Why multinational corporations need to invest in African economies

Ghana, known as one of the largest and most stable economies in Africa, is currently in the midst of an economic crisis; its population is suffering from a lack of access to food and fuel due to rising inflation. Riots broke out in Ghana at the start of July as a result of the poor economic conditions. Ghanaian President Nana Akufo-Addo blamed such conditions on the effects of the pandemic and the Russia-Ukraine war, noting that ‘the economy has [instead] begun to firm up and the cedi has systematically appreciated against the dollar…’. Ghana, in trying to alleviate the dent in its economic growth, has sought the assistance of intergovernmental bodies in the past, such as the International Monetary Fund (IMF). When Ghana last sought the assistance of the IMF in 2015, it received $980 million through an extended credit facility arrangement, equal to 180% of its quota. They have since ruled out seeking IMF assistance a second time, with the Finance Minister of Ghana stressing that the country is committed to managing its finances without assistance from the multilateral institution.

So what is the alternative? Despite Akufo-Addo’s argument that the cedi, to date, has appreciated against the US dollar, it has only done so marginally. As of early September, the exchange rate between the dollar and the Ghana cedi stands at $1 = 11.53 GHc, a significant increase from the same time last year, where the value of the cedi against the US dollar was 8.26 GHc. The loss of value in Ghana’s currency, which is a common issue with other African currencies, means that importing costs are higher for its businesses. For example, Ghana imports most of its cereals and grains from Russia, the world’s leading wheat exporter. However, with the country cutting its grain export by 40% in August, prices have simultaneously increased, meaning Ghana and other African countries spend substantially more of their currency on exported goods. Importing goods from other countries has now become more difficult for Ghana, and as the currency depreciates, more cedis are being spent on imports than in the previous year putting strain on the country’s budget. This raises the question – could multinational corporations alleviate this economic burden?

Although African economies, in general, face increasing economic pressure from inflation and global instability, certain sectors such as IT and telecommunications have thrived and become essential to the survival and growth of these same economies. Multinational corporations may be able to take advantage of this. By building up and empowering previously deprived communities within African countries, as well as acquiring poorly functioning or defunct infrastructure and reviving them, these corporations not only fuel the development of developing nations and emerging economies but manage to also achieve their corporate social responsibility objectives on a large scale. Scholars and critics argue that such investment lays the foundations for neo-colonial business activity, allowing large American, British, or Chinese companies monopolise and dominate whole sectors within African economies. Still, more than ever, Africa and its nations are willing to open themselves up to foreign investment in order to fund new infrastructure, establish their economies, and improve foreign relations. With a focus on Ghana, this piece will advocate for multinational companies to invest in African economies and thus contribute to their growth and survival.

According to Matthew Kindinger, practice lead at FrontierView, Ghana’s economy is forecasted to grow around 3% in the coming year. Sectors of the economy, such as IT and telecommunications, as well as healthcare and education, are described as well-positioned to support the economy, having outperformed headline growth predictions. Focusing on IT and telecommunications in particular, it is argued that this sector’s success has come largely from multinational corporations acquiring nationally-owned telecoms infrastructure.  

The most notable example of this is Vodafone Ghana, Ghana’s national telecommunications company owned by Vodacom Group (the largest telecoms company in Africa). The entity was previously founded in June 1995 as Ghana Telecom as part of the ADP (Accelerated Development Plan) reform, a programme aimed to improve public access to telecommunications in both rural and urban areas through the provision of payphone facilities. The ADP reform, planned with the assistance of the World Bank, formed part of Ghana’s plans for a five-year restructuring of the telecoms industry. Prior to the deregulation of telecoms within Ghana, communications, both domestic and international, were the responsibility of post offices and other local authorities. This transpired over many years through the post-colonial days with different types of phones being used in the system. The deregulation of the sector enabled the establishment of Ghana Telecom, which acted as the national body solely responsible for telecommunications. The significance of this was that the removal of governmental restrictions within Ghana’s telecoms industry was the catalyst for its growth, as various companies competed for dominance. This would be important to Vodafone later as the deregulation enabled it to strike a deal with the government. In 2008, Reuters reported that Vodafone Group paid $900 million (£454 million) for a 70% stake in Ghana Telecom, which was Ghana’s third largest mobile phone operator. The government of Ghana retained a 30% stake in Ghana telecom following Vodafone’s acquisition.

However, the main opposition party in Ghana’s government at the time criticised the agreement with Vodafone, arguing that it ‘lacked transparency’ and massively devalued Ghana Telecom’s assets. Harume Iddrisu, the ranking opposition member at the time, argued that the value of Ghana Telecom, which was given an enterprise value of around $1.3 billion, should not have been less than $1.5 billion.

In October 2015, President Nana Akufo-Addo revealed that Ghana Telecom was sold to Vodafone because it was an ‘inefficient company’. From these facts, it is inferred that opposition towards the Vodafone acquisition throughout Ghana came as a result of patriotism as the only state telecommunications organisation was sold to a foreign company, posing a danger to national security, as well as due to the sum paid for such a strategic state asset. Considering other business operations within the country, Ghanaians have long been suspicious of foreign direct investment as it has often resulted in the enabling of exploitation and other illegal activity. This was the case with Aisha Huang, a Chinese national who was deported from Ghana in 2018 for taking advantage of Ghana’s leadership system to run a galamsey operation (‘galamsey’ is the Ghanaian term for illegal small-scale gold mining). It is argued, however, that this ‘distrust’ was unfounded, as Ghana Telecom, now known as Vodafone Ghana, has not harmed the country’s growth or security in any way, but has instead contributed to the nation’s development.

For example. In 2016, Vodafone made a deal with KNUST (the Kwame Nkrumah University of Science and Technology) to provide enhanced high-speed internet and Wi-Fi connectivity to all faculties across the university’s campuses in Ghana.  The telecom sector, according to KPMG, is undergoing a huge transformation, and it is clear how governments, businesses, and even whole sectors of the economy can benefit through such investment. Another interesting example of a company that aims to benefit from the growth of sectors in the Ghanaian economy is Samsung. Samsung’s vision for corporate social responsibility maintains that they wish to support people to use technology as a force for good and that digital innovations are changing society at an amazing rate and have the potential to help solve some of the biggest problems the world faces. Their ‘Samsung Smart School’ combines the strengths of Ghana’s IT and education sectors. Trialled with International Baccalaureate (IB) students at Al-Rayan International School in Accra, Samsung’s pioneering approach to combining technology and education has had positive effects on both the country and the business. It has the potential to be a substantial investment in the education and development of Ghana’s children, while also ensuring the technology and education sectors are well supported. But what if such foreign influence isn’t welcome?

The primary hindrance to foreign investment in Ghana’s economy is the view that such large corporations do not aim to benefit the country, but rather exploit it. This was the fear of those who opposed the Vodafone acquisition of Ghana Telecom, with the National Democratic Congress taking to the streets of Ghana in a series of demonstrations to vent their anger. Interestingly, Nana Akufo-Addo, in 2015, questioned why there was no solely Ghanaian company present in the telecommunications sector in Ghana. The Ghanaian government, back in 2006, received offers from several major companies to acquire Ghana Telecom, including a Ghanaian-led consortium, yet decided on Vodafone. By agreeing on the acquisition, this created a relationship between Vodafone and the Ghanaian government that would benefit both entities. Vodafone’s deal with the government would have a positive effect on its economic value, and the Ghanaian government would receive significant investment from Vodafone into its telecoms infrastructure, to a level that would be unmatched by a national company. The lack of transparency in relation to this deal was what fueled so much anger against the agreement. Harume Iddrisu stated himself that ‘we are aware of the government’s desperate need for cash to finance a gaping budget deficit. However, it is important to advise the government to take into serious consideration the supreme national interest.’. Could it be the case that countries that choose to work with foreign organisations that wish to invest with them are ignoring the interests of their own people? Taken further, the involvement of multinational organisations in the affairs of a single country, especially an African one, can often display red flags for neocolonial behaviour. 

Writing for LSE Blogs, Mark Langan re-engages with the concept of neocolonialism to explain Africa’s cycle of poverty. He notes Nkrumah’s warning of the evils of neocolonialism and external intrusions in ‘The Last Stage of Imperialism’, and gives examples of how regressive donor and corporate interventions continue to stifle genuine opportunities for growth in African countries. One key example he notes is China. There is a large debate on whether China’s increasing presence in Africa represents an opportunity or a threat for the African continent, with their presence being viewed as either a development partner, an economic competitor, or as a coloniser. This can be seen in practice – for example, the government of Ghana signed two agreements with the Chinese government to secure a $1 billion loan to refurbish railway transportation in the country. The Western and Eastern rail lines, as well as the lines between Tema and Akosombo, alongside other railway projects, will benefit from the loan. On the other side of the debate, however, stories have arisen concerning the ‘Shanglin gang’, Chinese miners from the Shanglin county of Guangxi in search of gold in Ghana. Not only have some residents of Shanglin blamed the Chinese government for encouraging the Ghanaian gold rush, but the Ghanaian government has also faced criticism from its own people for prioritising their bilateral relationship with China (now their biggest foreign investor and trading partner) over the national interest of the country. 

African nations are in a very dynamic yet fragile situation. Despite challenging economic circumstances, they have benefited from growth in particular sectors such as telecommunications, IT, and education. Multinational organisations have tried their best to benefit from such remarkable growth, while also passing on benefits to the countries they work with. Despite this, countries that work with foreign organisations and investors run the risk of alienating their own people in favour of the supposed benefits of foreign investments, never truly understanding the aims of the other side. Still, the argument holds that African nations are more than willing to open themselves up to foreign investment, and thus multinational corporations need to invest in African economies. The economic benefits that the country gains, as expressed in this piece, only stand to strengthen the reputations of these corporations. Foreign direct investment results in higher profits and a stronger market position for companies who wish to partake, as well as access to emerging markets. These benefits outweigh the risks of potential foreign exploitation, which corporations, as opposed to countries, aim to avoid for reputational reasons. They also pave the way for further development opportunities – for example, Vodafone, in July 2022, agreed to sell its Ghana operations to Telecel, an African company based in Zimbabwe, as part of plans to streamline their business. Telecel’s expansion within over 30 countries in Africa has largely been through acquisitions, and Vodafone’s investment in Ghana’s infrastructure has made the acquisition process easier and more lucrative, with both parties aiming to push for a $500 million deal. Foreign investment from multinational corporations boosts economic growth and accelerates investment into an economy’s sectors, which is what Ghana, and Africa as a whole, aim for in their engagement with multinational corporations.

Image credit: Virgyl Sowah