Institutions and Business Rules

• Institutions provide rules for business.
• Douglass North (2005) defines institutions as humanly devised constraints that structure human interaction.
• The institutional framework is made up of formal and informal rules/regulations that govern people or firm conduct.
• Three pillars support institutions: regulatory, normative, and cognitive.
• Formal institutions include laws and regulations that serve as examples of the regulatory pillar.
• Informal institutions include norms, culture, and ethics, which are the normative/cognitive pillars.
• Formal institutions include laws, regulations, and rules.
• Domestically, political institutions are imposed by a nation's government.
• Globally, political institutions may be imposed by home or host countries, or via bilateral or multilateral protocols.
• The regulatory pillar is a primary pillar of formal institutions.
• The regulatory pillar uses the coercive power or force of the state (government) to enforce the rules of the game.
• Ghana does not allow foreigners into retail business or ban small-scale mining activities.
• Rules about foreigners participating in retail can be acts of parliament, codes, and other regulatory mechanisms.
• Norms, culture and ethics are classified as informal.
• Informal institutions are supported by the normative and cognitive pillars.
• Normative pillar refers to how values, beliefs, and actions, collectively known as norms influence behaviour of firms
• In Ghana there is a ban on noise making during the homowo festival
• Cognitive pillar of informal structures, refers to values and beliefs that guide firm behaviour.
• Concerned community members reporting the destruction of livelihood resources by illegal miners serve as an example.
• Employees or individuals may not feel comfortable with organizational wrong doing.
• Normative pillar suggests that people are quiet, whereas the community members' actions are driven by their strong cognitive pillar
• Institutions reduce uncertainty by signaling what conduct is legitimate.
• Uncertainty can be devastating.
• Political uncertainty like the tendency for coups makes business planning impossible.
• Economic uncertainty, for example; the failure to fulfill transactions stipulated in contracts can result in monetary losses.
• Uncertainty during election years and the likelihood of violence impacts decision making.
• Uncertainty surrounding economic transactions leads to transaction costs.
• Transaction costs which are the costs associated with economic transactions or cost of doing business.
• An important source of transaction cost is opportunism, defined as self-interest with guile (cunning and deceitfulness).
• Misleading, cheating, and confusing other parties in transactions increases transaction costs.
• Institutional frameworks increase certainty by spelling out the rules of the game on business.
• This way violations, such as failure to honor one's part in a contract can be mitigated through arbitrations.
• Russia entrepreneurs chose to buy assets in London or Cyprus instead of investing in Russia due to poor institutional frameworks.
• Investors tend to pull investment during election years or choose to invest in other jurisdictions.

Political Systems and Business

• Political systems refer to the rules which politically govern a country
• Two forms of political systems include: democracy and totalitarianism/dictatorship.
• Democracy is representative as citizens elect officials to govern on their behalf.
• Totalitarianism/dictatorship one person or party exercises absolute control over citizens.
• Democracy entails less political risk which allows for freedom of association, free markets, and well-defined institutions.
• Totalitarianism/dictatorship brings about an unpredictable political environment.
• The risks to business include wars, riots, chaos, breakdown of order or nationalization of assets.

Legal Systems and Business

• A political system refers to the rules of the game on how a country's laws are en(acted and enforced.
• Legal systems influence business by reducing costs through minimizing uncertainty and opportunism.
• Laws originate from three legal families: common, civil, and theocratic law.

Common Law

• Common law is English in origin and shaped by historical judicial rulings/decisions.
• Common law has spread to English-speaking countries, many formerly part of the British empire.
• Common law has more flexibility than civil, as judges can resolve disputes based on interpretation of law.
• Resolution of disputes gives new meaning to the law defining future cases.
• Application of common law is confrontational because lawyers argue and convince judges to favor their interpretation of precedents.
• Contracts in common law countries tend to be long and detailed to cover all possible contingencies because common law is under-defined.

Civil Law

• Civil law has less flexibility; judges only have the power to apply the law.
• Civil law is less confrontational as statute and codes serve to guide judges.
• The term statutes refers to permanent rules used in the running of an organization.
• Accepted regulations governing procedure or behaviour in particular circumstances or within a particular profession make up codes

Theocratic Law

• Theocratic law is legal system based on religious teachings.
• Examples include Jewish and Islamic laws.
• Islamic law is the surviving example of theocratic legal system practiced by governments.
• McDonald operates "ladies only" restaurants in Saudi Arabia in order to comply with the Quran's ban on interactions between men and women.
• Two retail branches should be maintained by banks: one staffed by men for male customers another for woman
• The requirement to maintain branches increases personnel and overhead costs.

Legal Systems in Ghana

• Laws govern the establishment and operation of businesses in Ghana.
• Laws conform to international standards and best practices.
• Laws are based on a foundation of legislation relating to business activity, copyrights, patents, trademarks, disputes, and labor relations.
• Other laws that make up the legal system include:
  • The Companies Act, 1963 (Act 179)
  • Income Tax Act, 2015 (Act 896)
  • Fisheries Act, 2002 ( Act 625)
  • Petroleum (Exploration and Production) Law 2016, (Act 919)
  • Forestry Commission Act, 1999 (Act 571)
  • The Minerals Commission Act, 1993 (Act 450)
  • Minerals And Mining Act 2006, Act 703
  • Free Zone Act, 1995 (Act 503)
  • The Labour Act, 2003 (Act 651)
  • Foreign Exchange Act, 2006 (Act 723)
  • Ghana Revenue Authority Act 2009, (Act 791)
  • National Communications Authority Act, 2008, (Act 769)
  • Banks And Specialized Deposit Taking Institutions Act, 2016, (Act 930)
  • Environmental Protection Agency Act, 1994 (Act 490)
  • Copyright Act, 2005 (Act 690)
  • Trademarks Act, 2004 (Act 664)
  • Patents Act, 2003 (Act 657)

Regulatory Bodies

• Investors must register a resident business entity with the Registrar General's Department (RGD) under the enacted acts.
• The Registrar General's Department registers non-resident businesses operating as a representative in Ghana.
• The Registrar General's Department falls under the Ministry of Justice & Attorney General.
• It is responsible for the registration of businesses in Ghana.
• An investor should first wish to register at the Registrar General's Department.
• Investors may apply for a certificate of incorporation and a certificate to start a business by completing and submitting a form, online or in person.
• A fee applies to incorporate and commence business.
• An additional stamp duty fee of 0.5% is applied to the company's stated capital.
• The official processing time is 3-5 days.
• After incorporation, foreign-owned companies must register with the Ghana Investment Promotion Centre (GIPC).
• Registration is completed after companies meet minimum equity requirements based on structure.
• Equity can be brought into Ghana as money or in kind.
• The GIPC was established under the GIPC Act (Act 865 as amended) in 2013.
• GIPC is a government agency that encourages and promote investment in Ghana.
• GIPC maintains a favorable investment environment for both Ghanaian and foreign investment.
• GIPC provides an incentive framework and a transparent, predictable environment for investments in Ghana.
• GIPCs major functions are to formulate investment promotion policies and plans for local and foreign, support measures to enhance the investment climate in Ghana, or organize promotional activities.
• GIPCs also register, monitor, and keep records of business, collect information on investment opportunities, or bring about harmonisation in investment policy formulation.

Investment Procedures Under GIPC Act

• Step 1: Registration with Registrar General's Department to obtain certificate of Incorporation, certificate to Commence Business, & Company's Regulations.
• Step 2: Minimum Equity Contribution for foreigners
  • Joint Venture - US$ 10,000
  • 100% Foreign-Owned -US$ 50,000
  • Trading Enterprises- US$ 300,000
• Step 3: Registration with Ghana Revenue Authority and SSNIT
  • All enterprises must register for statutory tax (rebates and exemptions)
• Step 4: Environmental Impact Assessment Certificate
  • Enterprises must register to obtain an environmental permit from the Environmental Protection Agency (EPA).
• Step 5: Business Permit from the MMDAs
  • It takes approximately 7 days to get a business License to operate in the area
  • Costs vary on business type and category

Mineral and Petroleum

• the Minerals Commission Act of 1993 (Act 450) regulate the Minerals Commission
• Key functions include fosters to efficiently and effectively manage the utilization of resources.
• Issues licenses for small and large scale industrial mining
• Includes gold, manganese, bauxite and iron ore.
• The first oil was discovered in commercial quantities in 2007 at the jubilee Field.
• Effective management of petroleum exploration is done through the Ministry of Energy.
• Major legal and government regulation includes:
  • Petroleum (Exploration & Production) Law 2016, (Act 919)
  • Petroleum Revenue Management Act, 2011 (Act 815)
  • Petroleum Commission Act 2011(Act 821)
• Sub-sectors:
  • The Ghana National Petroleum Corporation (GNPC) GNPC was established by an Act of parliament in1983 (PNDCL 64)
  • Serves as a state owned entity
  • It's Ghana's National Oil Company (NOC) ensuring reliable supply of oil products
• The following objects are:
  • The Promotion of petroleum exploration activities.
  • Appraisal of existing petroleum discoveries to ensure production
  • Ensure greatest benefits from petroleum resource development
  • Obtain the effective transfer of appropriate technology relating to petroleum operations.
  • To ensure national development.
  • Prevent adverse effects on peoples' health from Ghana's petroleum resources

Petroleum Commission

• Established in 2011 Act 821 due to hydrocarbon discoveries in commercial quantities
• The Petroleum Commission regulates and manages the utilization of petroleum resources

The Petroleum Commission

• The Internal Revenue Service, Value Added Service(VAT) and the Customs, Excise and Preventive Service were separate agencies up to 2010
• At this point were merged to form a single entity called the Ghana Revenue Authority (GRA)
• Divisions of the GRA includes: Domestic Tax Revenue, Customs, and Support Services.
• As mandated it operates under the Ghana Revenue Authority Act 2009, (Act 791).
• The GRA mobilises sustainable revenue stream for government.
• It ensures trade facilitation and a controlled flow of goods across the country's borders.
• Customs Division oversees duties and excise, whereas Income tax are tasked to the Domestic Tax Revenue
• The support services ensure administrative, legal, and resource management
• Divisions are headed by a commissioner who reports to the Commissioner-General of GRA
• An investor must register with the GRA to pay taxes.

Environmental Protection Agency (EPA)

• Its mandate stems from the the Environmental Protection Agency Act, 1994 (Act 490.
• The EPA issues environmental permits for environment related companies, such as mining
• As a registration requirement, one must submit a report to the Registrar's General Department

Ghana Free Zones Authority (GFZA)

• The Ghana Free Zones Authority was established by the Act of Parliament in 1995 by the Free Zones Act (Act 503).
• An enclave which can be handled manufactured or reconfigured without customs needing to intervene.
• Businesses within free zones can be accorded special incentives such as tax holidays.
• There mandate is for new potential investors who are using the zones with focus on products
• Any investor with can get located in Sekondi at Tema Zones

Enclaves

• One must go through through the new registration
• Free zone enterprises are exempt from taxes on any exports from foreign countries
• With corporate tax is exempt to 8
• With additional registration, it can be registered with with the regulators

Examples of Free Zone Enterprise

• Wilmar Africa Limited, Ghana
• Ecosafe Ghana Limited
• Dalal steel industries limited
• Sitos Ghana Limited