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Business News of Wednesday, 6 February 2013

Source: B&FT

Great news for investors

Ghana’s fixed-income market will offer the best returns for domestic investors, and second-best yields for offshore investors among 15 key African economies in 2013, says a report by Databank Research in Accra.

Though local investors will get less from their fixed-income portfolios compared to last year, interest rates will be attractive enough to top other African markets -- including Nigeria, South Africa, Egypt and Mauritius, the report said. For foreign investors, yields will be even fatter with the expected stability in the cedi.

“In 2013 we expect the debt market in Ghana to remain the most favourable in inflation-adjusted terms, while Malawi, Ghana and Egypt outperform in currency-adjusted terms,” said lead analysts Sampson Akligoh and Alex Boahen.

The two forecast real returns (based on the 91-day Treasury bill) for domestic fixed-income investors to be in excess of 12 percent on average this year, while foreign investors will reap currency-adjusted earnings of more than 13 per cent.

In 2012 fixed-income portfolios paid an average of 14.23 percent real returns to local investors, while foreign investors -- whose earnings were whittled down by exchange rate losses -- went home with an average currency-adjusted yield of 6.53 per cent.

This was after the Bank of Ghana (BoG) had increased interest rates to stem a flight to foreign currencies as the cedi came under pressure. In the first half of 2012, the cedi weakened by more than 17 percent against the dollar, before an aggressive response by the BoG stopped the descent and held the value of the local unit steady till year-end. Overall, the currency lost 17.5 percent against the dollar last year.

Between January-December, the BoG hiked its policy lending rate from 12.5 percent to 15 percent, and the yield on the government’s three-month Treasury bill rose from under 11 percent to more than 20 percent -- drawing investors to the bills but increasing government’s debt-servicing costs.

There is room for the Bank’s monetary-policy committee, which meets next week to review its policy settings, to lower interest rates by 200 basis points -- especially if government signals fiscal consolidation in 2013, said Akligoh.

“While currency risk might occasion the BoG to keep the rate steady, [a rate-cut] will be efficient for the economy as higher interest rates add to the debt-burden of the country,” he added. He forecast fixed-income yields to fall in the first quarter, albeit marginally, adding that the 91-day bill rate will tumble to 11.5 percent by year-end.

“Nonetheless, we foresee sustained investor interest in longer-term Treasuries as money managers take positions to lock in yields before the expected decline. Additionally, commencement of the new pension regime will allow significant fund inflows (at least GH¢500million in 2013) into the fixed-income market, and also enforce the expected re-pricing.”

Akligoh said from the outlook of the economy, the upcoming monetary-policy committee meeting should give more attention to concerns about GDP and job-creation. Last September, the Ghana Statistical Service (GSS) revised the 2012 growth projection for the economy from 9.4 per cent to 7.1 per cent, citing among others a sharp slowdown in oil production.

Worries about the paucity of jobs are not new, and Ghana’s growth -- which ratcheted up to 14.4 percent in 2011 following the onset of the hydrocarbons industry -- has often been described as “jobless”.

In his inaugural address on January 7, President Mahama said despite robust economic growth of at least 8 percent per annum during the last four years, “more jobs must be created [and] more roads, bridges, schools and hospitals built”.

Two years ago, a statistical correction to GDP data moved Ghana into the ranks of lower middle-income countries; but it left in its wake an infrastructure spending gap, based on middle-income requirements, of US$2.3billion annually, according to the World Bank.