Looking beyond the public sector there are signs of increasing external resource flows to Ghana. There has been a steady increase in foreign direct investments (FDI), with an average annual growth rate of almost 12 percent over the period 2007-2016, whereby net FDI inflows more than doubled over the period. Figure 8 documents how FDI flows only just exceeded net ODA flows in 2007 whereas they have been about twice the size of net ODA flows since 2011.
A second private external flow with a large potential to support Ghana’s economic transition is personal remittances. Historically, remittance flows have been underreported which is why the recorded growth in remittances to Ghana should not be overstated. Still, since 2011, registered remittances have exceeded net ODA flows, and in recent years remittances have been on a par with and even exceeded FDI inflows.
Figure 8: Foreign direct investments (FDI), Remittances and ODA net inflows, 2007-2016. USD million, 2010 prices (Ghana GDP deflator)
Foreign direct investments and remittances are not direct substitutes for official development assistance as the flows are from different actors (private businesses and households) and to different actors (also private businesses and households). However, both flows can support public sector finances as they potentially give rise to tax revenues. As such, the substantial growth in FDI and remittances can support a smooth IDA graduation process if the Government of Ghana focuses on servicing and taxing its business and household sectors in a fair and efficient manner.Top