William Adjovu, CEO, Liberty Capital, on reforming the markets: Viewpoint

Access to long-term capital remains a major barrier to private sector growth in Ghana. Firms access long-term capital primarily through the capital markets, and as the economy continues to expand, demand for long-term capital to facilitate strong growth will also continue to rise. In Ghana the cost of capital, access to credit and access to other forms of capital remain a major concern for businesses.

Our greatest opportunity, as capital market operators, is to push through the reform of the securities industry law. The law in its current state limits innovation in the development of capital market products that attract the right type of investment flows and that, subsequently, become instrumental to the growth prospects of companies in need of long-term capital. Pension reform also provides us with the biggest opportunity to unlock funds that have hitherto been held by the largest fund manager, the Social Security and National Insurance Trust, by opening up the market to private players.

The next big shift in the capital markets will be to ease restrictions on portfolio allocations to capital market instruments, listed bonds and equities. This will stimulate secondary trading of existing instruments and make the capital markets attractive to firms seeking capital. This will create a thriving primary issuance market. All this would be great for the long-term sustainability of capital market operators.

The challenge has been to translate all the policy work and reforms that the government, market regulators and capital market operators have been formulating to appeal to the numerous owners of small and medium-sized enterprises (SMEs). There are major issues that continue to make capital market penetration in the economy challenging. Many businesses continue to see low levels of liquidity and market regulations as unfavourable to them. Hence, funding growth through the capital markets can seem to be unattractive. However, in recent years, as the economy has struggled and credit has tightened, more and more SMEs are beginning to see capital markets as a viable and low-cost way to raise funds to fuel growth and expansion. The Ghana Stock Exchange (GSE) is the main point of call for companies willing to explore those opportunities.

In the past the technicalities, regulations and costs associated with listing either debt or equity instruments had been a major barrier. The Ghana Alternative Exchange (GAX) has been created to eliminate some of the barriers to accessing long-term capital by SMEs. The GAX offers a low cost, low-regulatory barrier environment for small companies looking to use the capital markets to fund growth or expansion.

The GAX, hosted by the GSE, offers SMEs in early stages of growth the opportunity to access longterm capital in a less stringent but still financially viable environment. Two unique features of the GAX are guaranteed subscription of the minimum-listed shares to ensure a successful initial public offering (IPO), and a listing fund that allows companies to borrow funds at a low cost to finance 100% of the advisory, legal and regulatory fees associated with listing.

As a capital market operator, this offers a low-risk opportunity to offer advisory services to a market that was hitherto untapped. SMEs form the majority of our corporate landscape and, by being part of their effort to raise long-term capital, we see an excellent opportunity to create business services which are centred around preparing SMEs to take advantage of the ability to attract new shareholders or investors using the capital markets.

The GAX is currently still in its early stages but so far we have had a few successful IPOs and the listing of local currency-denominated bonds for a financial services company. The demand for advisory services by SMEs continues to increase as business owners begin to acknowledge the advantages of using the capital markets to fund growth and expansion.