Presentation on theme: "5/6/2015 Investment Climate In The Ghanaian Financial Sector - Opportunities, Challenges & Way Forward Induction Ceremony of Association of Certified Chartered."— Presentation transcript:
5/6/2015 Investment Climate In The Ghanaian Financial Sector - Opportunities, Challenges & Way Forward Induction Ceremony of Association of Certified Chartered Economists Venue: UGBS, Legon Dr Kwabena Frimpong (Databank)
5/6/2015 Introduction Comment on Topic… Not a seasoned economist like most you but matters of the economy should interest all… Need to focus not merely on difficulties but also on opportunities Financial Domain – Short & Long-term Markets.
5/6/2015 Current Global Market Trends The worst of the global financial crisis seems to be over; but recovery will be gradual. Germany, France, Japan have announced that they are out of the recession. Others- UK, Hong Kong & Thailand etc Commodity markets are likely to recover strongly in 2010.
5/6/2015 Ghanaian Investment Climate: Opportunities Regulatory and Judicial framework fairly strong. –Constitutional government –Banking Act 2004 (Act 673) –Foreign Exchange Act 2006 (Act 723) –Securities Industry Law (PNDC Law 333) –National Pension Law (Act 766) (3-tier pensions in Jan 2010) Active stock market (The Ghana Stock Exchange). The Ghana Investment Promotion Center serves as a “one-stop” shop for investor information.
5/6/2015 Ghanaian Investment Climate: opportunities Sustained economic growth in the past two decades, with growth peaking at 7.3% in Enhanced macroeconomic stability achieved between 2004 and 2006 mainly due to –Fiscal discipline –Currency stability Generally sound macro-economic environment –GDP growth was 7.3% in 2008 –Inflation closed 2008 at 18.1% (July’09: 20.5%) –91-Day treasury bill closed 2008 at 24.2% (August’09: 25.9%) –Cedi/Dollar YTD closed 2008 at 20.1% (August’09: 17.6%) Oil discovery will impact medium-term growth and development.
5/6/2015 Ghanaian Investment Climate: Opportunities BoG’s new minimum capital requirement for obtaining a Class 1 banking license (universal banking) at GH¢60 million. Banks with local majority share ownership - a capitalization of at least GH¢ 25 million by the end of 2010 & GH¢60 million by New requirement to position the banks to take advantage of the oil economy and to facilitate credit expansion for higher growth.
5/6/2015 Ghanaian Investment Climate: Opportunities Social: Large educated labour force Youthful population… Large un-banked population (approx. 80%)
5/6/2015 Relatively high inflation, interest rates & Currency depreciation- Disincentive to Foreign investor Majority of population outside banking sector/pension market Reversal of portfolio inflows Slower remittance inflows and FDI Ghanaian Investment Climate: Challenges
5/6/2015 Ghanaian Investment Climate: Challenges Inadequate Risk Mgt Expertise & Orientation (recent case of 5 Nigerian Banks should awaken us) Lack of Expertise in Derivatives/Futures Trading Low levels of financial literacy and participation in financial market: Bank account -18% (4million est) Mutual funds - 1% (300,000 est) Life insurance -3% (700,000 est) Enforceability of contracts The Labour market is beset with –Get rich quick mentality –Short-termism/limited commitment
5/6/2015 Investment Climate In The Ghanaian Financial Sector - Landscape
5/6/2015 Financial Market Landscape: Table 1: Source: GIPC website & updated with figures from Databank Research
5/6/2015 Investment Options Both Portfolio and Direct Investments: Stock, Pensions market Government debt market Commercial papers Certificate of deposits Mutual funds Direct equity investment in industry
5/6/2015 Investment Options Avg. ROI of banking sector (03-08):25% ; Insurance- 15%; Trading & Distribution- 21%; Agric -12% Avg. stock market returns are competitive globally (37% over 12yrs) Ann. Avg Returns for equity funds like Epack ( 47% as at Dec08) Treasury market returns are competitive (Ann. Avg of 28% over 12yrs)
5/6/2015 What Returns Can I Make? Fig. 3: Comparative Returns (Oct Dec. 2008) Investment Options
5/6/2015 Challenges Lack of adequate knowledge/Information Asymmetry of financial market/Research Services High Interest Rates/Inflation & Currency Instability Lack of expertise in international transactions Low income levels (can slow down mortgage market develop)
5/6/2015 Challenges Bureaucracy – Dealing with Govt. Agencies (GIPC and Registrar General etc) Limited disclosure of investment risks Illiquidity of Stock market
5/6/2015 Conclusions Enormous opportunities in Ghana’s economy –Country is well-endowed with mineral resources, political stability in addition to recent discovery of crude oil plus large un-banked population Significant inroads in macroeconomic and political stability which could potentially propel development over the long-term.
5/6/2015 Conclusions Challenges which could hinder the tapping of these opportunities. –Poorly coordinated policies and bureaucratic corruption –Inadequate Risk mgt expertise and orientation –Limited research information/ Difficulties of accessing information –Short-termism and get rich quick mentality –Volatility in Exchange rate and Inflation..
5/6/2015 The Way Forward Govt to assiduously work toward stability. –Reduce overall fiscal deficit to 9.4% in 2009 from 14.5% (24.2) in 2008 –Stabilize currency and slow down inflation Quicken pace for Stock market automation More listings on GSE to enhance liquidity Quicken pace for Commodity futures markets
5/6/2015 Emphasis on risk management skills in business education GSE should offer professional courses on derivatives and futures Increased financial literacy and education The Way Forward
5/6/2015 The Way Forward Enormous opportunities exist in pensions market following passage of Pensions Act (766): Innovative pension product dev Innovative products should developed for large un-banked population – vital effective implementation of monetary policies Research Services – Consumer behaviour, Rich list, customized Industry Research, Customer Satisfaction Indices
5/6/2015 Thanks for your Audience & congratulations to all newly- inducted members of the ACCE!