Interview: Kofi Yamoah

How has activity on the GSE evolved in recent times?

KOFI YAMOAH: There has been a big leap in secondary market activity in 2013. The value of shares being traded has been five times that in the same period in 2012, volumes have doubled compared to 2012 and the index was up 57% by the end of May 2013, which indicates that there are good returns to be made. The shares of 22 listed companies have risen by more than 15%.

A growing stock exchange will have a positive impact on the economy in that the more companies that have access to long-term capital, the more will be able to expand and grow their operations, which results in higher employment, purchasing power, tax revenues and product output. Depending on the sector, this might also help companies to be internationally competitive and improve the export balance of Ghanaian products regionally and globally. That is exactly the reason why most of these companies need long-term capital and not short-term expensive financing, as it gives them more flexibility to plan ahead. The market has great potential to make a significant contribution to the further economic development of Ghana, and more people have to start understanding the benefits of it.

What is being done to encourage companies to attract financing through the stock exchange?

YAMOAH: The number of companies listed remains quite low, 34 to be precise. We have reduced the requirements. We used to have three criteria that had to be fulfilled for companies to list. We brought those down to two but are still waiting for the desired results. A major reason behind the delay is the Ghanaian way of doing business. It starts with the culture of ownership. People want to own 100% of their businesses. Companies raise capital the traditional way by going to the bank and getting short-term loans, and it will take time to change that way of doing business. Our first requirement to list is that companies must float 25%, meaning 75% remains with the company. This does not seem to be a barrier. Secondly, financing methods have not changed. Short- to medium-term loans are available but at very high rates. For that reason we want to encourage people to opt for longer-term funding.

We are also trying to promote the corporate bond market, especially with the pension fund reforms where most of the funds are supposed to be channelled to government instruments and listed corporate bonds.

The national bond committee is looking at ways to promote corporate bonds in Ghana. In that regard they are looking at facilitating requirements, processes and incentives to promote the corporate bond market.

What was the reasoning behind the newly established Ghana Alternative Market (GAX)?

YAMOAH: The GAX was launched in May 2013 and accommodates companies at various stages of their development, including start-ups and existing small and medium-sized enterprises (SMEs). This should solve some of the challenges we have previously faced, for example a further reduction of requirements, a shortening of procedures and incentives, such as what we call a revolving fund. The SME Listing Revolving Fund Facility will assist qualifying high-growth companies to pay for their listing expenses, such as listing and legal fees, ahead of actual public floatation.

We have also introduced features such as mandatory underwriting for the minimum offer. Businesses with minimum capital of GHS250,000 ($129,000), at least 20 shareholders (compared with 100 for the main bourse) and one year of audited accounts will qualify to list on the GAX. Compared to the main market, which requires GHS1m ($515,000), this barrier has been reduced significantly. We are working closely with the Ghana Association of Industries so that they can inform their members of this new way to raise capital. We are confident that by the end of 2013 we will have one or two companies listing on the GAX to set the pace. If one does so successfully it will be a role model, and hopefully other investors and entrepreneurs will be more eager to follow this way of raising long-term capital.