Transcript Investment Climate for Financial Sector Investment

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)
7/17/2015
Outline
• Introduction
• Global Market Trends
• Investment Climate- Opportunities
• Investment Climate –Challenges
• Overview of Financial Market Landscape
• Investment Options
• Conclusions/Way Forward
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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.
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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. OthersUK, Hong Kong & Thailand etc
• Commodity markets are likely to recover
strongly in 2010.
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Ghanaian Investment Climate:
Opportunities
• Regulatory and Judicial framework fairly strong.
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–
–
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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
Exchange).
market
(The
Ghana
Stock
• The Ghana Investment Promotion Center serves
as a “one-stop” shop for investor information.
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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
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–
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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.
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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
Cedi/Dollar (Dep./App.)
Growth Rate
Inflation Rate
Prime Rate
91-Day Treasury Bill
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2010
2011
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.
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Ghanaian Investment Climate:
Opportunities
Social:
• Large educated labour force
• Youthful population…
• Large un-banked population (approx. 80%)
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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
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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
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–
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Get rich quick mentality
Short-termism/limited commitment
Investment Climate In The
Ghanaian Financial Sector
- Landscape
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Financial Market Landscape:
Table 1:
FIRMS
Banks
Rural Banks
Non-bank Finan
Forex Bureau
NUMBER
28
128
44
273
Insurance Companies
Re-Insurance Companies
Insurance Brokers
21
2
35
GSE Listed Companies
GSE Licensed Stockbrokers
35
17
Source: GIPC website & updated with figures from Databank Research
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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
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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)
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Investment Options
What Returns Can I Make?
Comparative Returns ('96 -'08)
9000%
8000%
7000%
6000%
5000%
4000%
3000%
2000%
1000%
0%
8301%
2906%
2227%
739%
Epack
Share
91-Day Bill
Fig. 3: Comparative Returns (Oct. 1996- Dec. 2008)
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1805%
I Year
Bond
Dollar
860%
Inflation
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)
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Challenges
• Bureaucracy – Dealing with Govt.
Agencies
(GIPC and Registrar General etc)
• Limited disclosure of investment risks
• Illiquidity of Stock market
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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.
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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..
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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
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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
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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
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Thanks for your Audience &
congratulations to all newlyinducted members of the ACCE!
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