In August, the burgeoning Ghanaian market saw the introduction of the NDK-Aggregate Bond Index (NDK-ABI), a market capitalization-weighted index. This index, apart from helping investors and fund managers better measure the performance of their portfolios, and providing a benchmark for their investment decisions, will create awareness of trading on the secondary market in publicly issued medium and long terms debt instruments.
Mr. Millison Narh, First Deputy Governor of the Bank of Ghana, said the NDK-ABI, the second to be issued within the financial markets since 2006, signifies that ”undoubtedly the financial markets in Ghana are undergoing rapid transformation with innovative financial products.”
There is a common belief that there is no secondary market activity in Ghanaian bonds. The market is indeed shallow but the Central Securities Depository (CSD) has, in recent times, reported some impressive activity. The first half of 2013 registered more than 25,000 transactions with a total value exceeding GHS 6.4 billion, or approximately US$3 billion. Foreign investors dominate the 3-year bonds, which incidentally are the most liquid.
The NDK-ABI is the second to be issued in the country’s financial markets since 2006 and analysts say its introduction is timely given a raft of long term debt issues lined up on the heels of the recent, successfully issued 10-year Eurobond that raised US$1 billion from the global financial markets.
While Ghana’s market may not be big, its economy is fast-growing, averaging more than a six percent annual GDP growth rate over the past half-decade, and its friendly climate for business makes it a more attractive place to invest.
The country’s changing business environment is not going unnoticed. It ranked tenth out of 102 countries across six continents featured in the inaugural version of Baseline Profitability Index (BPI) which ranks countries by three main components of: asset growth, preservation of value, and repatriation of capital, thus helping foreign investors determine in which countries their investments would yield not only the highest returns but where they could retain and repatriate as much of it as they wished.
In almost a decade, since the establishment of the CSD, there has been substantial improvement in transactions in the fixed income market.
“We have in place a very efficient electronic auction system for the issue of government and Bank of Ghana securities in the primary market. The 14 primary dealers submit their bids from the comfort of their offices which are electronically processed,” said CSD’s CEO Mr. Stephen Tetteh adding that ownership is determined immediately fund settlement is confirmed and is available for use by the investor.
As at the end of June 2013, the CSD had appointed 49 participants made up of all the 27 banks operating in the country, eight brokerage firms and 12 custodian banks, as well as SSNIT and the Bank of Ghana. Accounts for more than 515,000 investors had been opened of which an estimated 2,000 are foreign investors.
In 2012, government issued more than GHS20.2 billion to cover repayment of maturing issues and also in new issues in addition to GHS6.3 billion issued by the central bank and Ghana Cocobod.
At the end of June2013, the CSD was managing a total of more than GHS20.3 billion in custody made up of various maturities on behalf of the three issuers. Of the total amount in custody, foreign investors hold more than GHS6.6 billion or 32% obviously in the three-year and five-year bonds. Foreign holdings constitute more than 90% of the total outstanding in the three to five year category.
For the first half of the year, the CSD has paid over GHS14.8 billion in interest and maturity to more than 450,000 beneficiaries.
The CSD continues to work towards making the Ghanaian market more efficient by providing an interface with the RTGS of the central bank to provide a straight through settlement. Mr. Millison Narh has observed that as a market for long-term savings, the bond market in Ghana can operate efficiently within the context of macro-economic stability.
Incidentally, the Ghanaian economy after a couple of years of sterling performance has been rocked by government overspending in 2012, which was compounded by a debilitating energy crisis from September 2012 through the first half of 2013, as well as ongoing agitations for higher utilities tariffs by service providers and continuing labour unrest.
Consequently inflation moved up to 11.4 percent in June from 10.1 percent in January, a marked deterioration from a long spell of single digit inflation. The local currency however remained relatively stable, depreciating by 3.4 percent in the first half of the year compared to 17.4 percent depreciation in the same period of 2012.
However, inflows from cocoa loan syndication and the US$1billion 10-year Eurobond, due in the second half of the year, are expected to shore up gross international reserves and calm pressures in the foreign exchange markets.
Perhaps signaling a return to better times, economic growth improved in the second quarter of the year, evidenced by a rebound in the Bank of Ghana’s Composite Index of Economic Activity and consumer confidence, as well as improved credit conditions.
The Central Bank also anticipates that improved energy supply and increased oil production will support growth prospects for the rest of the year.
Ghana, it seems, will continue to offer tempting opportunities to foreign investors to dip into its market.