As recent economic headwinds worldwide affected Ghana’s capital markets, with rising inflation and high borrowing costs resulting in lower levels of liquidity, the authorities have worked in recent years to increase the depth and breadth of the country’s capital markets. Indeed, the country’s capital markets feature a stock exchange, a dedicated exchange for small and medium-sized enterprises (SMEs), a fixed-income market for government and corporate bonds that was established in 2015, and, as of April 2018, a commodity exchange. Additionally, in 2019 the authorities launched a 10-year plan intended to develop the capital markets.
Structure
The Ghana Stock Exchange (GSE), was established in 1990 with 11 equity listings and a commemorative bond, and is the country’s principal exchange. In the decades following the commencement of trading operations, a series of reforms were implemented in order to facilitate the market’s growth and support economic diversification. As of August 2023 the GSE had a market capitalisation of GHS73.3bn ($6.7bn), an increase of 13.6% from GHS64.5bn ($5.9bn) the previous year. Of this, domestic capitalisation accounted for GHS34.2bn ($3.1bn), or 46.7% of the total.
The Securities and Exchange Commission (SEC) was established in 2016 and empowered by the Securities Industry Act of 2021 to regulate and promote the development of an efficient, transparent and equitable securities market that protects investors’ interests and the exchange’s integrity. In addition, the commission has a mandate to regulate commodities and futures exchanges, security depositories, mutual funds, hedge funds, private equity and venture capital players, underwriters and investment advisors. The SEC has worked with GSE management to attract more companies to the exchange and facilitate the creation of an open capital-raising platform. Non-residents have been able to invest in the GSE since 2006 without limits or prior regulatory approval.
Oversight
In 2008 the GSE introduced a fully automated trading platform with clearing, settlement and depository functions, and in September 2015 it launched the Ghana Fixed Income Market (GFIM). This had the effect of transforming the GSE from a manual marketplace in which banks and asset managers traded with each other to one that offered electronic trading of debt and equity.
The GFIM is a platform for the purchase and sale of government securities, corporate bonds and notes. These reforms significantly boosted the diversity of financial products offered on the exchanges, which includes foreign-exchange swaps, an exchange-traded fund (ETF), and, once rules are finalised, asset-backed securities.
The Ghana Alternative Market (GAX) is operated by the GSE and includes companies with high potential for growth at various stages of development, from start-ups to established companies and SMEs. Additionally, the Ghana Commodity Exchange was established as a public-private partnership that links agricultural and commodity producers and buyers.
As of August 2023 there were a total of 31 companies that were traded on the GSE and another six on the GAX. The only ETF on the GSE is issued by the South Africa-based investment holding firm Absa’s NewGold ETF, which tracks the price of gold in rand. It was listed in Ghana in 2012, and is also available in markets such as South Africa, Nigeria and Botswana. As of September 2023 a total of 11 companies offered corporate bonds and notes on the GFIM and had raised GHS12.5bn ($1.1bn).
Institutional investors dominate the GSE, accounting for 93% of the value of traded stocks. Between January and August 2023 foreign companies traded 49.4% of stocks on the GSE by value, while local companies and pension funds traded 25.4% and 18.4%, respectively. Individual investors traded the remainder, with 6.7% by Ghanaians and 0.2% by foreigners.
There was a marked rise in the participation of local investors in the GSE with the percentage of the value of stocks traded by pension funds increasing from 2.6% between January and August of 2022, to 18.4% for the same period in 2023. In contrast, the participation of foreign companies dropped from 65.5% to 49.4% over the same period.
Of the sectors represented on the GSE, as of August 2023 mining had the largest market capitalisation, at GHS36.6bn ($3.3bn), followed by ICT (GHS19.6bn, $1.8bn) and finance GHS (12.2bn, $1.1bn). The top-three firms accounted for approximately 71% of the GSE’s GHS73.3bn ($6.7bn) market capitalisation. In August 2023 mobile telecommunications company MTN Ghana, a subsidiary of the South African MTN Group, had a market capitalisation of GHS19.6bn ($1.8bn), multinational oil and gas exploration company Tullow Oil with GHS17.2bn ($1.6bn), and global gold mining firm AngloGold Ashanti with GHS15.5bn ($1.4bn).
Master Plan
In May 2021 the SEC launched the Capital Market Master Plan 2020-29 (CMMP). This marked the government’s first long-term development programme for the sector, with the main goals being to improve the diversity of investment products and the liquidity of the securities market; widen the investor base; bolster capital market infrastructure and improve service provision; and improve regulations, enforcement, and market confidence.
The CMMP is divided into three phases: 2020-22, 2023-25 and 2026-29. By 2024 the plan seeks to increase the amount that is raised annually via equity to GHS6bn ($544.9m) and the amount raised by bonds to GHS40bn ($3.6bn). By 2029 it aims to increase those figures to GHS15.2bn ($1.4bn) and GHS52bn ($4.7bn), respectively. The master plan also targets a 50% increase of market capitalisation as a share of GDP in 2029. According to data from the GSE, GHS6.4bn ($581m) was raised by equity between 1991 and August 2023. Since the GFIM’s inception in 2015, GHS12.7bn ($1.2bn) was raised by corporate bonds as of August 2023, which averages to around GHS1.6bn ($145m) per year, short of the 2024 target of GHS40bn ($3.6bn).
Trading Activity
The GSE operates Monday to Friday from 10.00am to 3.00pm GMT. In January 2023 the exchange extended its trading hours, enabling alignment with international markets and facilitating trading for foreign investors in different time zones.
Between January and August 2023 trading volume was around 355m, down 71.2% compared to the same period during the previous year. The value of these transactions totalled GHS475m ($43.1m), witnessing a decrease from GHS1.2bn ($109m) in 2022. Transactions experienced a more modest decline in 2023, falling from around 15,000 to nearly 14,000.
Between January and August 2023 daily trade volumes averaged 2.2m with a value of GHS2.9m ($263,000). This was down from a daily volume of 7.5m and an average value of GHS7.5m ($681,000) during the same period in 2022. Similarly, transactions fell from 93 per day to 83 per day over the same period. Trading activity recovered in August 2023, surpassing that of August 2022 after July 2023 figures remained down from the previous year. In August 2023 trade volume stood at 4.2m, an jump of over 3.5m the previous year. Similarly, that same month trade value increased by around 10% yearon-year (y-o-y) to reach GHS5.7m ($517,600).
The GSE publishes two indices: the GSE Composite Index and the GSE Financial Stocks Index. The former measures the performance of the entire equity market, while the latter measures that of the financial stocks segment. In recent years the performance of these indices has fluctuated, with a modest contraction recorded each year between 2013 and 2016, followed by a 52.7% gain for the main index in 2017 on the back of overall economic expansion. Growth for the main index slowed in 2018 to 11.6%, before contracting by 13.3% and 14% in 2019 and 2020, respectively. The GSE Financial Stock Index also contracted during these years, by 6.2% in 2019 and 11.7% in 2020. However, both indices recovered in 2021, and in October of that year the main index logged y-o-y growth of 55.9% and the financial index rose by 48.6% y-o-y. The GSE Composite Index outperformed the GSE Financial Stocks Index in 2023, with the former increasing from around 2500 in August 2022 to nearly 3100 in August 2023. Meanwhile, the latter contracted from around 2000 to nearly 1800 over the same period.
The average unweighted price-to-earnings (P/E) ratio on the GSE was 3.8 as of September 2023. For comparison, South Africa’s Johannesburg Stock Exchange All Share Index has a P/E ratio of 9.4. The Ghanaian exchange’s average P/E ratio weighted by market capitalisation, however, was 15.3, nearly five times higher. This was due to the broad range variance in P/E ratios among organisations traded on the GSE. Tullow Oil was the second-largest company on the exchange with a market capitalisation of GHS17.2bn ($1.6bn) at the time, which also had by far the largest P/E ratio at 41.5. Smaller companies with market capitalisation less than GHS500m ($45.4m), such as Access Bank Ghana and printing firm Camelot Ghana, were undervalued by comparison with P/E ratios of less than one.
Legal Changes
In February 2023 the SEC announced new guidelines covering the registration of securities, the over-the-counter (OTC) market, note trustees, issuing houses and self-regulatory organisations (SROs). The OTC market guidelines were issued to bring visibility and structure to the trading of unlisted securities in the capital market. Individuals providing an OTC market in Ghana must now be licensed under the Securities Industry Act, and the guidelines also provide information disclosure requirements. The regulations on note trustees require that all such businesses be registered with the commission, lay out personnel and infrastructure requirements, and mandate that all note trustees have a functioning website with relevant corporate information. SROs must now follow the framework to ensure that they are in compliance with requirements regarding their structure, correspondence with the commission and other regulatory matters. Any potential entrant into OTC markets and new note trustees, issuing houses and SROs should consult the SEC’s public notice on new guidelines to ensure they are in compliance.
In March 2023 the SEC revised levies upwards, its first update since 2017. Stock exchanges and securities depositories, for example, must pay levies of GHS50,000 ($4500), while primary dealers and note trustees must pay levies of GHS20,000 ($1800). Transactions of shares are now charged a 0.7% transaction levy, and the levy on bond transactions is 0.01% of the value of the trade.
Debt Markets
The GFIM is the GSE’s specialised platform for debt securities. The government offers bills, notes and bonds with maturities ranging from the 91-day bill – the most-traded government security in 2023 as of August – to the 20-year bond. It also offers two US dollar bonds. The Bank of Ghana offers bills and notes with maturities ranging from 56 days to one year. The platform’s traded volume rose significantly in the late 2010s, from 5.2bn trades in 2015 to 108.4bn in 2020. Trading value between January and August 2023 however, dropped to GHS43.6bn ($4bn) from GHS155.7bn ($14bn) during the same period in 2022. Volume contracted from GHS158.9bn ($14.4bn) to GHS51.8bn ($4.7bn) and the number of trades fell from around 38,000 to nearly 21,000 over the same period.
The market is dominated by government debt, with the total value of outstanding government securities at GHS196.7bn ($17.9bn) in August 2023, up from GHS159.1bn ($14.4bn) in December 2022 and GHS152.7bn ($13.9bn) in December 2021. Meanwhile, outstanding corporate securities were valued at GHS600m ($54.5m) in August 2023, down from GHS12.3bn ($1.1bn) at the close of 2022 and GHS31.4bn ($2.9bn) in December 2021. Since 2021 corporate debt’s contribution to the debt market experienced a drop from 17% in 2021 to 0.3% in 2023. The market is dominated by domestic traders, who in 2023 accounted for GHS38bn ($3.5bn) of buy trades, compared to GHS2.4bn ($217.9m) for foreign investors as of September.
Between September 2015 and August 2023, 11 organisations raised GHS12.7bn ($1.2bn) through the issuance of 98 debt instruments. In the first eight months of 2023 Bayport Savings and Loans and local credit provider Izwe issued bonds valued at GHS50m ($4.5m) and GHS25m ($2.3m), respectively.
Offerings Markets
The most recent issuance on the stock exchange was the June 2022 introduction of 315m shares of Asante Gold at GHS8.87 ($0.81) per share. MTN Ghana’s 2018 initial public offering (IPO) is the most recent new stock to float on the GSE as of September 2023. There have been 32 IPOs in total during the history of the GSE, beginning with Super Paper Products Company in 1991.
The exchange is working to attract more companies through a three-year plan launched in July 2021 to secure listings and shift the exchange from a frontier market to an emerging market classification. The plan focuses on diversifying instruments and the companies listed on the exchange, as well as outreach efforts to raise awareness about how individuals can benefit from participating in the stock exchange. It is part of the GSE’s broader effort to become the preferred platform for financing both the private and public sectors, as well as to provide tools that align with national development goals.
In March 2023 Abena Amoah, managing director of the GSE, announced that the exchange was in talks with the government to list between three and 10 state-owned enterprises (SOEs) on the exchange in late 2023. The listing of these enterprises aims to improve their efficiency and corporate governance, as well as raise the capital needed to expand. As of September the names of the companies were submitted to the Cabinet for approval. In January 2023 Telecel Group, a UK-headquartered, Africa-focused telecommunications company, bought Vodafone Ghana and announced intentions to pursue an IPO on the GSE by 2028. This would make it the second telecommunications company on the exchange.
Small Business Financing
The GAX was established in 2013 as a platform for start-ups and SMEs to raise capital. The alternative market’s listing rules are less strict to attract smaller companies that may be deterred by the higher minimum capital and float requirements of the main exchange. Moreover, firms on the GAX enjoy shortened procedures, lower costs, and other incentives such as underwriting services and a dedicated support fund. As of August 2023 the six companies on the GAX had a combined market capitalisation of GHS49.8m ($4.5m).
In 2022 there was a gap of an estimated $4.8bn between the funds that Ghanaian SMEs need and what they can access, and no SME has raised money through an IPO on the GAX since 2018. To help alleviate this situation, British International Investment, a UK-based development finance institution, announced in July 2023 that it was launching Growth Investment Partners Ghana, a platform to provide financing to local SMEs.
Outlook
While the enactment of the CMMP in 2021 marked a commitment to policy reform, there is still room for improvement in terms of implementing the policy’s objectives. The maturation of Ghana’s capital markets in recent years has been constrained by macroeconomic headwinds both at home, including elevated government debt and inflation, and abroad. The amount of capital raised by corporations on the GFIM has contracted and corporate bonds make up a small portion of the bonds traded on the exchange. On the equity side, there has been a slowdown in IPO activity in recent years and there remains a need for further action and progress for the GSE to meet the CMMP’s target for money raised by equity each year.
Trading activity saw an increase in 2023, with the GSE Composite Index up approximately 26.8% y-o-y as of September. With the IMF’s debt relief programme and negotiations with bondholders progressing, there are indicators that the recent growth may underscore a bullish change in investor opinion towards Ghana’s capital markets. This is likely to be complemented by the anticipated listing of around 10 SOEs on the exchange, a move that could reinvigorate the capital markets by mobilising additional liquidity in the system and, importantly, help improve corporate governance of SOEs. Additionally, the revised guidelines issued by the SEC in 2023 are expected to boost market efficiency.
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