Africa: Investing in the Cradle of Civilization, Part 3: Ghana’s Golden Opportunities
This year could prove an interesting one for Africa’s west coastal country, Ghana. Presidential and parliamentary elections are slated to be held by year-end, the results of which are almost sure to impact the shape of the country’s future. President John Atta Mills has stated in the press that he will “take all necessary constitutional steps to ensure the conduct of free, fair and transparent elections.” I certainly hope he’s successful in his efforts, because after a recent investment opportunity exploration trip to Ghana, I’m encouraged by the economy’s 14% growth in 20111 (that’s faster than China!), and would be pleased to see evidence of more positive momentum.
Ghana has abundant natural resources, including timber, oil, silver and manganese, but perhaps most important are cocoa and gold, two prized commodities for which Ghana is a key producer. What is generally considered the most important gold mining company in the country is listed on a number of stock exchanges around the world. In the Western world, chocolate is ubiquitous, showing up in everything from instant hot chocolate powder to artisan truffles. In India, gold glitters just about everywhere and the wedding season is fully festooned with it. The global consumer market for these commodities is evident. As important as cocoa is to Ghana’s export business, the country also grows rice, cassava, peanuts, corn and bananas2 in significant quantities, so its agricultural assets are reasonably well diversified.
Doing Business in Ghana
Ghana’s stock exchange benefits from its proximity to Nigeria and the Ivory Coast, which simplifies cooperation between the exchanges and helps improve liquidity. The exchange is not new; it was founded 21 years ago. From what I observed, it has about 20 to 30 brokers trading both stocks and bonds via a fully electronic trading clearance and settlement system which enables them to trade from their offices and homes.
Of course, not all that glitters is gold, and Ghana faces its own set of challenges. In the banking sector, the rate of non-performing loans (NPLs) is quite high, though it is expected to decline in a more stable macroeconomic environment.3 It’s certainly something to keep an eye on.
From what I understand, not many Ghanians have a bank account, so I think the prospects for growth are good in the banking sector.
At the nation’s Central Bank, we met a group of executives eager to promote Ghana as an investment destination. Their focus was on trying to contain inflation and create a stable environment for business. Foreign reserves have been increasing and have doubled since 2008 to $5.6 billion as of December 31, 2011, while inflation has fallen to current single-digit levels.4 It appears to us that the government has fostered a tight fiscal policy and budget discipline which, combined with high cocoa prices, have made a positive impact on the economy.
Relationship with China
Ghana’s link with China is particularly interesting. The two countries have had close ties since the 1960s, when then-president Kwame Nkrumah lobbied for the People’s Republic of China’s (PRC) reinstatement in the United Nations. Evidence of their ongoing relationship is abundant. In 1992, a joint venture including the Chinese government, Ghanian government, and private Ghanian and Hong Kong investors was reportedly established to mine for gold. Also, though Ghana’s credit in recent years has been tight, the Chinese government has continued to provide loans. In fact, China recently extended Ghana US$3 billion for infrastructure projects. All of these linkages may explain why, since 2007, that all university and college institutions in Ghana provide Chinese language courses.
Given growing power demands and the big payments needed to import oil, probably the most exciting news for Ghanahas been the discovery of commercial quantities of offshore oil reserves.
In 1983, the government established a corporation to promote exploration and production. In 2007, this corporation discovered an oilfield which it hopes will create the needed environment to meet the target of Ghana producing 200,000 barrels of oil by this year.
The country also has natural gas, which can be used to power turbines for electricity production that the country needs so badly. GNPC is using offshore gas to run gas-turbine electricity generation to feed into the national and regional grid.
All in all, Ghana looks to be a country my investment team and I will continue to watch in our constant lookout for undervalued companies and bargain opportunities in frontier markets.
1 IMF, “Mission to Ghana”, March 2012
2 CIA, The World Factbook, 13 April 2012
3 Ghana Banking Survey PwC June 2011
4 CIA, The World Factbook, 13 April 2012