Opportunities still abound despite challenges

The financial market is brimming with opportunities, buoyed by robust performances from listed banks, telecom companies and agro-processing firms despite the current economic difficulties, Managing Director-Ghana Stock Exchange (GSE), Abena Amoah, has revealed.

The benchmark GSE Composite Index (GSE-CI) has gained 2.12 percent over the last four weeks and an overall year-to-date gain of 28.35 percent. Likewise, the GSE-FSI index has surged by 9.82 percent in the past four weeks – indicating a potential turnaround in financial stocks despite a year-to-date loss of 5.58 percent.

This positive trend is attributed to overall market growth, strong banking performance in first-half of the year, and increased liquidity infusion from coupon payments through the Domestic Debt Exchange Programme (DDEP).

Against this backdrop, Ms. Amoah – who spoke in Accra at the 2023 Ghana Economic Forum (GEF) themed ‘Build back better: IMF support, strategies to build a sustainable economy and dynamic business environment’ – emphasised the banking industry’s resilience, pointing out that profits for listed banks collectively soared by over 50 percent after June.

“There are still opportunities on the market; we have seen strong financial performances from the listed banks, telecom companies as well as certain agro-processing companies. So, the overall view we are seeing on the market is that the companies are posting strong financial results. We have also seen increased activities on the market by pension funds,” she said.

This growth comes as the banking sector showed resilience in the first half of 2023, with central bank data revealing a 21.2 percent annual growth in total assets to GH¢242.4billion by June. Moreover, profit-before-tax witnessed an impressive 51.2 percent surge in June 2023 compared to the previous year.

While acknowledging the banking sector’s positive momentum, Ms. Amoah expressed concern over the shift in banks’ investment patterns. She noted a decrease of nearly 40 percent in lending to businesses, accompanied by a substantial increase of investments in government securities and Treasury bills.

This trend raised questions about the cost of government borrowing, calling for a re-evaluation of the government’s borrowing rates.

Ms. Amoah also outlined the exchange’s history and achievements, as the performance captured by GSE-CI makes it one of Africa’s top-performing markets. However, she stressed the need to restore investor confidence – especially in the wake of recent events such as the Domestic Debt Exchange Programme (DDEP) and investor haircuts in government securities.

Similarly, she said diversification of capital sources has emerged as a key topic of discussion; highlighting the importance of companies considering equity financing and corporate bonds as alternatives to expensive bank loans.

This comes as listed banks plan to raise GH¢1billion by issuing securities on the GSE. The Accra bourse chief cautioned against repeating traditional investment patterns as a means of risk mitigation.

Ms. Amoah further highlighted the significance of interest rates in supporting job creation and the economic well-being of Ghana’s youthful population, advocating a collective effort to determine appropriate return rates and engage in productive discussions.

She expressed optimism that collaboration among market participants, policymakers and investors can address short-term challenges, ensure sustainable interest rates and foster economic growth – ultimately leading Ghana to a more stable and prosperous economic future.

Tackling high interest rates

Speaking about the current interest rate levels in the country at the forum, Dr. Joyce Afriyie, former Vice President of Bank of America, pointed out that “our inflation should be viewed more as a cost-push inflation rather than a demand-pull inflation. In a demand-pull inflation scenario, excess demand is the issue, and in such cases, interest rate policy hikes can help mitigate some of this excess demand. However, when it’s a cost-push inflation, we face a different challenge”.

She continued: “Raising interest rates under these circumstances will only escalate production costs because higher interest rates translate to increased borrowing costs. As a result, these producers, when borrowing at higher rates, will inevitably raise their production expenses”.

Reviewing the 1992 Constitution

For his part, Dr. Richmond Atuahene, emphasised the importance of assessing Ghana’s economic recovery in the post-IMF era across eight thematic areas. One of these crucial areas, as he highlighted, involves amending the 1992 constitution to introduce a cap on debt – aligning with practices in other jurisdictions.

“First, in the short-term, for Ghana to build back better post-IMF we must be prepared to amend certain aspects of the 1992 constitution; especially in the area of a Debt Cap or Debt Limit. For instance, setting a Debt to GDP ratio of 50 percent would help us prevent future debt crises, as the current domestic debt exchange has essentially harmed both the entire financial sector and the Bank of Ghana,” he stated.

Debt ceiling involves limiting the total amount of government borrowing. He referenced guidance from the Organisation for Economic Cooperation and Development (OECD), which recommends that emerging economies like Ghana maintain a lower threshold of 30 to 50 percent of debt relative to GDP due to their vulnerability to capital flow reversals.

In the medium-term, to truly build back better post-IMF, the country, he said, must pursue aggressive agricultural development strategies in partnership with the private sector. The goal is to accelerate the moderniation of agriculture and establish robust linkages, thereby creating a much-needed value chain system that integrates with industry.

This transformation should be driven by the application of science, technology and innovation. Dr. Atuahene pointed out that agriculture currently contributes 54 percent of Ghana’s GDP, accounting for over 40 percent of export earnings while simultaneously fulfilling over 90 percent of the country’s food requirements.

Furthermore, achieving the build back better vision also necessitates enhancing the competitiveness of Ghana’s private sector through access to more affordable financing, he said.