Liquidity constraints remain one of the biggest hindrances to foreign investment on the majority of sub-Saharan Africa’s frontier markets, and the Ghanaian Stock Exchange (GSE) has remained a prime example of this.
Published trading statistics from the exchange show that the All Share Index in the first quarter of 2010, while seeing an improvement in volume and value traded for the quarter on a year-on-year basis, had a liquidity ratio (by value, and including AngloGold Ashanti) of just 0.10%. Daily average number of shares traded during the period was 415,146 shares, while value was approximately US$195,000. Of these trades, the financial sector dominated proceedings, with 76% of the transactions, 86% of the volumes and 75% of value traded.
The GSE is aware of the challenges, and has been looking at ways to boost the liquidity of the exchange by pushing for additional, in particular foreign, listings. The chief executive of the exchange in April 2010 was quoted in an interview with Reuters saying that foreign players, especially in the telecoms, energy and mines sectors of Ghana’s economy, should list shares locally for the benefit of local investors. He went as far as to suggest that perhaps, following in the footsteps of Tanzania, this should be made obligatory, perhaps by linking a listing to the issuance of operating licences, with for example a 10% listing requirement.
Of course while well intentioned, such a statement could in fact hinder foreign companies investing in the country, as this could be seen as infringing on a company’s right to structure its business as it sees fit.
While the country’s president echoed the same sentiments, this suggestion is yet to become official policy, and hopefully more creative ways will be found to incentivise additional companies to list on the exchange.
Positively, the exchange has announced that it expects two more companies to list by the end of the year. These are London-based Tullow Oil, and a local real estate company, Comet Properties. These will be the first new listings in two years, and the exchange hopes that driven by oil revenues, once these come to the fore, more listings will be seen in the short to medium term.
Also expected to boost volumes on the exchange will be pension fund reforms, as well as a change in the trading strategy of the state pension company SSNIT, which holds large chunks of many of Ghana‘s listed stocks, and has traditionally done so on a long only basis. A more active approach by SSNIT would also free up liquidity.
A Reuters poll of analysts expects the GSE All Share Index to gain more than 25% this year. We are not as optimistic for 2010, but certainly see strong gains coming through in 2011 once oil revenues come on stream.
Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.