Accra, Ghana, March 20, 2018//- After enjoying many years of government guarantees and subsidies, many surviving State-owned Enterprises (SOEs) in Ghana are struggling to fend for themselves independently.
To this end, capital market experts have encouraged these SEOs to list on the Ghana Stock Exchange (GSE) to enable them raise capital to finance their programmes and activities in the country.
At a recent workshop on ‘Enhancing the Capacity of Financial Journalists on the Capital Market’ organised by the USAID and Institute of Financial Journalists (IFEJ) held in Accra, David Tetteh, Manager of the Ghana Alternative Exchange (GAX), a parallel market operated by the GSE with focus on Small and Medium Enterprises (SMEs) with growth potential, called for the listing of all struggling SOEs on the GSE to make them more efficient and profitable.
By listing on the GAX or the main GSE, these struggling SOEs could raise millions of Ghana cedis to enable them turnaround their operations, he explained.
Mr Tetteh’s views are shared by the Director General of Securities and Exchange Commission (SEC), Reverend Daniel Ogbarmey Tetteh.
He told African Eye Report in an interview that it was high time for the SOEs to take advantage of the GSE which recorded a much higher trading activity in 2017 to issue securities on the local bourse.
Rev. Tetteh also urged the struggling SOEs to see the GSE as the right platform for selling shares to the public, saying: “The GSE is ever ready to support any SOE which wants to sell equity on the market”.
Benefits of listing
Ato Barnes, a capital market consultant emphasised that the benefits of listing on the GSE outweigh any other channel of raising capital in the country, stressing that these struggling state-owned corporations can have access to ‘cheap money’ to turn things around.
“The interest cost of listing debt securities are relatively lower”, he stated.
Another benefit of listing on the stock exchange is to: “Spread the risk of ownership among a large group of shareholders. Therefore, if these SOEs are listed on the GSE their level of risk would be reduced “, Mr Barnes added.
Furthermore, SOEs and other companies that list on the GSE have additional leverage when obtaining loans from financial institutions, according to the consultant.
He also acknowledged: “Having a security listed on an exchange affords the SOE or a company increased credibility with the public, having the SOE or the company indirectly endorsed through having their securities traded on the exchange.
Having a SOE’s securities listed on an exchange could attract the attention of pension funds, mutual funds, unit trusts and other institutional funds. So, SOEs listing on the GSE should be encouraged by all , Mr Barnes indicated.
“Shares and employee share option programmes can be offered to potential employees, making the SOE or the company attractive to top talent”.
Key to better SOE performance is good corporate governance that provides the regulatory framework for acceptable practice, strategic direction and sound business judgement. Therefore, listing these SOEs on the GSE is another way of assuring good corporate governance, the experts noted.
In 2017, the government announced that it was considering listing many struggling SOEs on the GSE to enable individuals and corporate entities own shares in them. It is part of the overall drive to reform the sector and help them achieve commercial success.
A recent report by the Ministry of Finance covering 18 SoEs revealed that they made a net loss of GH¢791 million, in addition to receiving loans and financial support totaling more than GH¢13 million, this is no longer sustainable, according to the government.
The Founder of the Chief Executives Network Ghana, Ernest De-Graft Egyir supported the move, saying that undertaking economic activities for profit is not the role of the government.
Mr Egyir therefore insisted that the government should offload its shares in these enterprises, insisting: “The role of any government in any part of the world is to provide an enabling environment for businesses created by individuals and other corporate bodies to thrive”.
The Minister of Finance, Ken Ofori-Atta in his 2017 budget added: “The Ministry initiated the creation of a Single Entity for the management of the assets and liabilities of SOEs, and collaborated with SOEs to implement a number of measures to improve their performance”.
Why SOEs not listing
Mr Tetteh attributed the struggling SOEs low interest in listing on the GSE and GAX to low education, unfavourable economic condition, and the lack of information.
“For instance, a lot of people are not aware that the GAX exists and they can raise capital. They are not aware of the benefits they stand to gain when they get listed, they are not aware of the incentives that we have put in place”, he stressed. As part of the incentives, initial processes including underwriting and advisory service costs are free.
“The second challenge is general, that the economy itself did not favour equity investments so people are putting more funds into money market investments, so it wasn’t good timing to bring SOEs and other companies onto the GAX. Now it looks like things are stable that is why the GSE is the best performing market in the world this year.”
Why SOES fail
A senior lawyer Justice Sremi-Sai attributed the failures of Ghana’s SOEs to political influence, anti-state movement and Structural Adjustment Programme which the country embarked on in the 1980s.
“One great evil that afflicts SOEs is political influence; I mean misguided political influence. The evil becomes even greater when the polity within which the SOEs operate lacks stability and is much worse when competent, skilled and public-spirited management and strong capital market institutions are lacking. Ghana bore all these elements in abundance after the middle of 1960. Thus, by the close of the 1970s, most of the public corporations had been run down”, he stated.
“The country was heavily engrossed in debt owed to the countries and institutions of the industrialised West. Inflation rate was swinging above 100 per cent; GDP per capita had fallen from US$ 1,007 in 1960 to barely US$ 700 in 1983; and unemployment hit an all time high. Our countrymen had embarked on a desperate search for greener pastures outside the country”.
At this point, one could hardly dismiss the concerns of the Ghana anti-State movement.
From these facts, they have all the evidence to support their claims that state ownership or control of companies is a waste of public money and everyone’s time; that state ownership only promotes monopoly, rent-seeking, corruption, cronyism, nepotism, political interference, etc. all of which lead to the failure of SOEs; and, that this sad outcome is not peculiar to Ghana, not even to Africa, according to Mr Sremi-Sai.
The impact of the quasi-fiscal activities of SoEs on the macro-economic environment in the country is also having knock-on effect on other sectors of the economy.
“A case in point is the energy-sector debt that has also created systemic risks in the banking sector. As managers of SOEs, the challenges we continue to have over these debts must be at the back of your minds when executing contracts and making commitments with financial and ultimately fiscal implications for the whole economy,” Vice President Dr Mahamadu Bawumia noted.
To add up, subsidies which used to cushion these corporations were removed making it difficult for them to compete with similar corporations both locally and globally.
Furthermore, others took cover under the ambit of the Statutory Corporations (Conversion to Companies) Act, 1993 (Act 461) to convert to limited liability companies, with profit-making motives.
SOEs
As SOEs are primarily owned and led by government, government departments, agencies and boards of companies are partners in providing corporate governance to ensure their success. But this is missing in most SOEs operating in the country. This is why most SOEs are struggling to survive in the West African second largest economy.
SOES are legal entities which are created by the government in order to partake in commercial activities on the government’s behalf. They are common worldwide.
In Ghana, Volta River Authority, Ghana Water Company Ltd, Electricity Company of Ghana, Ghana National Gas Company Ltd, Ghana Railway Company, Produce Buying Company and Ghana Airport Company are few examples of SOEs. Majority of these SOEs are struggling.
By Masahudu Ankiilu Kunateh, African Eye Report
Email: mk68008@gmail.com
