While Ghana benefits from a roster of financial actors, ranging from universal banks to savings and loan institutions to pension funds and susu collectors ( informal depository institutions for market traders and shopkeepers), the country’s capital markets are comparatively modest compared to continental exchanges in Cairo, Johannesburg, Lagos and Casablanca.

The Ghana Stock Exchange (GSE), which began operations in 1990, has just 36 equities and one exchange-traded fund (ETF) listed on its equities exchange alongside a bond market dominated by government securities. There have been delays in implementing some new initiatives to breathe life into the bourse, including the release of pension payments to trust funds and the planned creation of an active alternative market and a commodity exchange. However, the exchange has achieved what few commodity producers have been able to do: attracting a secondary listing from London- and Dublin-listed Tullow Oil, the lead producer of the country’s Jubilee oil field, which has led to increased optimism about the sector’s outlook in the years to come.

PERFORMANCE: As in many emerging countries, daily churn in the market remains fairly constrained, with investors preferring to sit and hold. The volume of shares traded in 2012 fell when compared to 2011, from 419m in 2011 – a record high – to 218m in 2012 and in value terms from GHS446m ($229.3m) in 2011 to GHS102.2m ($57.8m) in 2012. In the first quarter of 2013 there was a significant increase in activity on the exchange. The first quarter of 2013, there was a 363% year-on-year increase from GHS24.26m ($12.5m) in the first three months of 2012 to GHS112.44m ($57.8m) in the same period of 2013. In April 2013, there was another surge in activity, with GHS40.9m ($21m) traded compared to GHS5.96m ($3.06m) for the same month in 2012, a 586% increase.

The deputy managing director of the GSE, Ekow Afedzie, attributes this surge in activity to a crop of excellent annual results from companies including Fan Milk, Goil, Total and BOPP, as well as the country’s two listed banks. “Most of the listed companies have been financial institutions, and banks have done extremely well,” said Afedzie. “So generally the performances of the companies have shot up.”

Financial stocks led trade in 2012, both in terms of value and volume. CAL Bank’s shares were the most traded in volume, while Ghana Commercial Bank’s (GCB) shares led by the value of trades. Outside the financial sector, Ghana Oil Company’s share value increased by 94% in 2012, and again by 117.7% in the first quarter of 2013.

MARKET CAP: The GSE market capitalisation in late summer 2013 had reached a total of roughly GHS56bn ($28.79bn). Of the top 10 firms by market capitalisation, four are from the finance sector, three are mining firms, two are food and beverage producers and one is a manufacturer. As of April 2013, Tullow Oil’s secondary listing remains the largest equity listed on the GSE by capitalisation, at GHS30.83bn ($15.85bn), worth just over half of the exchange’s entire market capitalisation. This is a slight decrease from 2011, when it first listed, due in part to fluctuations in the cedi’s value. Miner AngloGold Ashanti had a market capitalisation of GHS14.19bn ($7.3bn) in April 2013 compared to GHS13.01bn ($6.69bn) in July 2012, a 9% increase in its cedi value. AngloGold Ashanti is now worth 25% of the total market capitalisation of the GSE compared to 23.6% in 2012. Ecobank Transnational Corporation was worth GHS1.62bn ($830m) in July 2012 and as of April 2013 its value has risen to GHS2.71bn ($1.39bn), representing a 67% increase in its market capitalisation when measured in cedis, which means the bank’s listing also represents 4.7% of the total market capitalisation of the GSE as a whole, compared to its 2.9% share in 2011.

In the first quarter of 2013 the stock market outperformed the whole of 2012 with GHS112m ($57.58m) traded in the first three months of the year compared to GHS102m ($52.44m) in the whole of 2012. By the end of May 2013 the GSE composite index was up 57.06% from January 1, 2013 at 1884.26 and by July 4, 2013 it was 1888.33, while the GSE Financial Stocks Index was up 60.13% on the previous year. For the month of April 2013, the finance sector dominated trades with GHS21.59m ($11.1m) of transactions, followed by food and beverage with GHS9.5m ($4.88m) and manufacturing with GHS7m ($3.6m).

DEBT MARKET: During the first quarter of 2013, there were 76 two-year, nine three-year and three fiveyear government bonds listed on the GSE debt market with a combined value of GHS7bn ($3.6bn). There were no corporate bonds listed at the time of writing. There have been 11 primary issues listed on the GSE, nine of them issued by HFC Bank.

The HFC Coupon Bonds were issued in nine stages of a $35m aggregate offering from 1996 to 2012. The last of these, a five-year bond, matured on March 7, 2012 and raised $3.9m. Additionally, the government of Ghana raised GHS500,000 ($257,050) in an offering in November 1990 of GSE Commemorative Stock, which matured in November 1995, and in December 2008 Standard Chartered raised GHS35m ($18m) by issuing a medium-term note.

MARKET PARTICIPANTS: In 2011 there were 23 licensed broker-dealers in Ghana and 58 investment advisers, according to the latest annual report from the SEC, which came out in 2012. The three largest brokers in terms of value of trades were Ecobank’s EDC Stockbrokers, Databank Brokerage and IC Securities, which together accounted for more than three-quarters of the total value of trading activity. There were also 26 collective investment schemes, including 14 mutual funds and 12 unit trusts. SEC figures stated that the total net asset value of funds under the management of collective instrument schemes (CIS), which is still fairly modest by emerging market standards, increased by 16% from 2010 to 2011, when GHS226m ($116.2m) was being managed. Of this total, 75.8%, or GHS171m ($87.9m), was in mutual funds, while unit trusts contributed 24.2% or GHS55m ($28.3m).

In terms of the CIS segment, Databank Asset Management Services had the greatest volume of assets under management in 2011 according to data from the SEC, as it managed more than 80% of the total net asset value of the CIS market. EPACK had the highest number of shareholders with 73% of the industry’s shareholders. HFC Unit Trust led the unit trusts, representing 57% of the total net asset value. In July 2013 the HFC Unit Trust had grown 24.8% since the start of the year. The largest increase in the 12 months to July 2013 was seen in the SAS Fortune Fund, which was up a substantial 69.44%.

In 2011 a circular was sent to all licensed brokers instructing them to maintain a minimum capital requirement of GHS1m (514,100), a solvency ratio of not less than 20% and three months liquidity based on average expenses equal to or less than cash or cash equivalents. According to media reports, brokers must also increase the value of tradable assets 10-fold from GHS80,000 ($41,128)to GHS800,000 ($411,280).

REGULATION: The body responsible for overseeing and regulating trade in securities is the Securities and Exchange Commission (SEC). The SEC’s authority is based on several pieces of legislation, including the Unit Trusts and Mutual Funds Act of 2001 and the 1993 Security Industry Act, amended in 2000. The SEC’s own regulations date from 2003. The commission carries out inspection visits to ensure securities industry firms are well managed and have good record keeping, sound internal controls and adequate capitalisation.

Under the original rules governing the exchange, caps were placed on non-residents of Ghana, with foreigners limited to 10% ownership of a listed company and with a 74% ceiling on the proportion of shares owned by non-residents. These rules were scrapped under the 2006 Foreign Exchange Act.

BOND OVERSIGHT: The Central Securities Depository (CSD) was established in 2004, and is responsible for recording ownership of government securities. It also manages the primary auction system for state bonds on behalf of the Bank of Ghana (BoG) and processes coupon and maturity payments directly to GSE market activity, 2009-13 Q1 beneficiary accounts through the BoG. The CSD is a wholly owned subsidiary of the BoG but operates independently and is regulated by the Central Securities Depository Act 2007.

The CSD was originally set up with a view to expanding its role to cover equities and corporate bonds, but in 2008 the GSE established its own depository. However, the government has repeated its intention to merge the two depositories in 2013, a plan it had originally intended to complete in 2012. No date has been set for the merger, which analysts believe will lower transaction costs and increase liquidity. The merged depository is also expected to settle central bank funds in line with recommendations from various international bodies.

INVESTORS: The biggest single shareholder across the financial sector is the parastatal Social Security and National Insurance Trust (SSNIT). SSNIT owns 34.4% of CAL Banks’ shares, 16.19% of Ecobank, 29.81% of GCB, 24.26% of HFC Bank, 22.14% of Société Générale Ghana and 14.34% of Standard Chartered’s shares. In 2010 SSNIT also owned significant stakes Value traded on the GSE, 2009-13 Q1 in 10 unlisted financial institutions. The organisation, which follows a largely sit-and-hold strategy, had a monopoly on state pension investment until the National Pensions Act was introduced in 2008; it has traditionally held on to any shares in listed or unlisted companies rather than trade aggressively.

IPOS: In recent years, the requirements for listing have been reduced, but many observers feel that attitudes to business ownership and financing are frustrating attempts to expand the role of the exchange. “Deeply embedded in the way we do our business is the culture of ownership, where people want to own 100% of their business and they are using the same methods of accessing finance, going to the bank for short-term facilities,” said Afedzie.

The GSE has been attempting to educate local firms about the advantages of raising money through equity, rather than banks loans, and in May 2013 a Capital Markets Week was held in Accra and a series of seminars was organised aimed at groups such as public servants and business organisations.

CHALLENGES: There have been extensive discussions of new potential listings over recent years, with a number of prospective candidates, although no new firms have been added to the main board since Tullow Oil unveiled its secondary listing in 2011. The LSElisted firm’s move to add shares to the GSE more than doubled the Ghanaian bourse’s market capitalisation. This represented a rare move in Africa, where local exchanges often have difficulty attracting listings by multinational firms, particularly in the energy sector. There has been mention of other multinational firms in Ghana’s upstream segment exploring the possibility of local listings, although no concrete moves have yet been made. In 2011 there were also two equity de-listings, namely, Accra Breweries and CFAO Ghana. Accra Breweries main shareholder, Overseas Breweries, a subsidiary of SABM iller, offered GHS10m ($5.14m) for the ordinary shares and cited poor and uncertain trading conditions as reasons for Accra Breweries’ difficulties. Automotive distributor CFAO Ghana left the exchange as part of a strategy by its international owners to delist its subsidiaries from exchanges globally. There have been no de-listings since then.

Afedzie describes this reluctance to list as “extremely frustrating”, especially at a time when the share prices of 22 out of the 34 listed companies have gone up by 15%, and in some cases by far more than that.

Although it has previously been reported that the Volta River Authority had been discussing an IPO, this has not yet been confirmed. The privately owned Fidelity Bank did secure an agreement from its shareholders in 2012 for a potential IPO between 2013 and 2015, but at the time of writing had made no public and formal approach to the GSE. The Ghanaian bank, which is currently ranked seventh in the country by assets, aims to be one of the country’s top five banks by 2014, and a listing may be part of this strategy.

With a further increase in minimum market capitalisation under discussion in Ghana, more of the country’s banks may consider listing on the bourse, giving foreign investors an opportunity to share in a profitable and growing sector of the economy. However, at the time of writing only seven of the country’s 26 banks are listed on the exchange, and following the passage of the December 2012 deadline to increase minimum capitalisation none of the privately owned banks had opted to list. They had all found alternative ways to raise the necessary capital.

ENCOURAGING LISTINGS: Financiers in Ghana believe the government could do more to encourage activity on the equity market, either by making listing a compulsory requirement for new firms in specific sectors, or by cutting corporate tax for those that list. Carol Annang, the CEO of New World Securities, believes that many companies considering a listing at the moment weigh the chance of a 3% rebate against the additional costs of listing requirements, and feel that the move cannot be justified.

“If, for instance, corporation tax was cut from 25% to 20%, that would be a juicy enough carrot to entice companies to list,” Annang told OBG. CDH Securities’ executive director, Desmond Nartey, argued that an even bigger tax incentive could be in order: “Government has a very big role to play in terms of cheerleading the process. If you cut the tax rate by 10% to 15%, it could make up for lost revenue through an increase in the dividend tax, to, say 10% and an improvement in corporate revenues as a result of improved financial disclosure and economic expansion.”

HELPING HAND: Some business leaders feel the state itself, or some of its parastatal bodies, should also be leading by example. There is a long list of enterprises that could list on the bourse, including banks such as GCB and the Agricultural Development Bank, which are either wholly state-owned or partially state-owned. The IMF, in its 2013 report on Ghana, also called on the government to divest some of its interests in the financial sector.

The state owns shares either directly or indirectly, via the Financial Investment Trust (which manages stakes on behalf of the BoG), in a number of the largest banks, including Ghana Commercial Bank, the second-largest bank by asset share, and owns outright the Agricultural Development Bank, the sixth largest.

“For some of us the government has no business running business and we feel these should be offloaded through the exchange,” said Nartey. He cites the Gihoc distillery as an example of a profitable government-owned firm. “It is a very good brand and very profitable and so floatation of a company like that could create a lot of excitement,” he told OBG.

BONDS: The biggest reform of 2013 has been the introduction of an alternative exchange, the GAX (see analysis). Aside from this new exchange, aimed at smaller companies, the stock exchange authorities have also set up the National Bond Market Committee to facilitate trade in corporate bonds.

The corporate bond market in Ghana is quiet, but the World Bank’s International Finance Corporation (IFC) has targeted Ghana as part of its Pan-African Domestic Medium-Term Note Programme, part of the IFC’s $2.6bn investment in Africa. Bonds issued will be used to raise long-term local currency finance to protect businesses in Ghana and other African countries from foreign exchange risk. Local investment firm IC Securities has been involved with the project in Ghana and the company hopes to see at least one bond issued before the end of 2013.

“It’s a case of as soon as one bond is issued and done well, it will be much better utilised as a mechanism,” said Kwabena Osei-Boateng, managing director of investment banking for IC Securities. “All we need is to see the IFC doing what it’s going to do and then maybe one telecoms company and a few banks and people will realise that this is a great way to raise money, because it’s cheap and it’s quick and from then the corporate bond market will take on a life of its own and the pension funds will want to invest in it.” IC Securities’ researchers believe as much as 15% of Ghana’s bank lending could be replaced by direct corporate bond issues within the next six years. As William Adjovu, managing director of Liberty Capital, told OBG, “Countries need two things to develop their economies: railways and bond markets. Ghana has neither, stunting the true potential of its economy.”

At the time of writing Ghana was preparing for a $1bn Eurobond sale, which had been approved by parliament. The Eurobond will be Ghana’s second such bond, after it became the first country in subSaharan Africa after South Africa to do so in 2007, when it launched a $750m, 10-year paper. Currency traders in Accra were hoping this sale of international debt, which follows on the heels of similar moves by both Nigeria and Rwanda, would also inject some life into the interbank market.

CURRENCY WOES: This bond issuance could also help to improve Ghana’s foreign currency position. Traders from the International Commercial Bank and CAL Bank told local media the supply of dollars had virtually dried up from end-June 2013 as the cedi weakened 0.7% to a record low 2.04 against the dollar in early July. One trader said he was only able to meet 10% of his clients’ demands and another reported that currency trading between banks had all but ceased. Osei-Boateng told OBG that one of the biggest challenges for Ghana in the medium term is to reduce its reliance on imports and so create a more stable currency: “We are a net importing country, and so the more the economy grows, the more we import and there’s a weakening of the local currency and that affects confidence,” he said, adding that it was vital to develop local processing of home-grown commodities like cocoa and other agricultural products. “We have some of the nicest oranges in the world, but we import orange juice from Brazil.”

PENSIONS: The country’s reforms to its pension arrangements and the regulations governing new trust funds that have been established in the last 12 months are expected to be the biggest single driver of new products on Ghana’s capital markets.

Until the National Pensions Act was passed in 2008, Ghana had a single-tier pension scheme, which was administered by the parastatal SSNIT. Under that system SSNIT took all contributions (based on 17.5% of earnings) and paid out a lump sum and a monthly pension. Ghana has 120,000 pensioners receiving payments from SSNIT. The compulsory retirement age is 60, with voluntary retirement permissible from 55.

Under the reforms, three tiers have been introduced. Tiers one and two are mandatory with contributions from employers and employees now totalling 18.5% – the employer contributes 13% while the employee makes a mandatory contribution of 5.5%. Of this, 13.5% goes to tier one and SSNIT, which will remain responsible for paying the contributors’ monthly pensions, and 5% goes to tier two, which forms the lump sump payment.

Tier three pension contributions, however, are voluntary in nature and will remain tax-free up to a total contribution from the three tiers of 35% of salary. Contributions from tiers two and three go to private trust funds, which make investments on behalf of their clients. Employers appoint one of a total of 16 funds to handle contributions from their company. Leading performers on the GSE, Q1 2013 PENSION INVESTMENTS: The National Pensions Regulatory Authority (NPRA) has been set up to regulate the sector. Two of its rules are that trust funds cannot invest more than 10% in the equity markets or more than 5% in foreign assets, though some say this might need to be increased if local opportunities are exhausted. Financiers believe the influx of these funds will stimulate new activity in Ghana’s capital markets. “Currently you have government Treasury bills or bank deposits, but because rates are high, the government will look for cheaper sources of funding and when that happens there will be a need for alternative investments for fund managers,” Annang said.

One trust fund already taking contributions from employees and employers is Pensions Alliance Trust. Its director of business development, P Dela Zumanu, told OBG he was excited by the new investment prospects. “People will develop products to take advantage of the pension fund industry and we have history out there from other countries that we can learn from,” he said. Clifford D Mpare, chairman and CEO of Frontline Capital Advisors, agreed that this development could have a positive net effect on the economy: “Around $300m to $400m will enter the system on a yearly basis through the further development of the pension fund system. These funds will be crucial for local infrastructure and real estate development.”

However, the excitement about the potential for pension funds is somewhat tempered by the government’s delay in releasing contributions to them gathered over the last three years. Tier 2 contributions have been taken off pay cheques since January 2010 and kept in trust by SSNIT. The NPRA licensed trustees in June 2012 and it was originally reported that the saved pensions would be released to them in January 2013. At the time of writing this has yet to happen. “The concept of pension reforms is fantastic, but the implementation has not been fantastic,” Annang said.

FOREIGN INTEREST: 2013 saw the conclusion of a number of large-scale trades and the discussion of some significant potential trades involving foreign institutional investors. On June 19 the food and beverage company Fan Milk Limited Ghana (FML) announced that Dubai-based private equity firm Abraaj Group had entered into a provisional agreement to acquire the entire issued share capital of Fan Milk International, giving it effective control of FML through its ownership of 65,822,250 voting shares, a figure representing 56.64% of FML’s equity. Abraaj Group made an application to the SEC for exemption from the requirement to make a mandatory offer for the remaining shares in the company.

Two weeks earlier, on June 7, Abraaj Group, owner of Aureos Africa Fund, sold its stake in the Ghanaian Bank HFC to Republic Bank of Trinidad and Tobago. The deal took Republic’s total stake in HFC to 32.02%, and the bank was told by the SEC that it would have to make a further offer for a minimum of 42.98% of HFC, under the rules spelled out in the Code on Take Overs and Mergers. At the time of writing Republic Bank had not responded to this regulatory judgment.

Another Ghanaian bank was also the subject of foreign interest. First Rand Bank of South Africa made a bid to acquire 75% of the shares in Merchant Bank Ghana. The BoG reported in June 2013 that it had no objection to the proposal in principle. However BoG said there were some “public interest” concerns being resolved by Merchant Bank, The First Rand Group and parastatal shareowner SSNIT; in mid-July 2013, the talks ended with the parties having failed to agree on terms. According to local media, SSNIT is still reportedly interested in finding a potential buyer.

Foreign investors had additionally increased their holdings in commercial banks, helping some to achieve a minimum capitalisation of GHS60m ($30.85m) in time for the December 2012 deadline. To this end, a private equity fund called African Development Partners I and Proparco of France acquired 28.97% and 6.96% of shares in CAL Bank in April 2012. DegDeutsche, which is a part of the German Development Corporation, and JP Morgan Chase Africa Capitalisation Fund also acquired 13.52% and 10.14% stakes, respectively, in UT Bank in 2012.

ETFS: There is one EFT listed on the exchange, following a GSE announcement in July 2011 to allow ETFs. GSE became the fourth African exchange to allow ETFs, after South Africa, Botswana and Nigeria. Absa Bank’s corporate investment arm, Absa Capital, listed its NewGold ETF on August 22, 2012. There are more than 30 ETF listed on South Africa’s JSE. NewGold’s year-high price was GHS32.18 ($16.54) and at the end of May 2013 it was trading at GHS30.50 ($15.68) “We are looking to see if we can get more ETFs listed and we have proposals for institutions wanting to develop instruments or securities on indices,” said Afedzie.

COMMODITY EXCHANGE: In its last annual report, for 2011, the SEC set out plans to develop regulations for a commodities market as part of a five-year plan. In early 2012 the Ministry of Trade and Industry was also throwing its weight behind the idea of the GCX. At the Capital Markets Week held in Accra in May 2013, the new finance minister, Seth Terkper, also signalled his support for a commodities exchange, saying it would connect Ghana’s farmers to the Accra capital market and help to boost the agriculture sector’s value chain. Terkper’s predecessor Hanna Tetteh revealed that the government was receiving advice from the UN Development Programme (UNDP), which helped to set up a similar exchange in Ethiopia in April 2008. By March 2010 the UNDP was able to report the Ethiopian exchange had handled $240m in transactions. Part of the hope in establishing a GCX is to encourage downstream investment and sourcing by Ghana’s sizable processing sector, allowing larger multinational fast-moving consumer goods firms to purchase their raw materials from local producers using a fair and transparent system. The UNDP held a two-week training session in Accra in spring 2012 for potential stakeholders in the commodities exchange.

No formal announcements have been made on a deadline for the establishment of the new exchange.

OUTLOOK: In spite of its modest size, Ghana’s capital markets remain extremely attractive to investors seeking a toehold in the West African sub-region, in light of its robust growth, diversified commodity exports and political stability. “There’s a lot of mileage in growth driven by confidence,” said Osei-Boateng.

“We are stable politically with smart people running the country and there is growth in consumer spending. We will find more oil and that will be good, but there’s also good consumer-led growth in Ghana.”

The performance in 2013 certainly seems to have broadly supported an encouraging short-term outlook.

There had been some concerns raised earlier in 2013 about political uncertainty pending the resolution of a court case between the governing party and the opposition over the 2012 elections result, but by late summer a decision had been made and activity had picked up. Prince Amattoe, head of business development at Liberty Capital believes that, as with many emerging markets, timing in Ghana’s market is crucial. “Those who are sitting on the fence are wasting time; those who take the risk will get all of the bigger returns,” Amattoe told OBG.” There is no shortage of plans for boosting Ghana’s capital markets, but the slow rollout of those reform measures over the first half of 2013 has delayed results. The release of pension funds into the market could bring as much as $400m per year into local equity markets, and given wider growth in the broader economy, it seems likely that there will be firms looking to take advantage of that fresh money flowing in.