Stability and reform support activity on Ghana's capital markets

After a surge in stock prices in 2017 that saw the Ghana Stock Exchange (GSE) become the best performing exchange globally, the GSE experienced a significant set back, posting net declines in 2018. Nevertheless, the strong performance of the country’s main index in 2017 has renewed interest in the market as a means of raising capital and made Ghanaian equities a more attractive prospect for investors.

While challenges remain, including a lack of variety in investment instruments and low levels of liquidity, the introduction of new minimum capital requirements for banks, coupled with the sustained growth of one of sub-Saharan Africa’s fastest-growing economies, appears set to boost the raising of capital and stock prices over the course of 2019.

Rapid Development

Ghana first began to explore the possibility of establishing a stock exchange in 1954, when the transitional government led by Kwame Nkrumah, Ghana’s first president, issued the nation’s first Treasury bill. However, political turbulence over the following decades meant that until the 1980s capital market activity remained informal.

In 1989 a committee was formed to take control of the long-delayed stock market project; this resulted in the establishment of the GSE, which began trading in November 1990. The exchange initially opened with only 11 equity listings and one commemorative bond, and it was served by just three stockbrokers.

Indeed, nearly all its processes were manual, including the clearing and settlement system and the pricing of each listed security, with traders posting their orders on whiteboards. The GSE has since developed dramatically; the trading system is now fully automated, while the clearing, settlement and depository functions of the exchange are provided by the Central Securities Depository, a subsidiary of the Bank of Ghana (BoG) and the GSE. As a result of these developments, the bourse is now among the most significant on the continent, with the country’s financial markets ranking seventh out of 20 countries in the Absa Africa Financial Markets Index 2018, which is published by the independent policy think tank Official Monetary and Financial Institutions Forum and the South Africa-headquartered financial services company Absa. The index rates the maturity, openness and accessibility of financial markets across Africa, incorporating the views of more than 60 institutions operating on the continent.

Market Structure

The GSE provides a platform for three types of listing, namely preference or equity shares, government or corporate debt, and funds, which can include either mutual funds or close-ended unit trusts. As of late 2018 there were 35 companies listed on the main market of the GSE, with natural resource companies, food and beverage firms, and financial institutions accounting for the largest proportion of market capitalisation.

Since 2013 the GSE has operated the Ghana Alternative Market (GAX), a parallel market designed for start-ups and small and medium-sized enterprises (SMEs) seeking to raise capital. In order to attract smaller companies, the GAX has imposed less onerous listing requirements than the main market. For example, while the main market of the exchange requires a minimum stated capital level of GHS1m ($216,000), the GAX requires GHS250,000 ($54,000).

Similarly, while the country’s primary index mandates that a company must be able to prove at least three financial years of pre-tax profits before they are able to list on the exchange, the parallel market imposes no such requirement, only proof that the firm can highlight the potential to make a profit within three years. Furthermore, listing and application fees have been waived completely, and GAX-listed companies only pay an annual fee of GHS2000 ($432). “The progress of the parallel market for SMEs is very encouraging, though it has yet to see serious activity,” Martin Ofori, CEO of investment banking firm Crystal Capital and Investments, told OBG. “This is due to a low risk appetite and lack of investment culture, with the retail market seeing banks as the sum of the financial services available.”

In March 2018 the authorities announced efforts to boost activity on the GAX in order to increase the number of listed companies – which stood at five in January 2019 – to 50 by 2020. In addition to boosting awareness of the benefits of the exchange among companies, the GSE is directing potential clients to a new listing support fund, which has been established to help candidate firms cover the costs associated with the listing process (see analysis).

Developing Debt Market

Prior to 2015 Ghana’s debt market was dominated by over-the-counter trading carried out through banks. The bulk of this was transactions in government bonds, coupled with a relatively small number of corporate instruments. However, a number of major stakeholders, including the GSE and the BoG, came together to formalise this activity and establish a secondary market for fixed-income securities on the exchange.

In August 2015 the Ghana Fixed-Income Market (GFIM) began trading, with the Securities and Exchange Commission (SEC) approving a set of rules and guidelines to govern the market the following year. With the GFIM still in its early stage of development government debt forms the majority of its listings. Of the GHS138bn ($29.8bn) worth of debt securities issued in 2018, around GHS136.9bn ($29.6bn), or 99.3%, came from the government, the BoG or the government-owned Ghana Cocoa Board, while only GHS1.1bn ($238m), or 0.8%, was composed of corporate debt. Ongoing efforts to improve the transparency of the exchange along with rapid economic development in Ghana can be expected to stimulate greater corporate bond issuance on the GFIM over the medium term. The development of Ghana’s debt market has also improved the country’s ability to issue sovereign debt through international markets, establishing a yield curve by which corporates are able to gauge their offerings. Following the decision by the US Federal Reserve to tighten its monetary policy in 2018, there were fears that emerging market bond issuance would be less attractive to global investors. Nevertheless, Ghana successfully undertook an ambitious sovereign debt offering in 2018, issuing a dual tranche with a 30-year maturity, the longest in the country’s history. Ghana raised a total of $2bn from the offering, split evenly between a 10-year bond priced at 7.63% and the maiden 30-year issuance priced at 8.63%. The sale was more than three times oversubscribed, highlighting strong investor confidence in the country despite challenging international conditions. Building on the success of this issuance, the Ministry of Finance announced in September 2018 its intention to sell between $5bn and $10bn in century bonds. While the deal had yet to materialise as of January 2019, were it to proceed, it would be the world’s biggest sovereign issuance of 100-year dollar-denominated securities.


Since 2011 the GSE has published two indices, the GSE Composite Index and the GSE Financial Stocks Index, which together form the principal means by which market performance can be judged. The composite index – which is calculated from the values of each of the market’s listings, including financial listings – followed a broadly stable trajectory after the establishment of the GAX in 2013, travelling between 1950 and 2450 points for the first two years, before declining to 1550 points by the close of 2016. However, in 2017 the market rose significantly, with the main index showing a 52.7% gain over the year. This performance was largely attributable to improving macroeconomic conditions, declining inflation and a falling 91-day Treasury interest rate. Further interest in the exchange was generated by the restoration of the exemption from capital gains tax for listed securities. Total market capitalisation, meanwhile, rose from GHS52.7bn ($11.4bn) in 2016 to GHS58.8bn ($12.7bn) in 2017, with the volume of traded shares increasing from just over 237m to 321.3m. Of the 38 listed companies on the index, 19 posted rises in 2017; Benso Oil Palm Plantation registered the biggest gain at 194%, followed by Ghana Oil Company with 145% and Standard Chartered Bank at 107%.

This strong upwards trajectory continued during the first four months of 2018, with the index rising by 35% before falling back during the remainder of the year, resulting in a full-year loss of 0.29%. Several factors contributed to this weaker performance in the second part of the year, notably the disappointing performance of several key companies during 2017, an issue that was announced in the second quarter of 2018. This was compounded by a general lack of liquidity in the economy as a result of the decision by the BoG to tighten monetary policy to combat inflation, coupled with the exit of foreign capital following the depreciation of the Ghanaian cedi.

Nevertheless, efforts by the country’s central bank to bolster liquidity by implementing stricter capital requirements for banks, coupled with a return to macroeconomic stability, point to a positive outlook for 2019. Ratings agency Moody’s stated in October 2018 that these factors are set to boost the profitability of lenders. Similarly, analysts at both the Ghana-based Databank Group and SAS Finance Group forecast in January 2019 that the composite index could increase as much as 30% over the course of 2019.


The securities industry in Ghana is overseen by the SEC, which is mandated with promoting the orderly growth and development of an efficient and transparent securities market. The SEC governs according to the Securities Industry Act 2016 (Act 929) and its accompanying regulations.

The law has brought a broader range of market participants into the regulatory remit of the SEC, including private equity firms, venture capital firms and credit rating agencies. It has also more clearly defined the roles of service providers, such as accountants, auditors, legal practitioners and valuers. Following efforts by the SEC and GSE authorities to open up the capital-raising platform, non-residents can now invest in the market, and approximately 20 licensed brokerage companies have established systems for serving foreign clients. A further 10 institutions offer full custodial services to non-residents.

Some legislative changes are beyond the remit of the regulator. For example, alterations to the provisions of the Income Tax Act 2015 (Act 896) removed the 3% rebate on income taxes for listed companies in their first three years of listing on the exchange and also brought listed securities under the umbrella of capital gains tax. These changes placed the GSE at a regional disadvantage but, following pressure from the GSE authorities and the SEC, the government reintroduced these incentives in the 2017 budget.

Furthermore, with a view to securing the long-term growth of the exchange, the GSE has adopted a firmer approach to compliance. In August 2017 it suspended trading of the shares of five firms for failing to comply with continuous listing requirements. These developments dovetail with efforts by the BoG to consolidate the financial services sector, by doubling the minimum capital requirements for banks to $479,000. Since the passing of the December 2018 deadline for the capitalisation level at least seven local banks have closed.

IPO Pipeline

The positive outlook of the exchange’s main index had raised hopes among stakeholders of renewed initial public offering (IPO) activity on the GSE. According to research carried out by Ghanabased FirstBanC Financial Services, the volume of IPOs over the past decade has been relatively modest: between 2007 and 2017 there were a total of 12 offerings, with 2015 being the busiest year of the period with four IPOs. While there were no IPOs in 2017, improving market conditions over the year brought a number of announcements of intention.

Higher minimum capital requirements for Ghana’s banks and the related consolidation of the financial services sector has led to rising expectations that the industry will be a key source of IPO activity. In March 2018 Energy Bank Ghana, which a local subsidiary of the Nigerian conglomerate Energy Group, announced a plan to raise capital on the exchange. After a series of delays the lender reaffirmed its intention to issue an IPO in November 2018 and raise GHS340m ($73.5m). However, in January 2019 Energy Bank did not manage to clear the GHS68m ($14.7m) minimum threshold required to list on the exchange.

Despite the IPO’s failure, the repeated delays hastened calls for the process to be simplified and streamlined to encourage greater activity. This was followed by increased activity in 2018, with the issuance of an IPO by MTN Ghana, the local subsidiary of the South Africa-headquartered telecommunications group MTN. The offering, which was launched in May 2018, floated a 35% stake in the firm. In September 2018 the company announced the successful completion of the IPO with a total of GHS1.1bn ($238m) from around 128,000 individual applicants.

Reform & Expansion

To make the exchange a more attractive destination for companies wishing to raise capital, some major reforms have been undertaken. Between 2012 and 2017 the SEC successfully implemented a strategic plan for the reform of the sector. This process resulted in the creation of new guidelines in areas such as registration, licensing, professional service providers, as well as a framework for the implementation of risk-based supervision. Furthermore, in an effort to improve human resources, the body created the Ghana Investment and Securities Institute in late 2018. The institute is governed by a board of directors drawn from the SEC, the GSE and the Ghana Securities Industry Association, and is intended to improve professional training.

During this time a new investment instrument in the form of the country’s first exchange-traded fund (ETF) – which was launched on the GSE in 2012 – was created. The NewGold ETF, which is operated by the South Africa-based investment bank Absa Capital, was first listed on the Johannesburg Stock Exchange, with secondary listings in Botswana, Nigeria, Mauritius and Namibia. The investment vehicle tracks the South African rand price of gold and is underwritten by physical gold stored in secure depositories. The arrival of the NewGold ETF in the GSE allowed both institutional and retail investors to securely invest in the international bullion market, while making use of the low management fees associated with ETFs. Significantly, the arrival of the NewGold listing resulted in the creation of a set of ETF rules by the SEC, providing a framework for the launch of similar instruments on the exchange in the years to come.

The period of reform also saw the launch of the Ghana Commodity Exchange (GCX), a move which represents the financialisation of the commodities market. The bourse will see cocoa, rice, cashew, shea and maize traded, among other items, though the implementation timeline will vary for each commodity. The exchange has launched with a spot market and will move into futures for certain crops sometime during 2019. Kadri Alfah, CEO of the GCX, told OBG, “The chief benefit of the introduction of an exchange system is the increased role of the price discovery system; the real value of crops will be known to the sector and, subsequently, the market will be further integrated with the global supply chain.”

The divergence between the international and domestic price of commodities, such as cocoa, has long distorted the commodities market, often resulting in unrepresentative pricing and unregulated middlemen. “As the market system varies from the established one, there is much capacity building to be done,” Alfah told OBG. “The processes and benefits need to be argued, and when 80% of farmers are new to the technology this is a considerable investment.”

The regulator is currently formulating the next phase of its development strategy. The new five-year plan, which is expected to be launched in the early stages of 2019, is expected to focus on the expansion of alternative investments, such as private equity funds. In addition, the sector may also see further expansion related to ongoing attempts to harmonise and integrate the capital markets of West Africa. These efforts, which are being undertaken under the oversight of the West African Capital Markets Integration Council, aim to establish a West African Securities Market, complete with a common trading platform and a single order book by value traded. The strategy is being rolled out in three phases, the first of which has seen brokers given the ability to trade in the markets of member countries through sponsored access by domestic brokerage firms.

Fund Management

Ghana’s equity and debt markets are also the focus of an increasingly active fund-management industry. For regulatory purposes, these are divided between the fund-management segment, pension funds and collective investment schemes. The latter of these subsegment consists of pools of funds managed on behalf of investors by a professional money manager.

According to the SEC, the number of fund managers operating in Ghana stood at 148 in early 2018, with firms such as Gold Coast Fund Management, Databank Asset Management and Nordea Capital accounting for the largest amount of assets under management. As per the most recent SEC data, these funds were valued at GHS21bn ($4.5bn) as of early 2018, with GHS7.2bn ($1.6bn) held by pension funds and GHS2.2bn ($475m) managed by collective investment schemes.

The high returns available from Ghanaian Treasury securities mean that money market instruments have traditionally been a popular choice for fund managers. However, short-term yields have declined in January 2016-January 2019, falling from 22.7% and 23% for the 91-day and 182-day bills, to 14.7% and 15.1%, respectively. As a result of this decline in yields market preference for the instruments fell over this period. Nevertheless, the ongoing move towards macroeconomic stabilisation is expected to see increased portfolio allocation in the market over the medium term.


An anticipated improvement in the economic conditions of the country makes for a positive outlook for the GSE. Increased output from oilfields and growth in the manufacturing sector are expected to enable the government to reduce its fiscal deficit, lower inflationary pressures and boost consumer demand. According to the IMF, the country’s GDP expanded by 6.3% in 2018 and is expected to grow by approximately 7.6% in 2019. This compares favourably to the IMF’s sub-Saharan African forecast of 3.5% for 2019. Therefore, a key question for the GSE and its regulator will be how to capitalise on this positive macroeconomic trend in order to boost activity on the exchange and increase liquidity in the market.

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The Report: Ghana 2019

Capital Markets chapter from The Report: Ghana 2019

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