Roger Adjovu, General Manager, Liberty Capital: Viewpoint

 Viewpoint: Roger Adjovu

The One District, One Factory initiative is a key component of the current administration’s industrial transformation agenda. It is designed to set up at least one medium- to large-scale industrial enterprise in each of Ghana’s 216 districts. This programme will stimulate local economies by creating employment for the youth in rural and peri-urban communities, improving income levels and standards of living, and reducing rural-urban migration. Another key objective is to add value to each district’s natural resources, and utilise their economic potential based on their comparative advantage. In a broader sense, this policy will ensure an even geographical spread of industries, generate economic activity and growth in different parts of the country, promote exports and increase foreign exchange earnings to support the government’s development agenda.

One District, One Factory will be financed by a number of sources, including promoters’ equity, private financial institutions, local private equity companies, China Development Bank’s $2bn financing scheme with the Association of Ghana Industries and the Indian EXIM bank credit facility. However, there is no clear policy on how the government can leverage and enhance the capital market in Ghana to be the engine of raising funds for its developmental initiatives. The capital market could act as a tool to champion the raising of funds to finance such programmes.

This could be implemented via a government-led mutual fund, in which promoters of companies, private financial institutions, local private equity companies, individuals and financing schemes could invest in development initiatives. This fund would be listed on the Ghana Stock Exchange (GSE) to allow the easy transfer of shares between investors. We have suggested that this fund be named the Ghana Start-up Fund. Being a mutual fund, it would be incorporated as a limited liability company, with a board of directors to oversee the day-to-day running of the fund as well as a manager of the fund who is appointed to represent investor interests. These measures would enhance the attractiveness of the fund by reassuring investors that are hesitant to commit financing to start-ups. Additionally, the fund would be regulated by the Securities and Exchange Commission and the GSE.

Utilising selected insurance companies to cover disbursed funds could help attract investors as well, as it would ensure the necessary arrangements are in place to protect investors. For this venture to succeed there needs to be strong oversight. Companies that are able to access funding from the Ghana Start-up Fund must be listed after operating for at least a year on the Ghana Alternative Market (GAX) to assist them in mobilising more long-term funds for expansion. This will also generate more activities on the capital market.

The GAX is a parallel market focused on businesses with potential for growth. It aims to accommodate small and medium-sized enterprises (SMEs), either start-ups or existing firms, at various stages of development. The benefits of listing on the GAX include easy access to long-term capital at relatively lower costs, improvement in the financial position of the company, realisation of the value of investments, risk diversification and liquidity improvement. The incentives include mandatory underwriting of the minimum offer directly or indirectly by sponsors. Therefore, there will be no failed initial public offers. Another benefit is access to a revolving fund to support the cost of raising capital and deferment of up-front fees. Companies listing on the GAX can apply to have the GAX-SME listing support fund cover some or all of the cost of advisory services.

As a business develops a history of growth and a good rate of return on their initial investments, it becomes much easier to obtain further funding from the capital markets in the form of either bonds or the issuance of additional equity. If the government puts together a thorough policy geared toward using the capital market to raise funds for its key policy initiatives, it could also enhance and deepen capital market activities in Ghana.