CHAPTER 1

1.0 Background
The definition of investment has evolved over the years. Investment is any action that
involves the use of resources to produce goods and services, according to Blomstrom et al.
(1993). Production of capital goods is how Heim (2008) defines investment. Investment, per
Reilly & Keith (2009), is the current commitment of dollars (money) over a period of time
with the goal of generating future payments that will reward the investor. The expenditure of
money for future use is an investment, according to Agu (2015). However, private
investment, according to Kumo (2006), is one that is made in a business with the intention of
making a profit. Private investment has received renewed attention and been given a
significant role as an engine of economic growth and development in recent years(Ekpo &
Hd, 2016).

Ghana has experienced significant economic growth in recent years, driven in part by
increased private investment in various sectors of the economy. Private investment in Ghana
has taken on many forms such as the construction of new factories, the expansion of existing
businesses and the purchase of capital goods such as machinery and equipment. One of the
key sectors driving private investment is the oil and gas industry. Ghana’s oil and gas sector
has expanded rapidly in recent years, with the discovery and development of offshore oil and
gas reserves. This has attracted significant investment in both domestic and foreign firms, and
has contributed to the overall growth of the economy.

The mining sector is another important contributor of private in Ghana. Ghana, for many
decades has been a major producer of Gold, as well as other minerals such as diamond,
bauxite and manganese. The mining sectors has attracted significant investment from both
domestic and foreign firms and has contributed to the overall growth of the economy. The
manufacturing sector is also a key contributor to private investment in Ghana. The country
has a diverse manufacturing base, including industries such as food processing, textiles and
pharmaceuticals. The government has implemented various policies to encourage private
investment in the manufacturing sector including tax incentives and regulatory reforms.

In addition to these sectors, private investment in Ghana is also driven by the service sector,
which includes industries such as finance, telecommunications and tourism. The service
sector has grown rapidly in recent years, driven by increased demand and improved
infrastructure. However, private investment in Ghana is also influenced by a range of other
factors such as economic, financial and political factors. This research seeks to establish in
detail which factors influence private investment in Ghana.

Both economists and decision-makers from all over the world have long engaged in heated
discussion over the factors that influence investment, whether it is private or public(Nyoni &
Bonga, 2017).However, there is broad agreement among economists and decision-makers
that investment, whether private or public, is essential to any country's economic
development. In actuality, there is a definite link between investment and the pace of
economic expansion. While investment stimulates economic growth, it also establishes a
nation's level of productivity and the amount of labor required to use that level of
productivity to its fullest.

The literature on private investment would be incomplete without examining the architecture
of private investment in Ghana. This architecture refers to the legal, regulatory and
institutional frameworks that govern private investment in the country. These frameworks
include laws, policies and programs that define the right and obligations of private investors,
as well as the mechanisms for promoting and protecting private investment.

One of the key components of the architecture of private investment in Ghana is the
investment Code. The investment code is a comprehensive set of laws of laws and regulations
that govern the rights and obligations of private investors in Ghana. It covers a wide range of
issues, including investment protection, investment incentives and investment dispute
resolution.

The Ghana Investment Promotion Center (GIPC) is another important institution in the
architecture of private investment in Ghana. The GIPC is responsible for promoting and
facilitating private investment in Ghana. It provides information and assistance to potential
investors, and help to create a favorable business environment for private investment.

Other institutions that play a role in the architecture of private investment in Ghana include
the Ministry of Finance, the Ministry of Trade and Industry, the Bank of Ghana and the
securities and exchange commission. These institutions are responsible for various aspects of
the investment environment in Ghana, including macroeconomic policy, trade policy and
financial regulation.

Since the market collapse in 2008, investors have looked for non-correlated investments like
alternative assets to further diversify their portfolio holdings(Letho, 2019). The restructuring
of the banking sector in recent times, though unsubstantiated by research has had an
undeniable impact on investor confidence. High interest rates and galloping inflation has not
done any favors in terms of boosting private investments.

1.1 Problem Statement

Investment is the primary theoretical and empirical predictor of economic growth, according
to economic research. Economic growth is the rise in a nation's output or per capita income.
The total output of goods and services in an economy is typically measured by the terms
gross national product (GNP) or gross national income (GNI), which are used
interchangeably(Muhammedhussen Batu, 2016). The source of the manufactured items that
will be utilized to make other things is investment. It is the main pillar on which
improvements in technology, capital stock growth, and literacy levels are built (Hashmi et al
2012).

One of the main characteristics that separate industrialized countries from emerging ones is
the rate of investment. Investment levels are higher in high-growth nations than they are in
low-growth nations. Low investment has the effect of preventing the economy's productive
potential from growing. In turn, this results in slower rates of growth and job creation, as well
as fewer chances for the poor to raise their standard of living (White, 2005). According to
Sackey (2007), nations with high standards of living are those whose economies have
changed from being conventional and sparsely varied to being more diverse. The key concern
in the structural diversification process is investment commitment.

Private investment can take many forms, including foreign direct investment (FDI), which
involves a company setting up operations in a foreign country and domestic investment,
which involves investment within a country’s borders.

Overall, global private investment has trended upwards in recent decades, with FDI flows
increasing from around $300 billion in the 1990s to 1.5 trillion in 2019 (World Investment
Report 2020, United Nations Conference on Trade and Development). However, the COVID-
19 pandemic has had a significant impact on global private investment, with FDI declining by
around 30% in 2020 (World Investment Report 2020, United Nations Conference on Trade
and Development).

While private sector commitments in Europe and Central Asia increased by the highest
percentages, East Asia Pacific achieved the highest total commitment of $28.1 billion, a 69
percent rise from 2020. A 22 percent rise in commitments, totalling $18.6 billion, was also
recorded for Latin America and the Caribbean. The recovery in the area was driven by Brazil.
Sub-Saharan Africa saw a 17 percent decline in private investment commitments, South Asia
saw a 16 percent decline, and the Middle East and North Africa saw a 90 percent decline.

Africa must increase domestic investment to at least 35 percent of GDP, with 23 percent of
that amount coming from private investment, in order to meet the Sustainable Development
Goals successfully and effectively (AfDB, 2013). Despite government efforts to promote and
support private sector investment, private investment in SSA remains restricted by both
economic and non-economic constraints. It is crucial to comprehend the state and factors
affecting private investment. In order to achieve the SDGs, massive amounts of public and
private investment would be needed worldwide, according to the UN World Investment
Report (UN, 2014b). Even while public finances are viewed as being essential to investing in
SDGs, they cannot fully meet all resource needs imposed by SDGs. Numerous research has
been done thus far to determine the factors that influence private investment.

In Ghana, private investment has been increasing in recent years, according to data from the
World Bank, private investment as a percentage of gross fixed capital formation (GFCF) has
been increasing and reached a record high of 50% in 2020. Albeit the increase, it remains
vulnerable to various factors that can affect its level and direction.

The problem that this study aims to address is to identify and analyze the determinants of
private investment in Ghana and to understand how these factors influence the decision to
invest in the country. This is important because a better understanding of the drivers of
private investment can inform policy interventions that can support the growth and
competitiveness of the economy.

Previous studies in the area of private investment suggest that there are various factors that
can affect private investment in Ghana. See for example Asante, 2000; Ekpo & Hd, 2016;
Michael & Aikaeli, 2014; Muhammedhussen Batu, 2016; Nyoni & Bonga, (2017) concluded
in general that GDP, public investment interest rates and political instability were
determinants of private investment. However, these researches were not consistent. Also,
these factors can interact in complex ways and may have different impacts on different
sectors of the economy. Furthermore, the generalisability of much published research on this
issue is problematic.
Naa-Idar et al., (2012) and Attefah & Enning, (2016) employed a time series analysis to
examine the determinants of private investment in Ghana covering the period of 1960-2010
and 1980-2010 respectively. Aside this study, there has not been any study on the
determinants of private investment using time series analysis in the past decade. In light of
this, it is imperative to re- examine the key variables influencing private investment in
developing nations, especially Ghana.

1.2 Research Questions

Based on the research problem statement and the aim of the study, the following research
questions will be answered;

i. What factors, in general, influence private investment?

ii. What primary factors influence private investment in Ghana?
iii. How does the dependent variable change as the independent variables vary?
iv. How does public investment affect private investment?

1.3 Research Objectives

In order to provide answers to the research questions above and the achieve the research aim,
the following research objectives are drawn;

i. To determine the broad factors that influence private investment.

ii. To investigate the primary factors that influence private investment in Ghana.
iii. To assess the impact of a change in independent variables on the dependent variable.
iv. To examine how public investment affect private investment.

1.4 Significance of the Study

This study has both theoretical and practical significance. The theoretical implications are
that it fills a time gap by examining the determinants of private investment spanning over a
period of 1980 to 2021 since there has been no time series research in the last decade. Also,
this research takes into account the impact of the COVID-19 pandemic on private investment
and thus providing empirical evidence to that effect.

On the practical significance, this study provides relevant information about policy options
for concerning bodies such as government, policy makers, and other institutions working to
improve private investment.

1.5 Scope of the Study

The scope of this study focuses on understanding the factors that influence the decision to
invest in the country and how these factors interact to affect the level and direction of private
investment. The study is conducted using quantitative data. The research reviews relevant
literature on private investment and its determinants, as well as secondary data collected from
various government agencies and other private sector actors.

The study is focused on private investment in Ghana as a whole, but also considers the
difference in determinants of private investment across sectors and regions of the country.
The research also takes into account external factors that may affect private investment in
Ghana, such as global economic conditions and the level of competition from other countries.

1.6 Organization of the Study

This study is organized in five chapters. Chapter one provides an introduction to private
investment in the global context and in the Ghanaian context. It spells out in detail the
problem statement and the research question which will help in achieving the research
objectives. The significance of the study and the scope of the study concludes chapter one.

The relevant literature that forms both a theoretical and empirical foundation for this research
is reviewed in chapter 2. Chapter 3 discuss the methodology that is employed to achieve the
objectives stated in chapter one.

Chapter 4 discusses the findings of the research and the various recommendations and the
conclusion is presented in chapter 5.