Gov’t pins hopes on capital market

Government is pinning its hopes on a robust capital market to fund its 25-year National Infrastructure Plan to bridge the country’s infrastructure deficit, Paul Victor Obeng, Chairman of the National Development Planning Commission (NDPC), has said.

Ghana has an annual infrastructure funding gap of about US$1.1billion, most of which is associated with power and water, according to a World Bank-sponsored infrastructure study. The country spends approximately US$1.2billion per annum on infrastructure, equivalent to about 3 percent of GDP. Out of this expenditure, an approximate US$1.1billion a year is lost to inefficiencies - the bulk of which comes from the under-pricing of power.

While Ghana’s capital market has massive potential, it is yet to play a major role in resource mobilisation and long-term financing of the economy. Equities dominate the industry and the debt market consists predominantly of Government securities.

Though the industry has grown rapidly in the last decade, the market lacks depth and liquidity - in part due to low float.

“In the area of economic infrastructure there is a whole lot we can do in order to catch up with others in the same economic grading, yet we cannot go to the World Bank and other places that we used to go to. So, outside the budget and the banks, it is the non-bank financial sector that is expected to help finance infrastructure projects,” Mr. Obeng said at the opening of a Capital Market Conference in Accra last week.

“The National Development Planning Commission has almost completed the strategic National Infrastructure Plan that identifies all the infrastructure requirements which must drive the economy in the next 25 years,” he added.

Power, water, and road infrastructure constitute the greatest challenge. Electricity consumption is rising faster than generation, while only 41 percent of the country’s road infrastructure is rated as being in good condition.

Ghana’s status as a middle-income country means grants and concessionary loans, which would have gone into financing some of these infrastructure projects, will dry-up gradually - leaving Ghana to “join the big boys in the capital market”, said Mr. Obeng.

“By the single act of the graduation, the door has been shut against us in respect to our entry into concessionary lending corridors. Those areas that usually gave us soft loans and grants on both bilateral and multilateral level are no more available.

“Yet we are simply at the bottom of the middle-income category. Our infrastructure didn’t change from that of a least-developing economy into a middle-income economy because we have been proclaimed as so.”

He indicated that Government’s Public-Private-Partnership initiative is expected to drive realisation of the infrastructure plan.

“We want to build this on the back of private-sector financing. That is why we are very active in developing and promoting Public-Private Partnership schemes,” he said.

Reforms

To meet Government’s high expectations, capital market authorities need to pursue urgent reforms to bolster activity, efficiency and transparency, the International Monetary Fund (IMF) said in an assessment of Ghana’s financial sector.

Among the Fund’s proposals are that the Securities and Exchange Commission (SEC) should raise the minimum capital requirement for market intermediaries, promote new equity listings by domestic companies, and introduce a separate and more flexible framework for the issuance of non-Government bonds.

Government should also divest its interest in profitable stated-owned companies through the capital market, and support the creation of a locally-based credit-rating agency.