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Investment Climate In The Ghanai

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					            Investment Climate In The
            Ghanaian Financial Sector
              - Opportunities, Challenges & Way Forward

      Induction Ceremony of Association of Certified Chartered
                           Economists


                         Venue: UGBS, Legon
                 Dr Kwabena Frimpong (Databank)


4/12/2010
                           Outline
    • Introduction

    • Global Market Trends

    • Investment Climate- Opportunities

    • Investment Climate –Challenges

    • Overview of Financial Market Landscape

    • Investment Options

    • Conclusions/Way Forward
4/12/2010
                 Introduction
• Comment on Topic…

• Not a seasoned economist like most you but
  matters of the economy should interest all…

• Need to focus not merely on difficulties but also
  on opportunities

• Financial Domain – Short & Long-term Markets.

4/12/2010
       Current Global Market Trends
• The worst of the global financial crisis
  seems to be over; but recovery will be
  gradual.

• Germany, France, Japan have announced
  that they are out of the recession. Others-
  UK, Hong Kong & Thailand etc

• Commodity markets are likely to recover
  strongly in 2010.
4/12/2010
      Ghanaian Investment Climate:
                  Opportunities
• Regulatory and Judicial framework fairly strong.
            –   Constitutional government
            –   Banking Act 2004 (Act 673)
            –   Foreign Exchange Act 2006 (Act 723)
            –   Securities Industry Law (PNDC Law 333)
            –   National Pension Law (Act 766) (3-tier pensions in Jan 2010)


• Active stock                market         (The        Ghana          Stock
  Exchange).

• The Ghana Investment Promotion Center serves
  as a “one-stop” shop for investor information.
4/12/2010
         Ghanaian Investment Climate:
                                  opportunities

•   Sustained economic growth in the past two decades, with growth peaking at
    7.3% in 2008.

•   Enhanced macroeconomic stability achieved between 2004 and 2006 mainly
    due to
               – Fiscal discipline
               – Currency stability

•   Generally sound macro-economic environment
     –   GDP growth was 7.3% in 2008
     –   Inflation closed 2008 at 18.1% (July’09: 20.5%)
     –   91-Day treasury bill closed 2008 at 24.2% (August’09: 25.9%)
     –   Cedi/Dollar YTD closed 2008 at 20.1% (August’09: 17.6%)


• Oil discovery will impact medium-term growth and development.


4/12/2010
      Ghanaian Investment Climate:
             opportunities
 Fig: 1
                     Ghana: Trend of Macroeconomic Indicators
            40%


            30%


            20%


            10%


            0%


          -10%


          -20%


          -30%
              2003   2004   2005   2006   2007   2008    2009   2010   2011

                                    Cedi/Dollar (Dep./App.)
                                    Growth Rate
                                    Inflation Rate
                                    Prime Rate
                                    91-Day Treasury Bill




4/12/2010
      Ghanaian Investment Climate:
                   Opportunities
• BoG’s new minimum capital requirement for
  obtaining a Class 1 banking license (universal
  banking) at GH¢60 million.

• Banks with local majority share ownership - a
  capitalization of at least GH¢ 25 million by the
  end of 2010 & GH¢60 million by 2012.

• New requirement to position the banks to take
  advantage of the oil economy and to facilitate
  credit expansion for higher growth.

4/12/2010
  Ghanaian Investment Climate:
                  Opportunities

Social:
• Large educated labour force

• Youthful population…

• Large un-banked population (approx. 80%)



4/12/2010
      Ghanaian Investment Climate:
              Challenges

     Relatively high inflation, interest rates & Currency
      depreciation- Disincentive to Foreign investor
     Majority of population outside banking
      sector/pension market
     Reversal of portfolio inflows
     Slower remittance inflows and FDI


4/12/2010
      Ghanaian Investment Climate:
                                       Challenges
•   Inadequate Risk Mgt Expertise & Orientation (recent case of 5 Nigerian Banks
    should awaken us)

•   Lack of Expertise in Derivatives/Futures Trading


•   Low levels of financial literacy and participation in financial market:
                                 Bank account -18% (4million est)
                                 Mutual funds - 1% (300,000 est)
                                 Life insurance -3% (700,000 est)


•    Enforceability of contracts


• The Labour market is beset with
      –     Get rich quick mentality
      –     Short-termism/limited commitment



4/12/2010
            Investment Climate In The
            Ghanaian Financial Sector
                    - Landscape




4/12/2010
           Financial Market Landscape:
Table 1:

           FIRMS                                                       NUMBER
           Banks                                                            28
           Rural Banks                                                     128
           Non-bank Finan                                                   44
           Forex Bureau                                                    273


           Insurance Companies                                                      21
           Re-Insurance Companies                                                    2
           Insurance Brokers                                                        35

           GSE Listed Companies                                                     35
           GSE Licensed Stockbrokers                                                17
               Source: GIPC website & updated with figures from Databank Research

  4/12/2010
            Investment Options
Both Portfolio and Direct Investments:
• Stock, Pensions market
• Government debt market
• Commercial papers
• Certificate of deposits
• Mutual funds
• Direct equity investment in industry

4/12/2010
            Investment Options
• Avg. ROI of banking sector (03-08):25% ;
   Insurance- 15%;   Trading & Distribution- 21%; Agric -12%

• Avg. stock market returns are competitive
  globally (37% over 12yrs)

• Ann. Avg Returns for equity funds like
  Epack ( 47% as at Dec08)

• Treasury market returns are competitive
  (Ann. Avg of 28% over 12yrs)
4/12/2010
                 Investment Options

             What Returns Can I Make?


                                             Comparative Returns ('96 -'08)


                      9000%         8301%
                      8000%
                      7000%
                      6000%
                      5000%
                      4000%                     2906%
                      3000%                                 2227%
                                                                        1805%
                      2000%
                                                                                  739%      860%
                      1000%
                         0%
                                  Epack      Share      91-Day Bill   I Year    Dollar   Inflation
                                                                       Bond




            Fig. 3: Comparative Returns (Oct. 1996- Dec. 2008)

4/12/2010
                    Challenges
•     Lack of adequate knowledge/Information
      Asymmetry of financial market/Research
      Services

•     High Interest Rates/Inflation & Currency
      Instability

•     Lack of expertise in international transactions

•     Low income levels (can slow down mortgage
      market develop)

4/12/2010
                  Challenges
• Bureaucracy – Dealing with Govt.
  Agencies
   (GIPC and Registrar General etc)


• Limited disclosure of investment risks

• Illiquidity of Stock market

4/12/2010
                   Conclusions
• Enormous opportunities in Ghana’s economy
   – Country is well-endowed with mineral resources,
     political stability in addition to recent discovery of crude
     oil plus large un-banked population


• Significant inroads in macroeconomic and
  political stability which could potentially propel
  development over the long-term.



4/12/2010
                 Conclusions
• Challenges which could hinder the tapping
  of these opportunities.
   – Poorly coordinated policies and bureaucratic
     corruption
   – Inadequate Risk mgt expertise and orientation
   – Limited research information/ Difficulties of
     accessing information
   – Short-termism and get rich quick mentality
   – Volatility in Exchange rate and Inflation..
4/12/2010
               The Way Forward
 • Govt to assiduously work toward stability.
            – Reduce overall fiscal deficit to 9.4% in 2009 from 14.5% (24.2)
              in 2008
            – Stabilize currency and slow down inflation

 • Quicken pace for Stock market automation

 • More listings on GSE to enhance liquidity

 • Quicken pace for Commodity futures markets

4/12/2010
            The Way Forward
• Emphasis on risk management skills in
  business education


• GSE should offer professional courses on
  derivatives and futures


• Increased financial literacy and education

4/12/2010
            The Way Forward
• Enormous opportunities exist in pensions
  market following passage of Pensions Act
  (766): Innovative pension product dev

• Innovative products should developed for
  large un-banked population – vital effective
  implementation of monetary policies

• Research     Services      –   Consumer
  behaviour, Rich list, customized Industry
  Research, Customer Satisfaction Indices
4/12/2010
  Thanks for your Audience &
 congratulations to all newly-
inducted members of the ACCE!

4/12/2010

				
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