Enhancing Ghana’s Investment Climate Through The Sanctity Of Contracts | Features

Ghana’s ambition to position itself as a leading investment destination in Africa requires consistent efforts to create a positive business environment. As the country continues to draw attention from foreign investors in sectors like oil, gas, telecommunications, and mining, there is a growing need to reaffirm the sanctity of contracts, a critical element in fostering investor confidence and ensuring economic stability. 

Without a clear commitment to upholding contracts and legal agreements, investor hesitation could derail the nation’s economic progress. This attracts attention in other parts of the world. I´ve recently read an article in Europe to this respect where the author talks about the need for companies to “trust that contracts will be enforced or that they will be treated fairly when disputes arise” otherwise “foreign investors are put off”. The article can be read in this link The telecom tightrope: balancing innovation, investment and fair play – Mobile Europe.

In recent years, Ghana has been recognized as one of the more stable democracies in West Africa, with a growing economy and an improving ease of doing business. Sectors such as oil, telecommunications, and mining have attracted significant foreign direct investment (FDI), leading to job creation and infrastructure development. However, recent disputes and contract breaches have raised concerns about the long-term viability of foreign investments in the country.

International diplomats have emphasized that Ghana has made strides in refining its regulatory frameworks, but persistent issues, particularly in tax disputes and contractual obligations have undermined investor confidence. This sentiment echoes the experiences of several international oil companies (IOCs), such as ENI, operating in the country, which have raised alarms over inconsistent regulatory applications. 

Contractual Integrity

Contracts serve as the foundation of business transactions and investments. Whether it is a power purchase agreement between the government and an energy firm or a trade agreement between a local manufacturer and a foreign supplier, contracts provide a sense of security and predictability. Investors, both local and international, need to be assured that agreements will be honored and disputes resolved fairly and swiftly. This is particularly critical in sectors like oil and gas, where long-term investments are needed to develop infrastructure and extract resources.

In Ghana, recent high-profile cases have illustrated the damaging effects of breaching contracts. For example, the dispute between the government and Trafigura’s Ghana Power Generation Company (GPGC) has drawn attention to the repercussions of not honoring agreements. The abrupt termination of a power purchase agreement with GPGC resulted in a US$134 million judgment debt, which the government has failed to pay for over four years. The case escalated to international courts, with a U.S. court awarding an additional US$111.4 million in mandatory interest against Ghana.

Such cases undermine investor confidence, not only in the specific sectors involved but across the entire economy. They signal to potential investors that even legally binding agreements may not be respected, which increases the perceived risk of doing business in the country.

Legal and regulatory framework reforms

To mitigate such risks and reassure investors, Ghana must continue to refine its legal and regulatory frameworks. The 2016 Petroleum Law was a positive step toward creating a clearer regulatory environment in the oil and gas sector. However, , ongoing tax disputes and contract interferences demonstrate that more work is needed to provide a predictable and fair system for foreign investors.

One key area of focus should be dispute resolution. While Ghana’s judicial system is respected for its independence, the process for resolving commercial disputes remains slow and cumbersome. Introducing specialized commercial courts or streamlining the arbitration process could help expedite the resolution of contract disputes, giving investors greater confidence in the legal system’s ability to protect their interests.

Moreover, ensuring that contracts include provisions for international arbitration is vital, especially for foreign investors. International arbitration offers a neutral platform for resolving disputes, and many investors prefer this method because of its perceived impartiality. By committing to uphold international arbitration rulings, Ghana can strengthen its reputation as a trustworthy and secure investment destination.

Policy reforms to boost investor confidence

Policy consistency is another crucial factor in cultivating a positive investment climate. While Ghana has made headway in improving the ease of doing business, particularly through the Ghana Investment Promotion Centre (GIPC) and the digitization of governmental processes, the broader economic environment remains hindered by several key challenges. These include inflation, currency volatility, and inconsistent enforcement of business-friendly policies, all of which make Ghana less attractive to potential investors.

One area where policy inconsistency has become particularly problematic is in taxation. For instance, tax disputes between the government and businesses, such as those involving MTN Ghana and the Ghana Revenue Authority (GRA), have created uncertainty within sectors vital to the economy. In MTN’s case, a protracted legal battle over an assessment of tax liabilities cast a shadow over investor confidence, despite the company’s strong operational success. These disputes tend to arise when tax assessments appear unpredictable, sending a signal to the market that Ghana’s tax regime might not be as stable as it seems.

Resolving such disputes in a timely and transparent manner is vital to ensure that foreign investors remain confident in the country’s ability to offer a predictable tax environment. The government must work towards implementing more robust frameworks that can fairly resolve such issues while avoiding the lengthy litigation processes that often follow.

Additionally, policy clarity regarding trade, fiscal management, and foreign exchange regulations must be prioritized to minimize the shocks of abrupt shifts, which can undermine investor trust. Ensuring that fiscal and monetary policies are aligned to stabilize the cedi, for instance, will further improve the confidence of investors looking to enter or expand within the Ghanaian market.

Reaffirming the sanctity of contracts 

The sanctity of contracts is a cornerstone of a functional market economy, as it assures investors that their agreements will be honored and disputes resolved in a manner that is both fair and timely. In Ghana, reaffirming this principle is essential for attracting not only foreign investment but also retaining the trust of domestic businesses.

Recent remarks by international diplomats reflect an important truth that Ghana cannot realize its economic potential if it does not prioritize the enforcement of contracts, particularly in capital-intensive sectors such as oil and gas. Instances of contract violations, such as the Trafigura case, serve as stark reminders that failing to uphold agreements can lead to costly financial judgments that have long-term repercussions for the country’s investment image.

However, reaffirming the sanctity of contracts goes beyond avoiding legal battles. It also requires building a culture of respect for the rule of law, where both government and private entities commit to transparent and fair practices. For example, strengthening the autonomy of regulatory bodies like the Public Procurement Authority (PPA) and the GRA could help ensure that businesses are treated fairly, and contracts awarded through proper channels.

Ghana’s reputation for political stability and rule of law is a significant asset, but it must be consistently reinforced through actions that demonstrate a firm commitment to contractual obligations. Investors are more likely to commit capital when they are confident that the government will uphold its end of agreements, whether these involve large infrastructure projects, energy production, or smaller-scale investments.

The role of international arbitration

Given the global nature of investment, many investors prefer to include provisions for international arbitration in their contracts. International arbitration allows parties to resolve disputes outside of local courts, offering a neutral platform that is perceived as more reliable and impartial.

Incorporating international arbitration clauses into contracts and adhering to arbitration rulings is one way Ghana can build greater investor trust. Ghana’s recognition of international arbitration bodies, such as the International Chamber of Commerce (ICC) or the London Court of International Arbitration (LCIA), should be made a more visible and integral part of its investment policies. Demonstrating a willingness to resolve disputes through these mechanisms sends a strong message to investors that the country is serious about upholding the rule of law in business transactions.

Moreover, training local legal professionals to engage with international arbitration proceedings would further bolster Ghana’s capacity to handle investment disputes efficiently. This would not only enhance the country’s standing as an investment destination but also contribute to strengthening its domestic legal framework for resolving commercial conflicts.

The path forward

Ensuring the sanctity of contracts and improving the investment climate in Ghana requires a collaborative effort across multiple stakeholders. The government must lead the way by committing to upholding agreements, streamlining the legal framework for dispute resolution, and maintaining a stable and predictable policy environment. This also involves engaging the private sector to provide input on regulatory reforms and policy adjustments that align with the realities of the modern business landscape.

Simultaneously, businesses operating in Ghana must adhere to ethical practices, honoring their obligations to the government and to each other. By fostering a culture of compliance and transparency, the private sector can play a key role in building investor confidence.

Ultimately, Ghana’s ability to reaffirm the sanctity of contracts and provide a stable investment climate will determine its success in attracting the capital, expertise, and technology needed to drive its economic growth. Through collaborative efforts, the country can position itself as a beacon for investors, offering a secure and profitable environment where business can thrive.

By focusing on these priorities, Ghana can unlock its full potential, transforming itself into a hub for foreign direct investment and ensuring a prosperous future for its people.