Business News of 2014-07-21

Capital mkt critical as external finance dries up

Director of the Financial Services Division at the Ministry of Finance and Economic Planning Joseph Chognuru says there is a need to develop the capital market to facilitate the national economic transformation process, especially in the wake of dwindling external sources of funding which has arisen as a result of the country’s current middle-income status.

Speaking at the launch of a capital market quiz competition for Senior High School students in Accra, he said a well-utilised capital market will provide access to relatively cheaper sources of long-term capital for infrastructure development and industrial growth.

“The dwindling of funding from external sources since the country attained middle-income status calls for us, as a country, to find innovative ways of mobilising resources internally. The surest way to address the national economic transformation process and to mitigate the effects of such external crisis is to develop our domestic capital market.

“The option to raise long-term financing remains limited; the banking system is only able to offer short-term funding with its attendant risk of mismatch. We need to work together to ensure that the capital market, and especially the corporate bond market, is placed on a sustainable growth path with a view to providing alternative source of funding to businesses and to reduce over-reliance on traditional bank financing,” he said.

Mr. Chognuru also implored actors in the capital market to work together to dispel the erroneous public impression that the capital market is a preserve of the elite. This, he said, can be achieved through continued financial education and awareness creation: “It is only when people become abreast with the benefits of the capital market that patronage will improve significantly; we therefore need to intensify the financial literacy and awareness campaign.

“A financially savvy society will ensure development and growth of small and medium-sized enterprises, increase demand for financial products and also promote sophistication and competitiveness in the market environment.”

There are indications that a vast majority of Ghanaians do not have adequate financial knowledge and skills to make informed decisions regarding the management of their finances as well as understanding details of financial products and services, including the capital market.

Financial literacy is an empowering tool that will ensure that economic agents are well-informed about the financial sector in order for them to participate meaningfully in the system for growth and transformation.

Source: B&FT
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