Focus on Ghana: Capital markets surge as economy recovers

Ghana’s capital markets finally emerged from a two-year downturn in 2017, as the economy recovered and President Nana Akufo-Addo’s government issued a number of bonds.


The equity market saw trading activity surge, with the value of the Ghana Stock Exchange (GSE) growing year-on-year by 52.7% in 2017, and total market capitalisation rising from C52.69bn ($11.77bn) to C58.9bn over the same period.

While there were no major listings on the main exchange in 2017, the exchange expects a major listing in the telecoms sector in 2018, with reports circulating that it will be mobile operator MTN, which is obliged as part of its 4G licence to open up to local investment. The now defunct UT Bank was the most significant delisting last year. Meanwhile, the debt income market also witnessed increased activity, with turnover more than doubling from around C12.5bn in 2016 to about C27.2bn in 2017.

The main driver of growth in the debt market came from the government restructuring the country’s sovereign debt by introducing 15-year domestic bonds to the market. A total of C207bn in securities were issued by various government entities in the first nine months of 2017. Meanwhile, corporate bond turnover also increased, from C2.8m in 2016 to C990.9m last year.

The plethora of activity has boosted market confidence, with participants feeling confident about investing, according to Kisseih Antonio, Managing Director of Ecobank Capital. “The stock market was up last year and we remain bullish about its performance this year,” he says. “We expect that lower yields will lead to investors shifting capital in search of alpha to the stock market.

“With the increase in minimum capital requirements for banks, we expect corporate action, and that the banks will then be more attractive to investors,” he added. The financial services sector, which includes banks, accounts for around 49% of all trading value on the exchange, while the natural resources segment, which includes gold and oil and gas, accounts for over 75% of the total value of Ghana’s stock exchange.

The upbeat atmosphere, expected to continue in 2018, in both the equity and debt markets, has also been buoyed by government reforms, introduced to improve liquidity and foster company participation in capital markets.

Market reforms

Among the government reforms that have been announced are a five-year capital gains tax exemption and a two-year stamp duty exemption for the financial services industry. The administration has also outlined plans to divest some of its holdings in state-owned entities and to devise new regulations that govern alternative investment vehicles such as real estate investment trusts (REIT).

“Asset managers are very pleased that the government is looking favourably at opening up alternative investment [areas] such as real estate,” says Kojo Ohene-Kyei, CEO of IFS Financial Services. “The government is creating the framework for these types of instruments and once they’ve finished it is likely that pension funds can tap into this new opportunity.”

The alternative investments, especially in real estate, will likely be attractive to pension funds, which are very active in investing in government securities but not as conspicuous in the equity market.

Pensions Act

The government is also looking to fully implement the 2008 National Pensions Act reforms associated with encouraging the involvement of approved private pension fund managers. Under the new law, 5% of formal sector salaries will be placed in a defined-contribution scheme managed by National Pensions Regulatory Authority (NPRA) approved fund managers.

Workers can also voluntarily contribute an additional 16.5% of their wages to a tax-free contribution scheme run by the approved funds. While it has been a decade since the Act was introduced, the new regulations have been slow to release the full potential of pension funds investing, especially in equity, according to Antonio.    

“Pension funds in Ghana are still in a nascent stage because most of them invest in government paper, and there is very little investment in equity because the average Ghanaian is averse to the volatility which comes from equity investment,” he says. “Therefore, for us as a fund manager, we have to think creatively about the types of structures and products we roll out, so that they cater for various asset classes and investment strategies which can provide an avenue for these funds to generate returns.”

The NPRA took steps last year to boost liquidity in the equity market, including increasing the threshold at which funds can hold equity investments from 10% to 20%. Additionally, 60% of funds can be kept in government securities, 35% in corporate debt entities, 35% in bank securities, 15% in investment schemes and 15% in alternative investments.

These changes have been welcomed by fund managers who have long complained that regulators have favoured government securities at the expense of private equity. Nevertheless, the market has responded positively to the government reforms and with the stable macroeconomic environment expected in 2018, activity across the capital markets sector will continue to surge.

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