The Ghana Alternative Market (GAX) – established in 2013 as an equity market for small and medium-sized enterprises (SMEs) – has had a slow start, signing up only five companies as of January 2019. One reason for the low uptake has been the, until recently, relatively muted performance of the main exchange. The Ghana Stock Exchange Composite Index was mostly stable following the establishment of the GAX, travelling between 1950 and 2450 for the first two years, before declining to 1550 by the close of 2016. By comparison, the Bank of Ghana’s 91-day Treasury bill rate stood at 22.7% at the start of 2016. With the stock market providing low returns and central bank paper offering a safe double-digit return, the case for listing on the GAX was limited, and firms were therefore discouraged from listing.
However, this started to change in 2017 as investors began to turn away from Treasury bills as rates began to fall. In January 2018 the 91-day bill was yielding 16.7% and by January 2019 the rate had fallen further still, to 14.7%. Meanwhile, the GSE has enjoyed a rally over recent years, with the composite index climbing 52.7% in 2017 and continuing to rise in the first four months of 2018. While this strong performance went into reverse during the latter part of 2018, expectations are high for renewed activity on the exchange over the medium term. Nevertheless, many of the factors that have historically made Treasury bills a popular choice remain, and they are likely to remain an important instrument.
New Drive
The exchange authorities, responding to the improving investment environment, have announced that they intend to usher in a new era of growth for the GAX. In March 2018 David Tetteh, manager of the GAX, announced plans to increase the number of listings on the exchange to 50 by 2020. Speaking to local media Tetteh cited a lack of awareness as a key challenge to this objective. “A lot of people are not aware that the GAX exists and can be used to raise capital. They are not aware of the benefits they stand to gain or the incentives that we have put in place,” he told local press. “So now we are sending a message to entrepreneurs and business owners, that you have an opportunity to raise capital to grow and expand your businesses.”
Perhaps the best advertisement for the GAX is a success story, and this came in April 2018 in the form of a major new listing. DigiCut Production and Advertising, a domestic public relations consultancy, raised just over GHS28m ($6.1m) with its listing on the GAX, seeing its shares appreciate in value by 12.5% after the event. A total of 270 investors signed up for the offering of 35m shares, a number which was widely seen as a success for the company. While investors will be tracking the progress of the listing and the broader performance of the GAX over the coming years, the listing’s promising start could help fuel further activity on the exchange.
Providing Incentives
Raising awareness of the GAX remains a key priority for the exchange, and the authorities are continuing their drive to make listing on the GAX a more attractive option through a number of incentives. The alternative exchange requires a minimum stated capital level of only GHS250,000 ($54,000) and does not require that a company have a proven track record of profitability before listing. In addition, listing and application fees are waived, with companies listing on the parallel market paying an annual fee of GHS2000 ($432). In addition to these incentives, the GAX announced a new listing support fund in April 2018, which aims to provide companies with advisory services during the listing process. The fund is paid into by the GSE and the Venture Capital Trust Fund, which was established by the government in 2004 to provide financing to SMEs. Successful applicants are able to cover advisory service costs through the fund before paying the fund back at no interest after their listing.
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