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21 May 2014

Ghana A West African Gem.

Among the sub-Saharan frontier markets that have piqued investor interest, one of the most attractive is the West African nation of Ghana. Nestled on the coast between Cote d’Ivoire and Togo, Ghana has long been regarded as one of the most politically and economically stable countries in sub-Saharan Africa.
The economy is relatively diverse compared to many other more resource-dependent countries in the region. While substantial offshore oil deposits were discovered in 2007 and the country is enjoying a boom in oil revenues (reserves are estimated at 700 million barrels), the industrial sector is more developed than in other African countries.
Agriculture accounts for 50% of employment and 39% of exports, and the country is rich in other resources including gold, timber, bauxite and industrial diamonds.

Ghana is the world’s second largest cocoa producer, and based on market cap, Cocoa Processing Corporation is the second largest publicly traded company in the country.


Global Economic Growth

With GDP growing at a rate in excess of 5% since 2002, Ghana has consistently been at the top of global economic growth rankings for the past 10 years.
GDP growth peaked in 2011 at 13.6% in real terms, and although pressure has begun to increase on the economy recently, the IMF projects 2014 growth at 4.8%; the Economist Intelligence Unit (EIU) is more optimistic with a forecast of 7.3%. The EIU suggests there is still much to be positive about in the local economy, such as the continuing development of oil and gas reserves, a vibrant service sector and progress in addressing electricity shortages.

Many investors consider Ghana to be the gateway to the 250 million consumers located in West Africa, and the business environment is welcoming to international retailers hoping to access this burgeoning market.
Ghana is ranked 67th out of 189 countries included in the World Bank’s Ease of Doing Business rating, well ahead of Nigeria (ranked 147th), its nearest competitor in the frontier markets universe, and ahead of many other emerging markets countries such as Turkey, Brazil and Russia.
Although Ghana certainly continues to struggle with issues of corruption, bureaucracy and weak rule of law, these factors so typical of both emerging and frontier markets are somewhat less pronounced. The attractive environment positions Ghana to potentially become the next retail hub in the region.


Ghana’s Booming Sectors

Among the most vibrant sectors in Ghana’s economy are telecommunications and financial services. The mobile penetration rate has exceeded 100% (in developing markets in particular, users are likely to own multiple SIM cards), but phone ownership is estimated to be only 16 million, leaving plenty of room for expansion in voice. Data service is a particularly high growth area, while the boom in the oil and gas sector has companies clamoring for improvements in infrastructure and increased network capacity.
Since the government passed the Banking Act in 2007, the financial services sector has seen significant improvement. Compared to neighboring countries like Benin and Cameroon, Ghana has more than double the number of ATMs per capita, and system integration now allows cardholders to use ATMs operated by banks other than their card issuer.
However, with rapidly increasing demand from industrial and corporate customers, banks will be on the lookout for considerable capital investment.


Feeling Industrious

Furthermore, Ghana is more advanced industrially than many other African countries and the government is considering an array of reforms and legislation to reduce the country’s dependence on imports and stimulate domestic production. In particular, the country will be looking to produce fertilizers and agricultural chemicals locally, as well as components and pipes for the oil and gas industry.
Last year, the GSE Composite Index (GGSECI) which measures the performance of the Ghanaian stock market, posted a spectacular gain of 78.81%. Year-to-date performance has slowed, with the index up by only 6.02%.

The largest publicly traded companies in the market included financial services names such as Ecobank and Standard Chartered Ghana, with resource companies represented by Tullow Oil and Anglogold Ashanti.
As in Nigeria, international brewer Guiness is represented by subsidiary Guiness Ghana Brewing. For independent investors, professionally managed funds and ETFs are the only way to access the opportunities in this market. However, allocations to Ghana remain relatively low. Two funds to look at include the Nile Pan Africa Fund (Nasdaq: NAFAX) and the Wasatch Frontier Emerging Small Countries Fund Investor (Nasdaq: WAFMX).  



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