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The Capital Market, sources of funds mobilization

...But Ghanaian own companies unwilling to list

By Fred Sarpong
One of the major sources of revenues for companies in Ghana has been the Capital Market. But many companies especially the local enterprises have failed to utilize the services of the market.
The capital market, since it started operation in the country has witness various developments. Currently, the market is one of the highly regarded performing markets in Africa.
The capital market provides a market for raising long-term capital, it serve as major link between companies and Government with long-term capital needs and the public with savings to invest, and it makes provision of long term capital to businesses and government promotes economic growth.
It also makes provision of long term capital to businesses results in job creation, efficient capital market encourages savings, and it provides liquidity to investors who hold long-term instruments.
Apart from these positive initiatives, the Ghana government and private institutions in the country have failed to take advantage of the capital market to raise long-term capital for their business activities.
Apart from the Ghanaian own enterprises, which have failed to utilize the services of the  market, foreign companies have found it prudent to list on the Ghana’s capital market and raise enough funds for businesses.
About 34 companies listed on the Ghana Stock Exchange (GSE) have managed to raise long term finance and also expanded their operations, since it started operation in 1990.
The government for that matter, who knew the importance of the market has several failed to list most of the state own enterprises on the bourse. In 2012 Budget statement presented to Parliament, the then Minister of Finance and Economic Planning, Dr. Kwabena Duffour stated that ‘for the past 20 years the GSE has enjoyed tax holidays yet total capitalization of the stock market has not met the country’s expectation.’
 ‘To improve the capitalisation, the government is extending the stock market tax holiday for another five years. In addition, the exemption form capital gain tax has been extended for further five years to promote investment and deepen activities on the stock market. Mutual funds and unit trust funds that invest in stocks on the stock market will also be exempted from VAT on financial services.” This was contained in paragraph 198 on page 55 of the 2012 Budget statement.
Despite this initiative by the government, it has never been interested in raising funds from the stock market, let alone Ghanaian private companies.
The Ghana stock market cannot be developed on these lines alone. It takes more effort and deliberate government policy to widen and deepen the growth of any stock market. Apart from having the macro-fundamentals right to create that platform, there must be a deliberate and conscious government policy to grow the market.
Regulatory bodies are established to provide integrity to the financial markets, to protect consumers, to protect the national interest and to protect the integrity of the economy.
There are a lot of state own enterprises, which the government can list them on the GSE, in order to raise more money for expansion and development of those enterprises. Government institutions like Ghanaian Times, Graphic Communication Group Limited, Agricultural Development Bank, National Investment Bank, GHICO Distilleries, among others have all that it takes to be listed on the bourse.
The Government inability to list its own companies on the stock market shows that it does not have confident in Ghana’s capital market. This attitude from the government has not given a good signal to some Ghanaian private companies to even list on the market.
Ghanaian companies like Zoomlion, RLG, Ernest Chemist, KAMA Industry, Midland Financial Services, Business and Financial Times, SMS Ghana, Persol, SOFTtribe, and others can be listed on the stock market, so that Ghanaians will buy into them and become part owners. The perception behind Ghanaian company’s inability to list on the stock market is simple because, the owners of those companies are ‘selfish’ and want to put everything on their checks.
Mr Adu Anane Antwi, the Director-General of Security and Exchange Commission (SEC) told this magazine that a lot of people in Ghana lacked the financial literacy to make informed decisions, and at the same time the privileged for few who had some knowledge about securities equally lacked the intimate understanding of how the market really worked.
He indicated that the importance of the capital market in providing investment opportunities that would lead to personal wealth creation for the individual’s secured future. He said the capital market held the key to unlock the great economic potential of the country; hence, the need for a national crusade to create awareness and get all to use the capital market as the key to wealth creation.
In 2012, the composite index change was 22% as compared to negative 3.10% recorded in 2011. The market capitalization of the stock market was GHc57, 217.48 million at the end of 2012, compared to GHc47, 347.23 million in 2011. Volume traded was 279.80 million in 2012 compared to 419 million. However, value traded in 2012 was 167.93 million as compared to 446.5 million in 2011 and amount raised in on the stock market was GHc1, 919.21 million as against GHc1, 891.63 million.
Oxford Business Group magazine stated in its 2012 edition that ‘the most heavily traded stock on the exchange in terms of value in 2011 was Ghana Commercial Bank, with GHc3.52 million worth of transactions. This accounted for close to half of all trading in financial shares, which were the most traded shares by sector, at GHc7.61 million.’
It’s also noted that ‘Tullow, oil producing firm is currently the largest firm listed on the GSE by market capitalisation, at GHc34.96 billion, representing 63.3% of the GSE’s entire market capitalisation. This is followed by AngloGold Ashanti at GHc13.01 billion, representing 23.6%, and Ecobank Transnational Corporation at GHc1.62 billion, representing 2.9%. All other listed firms have market capitalisation of less than GHc1 billion. Among the top 10 firms by market capitalisation, four are financial services firms, two are petroleum firms, two are mining firms and two are manufacturers.’
The managers of the stock market have plan to allow small and medium-sized enterprises (SMEs) to list on the GSE on the basis of relaxed regulatory requirements and a move by GSE to raise minimum capital requirements for brokerages firms more than ten-times, from GHc100,000 to GHc1 million. Firms have until the end of 2013 to meet the new requirements, which also include increasing minimum tradable assets from GHc80,000 to GHc800,000.
In other regulatory developments, the Security and Exchange Commission, the regulator of the market is working on reforms that would allow for borrowing and lending securities and could permit short-selling. There are also plans to develop a derivatives market, though concrete details yet to be made available.
‘The capital market has assumed increasing importance in the financial markets in Ghana. However many citizens have been left out of the market either as issuers or investors. Public education on issues affecting the market is therefore critical, in order to ensure greater financial inclusion in the country. It is time for Ghana to move from engaging in poverty reduction to the promotion of in wealth creation,’ said Mr. Anane Antwi.
The success and performance of financial markets including the capital markets depend on flow of information and the degree of knowledge of the public and investors at large.
The Securities and Exchange Commission (SEC), the sector regulator is a statutory body set up by the Securities Industry Act, 1993 (PNDCL 333) as amended, with the primary responsibility of regulating the capital market in Ghana.
The SEC is given both regulatory and market development mandates under PNDCL 333 as amended. The SEC also has investor protection mandate.
Its key function is to advise the Minister of Finance and Economic Planning on all matters relating to the securities industry; and to examine and approve invitations to the public made by issuers.
Also is to register, license, authorise or regulate securities exchanges, commodities and futures exchanges, securities depositories, clearing and settlement institutions, credit rating agencies, fund managers, investment advisers, unit trusts, mutual funds,  hedge funds, private equity funds, venture capital funds, nominees, underwriters, issuing houses, registrars, custodians, trustees, primary dealers, and broker-dealers.


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