Thursday, Oct 19, 2017
Finance | Africa | Ghana

“Ghana is a fantastic country with a future”


3 years ago

Sir Samuel Esson Jonah, Executive Chairman of Jonah Capital
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Sir Samuel Esson Jonah

Executive Chairman of Jonah Capital

The PM Communications team met with Sir Samuel Esson Jonah, Executive Chairman of Jonah Capital. The team asked him about the future challenges for the development of Ghana. He spoke about the need for infrastructure, education, and institutions; but also about the remarkable moment Ghana is going through, and the major recent developments of the country.

I would like to speak of the African momentum. Since the 2008 world economic crisis, Africa became an even more interesting investment destination. The IMF is expecting a record inflow of 80 billion dollars in 2014, and the critical areas to place this investment in Africa  and Ghana is no exception  are infrastructure, power and agri-business. Please highlight to our readers the momentum that Africa is experiencing and where you think these inflows should be located.

First of all, Africa has gone through a remarkable transformation, both politically and economically. Twenty years ago, if you and I were having this interview, we probably would be talking about a significant number of undemocratic countries. Now, that is a very small number. The process of democratization has been well-established, and there is no argument against that in the main African countries. Africa is presenting stability.

In the area of economics, there is no debate anymore that the market economy is the way to go. There is broad agreement that this is what the world expects, and what has fueled growth in many other countries. Most African countries have now accepted that.

The combinations of those two, provides an important bedrock for Africa to take off. Africa is a unique place. If you look at all natural resources, Africa has more mineral resources in key areas than anywhere else: platinum, gold, diamonds; Africa is exceptionally well-endowed. Before, Africa was not known for oil. But over the last 20 years we see what has happened: a lot of money came into explorations and resulted in significant discoveries made in countries that nobody thought had the geology to sustain oil endowments. Countries like Uganda, Kenya, Ghana, Angola, Nigeria, Equatorial Guinea and Chad have oil. The fact of the matter is that areas that are not conventionally known for oil are now coming into the oil industry because investors have shown that the potential exists.

If you look in terms of population, Africa has a continent with the largest percentage and number of youth. At the end of the day, it is human beings that generate investment, and determine market size. As African economies pick up, and the middle class increases, it is not an accident that people are looking at this continent. The middle class is there, therefore the market is there, and therefore the demand is there, and hence this is the place to put your money.

In terms of Africa’s competitiveness in wages, Africa is now becoming quite competitive. Not just in wages, productivity is going to increase with training. Even a couple of Chinese companies have relocated to Ethiopia to take advantage. In the same way that there was a rush to go to China because of the affordable workforce, people are appreciating that it is also available in Africa.

Africa is ready; there is economic stability and political stability in the mainland. These are both critical for development. You might have the resources, but because of bad governance, no one was prepared to put money in key areas of Africa. If you look at our endowments, Africa has it all. What it hasn’t had until now was good governance. Now, the stars are aligned, and therefore it is not an accident that Africa is in the news.

If you look at economic stagnation in the West, where will investors go for the kind of returns that Africa offers? If you put your money in America, in a bank, you are not getting much. But in Africa, they are getting higher and more sustained returns. Africa is ready to take its place in the world.

You spoke about the youth. Africa is the youngest continent in the world. By 2040, it is expected that Africa will have a 1 billion-strong workforce, which is more than China and India combined. To channel this workforce into productive sectors, skillful management is required. Which priorities would you like to highlight in human capital training?

Human capital is any nation’s best asset. You may have the numbers, but if they aren’t trained, you can’t get much out of them in terms of productivity. I am delighted that if you look at countries in Africa, a significant part of their budgets goes to education. The challenge is what type of education. My view is that for Africa to move to the next level, we must emulate what the Germans have done over the years. Germany’s vocational training has been the bedrock for the success of the economy. It is not an accident that Germany is the only country in the West that did not suffer significantly from the economic downturn. Industry is still booming because there is a proper emphasis on vocational training.

Unfortunately, in most places in Africa there is overemphasis on the acquisition of degrees in humanities. I am not saying that it is wrong, but for your economy to move forward, you need the correct balance between investment in technical education and vocational education, and education in humanities.

I just came from Nigeria. I came back pretty impressed. They understand this and are taking measures to ensure balance between the production of skills for the economy and the humanities. If Africa is to harness the potential that we all know from natural assets, the human capital has to be developed. There is no argument against that. We need to produce more engineers, more IT personnel. That will sustain African economies going forward.

Christine Lagarde in a conference in Maputo a couple of weeks ago said there are three priorities Africa has to focus on to finally take off: build infrastructure, institutions, and people. We already spoke about building people, but what priorities would you like to enhance about building infrastructure and institutions?

All countries that have made it in the world have solid, stable institutions. Without that, you cannot move forward. When I talk about institutions, you need a reliable and honest judiciary. Without an impartial judiciary, without a judiciary which administers justice fast, or ensures that investment problems are resolved as quickly as possible, or being seen as incorruptible, the first leg of the chair will be broken.

The second leg of the chair is a clear separation of power between the legislator – which should not be seen as corrupt or partisan – and the executive. If you are a legislator, you must be seen as an accountant to the executive. When you don’t have that, then the other leg of the chair becomes unstable. You need a legislature that keeps the executive constrained. This impedes corruption, inefficiency, cronyism and other things you don’t need as a nation to move forward.

The third leg is an executive. And the executive must be allowed to function as an executive. It must be competent. It must respect rule of law, and the rules of the legislature. If you have that, then the tripod becomes very stable because all the legs are solid, and, therefore, you have stability.

Without a doubt, Africa does not need strongman leaders, we need strong institutions. Those days of strongmen belong to history. If you want to move on as a country, it's institutions that you need.

Then, of course, infrastructure. Without infrastructure, doing business is expensive. If Africa wants to be competitive, we need to build infrastructure. If you take Ghana, because of the lack of an adequate road network, the food producing part of the country is not easily accessible, so harvest losses are highly significant. This translates into higher costs, and higher inefficiency. Your road networks must be built to help development. If there is no road to send a doctor to the village, he won’t go. You need infrastructure that will help the country spread the gains from development.

There is a huge divide between the urban and rural population. This is the 21st century, you must invest in water. Water borne diseases alone contribute a lot to our health costs. You need water. Of course, without electricity, the country cannot move forward. You need all of that.

How do you finance it? You can only finance in if government laws create the enabling environment that lets others see potential returns, and bring their money. The government on its own cannot build infrastructure. It can create incentives, either through taxation, micro economic incentives, anything. The government’s role is to make sure that people put their dollars in a road in Ghana instead of in London.

All of those things must come together, so I agree with Christine Lagarde.

We know you have some ties with Nigeria. We would like you to make a comparison. Nigeria is going to be the biggest economy in Africa this year. Most people don’t know the agricultural sector was also important in its growth. What do you think Ghana could learn from Africa’s biggest economy?

Ghanaian oil is a very infant industry; we shouldn’t think we are Saudi Arabia yet. We should invest in policies that bring in the major players to help us explore. The oil industry is highly capital intensive.

In terms of agriculture, the agricultural potential is huge. We could feed the whole of West Africa, but there is no infrastructure, no roads. Even if you produce, with water and rich soil, you cannot get it anywhere else. Ghana’s agriculture has been largely based on small scale farmers trying to cultivate a small part. If you go down that road, you won’t harness the potential that we have. You have to encourage commercial farming. Individuals with capital should be encouraged by instituting the right policies to invest in the sector.

That task is challenging, because land is hard to acquire. If you acquire land in Zambia, or Kenya, it is not difficult at all; it is very straightforward. Because of the land tenure system in Ghana, if I wanted to acquire a thousand hectares of land, I would have to deal with at least 20 families. The land tenure system has to change to allow significant investment. Without that, small scale farming is not the way to go.

When we spoke with Minister Kofi Humado about the agricultural sector in Ghana, he expressed that the land is very divided, and that makes mechanization impossible. We asked him if cooperatives are a possible solution…

People have emotional attachments to their lands. They were passed down from generations, and they think they cannot sell the land. What I have said is that we should introduce a policy in which investors are encouraged to make farmers partners in the ventures. If you are creative enough, you can provide them with skills, technology, and improved seeds to be even able to outsource your production to small scale farmers. If you have 100 hectares, there is no reason not to have outsourcers. You have to get them to buy into your philosophy. If you don’t do that, it becomes difficult, because there is a very strong attachment to land. It is easier to get land of that size in the north. You can get the land, but the problem is infrastructure. The challenge of land acquisition is one, and access to land is another.

Nigeria has committed to ensuring that agriculture becomes possible. Before oil, Nigeria was one of the biggest producers of peanuts. They have gone back and are doing very well in agriculture. There is no reason why we can’t do the same, but we need to change our land tenure system.

Ghana has some advantages, such as political stability, and is also blessed with its geostrategic location: it could be the open door to West Africa. The president of the Chamber of Commerce and Industry explained to us a plan to create a West African shipping line. What is your assessment of this plan and what do you think Ghana has to improve in order to become a real West African hub?

I had no idea about this plan, and I don’t know who is investing in it. Clearly, there are a lot of opportunities for intra-African trade. There are huge opportunities. Unfortunately, we trade less among ourselves than with China. That is a problem. There has been a lot of talk but little progress. It is difficult to get our production here to Nigeria. There are various roadblocks. We need to sort out these issues. There is clearly an opportunity in the West Coast to have countries connected by sea. I see there is an opportunity there.

At the end of the day, stability is the most important factor: politically, socially and economically. If people don’t feel secure, they don’t invest in your country. If your economy is not stable, and you have high inflation or controlled foreign exchange, people don’t invest in your country. If there is stability in policies but not in regimes, or businesses are hunted, those things don’t help. Nation building is a very long, tedious process. We are on the correct path, but need to speed up the process because the world is not waiting.

Ghana has been experiencing some impressive growth but this year the economy started to show signs of slowing down. That is why the National Economic Forum was held in May this year. During the opening ceremony, President Mahama stated that the economy needs to diversify, and value has to be added in a sustainable way. Which are the opportunities or sectors you think should be prioritized?

We have got to get our house in order. We cannot continue to be over dependent on donations. They are 50% of our budget. A small part of the population is being relied on to provide revenue for the nation in terms of taxation. At that level of governance, important measures have to be taken, and are being taken. Lack of functionalities in the economy will be solved.

It is because our economic regime is stable that investors will come. When investors come, the country will look as the correct place for investment and then Ghana will be the hub.

For as long as your budget deficit is high, your debt to GDP ratio is high, and inflation is high or exchange rate unpredictable, then it is difficult to invest. What investors need is stability. Investors have the memory of an elephant and the speed of a deer. They don’t forget in a hurry and run as fast as they can. We need confidence building measures. We are going through a very challenging time economically. We need to take one step back and in a non-partisan way; there are many ways to restore confidence.

We know you have experience in the mining sector. Africa and Ghana are playing a central role in supplying increased and sustained global demand of mineral resources. Why do you think this industry hasn’t started to benefit the country more?

The mining industry is the major producer and consumer of foreign exchange. What has not happened in the past is that governments have not focused on the consumption. You look at their imports and they can easily be made here. You need to look at your incentive policies for investors to come and produce here. For the heavy industry, if you came 50 years ago, there was no reason for it to come. South Africa has a very integrated mining industry. We don’t. Policies have not encouraged or forced it. Added value will come if the government addresses input costs through incentives.

Talking about added value, if you want to produce alumina, you need a lot of power. Without significant power, you cannot invest in the best country in the world. Infrastructure is necessary. We have to appreciate that we are not significant producers of manganese. That is why we need to provide incentives for investors to come to Ghana.

When people talk about value added, they should focus more on input costs of mining. It is for government to sit back and ask themselves why the mining sector is consuming so much foreign exchange, and see what can be stopped. Laws should be there and enforced, and also provide incentives for people to be trained and handle their responsibilities.

Natural resources, power, agri-business and infrastructure will be discussed at the Global African Investment Summit in October. As an internationally recognized African businessman, which attributes would you like Ghana to be attached to and why should Ghana be the ideal destination for these people to invest?

We are very friendly people, youthful country with 50% of the population below the age of 35 and also relatively highly educated. We have had a history of political stability and open to Africa’s largest market, Nigeria. It is an amazing place where companies should look at as first point of call for doing business in Africa.

Ghana International Bank is a Ghanaian investment vehicle on UK soil. During one interview with different banks, but also with Nyarko-Pong from UniBank, he told us this is an open door for British investment to come to Ghana. How would you suggest British investment should further be encouraged to come to Ghana?

The pound in the pocket of investors hasn’t got a flag on it. Ghana needs to position itself to attract that pound. It can do so by looking at areas of the economy and the natural endowment we have. An investor has a choice. Between Ghana and other countries, an investor has to ask a question: if I wanted to put my pound somewhere, where should I put it? We need investment in infrastructure and institutions. Contract enforcement must be respected. That is important for investors. It is when you are able to position yourself as predictable that investors come. Investors don’t like uncertainty. They want to know that if there is a dispute and they go to court they can be calm because justice is fair and efficient. They like stability. If they don’t think your taxes are transparent and clear, they won’t come. They want to be able to predict their cash flows in the long term. When they cannot, investors are not a charity, they are not salvation armies. They come because they want to make money. They come if returns are higher.

Africa offers them the best places to place their money, but within Africa there is competition. Investment promotion is a beauty contest. Ghana has to have all the right policies and strategies in place. It is not enough that this year you were made Miss Ghana. You need to be beautiful all the time. That is what investment promotion is like.

People have to understand that there is timing for the development of pro-investment institutions. How do you, a person with vast experience, evaluate the performance of Ghana in this decade of democracy and free market economy?

We have come a long way and made significant progress. If you come back next month, the landscape will be different. Things are happening, but much more has to happen. In terms of progress, there is progress, and a common consensus amongst those from different shades of society that this is the only country we have and we must ensure political and economic stability.

A lot is happening, which is encouraging, but there is much to be done yet. We have to run fast while others are sleeping. You have to look at models, like what Singapore did with nothing. They are role models as countries and leaders. We must sit back, look at what they did and see what we can learn from their successes and mistakes. That is what will make a difference.

You are the perfect example of the image of Ghana abroad, not only in the UK but all over the world. Can you express your immediate feelings about Ghana’s current situation?

Ghana is a fantastic country with a future. I take a lot of encouragement from the youth. Young people are the country’s forward path to innovation and entrepreneurship. The youth want to do something on their own. That spirit of innovation is predominant, and we need to encourage that! Creativity and free enterprise spirit abound. They don’t want handouts. You see that across the board and this is very encouraging. Even music is being transformed. The youth gives one a sense of hope. They encourage you. Ghana will make it. 

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