic Capital Investment Opportunities for Enterprise Growth
What investors want to see: Policies that actively promote and de-risk specific domestic investment opportunities, particularly those aligned with the government’s 24-hour Economy policy and broader industrialization agenda. This includes:
Targeted Incentives for 24-hour Economy: Specific tax incentives (e.g., corporate income tax rebates, VAT exemptions), discounted night-time electricity tariffs, and streamlined regulatory processes for businesses adopting 24/7 operations. Investment in Enabling Infrastructure: A commitment to improving critical infrastructure (reliable power, transportation networks, digital connectivity) that directly supports industrial growth and reduces the cost of doing business.
Rationale: The investment community needs clear signals on where the government wants private capital directed. Linking incentives to the 24-hour Economy policy, as championed by Goosie Tanoh and his “Fund24” pillar stakeholders, makes it easier for investors to identify viable opportunities that align with national priorities as well as their own risk appetite. By reducing operational costs and risks through targeted incentives and enterprise infrastructure development, the budget review can make domestic enterprise growth more attractive for both private equity funds and pension fund trustees, who are seeking productive, liquid opportunities for their capital.
Impact on Taxes and Job Creation:
- Taxes: Businesses incentivized to operate 24/7 or invest in industrialization will generate higher turnovers and profits, leading to increased corporate tax revenue. The formalization of more businesses and the growth of existing ones will widen the tax net, capturing more economic activity.
- Job Creation: Promoting industrialization and the 24-hour economy creates demand for labor across multiple shifts. This directly generates a significant number of decent jobs in manufacturing, logistics, services, and other key sectors, providing stable employment and contributing to economic inclusion.
The upcoming mid-year budget review is a pivotal moment for Dr. Ato Forson to articulate a clear vision that resonates with Ghana’s investment community, transforming their expectations into tangible commitments for national development.
