Ekow Afedzie, Managing Director, Ghana Stock Exchange (GSE): Interview

Interview: Ekow Afedzie

To what extent did the Covid-19 pandemic impact liquidity in Ghanaian capital markets?

EKOW AFEDZIE: The GSE was able to maintain operations after the outbreak of Covid-19 largely because automated systems had already been implemented on the trading floor. As a result, brokers and other stakeholders were able to continue to participate in the capital market uninterrupted. Indeed, technology helped us overcome the challenges presented by the pandemic, enabling the exchange to have a seamless flow of activity without in-person interactions between employees and traders.

While the economic impact of the pandemic caused trading to slow, it recovered relatively quickly. In 2015 we started to provide additional information to investors on the variety of products available on the market, ranging from shares to medium- and long-term bonds. This helped the GSE have a more balanced performance in 2020. That year, while the index dropped by 20%, the GSE saw the second-highest value of trades in the history of the institution. Moreover, the bond market reached GHS100bn ($17.1bn). While the GSE recorded negative returns in 2020, this reversed to returns of 38.6% as of end-2021 – one of the highest increases in the world and the second-best performance in Africa. International investors are typically bullish in their assessments of the country’s capital markets and the GSE has become a popular option as a result.

How would you describe the distribution of assets in investors’ portfolios on the GSE and the contribution of technology?

AFEDZIE: Bonds are a safe investment; Ghanaian investors are typically risk averse, so the bond market has traditionally been a popular destination for local investors’ funds. However, we are seeing significant growth in activity – and, therefore, liquidity – in our equity market. This was the case even during the pandemic, which shows that the market is resilient and performing well. The digitalisation of the economy undoubtedly contributed to this. As government institutions and the private sector have adopted remote work, the hastened employment of technology has made financial tools more accessible. These platforms have not only strengthened the economy, but contributed to the resilience of equity markets. Moreover, the Ghanaian public can invest directly on the exchange from their smartphones, and it is possible to reach brokers and investment managers via mobile channels.

What can be done to increase the number of public offerings on the GSE, and how can smaller firms further utilise the markets to raise capital?

AFEDZIE: There have been no initial public offerings (IPOs) on the GSE since the start of the pandemic, but the exchange is making a concerted effort to attract such offerings in the coming months. Indeed, we expect to have IPOs in 2022, and regulators are exploring ways to encourage the general public to participate and invest in equity.

We need to utilise pension funds as a source of long-term capital to unlock Ghana’s economic potential. There is incredible wealth that is currently locked away in pension funds, with regulations preventing them from being utilised in equity markets. Once that capital is unlocked, IPOs will become more attractive, driving demand. This, in turn, will increase the funding acquired by companies issuing IPOs.

There are two sides to developing capital markets: on the supply side, we need big institutional investors with the funds that can meet the needs of companies seeking investment, and on the demand side we need to bring larger companies to market. The alternative market has been a key tool in helping smaller firms gain capital, yet the activity and interest level from investors is not where it could be.