Ghana’s participation in the G20 Compact with Africa (CwA) indicates its strong appetite for reforms, seeing as its reform commitments were already reform actions under its International Monetary Fund (IMF) Extended Credit Facility Programme. However, these reform areas are seen as necessary but not sufficient to attract foreign direct investment (FDI). It is believed that reform areas such as public sector corruption; contract sanctity; certainty of the business environment; access to land and credit; and improvement to physical infrastructure would attract more FDI. Ghana has seen FDI increase, but this cannot all be attributed to the CwA, and the level of FDI has not been commensurate with the level of reforms undertaken. Additionally, investments have come from non-G20 countries. Besides FDI, portfolio investments have increased – perhaps a direct result of the country’s programme with the IMF. This programme has improved economic fundamentals – a key interest for portfolio investors.
However, portfolio investments have risks such as high debt servicing costs and potential large capital outflows in adverse economic conditions.
