By Joshua Worlasi AMLANU
Government faces calls to adopt new laws and policies that attract investment funds to domicile locally, a move seen as critical for deepening capital markets and expanding small- and medium-sized business financing.
Ghana currently lacks enabling legislation such as a Limited Partnership Act, making it difficult to structure private equity and venture capital funds locally. As a result, most are set up as limited liability companies rather than fund structures that are more attractive to investors.
A study commissioned by the Mastercard Foundation in partnership with Mennonite Economic Development Associates (MEDA) recommended passing Limited Partnership and Trust laws to broaden options available to fund managers.
The report highlighted that about 60 percent of Africa-focused investment vehicles are currently domiciled outside the continent, limiting the development of local markets and draining potential jobs, tax revenue and professional services. Keeping funds offshore, it said, also raises costs and distances capital from the businesses that need it most.
Dorothy Nyambi, President and CEO-MEDA, said reversing this trend is urgent. She noted that Luxembourg, one of the world’s leading fund domiciles, derives about 30 percent of its GDP, 11 percent of jobs and 20 percent of tax revenues from domiciliation.
“More than 60 percent of African investment vehicles today are domiciled outside of Africa and it is time that we reverse that trend,” she said.
She added that local jurisdictions stand to capture value currently lost abroad.
The study argued that domiciling funds in Africa would expand financing for micro-, small- and medium-sized enterprises, which account for around 80 percent of formal jobs in emerging markets but still face a US$940billion funding gap. Most of these businesses fall in between the reach of microfinance institutions and traditional banks, leaving them dependent on alternative funding sources such as private equity and venture capital.
Local domiciliation could also allow funds to better access domestic capital pools, particularly pension assets, while reducing setup costs and encouraging MSMEs to formalise in order to qualify for financing. According to the report, a combination of international and domestic capital flowing through locally registered funds could strengthen Africa’s financial ecosystems, increase investment and generate employment.
Dr. Nyambi added that offshore domiciliation not only diverts capital but also shifts legal arbitration and professional services abroad, with many disputes involving African fund management settled in London or Paris. She said creating credible jurisdictions on the continent will help retain this value while making financing more affordable.
Kofi Fynn, Managing Director-Petra Trust, said Ghana’s ambition of becoming a financial hub depends on a coordinated national strategy to promote domiciliation.
He argued that the Finance and Justice ministries, judiciary and trade authorities must work together at the highest level of government to push reforms.
“If this country wants to become successful as a financial hub, it has to be championed at the highest levels of government and has to be a national strategy,” he said.
