A gateway to West Africa, Ghana is about to take off

By Fiona Rintoul, from The Financial Times online

That Ghana and Nigeria now have space programmes is a measure of how much and how quickly Africa is changing. Ghana is a country that exemplifies the change.

Twenty years ago, Ghana was, says one local, “a basket case”. Today, it is one of the most politically stable nations in Africa with an established record of power changing hands peacefully. Viewed by some as “Africa-lite”, the nation of 25m, which should go peacefully to the polls again in December, is positioning itself as the gateway to west Africa.

“The difference between Ghana and other countries in the region is that everything – power, roads, institutions – more or less works,” says Edem Lassey, analyst at Investec Asset Management.

The Ghanaian economy works too; in fact, it is booming. The Ghana Statistical Service puts GDP growth for 2011 at 14.4 per cent. Some of this high figure is attributable to the discovery of offshore oil. But by no means all of it.

“Everyone is focusing on the recent oil find, but the real story is broad-based GDP growth driven by domestic demand,” says Mr Lassey. “Without oil, GDP growth would still be 8-9 per cent.”

It is little wonder, then, that international investors are keen to get a slice of the action in Ghana. The depreciation of the Ghana cedi has put a temporary brake on foreign interest, Mr Lassey acknowledges, but “that structural issue won’t last forever”.

Mark Mobius, who runs Franklin Templeton’s new Africa fund, has been talking up “Ghana’s golden opportunities”. Mr Mobius points to the country’s abundant natural resources, the most important of which are cocoa and gold, its links with China, which date back to the 1960s, and its tight fiscal policy and budget discipline.

The regulatory environment in Ghana is also conducive. “The government’s policy is to support foreign investment,” says Nigel Bannerman, investment director at Silk Invest. “Ghana is a very open culture and country. People find it more manageable than Nigeria.”

The problem is the opportunities for fund managers are limited. There are just 36 companies listed on the Ghana Stock Exchange. Many of them are subsidiaries of multinationals where the mother company holds the bulk of the shares. And the biggest investor on the stock exchange, Ghana’s Social Security and National Insurance Trust (SSNIT), the state-owned pension fund, “has a stake in every company and is not active”, according to Mr Lassey.

“That doesn’t leave much free float,” he says. “Liquidity is still very low.”

Thus, a lot of new investment in Ghana is either through big-ticket deals or smaller private equity investments. Fund managers who want to invest in public equities find themselves chasing limited opportunities concentrated in the banking sector.

Some fund managers believe the best way to make the most of Ghana’s opportunities is to invest in both public and private equity.

Silk Invest has a 5 per cent allocation to listed Ghanaian companies through its African Lions fund and is involved in private equity deals through its Africa Food fund.

Private equity deals both give investors access to truly indigenous companies and fulfil a funding need, says Mr Bannerman. “At the large end of the market, there’s no problem. You can list a developing mining concession in Toronto. It’s the mid-size where there’s a funding problem.”

Some regional private equity funds invest in Ghana, but funding is limited. Bank lending tends to be short-term and interest rates are high.

Further down the scale, there is microfinance, but that can be “either a help or a hindrance”, says Jerry Parkes, managing director of Injaro Investments, a fund manager with a dual social and financial purpose that invests in “smaller but higher potential” agribusiness projects with a typical value of $3m. Despite government attempts to regulate the sector, some microfinance institutions are little better than loan sharks, while other lenders can set repayment schedules that will collapse the business, says Mr Parkes, a returned Ghanaian who used to work for a London investment bank.

There are plenty of investors from Brazil, China, Europe and South Africa for big oil and gas projects, “but there’s not enough venture capital available”.

Injaro Investments is trying to help plug the funding gap in the agriculture sector, which is all-important for creating jobs in rural areas, rebalancing Ghana’s trade deficit and increasing food production to meet future needs.

Another sector where adequate funding now is essential if Ghana is to prosper in the future is consumer goods production.

Government attempts to encourage listing have not been successful, but a pension reform started in 2006, which will break the monopoly of SSNIT, is expected to increase trading in the secondary market.

Once the December election is out the way, Ghana will be at a turning point. What happens in the next few years will be vital to its future development.

One of the biggest challenges in the long term is how the country invests its oil revenues and international loans, such as the recent $3bn infrastructure loan from China.

“If Ghana invests in infrastructure over the next five years, it’s going to fly,” says Mr Lassey.