A. Introduction

137. The incorporation of the stock exchange in Ghana in November 1990 was part of the structural reforms initiated in the mid-1980s. As in many other developing countries, the financial system in Ghana at the end of the 1980s consisted essentially of the banking sector with most banks owned by the state. The presence of a stock exchange was seen as increasing the possibilities for portfolio diversification, therefore raising financial savings and contributing to capital formation. The stock exchange was also seen as a way to accelerate the privatization program by creating a mechanism through which Ghanaian investors could participate in the ownership of large enterprises.

138. This paper describes the organization of the Ghana Stock Exchange (GSE) and explains its role in deepening the financial system.

B. Background

139. The GSE has no shareholders but is incorporated as a public company limited by guarantee.² It is governed by a council comprising representatives from the licensed dealing members, listed companies, banks, insurance companies, money market participants, and the general public.

140. The GSE has two categories of members: licensed dealing members (LDMs) and associate members. An LDM is a corporate body licensed by the stock exchange to deal with listed companies. An associate member is an individual or corporate body that has satisfied the GSE’s membership requirement but is not licensed to deal in securities. There is no fixed capital requirement for LDMs, but their stated capital is expected to be at least 100 million (about US$40,000, as of June 1999). The firm must be licensed by the Securities Regulatory Commission and must be in possession of a certificate of specification before commencing operations. LDMs must also be approved by the GSE. Currently, 12 LDMs operate on the GSE. All of them are allowed to serve nonresidents.

141. All types of securities can be listed on the GSE. Criteria for listing include capital adequacy, profitability, years of existence, and management efficiency. All listings are included in the GSE All-Share Index. There are currently 22 equities listed (see Appendix I). There are also four dollar-denominated corporate bonds.

142. Ordinary shares and corporate bonds are traded three times a week, on Mondays, Wednesdays, and Fridays, between 10:00 a.m. and 12 noon. Shares of Ashanti Goldfields are also traded over the counter after GSE trading hours, with these trades reported to the GSE at the next trading session (Box 4). Delivery and settlement are centralized but not yet automated, with a settlement period of T + 5 days. However, the GSE is setting up an automated clearing, settlement, and depository system that should reduce the settlement period to T + 3 days.

143. All investors are subject to a 10 percent withholding tax on dividend income, although they are exempt until November 2005 from the tax on capital gains on securities listed.

144. Initially, nonresidents could not trade on the GSE, but the situation was substantially liberalized in 1994. Nonresident investors can now deal in securities listed on the GSE without obtaining prior permission, although there are some restrictions on foreign portfolio investors not resident in Ghana. There are no exchange controls on the remittance of original investment capital, capital gains, dividends, interest payments, returns, and other related earnings. The current limits on nonresident investor holdings (institutional or individual) are as follows: a single investor (non-Ghanaian who lives outside the country) is allowed to hold up to 10 percent of the equity of each stock issued; and foreign investors in aggregate may hold up to a cumulative total of 74 percent of the equity in any stock issue (in special circumstances, this limit may be waived). These limits exclude trade in Ashanti Goldfields shares.

C. Overview of the Present Situation

145. Since its establishment, the GSE’s performance has varied considerably (Table 17 and Figure 17). In 1993, the GSE was the sixth-best performer among emerging stock markets with a capital appreciation of 116 percent. In the following year, the GSE was the best-performing stock market among all emerging markets, as its index rose by 124 percent. Market capitalization also increased markedly owing to the flotation of Ashanti Goldfields Company and the government’s sale of 20 percent of its then 55 percent stake in the company. In 1995, however, the GSE index increased by a meager 6.3 percent, in part because of the high inflation and interest rates during that period. There was progressively stronger growth over the next three years, with the GSE index increasing by 70 percent (63 percent in dollar terms) in 1998, making it the best-performing market in Africa (Table 18).

Table 17.

GSE Performance Statistics

Sources: IFS, IFC, and GSE.

Table 17.

GSE Performance Statistics

		1990	1991	1992	1993	1994	1995	1996	1997	1998
GSE All-Share Index		70.3	64.5	62.2	132.9	298.1	317.0	360.8	511.7	868.4
	Annual percentage change	…	−8.2	−3.6	113.8	124.3	6.3	13.8	41.9	69.7
Number of listed companies		11.0	13.0	15.0	15.0	17.0	19.0	21.0	21.0	21.0
Market capitalization
	In billions of cedis	30.5	29.6	43.8	96.5	1,968.4	2,399.0	2,862.7	2,552.8	3,245.6
	In billions of dollars	0.1	0.1	0.1	0.1	1.9	1.7	1.6	1.1	1.4
	In percent of GDP	1.5	1.2	1.6	2.6	39.8	32.3	25.2	18.1	18.7
	Excluding AGC (in billions of cedis)	…	…	…	…	206.4	279.0	453.7	699.8	1,259.6
Volume traded (in million of shares)		0.2	1.8	2.0	37.9	93.0	55.8	35.8	125.6	91.4
	Annual percentage change	…	731.8	11.5	1,759.8	145.2	−40.0	−36.0	251.4	−27.2
Value traded (in billion of cedis)		0.1	0.1	0.2	3.2	73.1	27.1	27.9	93.4	134.0
	Annual percentage change	…	62.6	65.7	1,732.4	2,199.9	−62.9	2.9	234.9	43.6
Turnover ratio (in percent)		0.2	0.4	0.4	3.3	3.7	1.1	1.0	3.7	4.1
Ashanti Goldfields Company
	Capitalization (in billion of cedis)	…	…	…	…	1,762.0	2,120.0	2,409.0	1,853.0	1,986.0
	Volume traded (in million of shares)	…	…	…	…	1.7	0.3	0.2	0.1	0.1
	Value traded (in billion of cedis)	…	…	…	…	33.6	7.8	6.5	1.4	1.0
Memorandum items:
Exchange rate (end of period; cedis per dollar)		345	391	521	820	1,053	1,449	1,754	2,273	2,326
Nominal GDP (in billion of cedis)		2,032	2,428	2,803	3,675	4,950	7,418	11,339	14,113	17,357

Sources: IFS, IFC, and GSE.

View Table

Table 17.

GSE Performance Statistics

		1990	1991	1992	1993	1994	1995	1996	1997	1998
GSE All-Share Index		70.3	64.5	62.2	132.9	298.1	317.0	360.8	511.7	868.4
	Annual percentage change	…	−8.2	−3.6	113.8	124.3	6.3	13.8	41.9	69.7
Number of listed companies		11.0	13.0	15.0	15.0	17.0	19.0	21.0	21.0	21.0
Market capitalization
	In billions of cedis	30.5	29.6	43.8	96.5	1,968.4	2,399.0	2,862.7	2,552.8	3,245.6
	In billions of dollars	0.1	0.1	0.1	0.1	1.9	1.7	1.6	1.1	1.4
	In percent of GDP	1.5	1.2	1.6	2.6	39.8	32.3	25.2	18.1	18.7
	Excluding AGC (in billions of cedis)	…	…	…	…	206.4	279.0	453.7	699.8	1,259.6
Volume traded (in million of shares)		0.2	1.8	2.0	37.9	93.0	55.8	35.8	125.6	91.4
	Annual percentage change	…	731.8	11.5	1,759.8	145.2	−40.0	−36.0	251.4	−27.2
Value traded (in billion of cedis)		0.1	0.1	0.2	3.2	73.1	27.1	27.9	93.4	134.0
	Annual percentage change	…	62.6	65.7	1,732.4	2,199.9	−62.9	2.9	234.9	43.6
Turnover ratio (in percent)		0.2	0.4	0.4	3.3	3.7	1.1	1.0	3.7	4.1
Ashanti Goldfields Company
	Capitalization (in billion of cedis)	…	…	…	…	1,762.0	2,120.0	2,409.0	1,853.0	1,986.0
	Volume traded (in million of shares)	…	…	…	…	1.7	0.3	0.2	0.1	0.1
	Value traded (in billion of cedis)	…	…	…	…	33.6	7.8	6.5	1.4	1.0
Memorandum items:
Exchange rate (end of period; cedis per dollar)		345	391	521	820	1,053	1,449	1,754	2,273	2,326
Nominal GDP (in billion of cedis)		2,032	2,428	2,803	3,675	4,950	7,418	11,339	14,113	17,357

Sources: IFS, IFC, and GSE.

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Stock Exchange Indicators, 1990–1998

Citation: IMF Staff Country Reports 2000, 002; 10.5089/9781451814811.002.A005

Sources: IFS; IFC and GSE.

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Table 18.

Africa: Performance of Stock Exchanges

(As of December 31, 1998)

Sources: IFSE and Standard Bank.

Table 18.

Africa: Performance of Stock Exchanges

(As of December 31, 1998)

	Year of Establishment	Number of Listed Companies	Market Capitalization (In billions of U.S. dollars)	Capital Return in 1998 (In U.S. dollars)
Botswana	1989	23	0.72	14.3
Côte d’Ivoire	1976	n.a.	n.a	22.9
Egypt	1881	870	24.12	−26.6
Ghana	1990	21	1.39	63.1
Kenya	1954	57	2.09	−3.5
Malawi	1995	n.a.	n.a.	−25.0
Mauritius	1989	32	1.67	5.8
Morocco	1929	53	15.69	26.4
Namibia	1992	40	0.43	−46.6
Nigeria	1960	186	11.69	−20.8
South Africa	1887	n.a.	n.a.	−27.6
Sudan	1995	n.a.	n.a.	n.a.
Swaziland	1990	5	0.09	n.a.
Tunisia	1989	36	2.17	5.9
Zambia	1994	9	0.29	−58.0
Zimbabwe	1896	70	0.96	−54.8

Sources: IFSE and Standard Bank.

View Table

Table 18.

Africa: Performance of Stock Exchanges

(As of December 31, 1998)

	Year of Establishment	Number of Listed Companies	Market Capitalization (In billions of U.S. dollars)	Capital Return in 1998 (In U.S. dollars)
Botswana	1989	23	0.72	14.3
Côte d’Ivoire	1976	n.a.	n.a	22.9
Egypt	1881	870	24.12	−26.6
Ghana	1990	21	1.39	63.1
Kenya	1954	57	2.09	−3.5
Malawi	1995	n.a.	n.a.	−25.0
Mauritius	1989	32	1.67	5.8
Morocco	1929	53	15.69	26.4
Namibia	1992	40	0.43	−46.6
Nigeria	1960	186	11.69	−20.8
South Africa	1887	n.a.	n.a.	−27.6
Sudan	1995	n.a.	n.a.	n.a.
Swaziland	1990	5	0.09	n.a.
Tunisia	1989	36	2.17	5.9
Zambia	1994	9	0.29	−58.0
Zimbabwe	1896	70	0.96	−54.8

Sources: IFSE and Standard Bank.

146. In terms of market capitalization, which measured about US$1.4 billion at the end of 1998, the GSE has become one of the largest sub-Saharan stock exchanges. Ashanti Goldfields Company (AGC) is by far the most important stock on the exchange. Since its flotation in 1994, the capitalization of AGC has represented more than 70 percent of the market total on average. It thus heavily influences the key market figures for the rest of the stock market.³⁸

147. Besides the AGC, the manufacturing and brewing sectors dominate the GSE (Appendix I). A distant third is the banking sector, with most other listed companies in the insurance, mining, and oil sectors. Many of the listed companies on the GSE are Ghanaian-owned subsidiaries of multinational companies.

148. The expansion of the stock market has been driven to a large extent by privatization, as most companies on the GSE were originally state corporations. After the flotation of AGC shares in 1994, the sale of the state stake in the Social Security Bank boosted the market, as well as the flotation of part of the Ghana Commercial Bank shares that belonged to government. Pioneer Aluminum Factory and Aluworks were among other large companies privatized during 1995–98.

149. However, the expansion caused by privatization has not been matched by private firms seeking long-term capital from the market. The GSE’s management tried to change this in 1998 by embarking on a massive media advertising campaign to educate the public on the advantages of investing; nevertheless, the results of this campaign have not been significant so far.

D. Conclusion

150. Since its establishment in 1990, the GSE has been progressively strengthening its facilities for businesses and government to raise long-term capital as well as for investors to obtain liquidity, reasonable capital safety and diversity of investments. Even though it is still a relatively young stock exchange, it is progressing faster than most of the African stock exchanges and is receiving significant attention by international media.³⁹

151. Despite some significant achievements (liberalization of exchange controls, contribution to successful privatization of enterprises, etc.) the GSE remains fairly illiquid like many other African markets. In 1998, the turnover rate was just 4 percent, the value of traded shares was up by 47 percent from the previous year, but it mainly reflected higher share prices while volume traded declined by 25 percent.

152. Finally, the GSE needs to rely more on domestic investors. The Ghanaian authorities plan to develop domestic mutual funds and unit trusts, which would reduce the volatility of the market and make it less dependant on foreign investors. A draft law on domestic mutual funds and unit trusts is expected to be put before parliament in the near future. Stable macroeconomic conditions and the creation of an adequate regulatory framework are key for the continued success of the capital market.