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THE CDH RESEARCH YEARBOOK 2013/2014 CONTENT • Foreword • Ghana’s Political Scene • Economic Review • Stock Market Performance • CDH Research Strategy 2014 FOREWORD • • The CDH Research Yearbook • highlights key issues in Ghana’s economy and the stock market with a view to presenting a summary account of the preceding year, while looking forward to the year-to-come. It is put together by the research arm of CDH Financial Holdings Ltd; a financial Services Company in Ghana operating in the asset management, stock brokerage, corporate advisory, commodities trading, short-term finance, and insurance segments of • the economy. • Ghana’s economy in 2013 faced a high budget deficit (12% of GDP), a ballooning wage bill (70% of tax revenue) and significant increase in public debts and interest payments. Growth however remained robust at 7.4%, with the target for 2014 set at 8%. Inflation climbed back to double digits (13.2% in November 2013) and may be around 10% for 2014. Yields on the Government of Ghana treasury bills could climb back to around 22% in 2014 from 19% as at the close of 2013. On the global front, economic growth has been weak. Advanced economies, buoyed by significant stimulus packages, bail-outs, quantitative easing, improved consumer sentiments and low interest rates, have started back on the growth path while emerging countries have slowed with challenges arising from domestic and external developments; cyclical growth patterns, reduced capacity and the aftereffects of capital reversal to the developed world. Developing economies still maintain strong growth despite the weak global recovery. This has been mainly due to structural policies fostering favourable business and investment regimes as well as relatively better macroeconomic policies. However, the external environment has become less favourable for commodity exporting countries as commodities prices decline and external financing costs increase. GHANA’S POLITICAL SCENE • John Dramani Mahama was confirmed as the winner of the 2012 Election Polls by the Supreme Court of Ghana after eight months of legal challenge launched by the New Patriotic Party (NPP) disputing the results as declared by the Electoral • Commission. The outcome restored and further enhanced Ghana’s credentials as a stable democracy with growing respect for the rule of law. • • The role of the labour unions as civil society organisations and political pressure groups came to the fore in 2013 with the disputes over hikes in Utility prices and the sale of Government owned Merchant Bank to private equity firm, Fortis Ghana. There are indications that in 2014, labour will continue to be a major pressure point for • Government to contend with as the issues surrounding the payment of market premiums for labour are negotiated in a January review by Government’s Fair Wages & Salaries Commission. The major political parties, the National Democratic Congress (NDC) and the New Patriotic Party (NPP) have already began jostling for the votes of the People in 2016, by trying to hang the tag of corruption around each other’s neck. Recent investigations into allegedly corrupt activities at GYEEDA & SADA have put the Government under pressure to explain the reported excesses, and for the President to prove his declared intolerance for corruption by moving swiftly to have the culprits prosecuted. It will be very important for the Administration that the measures it has instituted for addressing the current allegations of corruption, such as the Judgment Debt Commission and the GYEEDA prosecutions, begin to show credible results to enable the government regain the confidence of Ghanaians POLITICAL PARTY ELECTIONS • Most Political Parties in Ghana are expected to conduct their internal elections for polling stations, constituencies, regional and national executive officers in 2014. These are to precede and provide the foundations for the election of the flag-bearers for the 2016 General Elections. The importance of these internal exercises is more pronounced following the outcome of the Supreme Court ruling on the Election Petition which brought into sharp focus the role of Party Executives, down to the grassroots level, in ensuring victory for their • parties in General Elections. • The ruling National Democratic Congress (NDC) is expected to have a less terse internal electioneering period as current executives are perceived as ‘winnable’ following the 2012 victory and will face less competition in retaining their seats. However, there are indications that the National Chairmanship position will be keenly fought between incumbent, Dr. Kwabena Adjei and another stalwart of the Party, NADMO Boss – Kofi Portuphy. This is expected to be the highlight of the elections and if tensions between the two continue to simmer, could filter down to the lower level elections. The NDC elections could also see the introduction of biometric registration for members and the use of total member suffrage in electing officers The New Patriotic Party (NPP) has already started the process of electing party officials for the local to the National level. It is clear that these elections have been overshadowed by the issue of retaining the 2012 flagbearer, Nana Akufo Addo or electing a new candidate. However, the most critical issue for the Party could be the election of the National Executives as this is expected to go a long way to determine who leads the Party. Special Report – The Global Picture of Corruption • • The 2013 Corruption Perceptions Index (CPI) measured the perceived levels of public sector corruption in 177 countries and territories. • Ghana was ranked 63rd out of the 177 countries with a score of 46 points out of a 100. Ghana scored 1 point higher than the previous year, inching to 46 from 45. Ghana was again ranked • seventh in Africa according to both the 2012 and 2013 Indexes. • “We highlight people’s perceptions and experiences of corruption from around the world” according to the Global Corruption Barometer, a • research survey also carried out by Transparency International . • Bribery is Widespread - Overall, more than one in four people (27 per cent) report having paid a bribe in the last 12 months when interacting with key public institutions and services. Police & Judiciary are the Most Corrupt Public Institutions – According to a survey, among the eight services evaluated, the police and the judiciary are seen as the two most bribery-prone. An estimated 31 per cent of people who came into contact with the police report having paid a bribe. For those interacting with the judiciary, the proportion is 24 per cent. Political Parties are the most corrupt Institutions - Around the world, political parties, the driving force of democracies, are perceived to be the most corrupt institutions. Religious organisations and Chieftaincy are also seen as among the most corrupt. People state they are ready to challenge the status-quo - Nearly 9 in 10 surveyed say they would act against corruption. The majority of people said that they would be willing to speak up and report an incident of corruption. Two-thirds of those asked to pay a bribe say they refused. In Ghana, most people said they will be willing to join an organisation to fight corruption. ECONOMIC REVIEW • The last review of the economy by the 3. Depreciation of the Cedi – The Cedi depreciated by an average of 12% against Bank of Ghana’s Monetary Policy major trading currencies in 2013. Further Committee (MPC) maintained the depreciation is expected in 2014 policy rate at 16%; with the view that there where no significant risks to the 4. High Public Sector Wages & Labour Agitations – Public Sector Wages for 2014 is country’s economic growth prospects projected at GHC 11 billion or 70% of in 2014 (Set at 8% by the non-earmarked tax revenues. Efforts by Government). However, inflationary Government to control the impact of this pressures have increased, Consumer & recurrent expenditure in 2014 is expected Business Confidence in the economy to result in further labour disputes and agitations. have declined in 2013 and there are possible vulnerabilities appearing in 5. High Public Debt & Interest Payments – Public Debt is currently at $23.50 billion the country’s foreign exchange (53.5% of GDP). Total Interest Payments for markets. 2014 is projected at GHC 6.2 billion (20% of Total Expenditure) • There are 7 Major Challenges facing the 6. Rising Utility Prices – Electricity & Water Ghanaian Economy in 2014 Tariffs were increased by more than 50% 1. High Budget Deficits – There was a record in 2013. The Automatic Adjustment Formula Budget Deficit in 2012 of 12% of GDP. The is also expected to result in further provisional figure for 2013 is 10.2% with a increases early next year projected 2014 deficit of 8.5% of GDP 7. The Issue of Unemployment – There have (GHC 9 billion) been layoffs in the mining industry; hurt by 2. Inflation on the Rise – November 2013 the low price of gold in 2013. Youth Inflation rate was 13.2%, above the singleunemployment remains a big issue for digit target set by the Bank of Ghana. End government to address. of Year Inflation for 2014 is also projected at 9.5% 2014 BUDGET HIGHLIGHTS • The 2014 Budget Statement was presented under the theme; “Rising to the Challenge: Re-aligning the Budget to meet Key National Priorities”. The following are summaries of major policies outlined in the statement; • • • • • • • • Establishment of the Ghana Infrastructure Fund (GIF) primarily funded by 2.5% increase in Value Added Tax (VAT) Removal of taxes on HIV prevention imports and Printing Materials Capping of National Stabilisation Fund at GHC 250 million and using the excess for debt repayment and the setting up of a Contingency Fund Completion of the Gas Infrastructure Project within the First Quarter of 2014 Issue 10-12 year Government of Ghana Bonds and the third series of Ghana’s Eurobond Weaning off about 12 Subvented Agencies from Government Payroll Construction of 2 modern farmers’ markets in the Brong Ahafo and Northern Regions. Setting up of a GHC 50 million SME Fund Indicators 2013 Prov. 2014 Proj. Real GDP Growth (inc. oil) 7.4% 8.0% Real GDP Growth (non oil) 5.8% 7.4% Real GDP (GHC) 32.3b 34.91b Nominal GDP (GHC) 87.16b 105.50b Agriculture Sector 3.4% 4.2% Industry Sector 9.1% 9.1% Services Sector 9.2% 8.9% Inflation 13.1% 9.5% Broad Money Supply (M2+) 17.7% n.a. Credit to the Private Sector 13.1% n.a. US Dollar/Cedi 10%* n.a Pound/Cedi 10%* n.a. Euro/Cedi 14%* n.a. Trade Deficit $2.74b $2.80b* Balance of Payment Deficit $884m $1.0b* Gross International Reserves $5.21b $5.60b* Fiscal Deficit (% of GDP) 10.2% 8.5% Public Debt Stock $23.50b $30b* Public Debt (% of GDP) 53.5% 51%* Total Revenue & Grants GHC GHC 26b 20.8b Total Expenditure & Arrears GHC GHC 35b 29.7b S p e c i a l R e p o r t – Ta m i n g G h a n a ’s H i g h I n f l a t i o n • Ghana has for much of its economic • history recorded very high rates of inflation. High Inflation stifles economic growth and the creation of employment. We highlight some important issues that need to be considered in tackling Ghana’s high inflation • • Depreciation of the Cedi - The depreciation of the Ghana Cedi results in higher costs of imports which feed into prices of imported goods and therefore high inflation. The weakness of the cedi against the major trading currencies is mainly due to excessive • fiscal spending, strong demand for foreign currencies and speculative investor activities (especially in election years). To buck this trend, the Bank of Ghana must tighten regulation to ensure business and commercial transactions done in Ghana are done using the Cedi as the medium of exchange; prevent foreign investors from accumulating major holds in money-market instruments and bonds, and significantly limit the repatriation of profits arising out of business activities that do not provide export revenues or enhance export activities. Austerity and Inflation – It can be argued that Ghana’s foray into single-digit inflation in 2010 was due to significant austerity measures in 2009. Government expenditure in 2009 was 34% of GDP as compared to 41% in 2008. This happened despite the fact that revenue figures remained at the same level. There is an argument therefore for government to employ some austerity measures in years where inflation is particularly difficult to tame. This must be balanced with the view that less government expenditure can result in short term loss of growth and employment (Growth in 2009 was 4.1% as compared to 7.2% in 2010). Growth & Long Term Inflation - A simple definition of inflation is ‘more money chasing relatively few goods and services’. By inference, when we increase the volume of goods and services, inflation should fall. For example, the period from 1992 to 2002 witnessed average growth of 4.2% and average inflation of 27.8% on average. Ghana’s improved growth of 7.01% on average from 2003-2012 corresponds with average inflation rate of 13.40%. Ghana could therefore look at growth as a long term strategy in running ahead of inflationary pressures. THE GLOBAL ECONOMY IN 2014 • The International Monetary Fund’s review of the global economy in October 2013 highlighted the transitional issues and tensions as the world emerges finally from the ‘Great Recession’ that began in 2007. An analysis of the report reveal possible structural changes to the world economy as we know it and it is Countries with large fiscal deficits must important for, especially developing consolidate and undertake prudent inflation countries, to take note of these targeting measures. changes. 3. High Public Debt and in some instances, high private debt, have become features of 1. There is a stabilisation of commodity prices most economies and will remain a source following the upsurge experienced from of concern for many years to come. 2000 to last year. Countries that are 4. There is a need for a rebalancing of the dependent on the commodities exports world economy, with a realignment of would face less buoyant revenue inflows in growth sources from consumption to the future. investment in advanced economies, and a 2. Global Financial conditions are expected to reversal from investment to consumption in tighten and as less money (or more countries like China. Developing countries expensive money) becomes available for must identify and keep strategic positions developing and emerging countries, there during this period of transitions. will be a need for more fiscal discipline – Special Report – Doing Business in Ghana: 2014 • The World Bank Group’s Doing Business Report for 2014 highlights issues concerning doing business in 189 economies across the world. It measures and tracks changes in regulations affecting 11 areas in the life cycle of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and employing workers, among others. • Ghana ranks 67th on the index, out of 189 economies – down 5 places from last year. This is mainly due to the new requirement for local entrepreneurs to acquire a Tax Identification Number before registering a company. Ghana is the highest ranked country in West Africa and the 5th in Sub Saharan Africa. Key Indicators for Ghana (in comparison with the world’s best performers) INDICATORS TIME COST Starting a Business 14 Days [0.5 Days in New Zealand] GHC 250 [$0 in Slovenia] Dealing with Construction Permits 246.5 Days [26 Days in Singapore] GHC 7,081 [$995 in Qatar] Getting Electricity 79 Days [17 Days in Germany] GHC 62,614.4 [$0 in Japan] Registering Property 34 Days [1 Day in New Zealand GHC 200 [$0 in Top 5 Economies] Paying taxes 224 Hours per year [12 hours per year in UAE] 22.9% of Profits [41.3% in OECD Countries] Enforcing Contracts 495 Days [150 Days in Singapore] 23% of Claim [0.1% in Bhutan] GHANA STOCK EXCHANGE • Trading activities on the Ghana Stock Exchange in the 2013 financial year was impressive , with a resultant 78.81% upsurge in the GSEComposite Index, to end the year at 2,145.20 points. This compares favorably with a market return of approximately 24% in 2012. The financial stocks also experienced an upward trend, as indicated by a 71.81% increase in the GSE-FSI to 1,786.60 points; surpassing the 21% return of the index in the 2012 Financial Year. • The sturdy price changes resulted in a GH¢3.89 million boost in the total market capitalization to GH¢61,158.29 million in 2013, from GH¢57,264.22 million in the preceding year. Indicators Level (Dec 31 2013) % YTD Change 2,145.20 78.81% GSE Financial Stocks Index 1,786.60 71.81% Volume Traded 280,000,000 - Value Traded GHC400 million - Market Capitalisation GHC 61,158.29 6.80% GSE Composite Index Top Gainers for 2013 PZ Cussons (339%), Enterprise Group (292%), CAL Bank (155%), Mechanical Llyod (153%), Guinness Ghana (137%) Ghana Commercial Bank (131%), Benso Oil Palm (129%), Unilever (115%), HFC Bank (113%), Ecobank Ghana (87%), Fan Milk (86%) Top Losers for 2013 TRANSOL (-25%), Starwin (-20%), African Champions (-14%), Trust Bank (-13%) * Figures as at 31 December, 2013 S TO C K S O N T H E G S E Listed Companies African Champions AngloGold Ashanti Aluworks YTD Change (2013) Outlook for 2014 -14.3% NEGATIVE Golden Web 0.0% NEUTRAL HFC Bank 113.3% POSITIVE 153.3% POSITIVE 0.0% NEUTRAL -5.6% NEUTRAL 338.89% POSITIVE Standard Chartered Bank 29.9% POSITIVE SIC Insurance 14.7% POSITIVE POSITIVE Starwin Products 50.00% NEUTRAL POSITIVE Societe Generale 56.3% POSITIVE Sam Woode 50.00% NEUTRAL Trust Bank Gambia -12.5% NEGATIVE Total Petroleum 72.3% NEUTRAL -5.6% NEUTRAL 129.3% POSITIVE 155.3% POSITIVE Clydestone 0.0% NEGATIVE Camelot Cocoa Processing Company Ecobank Ghana Enterprise Group Ecobank Transnational Fan Milk Ghana Commercial Bank Guinness Ghana Ghana Oil Golden Star 14.3% NEUTRAL 87.0% Outlook for 2014 NEGATIVE NEGATIVE 0.00% YTD Change (2013) 0.0% 0.0% Ayrton Drug Benso Oil Palm Plantation CAL Bank Listed Companies NEGATIVE 291.7% Mechanical Llyod Pioneer Kitchenware Produce Buying Company PZ Cussons 58.3% POSITIVE 86.5% POSITIVE 131.0% POSITIVE Transaction Solutions 25.00% NEGATIVE 136.6% 43.5% 0.0% POSITIVE POSITIVE NEGATIVE Tullow Oil Unilever Ghana UT Bank -8.1% 114.9% 18.4% NEUTRAL POSITIVE POSITIVE * Figures as at 31st December, 2013 Call (302) 667 426/668 437 for Further Details on Our Recommendations CDH RESEARCH STRATEGY 2014 • CDH Research is a dedicated team for the CDH Financial Group providing analysis and services in a wide range of economic, stock market and industry issues. Its flagship products include the CDH Economic & Market Strategy Daily & Weekly, Corporate • Analysis of Listed & Unlisted Companies, Indexes & Ratings, Seminars and Research into very topical and relevant areas such as • Health, Education & Retirement • • CDH ECONOMIC & MARKET STRATEGY DAILY & WEEKLY A Report on the Performance of Companies • listed on the Ghana Stock Exchange as well as analysis of current economic issues. CDH CORPORATE ANALYSIS Regular reports on quarterly and full year • financial statements of listed companies, as well as stock recommendations CDH KNOWLEDGE Economic, corporate & stock market Indices tracked on a daily basis CDH’S HEART Research on the issues of Health, Education, Accommodation, Retirement and Transportation SHADOW MONETARY POLICY COMMITTEE A review of Ghana’s economy and prospects for the future with other industry players and experts BUDGET SEMINAR Presentation & Analysis of the Annual Budget with our major stakeholders OUR PEOPLE & CONTACTS EXECUTIVES • Emmanuel K. Adu-Sarkodee Group Chief Executive LLB, MBA, BA (Hons.) RESEARCH TEAM • Prince N. D. Abbey CDH Research PhD (Ongoing), MSc. BSc. [email protected] • Desmond Nartey Executive Director, CDH Securities MBA, MA, BA, CVA [email protected] • Peterson Adjabeng CDH Research MBA, BSc. [email protected] • Martin Asamoah Executive Director, CDH Commodities CA, MBA, Bcoms, DEdu [email protected] • Seth Aryittey Executive Director, CDH Asset Management MBA, CIMG, ID, BA [email protected] CDH House 36 Independence Avenue North Ridge Accra P.O. Box 14911 Accra Tel: (302) 667 426/668 437 Fax: (302) 662 167 Email: [email protected] Website: www.cdhgroup.co