NITROFIX GHANA

A Simulation
 INVESTING IN GHANA
Plusses Minusses
• Lehman Govt – Agriculture first priority • Low level of education in the
• Progressive Govt- Ghana Investment farming community
code • Single product economy
• 5-year exemptions from custom duties • Economy deeply in Debt
• Tax exemptions • Vagaries of world cocoa market
• Supporting Agro based industries • Archaic land tenure system
• Political Instability
 STEPS GOVERNMENTS CAN
TAKE TO INFLUENCE
• Increase duties
• Refuse Expat quota
• Restrict Dividend
• Restrict Mgt fee
• Increase corporate Tax
• Insist on localization of Board
• restricting decision making authority-
• hiring,dividend,technology
• Technology Transfer
• Control over Technology
 WHAT WILL THE FOREIGN
INVESTORS WANT TO PROTECT
• Security of Capital
• Future Income flows
• Protecting Technology and Knowhow
• Expatriate quota
• Externalization of funds
• Dividend/Mgt fee/Royalty?
 CAPITAL STRUCTURE
• Let us assume that he borrows half the amount
• So Debt /Equity is 1:1
• So for the centrifugal compressor plant
• Debt $45m and Equity $45m
• Let the two owners divide equity in 55:45 Ratio
• So Ghanian partner $24.75m
• Nitrofix $21.25m
 WHAT SHOULD BE HIS SELLING
Cost of Production @$100/Ton 16,000,000 PRICE
Interest at 15% on $45m 6,750,000
Overhead cost (Assume). 4,000,000
Generally 10% of sales
Total 26,750,000
So Price should be 26,750,000/160000
= $168
 IMPORT DUTY

But International price is $130 /Ton

How do you get this price of $168
Import Duty
(I+ Tariff) 130 = 168
So a Tariff of 29%
 CENTRIFUGAL COMPRESSOR
Selling price = 160000 x260 = 41,600,000
10% overhead 4,160,000
Cost of Production 16,000,000
Interest at 15% on $45m 6,750,000
Proffit before Tax 14,690,000
Nitro fix share 6,610,000
32.6 % return on 20.25
 STEAM REFORMING
Selling Price 20000x260 = 5,200,000
Overheads at 10%. 520,000
Cost of Production 20000 x130 = 2,600,000
Interest at 15% on $10 m. =. 1,500,000
Proffit before Tax 580,000
Nitrofix share 260000
5.8 % return on 4.5m
 CONCERNS OF NITROFIX
• Size of Plant
• Capital Investment
• Return on Investment- Short Term, Long Term
• Long-term returns
• Expatriation of Capital in case of problem
• Income Expatriation
• Dividend/Management fee/Royalty (+ and – of each)
• Market 
• Will the duty protection stay?
• Availability of skilled workmen
• Stability
• Political stability
• Economic stability
• Threat of Government action
 CONCERNS OF THE GHANIAN
PARTNER
• All operational Issues
• Market, Proffit, Returns
• Authority
• Culture of Partnership
• Short run vs. Long run profits
• Will the partner give latest Technology?
• Will he update it?
• Will he follow the laws of the land?
 CONCERNS ABOUT BOARD
COMPOSITION
• Composition
• Majority
• Government Nominee
• Chairman
• Roles and Autority
 CONCERNS OF THE
GOVERNMENT
Which Ministries are concerned

Finance Ministry,
Industry Ministry,
Social Welfare Ministry
Labor Ministry
Bank of Ghana
 WHAT ARE THE CONCERNS OF
THE GOVERNMENT
Appropriate Technology
Is the Technology Latest (Latest Technology- Nitrogen from Air)?
Will there be employment creation
Cost of supply to farmers
Will the foreign partner train and educate
Concern of the Bank of Ghana
Impact on BOP.
Will the project contribute to GDP growth
Drain of Foreign Exchange
•  
 ROLE PLAY
• Nitrofix Ghana ( Two representatives)
• Nigerian Partner (One representative)
• Bank of Ghana ( One reprecentative)
• Govt of Ghana ( Three –Industry, Finance,Labor)
 CONSIDERATIONS
Choice of Plant
Debt/ Equity
Import duty
Dividend/Management fees/Royalty
Board Composition
What guarantees does the Investor want?
What guarantees does the Govt want
What guarantees does the Investor want?