Revving up the Ghana Stock Exchange; A Corporate Law Analysis

A vibrant, alluring and rewarding stock market contributes to the growth and development of a nation’s economy. It serves as a veritable means of raising capital to enable firms to ultimately increase shareholder and/or stakeholder value. It stimulates the understanding and practice of corporate law and governance and may also serve as a source of capital gains tax, stamp duty payments and other forms of income for a polity.  

The British colonialists did not set up a stock market in the Gold Coast (Ghana’s colonial name). To some academics, the “disease environment” accounted for that causing the colonialists to focus on shipping out the natural resources that they found in the territory.

Establishment of Stock Exchange

In 1969, the Commonwealth Development Finance Company Ltd. recommended the establishment of a stock market within 2 years in its Pearl Report. In 1971, the Accra Stock Exchange Act was passed and the Accra Stock Exchange Company was registered but it never became operational. In 1989, the process to set up the Ghana Stock Exchange (GSE) was initiated culminating in the commencement of trading in 1990 and its official launch the following year. 

Presently, the GSE has only 37 listed securities. Market capitalization has grown to about $18 billion. The domestic component of this rose by more than 76% in 2014 compared to 2012. In 2013, both the GSE composite and financial stock indices recorded returns beyond the 70% mark. Ten of the listed companies recorded returns of more than 100% with five making gains within the 50% to 87% range. There were other gainers, ‘same price holders’ and a few losers. Overall, the volume of traded shares continues to rise with generally positive turnover. 

Despite these overall positives, the stock market in Ghana has not gained widespread attention and participation. In the process, its potential benefits to the economy are yet to be fully gleaned. 

Shareholding structure

The shareholding structure of most of the listed firms provides some clues. Based on 2014 figures (which have hardly changed) the top one, two or three shareholders of most of these firms control more than 40% to 90% of the stock. 

Ghana Cocoa Board and the Social Security and National Insurance Trust (SSNIT) together hold 69.98% of shares in Aluworks; Adcock has 71.3% in Ayrton; Wilmar Africa has 76.63% in Benso Oil Palm; SSNIT and ADP I together hold 62.15% in CAL Bank; the Government of Ghana (GOG), Ghana Cocoa Board and SSNIT hold 88.9% in Cocoa Processing Company Ltd; SSNIT and the Ministry of Finance hold 51.17% in Ghana Commercial Bank; Diageo Highlands BV and Heineken Ghanaian Holdings BV hold 72.42% in Guinness Ghana Breweries Ltd.; Fan Milk International holds 56.64% in Fan Milk Ltd.; GOG and SSNIT hold 69.62% in Ghana Oil Company Limited; the Republic Bank, SSNIT and the Ghana Union Assurance hold 77.1% in HFC Bank.

GOG and SSNIT hold a total of 74.79% in Produce Buying Company Ltd.; PZ Cussons PLC, UK holds 90.24% in PZ Cussons Ghana Ltd.; GOG and SSNIT hold 51.8% in SIC Insurance; SG-Financial Services has 52.24% in Societe General Ghana Ltd.; Standard Chartered Holdings (Africa) BV holds 69.42% in Standard Chartered Bank Ghana Ltd; Total Outre Mer S.A. and Total Africa Ltd., have a total of 76.74% in Total Petroleum Ghana Ltd.; Unilever Overseas and UAC International hold a total of 66% in Unilever Ghana Ltd.; Jacquaye Tse Paul has 59.97% and 60.29% in Clydestone and Transactions Solutions respectively; Oak Partners, Omega Partners and Rehoboth Capital hold a total of 66.3% in Mega African Capital Ltd.; and UT Holdings, Deg-Deutsche Investitions and IFC hold a total of 64.11% in UT Bank. 

Ring fencing against take-over

It appears that the holders of these huge blocks of shares want to ring-fence themselves against take-over contests and long-drawn out battles in the passing of ordinary and/or special resolutions. Either by themselves or in collaboration with one or two other shareholders, a high probability exists for them to have their way in the appointment of directors and top executives. The moral hazard and adverse selection problems may play out. The minority may succeed in getting their views across but they are not likely to win if the issues are put to the vote.

A potential shareholder in such a scenario does not have the incentive to invest in the market seeing as she would always be at the receiving end of the decisions of merely one, two or three shareholders. It is thus not surprising that some companies that attempted to do Initial Public Offerings (IPOs), failed to garner enough public interest. 

In such a setting, expertise in mergers and acquisitions, how to fix agency cost problems, the autonomy of the Securities and Exchange Commission (SEC), the design of world-class business law studies and the streamlining of the Bank of Ghana’s interference with the activities of banks on the securities market, become a forlorn cry. In similar vein, many firms in Ghana, which could potentially get listed, would not find the local bourse attractive for primary and secondary market activity. 

Again, analyses in economics and finance that touch on the views of Berle & Means as well as the postulations of Adam Smith and Coase do not get tested and adapted to suit local circumstances. Equally, the updating of creditor protection schemes, circular control structures, cross-ownerships, pyramids and dual class shares do not become commonplace. 

It is true that this analysis has a somewhat Anglo-American cast. It must be noted however, that if path dependence is to be believed, then it should be quite curious that Prof. Gower did not succeed in bringing a culture of dispersed/diffused shareholding in public companies from the United Kingdom to Ghana. 

Without the contribution of the New York Stock Exchange and NASDAQ to the US economy as well as the London Stock Exchange (perhaps the FTSE 100 in particular) to the British economy, the whole global economy, not just Wall Street and the City of London, would lose its foothold. That is a testament of what financially beneficial stock markets contribute to their economies. 

Perhaps, the overall economic utility of the GSE would begin with the diffusion of the shares held by the GOG and its satellites, the conscious and strategic attraction of stellar companies onto the bourse and the effective marketing to the world of the advantageous geographical location of the GSE. Rule 6(1)(b) of the GSE Listing Rules must also be made more creative with respect to the minimum public float for listed companies. 

• The writer is a co-founder of the Law & Business Advocates and the Managing Partner at Clegg & Everett. He holds a Master of Laws (LL.M.) degree in Corporate Law, Finance & Governance Concentration from Harvard Law School with cross-registration in Boards of Directors & Corporate Governance at Harvard Business School. His email address is rclegg@cleggandeverett.com