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Will 17 Nov Ghana budget unblock flow for SOE listings?

Would-be investors are waiting for news from the technical committee working to prepare Ghanaian State-owned enterprises (SOEs) for share sales of their shares on the Ghana Stock Exchange. According to reports, the committee is ready to recommend 10 Government-owned enterprises for listing.

Today (17 Nov) sees the Finance Minister Ken Ofori-Atta, a former investment banker, unveiling the 2022 national budget. Key concerns are debt sustainability and sluggish economic growth, according to Ekow Dontoh and Moses Mozart Dzawu writing in Bloomberg and other reports, such as this by Maxwell Akalaare Adombila in the Daily Graphic.

UPDATE 17 NOVEMBER 17:00 UCT – Finance Minister Ken Ofori-Atta was short on specifics in today’s budget statement. He said “The GSE will continue to collaborate with the Ministry of Finance and the State Interests and Governance Authority (SIGA) to enhance access to long-term capital and improve corporate governance practices by listing state-owned enterprises (SOEs) on any of the GSE’s three markets.” His speech can be found on the Ministry of Finance website.

He also said the GSE “will also participate in projects such as the Africa Securities Linkage Project which
seeks to establish a Single Borderless African Capital Market” referring to the African Exchanges Linkage Project.

Ghana’s Government aims to improve their operations and attract new capital. The State Interest and Governance Authority (SIGA) was to submit the proposal to the Ministry of Public Enterprises to be forwarded to Cabinet for approval. Public Enterprises Minister Joseph Cudjoe told GBC News, according to this article on Ghanaweb: “We seek to leverage on the capital market to improve the productivity of SOEs and create jobs, while safeguarding the State’s investment.”

Earlier this year, Steven Asamoah-Boateng, Director-General of SIGA, told GBC News that the share sales would be coming. He was reported as saying: “Indigenous investors interested in ownership of SOEs should make funds available.”

SIGA is exploring various strategies including divestiture and joint-ventures to “enhance efficiency of performing SOEs and revive the struggling ones”.

Key privatization targets include: cement producer Ghacem, Ghana Gas Company, Twifo Oil Palm Plantation, TDC Development Company and Ghana Rubber Products. The Consolidated Bank Ghana, formed out of seven dissolved banks, is also part of the first batch of SOEs to be recommended for listing, citing reports on GBC News.

Could share sales stop the electric rise of State debts?

A key challenge for Ghana is the plight of the state power distribution company Electricity Company of Ghana (ECG) another enterprise that is on the list for partial share sale. According to Cudjoe: “We remain committed to attracting private funds into ECG to enhance its service delivery while making it profitable”.

The ECG was thought to be $2.7bn in debt to suppliers in January 2019, but it could run up another $12.5 billion in debt by 2023, according to this report by Moses Mozart Dzawu on Bloomberg: “The debt keeps growing because the power distribution company cannot collect all the money for the energy it sells, government nominee for Minister of Energy Matthew Opoku Prempeh said during a vetting by lawmakers on 12 February”.

They key challenge is the high offtake agreements that Government offered as it tried to solve the power crisis – meaning that it has to pay for electricity that it is not using. The lure succeeded in pushing up supply to over 4,600 megawatts, well above national peak demand of 2,700 megawatts, according to Bloomberg: “Three of the 12 independent producers have agreed to take steps to cut their tariffs charged to the Government, however, none have agreed to stop charging the Government for energy it does not consume.

“Those obligations, under so-called take-or-pay clauses, cost the government $500m every year.”

Prempeh said: “We don’t collect enough revenue to meet our requirements… We’re going to sit down with all the players and let them understand that if we don’t change and agree on some parameters we’ll all collapse.” He also mentioned a new approach to privatizing the Electricity Company of Ghana, although US-funded efforts in 2019 were unsuccessful.

Minister Joseph Cudjoe told GBC News that privatising the Electricity Company of Ghana remains a top priority as Government looks to reducing commercial losses and improving the operations of the national electricity distributor. “We remain committed to attracting private funds into ECG to enhance its service delivery while making it profitable.”

Working for years

The technical committee working on the divestitures through share sales is made up of representatives from SIGA, Ghana Stock Exchange and the Ministry of Finance. It has been reviewing the companies and preparing with 18 State-owned enterprises under consideration according to this November 2020 report in Ghanaian Times .

He said a maximum of 49% of shares would be offloaded onto the stock market in the initial years until the deal yielded significant results: “Government may hold the 51% just to be sure in the beginning but between any figure from 30% to 49%, we will let go, If we find it very good, the Government might let go of all 100%”.

He added that a key target will be participation by indigenous Ghanaian investors, rather than a single strategic investor, often a foreigner, buying the assets.

(photo credit: By ZSM – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=12397204)

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