Post election confidence

A SUPPLEMENT TO EUROMONEY – MARCH 1997

A West African showcase

After 40 years of independence, Ghana has emerged as one of Africa’s leading economies. The re-election of Jerry Rawlings has led to a new confidence that the country can overcome remaining economic obstacles. By Philip Eade

The January election victory of president Jerry Rawlings marks the beginning of the latest chapter in a remarkable story that began when this former fighter pilot seized power in 1979. Since then, he has turned himself from socialist coup leader into the twice democratically elected leader of the country with the most successful structural reform programme in West Africa.

The extent of the vote for Rawlings ­ he won 57.2% compared with the 39.9% obtained by his nearest rival, John Kuffuor ­ confounded those who were predicting a close contest. Rawlings’s National Democratic Congress party did even better, winning 130 of the National Assembly’s 200 seats, raising the possibility that he might seek to change the constitution to enable him to run for a third term.

Overall, the election went better than many people had hoped. Warnings of violence were not borne out, and international monitors expressed satisfaction at the efforts to ensure fairness, praising the election as a triumph for democracy, although Rawlings undoubtedly benefited from his grip on campaigning resources.

The consensus is that the economy was also managed fairly responsibly in the run-up to the elections. With fewer pre-poll extravagances than in 1992, the government was able to bring inflation down from 70% at the end of 1995 to 36% last year.

Ghana’s international standing was further enhanced by the election of Kofi Annan as UN secretary general. Just now, Ghana might be said to exude confidence.

Encouraged by its economic progress over the past decade, including an average growth rate of 4.7% since 1986, the country is now promoting itself as the gateway for foreign investment into the region.

Already 60 flights from 12 airlines arrive each week at Accra’s international airport, which is increasingly used as a West African hub; industrial free zones have been established; and multinationals such as BAT and Standard Chartered Bank have recently made the country their regional base. Databank, an Accra-based investment bank, plans soon to launch a $30 million West Africa fund for equities and some unlisted securities from all over the region, to be listed in Accra and Luxembourg.

The Ghana Investment Promotion Centre, which is charged with mobilizing private foreign and domestic investment, registered almost 300 projects worth an estimated $310 million in the two years from September 1994. But this paled in comparison with the bonanza that followed the visit last year of a 100-strong Malaysian trade mission led by prime minister Datuk Seri Dr Mahathir Mohamad.

The visit was prompted by the enthusiasm shown by Rawlings when he visited Malaysia at the end of 1995. The former British colonies share a common bond in that both became independent in 1957, at which time Malaysia’s GDP was lower than Ghana’s.

Mahathir’s visit resulted in sizeable investments in the dry docks at Tema (part of a scheme to make Tema and Takoradi gateway ports for West Africa), in real estate (including the largest urban housing scheme on the continent outside South Africa), in the banking sector (two new banks plus a 40% stake in Ghana Commercial Bank) and in the national lottery. The consortium which bought the 30% strategic stake in Ghana Telecom last month is 70% owned by Telekom Malaysia.

There is concern that not all of the Malaysian deals have gone through the normal channels, but instead may form part of a package agreed at presidential level. “Investment reached this way is fine in one sense,” says a foreign observer. “But the best deals are reached on a commercial basis, which usually means less in the way of tax breaks.”

The government is faced with the delicate question of balancing the need for results against the need to maintain international goodwill. Officials who accompanied World Bank president James Wolfensohn on his visit to Ghana in February were privately voicing consternation at the level of corruption on government contracts.

The landing of a Libyan jet at Accra airport in January contrary to the international air embargo sent further worrying signals to foreign investors. On the positive side, the incident served to illustrate the increasing independence of parliament, where the speaker insisted that the foreign affairs minister explain his decision to give the Libyans permission, but it was also a reminder of the close links, in the past at least, between the two countries.

For all the talk of Ghana being the World Bank’s West African showcase, there are still large economic obstacles to be overcome. Inflation, though at half 1995’s rate, is still too high, and likely to remain so as long as the country’s currency, the cedi, continues its slide against the dollar (it fell 26% in 1995 and 17% last year). In a country of 17 million people, the average Ghanaian earns just $500 a year, unemployment is high and foreign debt is equivalent to almost 80% of GDP.

For many observers, though, not least the IMF, which is negotiating the second annual programme of its three-year enhanced structural adjustment facility, the burning issue is the fiscal position. The overall budget deficit for the first three quarters of 1996 was C240 billion ($138 million). In addition, the government had to find some C160 billion to finance principal loan repayments. These funds were mostly borrowed from banks and the non-bank public sector through the sale of treasury bills at interest rates as high as 49%. This has put a credit squeeze on the private sector.

The optimism of Ken Ofori-Ata, managing director of Databank, concerning the containment of the deficit (he points out that at between 1% and 2% of GDP, it is below the Maastricht treaty criterion for entry to the European single currency) is not shared by the independent Centre for Policy Analysis (CEPA) in Accra.

“The public debt and its servicing are increasingly becoming major areas of concern,” states CEPA’s third quarterly report of 1996. “Interest payments are threatening to become the single largest items of recurrent expenditure [at present almost one quarter].” The report goes on: “A situation of borrowing to service debt is simply unsustainable as the debt threatens to spiral out of control.”

According to Kim Harnack, the IMF representative in Accra, the government needs to “get wage policy right, remove unplanned subsidies and go vigorously after tax collection”. The unwieldy administration of customs, which contribute 47% of government revenues, needs to be revamped, he says. He is also concerned at the expansion of credit to the private sector, which grew 70% last year. Nevertheless, he says that the government’s target of single digit inflation by early 1998 is “perfectly achievable”.

With the elections over, businessmen are hoping for greater fiscal discipline from the government. Until political considerations resurface in three or so years’ time, they are looking forward to a period of pure economic management.

The government has committed itself to speeding up the reforms. Kwame Peprah, finance minister since 1995, is a businessman rather than an economist (he is also chairman of Ashanti Goldfields). But he is closer to Rawlings than his predecessor Kwesi Botchwey, an academic economist now teaching at Harvard, and probably better equipped to push through unpopular policies. (It was Botchwey’s political insensitivity over the imposition of value-added tax that led to his departure.)

Other encouraging signs include the increasing independence of the Bank of Ghana. As far as the critical public-sector wage bill is concerned, the government has had extensive discussions with trade unions on the importance of keeping inflation in check. And the Cocoa Board, which used to raise $200 million in the international capital markets each year only to deposit it in Ghana’s commercial banks which in turn reap fat profits from T-bills, now only taps the market for its immediate requirements.

As far as economic growth is concerned, the IMF and World Bank are keen to see more emphasis placed on processing industries, non-traditional agricultural and fruit exports for which a potentially lucrative market exists in Europe.

Tourism, now the third-biggest foreign exchange earner after cocoa and gold ($370 million in 1996), is also being promoted under a 15-year master plan that aims for a million arrivals and $1.3 billion of receipts a year by 2010 and employment for 500,000.

Ghana has the largest collection of forts in west Africa along its coast. Built to facilitate the slave and gold trades between the 15th and 18th centuries, they attract an increasing number of African Americans who come in search of their roots and to gain more insight into the suffering endured by their ancestors. In addition, there are several nature reserves.

But as in other sectors, there is much to be done to attract the so-called “luxury tourism” that those in the ministry in Accra so confidently predict.

Competing with T-bills

Three years ago, the Ghana Stock Exchange (GSE) was the best performing of the emerging equity markets, rising 78% in dollar terms in 1994. It rose by more than 100% in local-currency terms during both 1993 and 1994. Recently, though, the pace has slackened.

The index rose just 6% in 1995 and 14% last year, taking market capitalization to C2,862 billion ($1.65 billion). In both years this amounted to a steep fall in real terms, since inflation was running at 70% in 1995 and 36% last year. The number of shares traded fell to 36 million in 1996, a drop of 36% on the previous year, although the cumulative value was slightly higher.

A report by Ghanaian investment bank Databank notes that foreign investors were virtually absent for most of last year, having driven the market in previous years, many of them adopting a standstill approach in the run-up to the January 1997 presidential and parliamentary elections.

With high inflation and rates on treasury bills as high as 49% investors have been encouraged to shift from equities to the money market. The persistent erosion in the value of the cedi has also deterred foreign investors, and Ashanti Goldfields shares ­ which make up 80% of market cap ­ have fallen sharply on lower gold prices and concerns about its recent acquisitions.

Nevertheless those who invested in equities four years ago have still made more gains on average ­ around 60% in cedi terms ­ than they would have done had they invested in T-bills over the same period. GSE managing director Yeboa Amoa says that the “temporary bad patch due to macroeconomic difficulties” should not deflect investors from the market’s long-term potential. “It’s still very definitely attractive to foreign investors,” he says. “But it’s not for the short haul.”

The remarkably low average p/e ratio of 3.4 discourages new issues but makes the market more attractive to investors, especially since many of the listed companies are performing well considering the macroeconomic environment. Total earnings growth was up 62% in the first half of 1996, while net profit margins averaged 16%.

“Yesterday,” enthuses Amoa, “I counted 13 listed companies which in terms of operations up to June 1996 had performed way above the rate of inflation. Three or four of them were 100% better. They’re cheap and they’re there for the taking.”

For the moment, though, depressed share prices mean that companies such as Mechanical Lloyd, the first wholly Ghanaian-owned company to go public in 1994, are reluctant to raise extra share capital and are more inclined towards the loan market despite absurdly high interest rates.

Beyond this, Amoa perceives a more deep-rooted reluctance among Ghana’s smaller family-owned companies to go public. “They want to keep them in the family,” he says. “But they seem to forget that business is not only about profit-sharing, but also risk-sharing.” He adds that the stock market has done everything it can to dismantle barriers to companies wishing to float. The GSE has three separate lists, the third of which allows for companies with a net worth of a mere $10,000 to go public, although only companies in the so-called “A” list have so far responded.

Another of Amoa’s concerns is the lack of precision on the timing of large privatizations. “NIB [the National Investment Bank] was supposed to come to the market last year. But now we’re told it won’t be until next year,” he says. “The investment community won’t keep its money in its pockets indefinitely.”

There was a handful of significant new issues last year, notably Ghana Commercial Bank, whose 99 million shares began trading in May and soon rose from C500 to C700. Aluminium manufacturer Aluworks entered the market in November with 12.84 million shares valued at C17.3 billion. Guinness Ghana tapped the market with a C4.7 billion rights issue and Ashanti Goldfields issued new shares worth some C188 billion prompted by its acquisitions.

Meanwhile the GSE has been putting in place structures to enable the development of a long-term debt market, and in November the first corporate bond was issued. Arranged by Databank, this was the first $2.5 million tranche of a $35 million shelf offering for Home Finance Company (HFC), Ghana’s top mortgage institution. It is listed on the GSE, although it is not actively traded as yet.

The GSE hopes that a corporate and municipal debt market will eventually play an important role in developing the market, but for the moment issuers are deterred by the inflationary environment and high interest rates. Issues currently only make sense for companies such as HFC that have foreign exchange receivables.

Some nine equity listings and two further corporate bond listings are expected over the coming year. The breadth of the market will be further increased if Databank succeeds in its ambition of listing two mutual funds this year, one for equities and the other for fixed-income instruments.

According to Ken Ofori-Ata, managing director of Databank, the mutual funds are being held up by the delay in establishing a securities regulatory commission to approve them. That delay has been caused partly by internal problems at the African Development Bank, which was originally funding the project. It is now being funded by the World Bank and the exchange’s Amoa says he expects “significant developments” this year.

In the meantime, a number of developments have taken place to boost the exchange’s appeal to foreign investors, which already account for over 70% of the shares traded. In September GSE was listed in the IFC’s Emerging Market Data Base, which has served to raise the profile of the eight companies included (Accra Brewery, Ashanti Goldfields, Guinness Ghana, Mobil Ghana, Pioneer Tobacco, Social Security Bank, Standard Chartered Bank and Unilever Ghana) among international institutional investors.

Stamp duty on the transfer of shares, previously 2%, was abolished in 1996, and capital gains tax exemption has been extended until 2000.

Last year, the exchange also established a manual centralized clearing and settlement system. The new system has succeeded in reducing the number of failed trades and strengthening the level of coordination between brokers and registrars. The settlement period has since come down from T+10 to T+5 .

Eventually, the exchange intends to move to an automated clearing, trading and settlement system as a way of boosting demand. This is being developed with the help of a credit from the World Bank, and the exchange hopes to have it up and running within two to three years.

The enthusiasm of foreign investors will depend on the performance of the market. And, as a recent report by Gold Coast Securities noted: “Significant market performance will depend on policies to check the high inflation and interest rates”, thereby prompting a strategic shift of domestic investment into equities.

Easy money

In his sessional address in January, president Jerry Rawlings said: “Unfortunately, many producers and entrepreneurs in the economy feel completely alienated from the banks and are unable to obtain help even when they have viable projects. On the other hand some of those who have had much easier access to large amounts [of capital] have created non-performing assets for the banks.”

“There are still too many people,” Rawlings continued, “who keep their cash under mattresses or around their loins rather than put it into banks even if they could earn some interest overnight. Our bankers must ask themselves why this is so. They must be finding innovative ways to attract more people to save with them by explaining the economic rationale for using the banking system.”

The present situation has a lot to do with the inflationary macroeconomic environment. Inflation, which was 12% in 1992, shot up to 70% in 1995 before the government succeeded in bringing it down to 36% by the end of last year.

In its efforts to mop up excess liquidity, the government has been paying 49% interest on treasury bills, thereby sucking money away from the capital market into the money market. The consequent adverse effect on the stock market, together with the currency depreciation (12% against the dollar last year and 20% in 1995), has slowed the inflow of foreign funds.

The Bank of Ghana’s reserve requirements oblige banks to place 47% of their total deposits in T-bills. The cash reserve requirements were raised from 5% to 10% last autumn. The Bank of Ghana, which has the task of juggling the borrowing needs of businesses with the need to keep inflation under control, says the latter move was designed to brake expansion in bank credit, which grew 70% last year. “People talk about high interest rates creating a credit squeeze,” says a spokesman at the central bank. “But by June of last year banks had exhausted their loan programmes.”

Nevertheless, Ghana’s banks are tying up increasing amounts of their capital in providing credit to the government. “Every bank wants a cushion,” says Nelson Ake, managing director of Ecobank in Accra. “If you go below that you’re penalized by the central bank.”

Although the finance ministry claims that part of the object of the high T-bill rates is to help mobilize savings, they have benefited banks far more than savers. Banks currently lend to the government at up to 49% and borrow from savers at 30%. In effect, banks are pooling the resources of savers, most of whom don’t have the necessary C100,000 ($57.50) to buy one T-bill, in order to make handsome profits.

“Most banks are hardly taking any risk,” says one financier. “They exist just to take advantage of high interest rates. They pick up demand deposits cheaply and their spreads are enormous. No wonder they can afford to give their large corporate customers concessionary rates.”

Little wonder too that smaller businessmen in Accra complain that it is difficult to obtain loan capital from banks. Bankers admit that there is little incentive to lend to marginal credits in the current environment, which is bad news from a developmental point of view. But they deny that they are reducing their lending portfolios.

“If you have first-rate corporate clients, you don’t just run down your loan portfolio because you can make more money in treasury bills,” says Clifford Best, managing director of Cal Merchant Bank in Accra. “Banks are looking at the quality as well as the level of profits.”

Nevertheless, if the government meets its target of bringing inflation down to single digits over the next 18 months, which in turn will remove the basis for high bank and T-bill rates, and reduce the government’s borrowing requirement, Ghana’s commercial banks will have to become more competitive. Their traditional reluctance to lend much beyond a year has already created a profitable niche for non-bank institutions such as the $5.8 million Commonwealth Development Corporation-backed Venture Fund Management Company, which shortly hopes to float three of the unlisted companies to which it has provided funds since 1992.

VFMC managing director John Ababio says the next step is to raise money from institutional investors ­ he cites French pension funds as a potential source ­ for another fund focused on the export sector. But before that he says he needs a good story to tell both in macroeconomic terms and in terms of what his existing fund has achieved.

The establishment of two Malaysian-backed banks, Metropolitan and Allied Bank and International Commerce Bank, is also expected to go some way to improving the situation for smaller corporate lenders. The Metropolitan and Allied Bank is a joint-venture between Business Focus (which also invested in Tema shipyard and Drydock Corporation last year) and a consortium of institutional investors. The International Commercial Bank is wholly-owned by the Malaysian company Putera Capital, which has invested $600,000 to develop commercial banking operations with an emphasis on export financing.

Metropolitan and Allied chairman Alex Ashiabor, who is also chief executive of Finsap, the government’s bank privatization body, claims that his bank is the first privately owned commercial bank to offer a full range of banking services.

Non-bank institutions such as City Savings and Loans and Katamanto are doing quite good business with lower-tier corporates. But the regulatory framework for such institutions still needs to be crystallized beyond the current non-binding draft guidelines.

Banking should also become more competitive as the privatization programme, under the aegis of Finsap, pushes ahead. Social Security Bank was listed on the stock exchange in 1995, followed by Ghana Commercial Bank (GCB) last year. The latter was the most successful flotation since the government reduced its holding in Ashanti Goldfields in 1994. Established in 1953, GCB is Ghana’s largest commercial bank, with assets worth C568 billion and a 1995 net profit of C43 billion. The GCB offer was oversubscribed by 38%, with 70,000 applications worth C34.3 billion. Its share price has risen from C500 to C700, despite the lacklustre market. The government agreed full allotment resulting in the public holding 42% of the shares.

The GCB flotation has been followed by the sale of a 40% strategic stake to a Malaysian holding company called Denko for $30 million, pending submission of a management proposal, reducing the government’s holding to 18%. “We’re insisting on strong management,” says Finsap’s Ashiabor. “That’s the whole purpose of the sale.” GCB has by far the largest banking network in the country and is a household name. All it needs, says Ashiabor, is dynamic leadership.

Local business journalists have questioned the suitability of Denko, which has no experience of banking, and the price paid, but Finsap is relieved at finding a willing investor at all after two foreign investment banks drew a blank on finding a banking investor, although there was interest from non-banks. In any case, says Ashiabor, it is Denko’s financial muscle rather than its know-how that counts: the company has employed Arthur Andersen to attend to the job of assembling a management team.

New management will be no bad thing following a spate of scandals that have dogged GCB over the past six months. The most notorious involved a supermarket chain called A-life which ran up an overdraft of C70 billion despite having a facility of just C6 billion.

The apparent scam, which was still being unravelled as Euromoney went to press, was discovered by the Bank of Ghana, but it has nevertheless cast doubt on the adequacy of banking supervision. “They do a kind of fly-catching supervision,” says Ecobank’s Ake. “I’d say they were reactive as opposed to proactive.”

In the case of the National Investment Bank, in which there is less public interest, Finsap is looking to sell a strategic stake before it floats the bank. There have been delays in finding a suitable investor, and there is now talk of a possible merger with the Agricultural Development Bank. Ashiabor expects the bank to float within a year of an investor being found.

When fat earnings from T-bills eventually go away, there is likely to be a shake-out. “It will sort out the men from the boys,” says VFMC’s Ababio, who adds that Ghana still has room for an aggressive commercial bank.

Joe Abbey, director of the Centre for Policy Analysis in Accra, says banks could afford to become more aggressive in mobilizing savings. He points out that two years ago, when Ghana had a taste of the type of pyramid investment schemes currently wreaking so much havoc in Albania, there was no shortage of demand. “At the very least,” he says, “it shows that the Ghanaian people will respond to incentives.”

Telecom leads the way

The new investment, management and competition being injected through the Ghana Telecom (GT) deal should transform the country’s badly underfunded and hopelessly overstretched telephone system. It may even position Ghana as the telecom hub for the region. The deal broke new ground in the continuing sell-off of state telecommunications systems worldwide in that it involved the simultaneous auctioning of a licence to a second national telephone operator.

The privatization programme, which is central to Ghana’s ambitions to achieve sustained economic growth, is steadily building momentum after a slow first five years following its introduction in 1988, when little happened bar a few small-scale divestments and a similar number of liquidations. Proceeds in that period were a mere 64 billion cedis ($36 million).

Then, the sale in 1994 of the government’s 30% stake in Ashanti Goldfields put a new slant on the programme. Forty-one state-owned enterprises were divested that year, a further 13 in 1995 and 24 last year. The government announced an accelerated programme last May, since when the sale of 30% of GT has been the most dramatic success.

The GT sale is part of a wider series of World Bank-supported reforms which has so far meant dividing Ghana’s postal from its telecommunication services, turning GT into a limited company and establishing a telephone regulatory authority under a law passed last year.

The government was advised by CS First Boston, which recommended a two-envelope bidding process: bidding groups (which had to include Ghanaian-registered companies), entered their technical qualifications in one envelope and their financial status and bids in the other.

According to transport and telecommunications minister Edward Salia, G-Com, a consortium led by Telekom Malaysia, was the only qualified bidder for the GT stake with an offer worth $38 million. Salia emphasizes that the bidding process was fair and transparent, although some observers are puzzled by the coincidence of the winner being 70%-owned by yet another Malaysian investor. In the past year, following an exchange of state visits by Ghanaian president Jerry Rawlings and the Malaysian prime minister, Malaysian companies have made substantial investments in various sectors and there is a suspicion in some quarters that the GT sale forms part of a package agreed at a political level.

AT&T and Southwestern Bell, initially tipped as top of the list of 13 pre-qualified bidders for both offers, were reported to have pulled out because they found the process too slow, or not transparent enough. But other international companies pulled out due to concerns at the lack of limited-period monopoly and the size of the market. Also, it would be natural for Malaysian companies as a group to feel happier about investing in Ghana given the recently-forged friendly relations between the two former British colonies.

The bidding for the second national operator, meanwhile, was won by the African Communications Group, a consortium led by Western Wireless, with a bid of $10.1 million. The decision to make a such a licence available from the outset is a sign of the Ghanaian government’s priority of accelerating the expansion of the telephone system over the simple raising of funds.

Had a second national telephone operator licence not been granted, the 30% stake in GT would almost certainly have fetched more. However, Salia says that the government feared that if a limited-period monopoly had been approved, the first private operator might have become too deeply entrenched to allow for fair competition by the time the licence was granted. “We took the view that a private monopoly would have been more dangerous than a public one,” he says.

There was a certain discontent in Ghana, not least among GT’s workers, generated by a belief that the company had been undersold, but Salia professes to be entirely satisfied with the outcome. “By the bid date the long-term debt of GT was $360 million, assets were just under $200 million and the government’s equity was equivalent to less than $30,000. So the net worth according to book was negative,” he says.

One of the advisers on the deal says he was surprised that it raised as much as it did. “Quite frankly,” says Bayo Ogunlesi, managing director and head of global project finance at CS First Boston in New York, “if we’d had our way the government would have assumed a lot more of GT’s debt before the sale.”

Salia is hoping that the sale, combined with the granting of the second national operating licence, will lead to a dramatic expansion of Ghana’s telephone system. Although the economy has grown by an average of 4.7% per annum since 1985 and the population by 3.1% a year to its present 17 million, the number of available telephone lines has remained virtually unchanged. There are fewer than four telephones for every 1,000 people and unless a would-be subscriber knows someone at the ministry it takes between four and six months to have a telephone installed. Salia estimates that he could sell 300,000 telephone lines today. Mohamad Nasir Bin Abdul Razak, head of network management at Malaysia Telekom, has committed his company to improving the quality of service in aspects such as the the speed of repairs and the rapidity with which the operator helps callers.

The second national operator, African Communications Group, is committed to installing 50,000 lines within three years ­ there is a $1,500 fine payable for each line not installed. G-Com meanwhile has to roll out 225,000 new lines within five years, under the same threat of penalty fines. CS First Boston estimates that the agreements represent a $518 million investment commitment in total over the purchase price. Salia says the eventual aim is to add sufficient value to put GT in a position whereby it can be floated.

Meanwhile, there are another 18 privatizations at various stages of completion. In each case the organization of the sale has been outsourced to a team of consultants funded by a $70 million private-sector adjustment credit provided by the World Bank. In addition, the Overseas Development Agency of the UK is providing technical assistance for overall co-ordination at the divestiture implementation committee (DIC), the government body overseeing the programme.

For each sale, five bidders are selected from the pre-qualifying list, after which the bids are evaluated and subject to World Bank approval. The World Bank loan is being released in three tranches subject to the DIC reaching its targets at each stage. The first tranche was released in 1995, the second in June 1996 and the third is due to be released this July.

The progress of the sales is being hampered in many instances by problems in establishing legal titles to land, but the momentum is increasing. Large potential sell-offs still in the pipeline include Ghana Petroleum Corporation and Ghana Airways.

None of the companies sold by the DIC has been floated on the stock exchange, although it is hoped that some will be, once they attain higher levels of profitability.

The programme as a whole has led to greater efficiencies, albeit at the cost of some 45,000 jobs. Before the programme began, the average capacity in use in state-owned enterprises was 18%, about half the national average. Companies such as Gihoc Metals, which has more than doubled its output to 1,200 tonnes a year since it was privatized, are demonstrating the benefits of private ownership.

Ghana’s largest earner

The recent slump at the Ghana Stock Exchange has in large part resulted from a fall in the share price of Ashanti Goldfields. Ashanti is Ghana’s largest foreign exchange earner, bringing in $386 million of bullion revenue in the 12 months to September 1996. But its shares, which account for over 80% of the GSE’s market capitalization, have plunged from a high of $27 in 1995 to around $13 at the beginning of this year.

In part this reflects the stock market’s reponse to the fall in the price of gold in the wake of widespread selling by European central banks.

But there has also been an adverse market reaction to Ashanti’s acquisitions last year of Cluff Resources, International Gold Resources and Golden Shamrock Mines, a strategy thought to have been prompted by its determination to remain independent amid speculation that South Africa’s Anglo American Corporation was considering a takeover bid. Anglo American last year acquired a 28% stake in Lonrho, the British-based conglomerate that owns 33% of Ashanti. Ashanti’s chief executive Sam Jonah has asked Anglo American to abstain from “creeping interference”, citing Ashanti’s goodwill in other African countries as a reason to remain independent. The government could block a takeover with its golden share.

In its expansion, Ashanti made use of a war chest accumulated over time through the international capital market. The company raised $60 million of new equity when it floated in April 1994. When it listed on the New York Stock Exchange in February 1995 it issued a seven-year $250 million convertible bond. It has the use of a $180 million revolving credit organized by Barclays de Zoete Wedd. According to group treasurer Mona Caesar-Addo, the company has also been making significant interest-rate savings by refinancing old IFC project finance loans.

Caesar-Addo says that although the acquisitions happened over a short period of time they fit into the company’s long-term strategy. “We’ve existed for around 100 years and we intend to be around for another 100,” she says. And Jonah was recently quoted as saying that he eventually expected Ashanti to become Africa’s leading mining company, a remark that may not have pleased Anglo American.