Restoring confidence and integrity in capital markets

…a game-changer for financial stability

In the lead-up to the 2024 general election, former President John D. Mahama’s manifesto promise to restore confidence and integrity in Ghana’s capital markets represents a crucial turning point for the financial sector.

This initiative, if implemented, could significantly transform the market landscape, addressing key challenges that have plagued investors, fund managers, and the broader financial community in recent years. With a series of targeted reforms, Mahama’s vision is poised to stabilize the capital markets and spur growth, ushering in a new era of confidence and development.

The Impact of the Current Crisis

The National Democratic Congress (NDC) seeks to address the aftermath of a turbulent period in Ghana’s capital markets, marked by the government’s Domestic Debt Exchange Programme (DDEP) and a non-transparent financial clean-up exercise.

Between 2022 and 2023, the bond market’s liquidity dropped by 70%, triggering a collapse in investor confidence and negatively impacting key financial institutions, including banks, fund managers, and brokerage firms. This shock rippled across the economy, as capital flight and panic withdrawals exacerbated financial instability.

Mahama’s promise to restore confidence in both the domestic bond market and broader capital markets presents a critical intervention to reverse these declines. Restoring stability will not only rejuvenate investor trust but also rekindle the flow of capital necessary for economic recovery and long-term growth.

Modernizing the Capital Markets Master Plan

One of the key strategies Mahama’s administration proposes is updating the Capital Markets Master Plan introduced in 2021. This update is essential, particularly in light of the recent challenges the markets have faced, such as the erosion of bond values and weakened investor participation. The revised plan aims to reflect current market realities, ensuring that capital markets become more resilient and better prepared to absorb shocks like the DDEP in the future.

By focusing on transparency and rebuilding investor confidence, the NDC’s strategy seeks to bring much-needed stability. This could potentially reverse the capital flight that has significantly drained liquidity from the system, ultimately benefiting all market participants—from individual investors to institutional fund managers.

Building a More Dynamic and Efficient Market

Beyond restoring confidence, Mahama’s policy agenda emphasizes creating a more dynamic, efficient, and attractive capital market. By upgrading trading platforms, clearing and settlement systems, and market surveillance mechanisms, the administration aims to deepen the capital market, ensuring greater efficiency and transparency.

These improvements will likely enhance Ghana’s appeal to both domestic and international investors, attracting new issuers and contributing to a healthier, more liquid market environment.

A more robust capital market also offers benefits to the broader economy.

Incentives for Issuers and Investors

Key to Mahama’s reforms is the introduction of tax incentives aimed at attracting more issuers and investors. By exempting dividend taxes for individuals and revising stamp duty to lower the cost of raising capital, these policies will make it more affordable and attractive for businesses to seek funding through the Ghana Stock Exchange (GSE).

The review of securities industry regulations to promote activities such as securities lending and margin trading also has the potential to diversify investment strategies, making the market more vibrant.

In tandem with tax incentives, the plan to introduce new financial products—including exchange-traded funds (ETFs), infrastructure bonds, derivatives, and Islamic financial products—will offer investors greater opportunities for diversification. This broader range of investment vehicles will cater to different risk appetites and preferences, creating a more inclusive market that accommodates a variety of investment strategies.

Strengthening the Venture Capital Ecosystem

One of the most innovative aspects of Mahama’s manifesto is the proposed restructuring of investment funds into a single Sovereign Wealth Fund to finance infrastructure projects. This move not only consolidates capital for large-scale projects but also strengthens the private equity ecosystem, creating new avenues for economic development.

Additionally, the reform and recapitalization of the Ghana Venture Capital Trust Fund will provide critical risk capital for SMEs. By fostering a vibrant SME sector, the administration aims to drive job creation, innovation, and overall economic growth. Access to venture capital is a known catalyst for entrepreneurship, and Mahama’s policy recognizes the importance of supporting small businesses in the broader economic ecosystem.

Expanding Market Participation through State-Owned Enterprises (SOEs)

Mahama’s promise to attract more state-owned enterprises (SOEs) to list on the Ghana Stock Exchange (GSE) could be a significant driver for deepening the market. Historically, SOEs have often relied on direct government funding or external borrowing, but a shift toward capital markets will allow them to raise funds more efficiently, introduce greater accountability, and open up new investment opportunities for the public. The listing of more SOEs would likely increase market liquidity, diversify investment portfolios, and enhance the visibility of the GSE regionally.

Enhancing Financial Literacy and Investor Education

Restoring confidence in the capital markets is not only a matter of policy reforms but also involves empowering investors with knowledge. Mahama’s administration could also emphasize financial literacy initiatives, particularly for retail investors, to help them understand the new financial products, such as derivatives, ETFs, and infrastructure bonds, that are set to be introduced. Increased financial literacy would mitigate the panic withdrawals and investment missteps seen in the past and ensure long-term market stability.

Balancing Regulations and Innovation

While the manifesto emphasizes updating securities regulations to promote activities like securities lending, margin trading, and dispute resolution, there’s an opportunity to explore how these regulatory updates can also foster innovation in the fintech sector.

For example, fintech companies offering robo-advisory services, digital trading platforms, and blockchain-based assets could benefit from clearer regulatory guidelines, further democratizing access to financial markets for everyday Ghanaians. Encouraging innovation while maintaining strong regulatory oversight will be key to building a modern, competitive capital market.

Boosting Investor Protection and Trust through Surveillance

Upgrading trading platforms and market surveillance systems is a pivotal aspect of Mahama’s plan. However, a more detailed emphasis on protecting investors from fraud and manipulation could help restore trust in the market.

Strengthening surveillance mechanisms will ensure that the capital market is not only efficient but also secure, safeguarding both local and international investors. Such measures will boost confidence in market transactions, encourage higher participation, and foster long-term investment in Ghana’s capital markets.

Climate Finance and Green Bonds

Another area where Mahama’s policies could bring significant innovation is the potential introduction of green bonds or climate finance instruments to support sustainable development.

As climate change becomes an increasingly important global issue, issuing green bonds can attract environmentally conscious investors and finance key infrastructure projects aimed at mitigating climate change. This diversification of financial products aligns with global trends and could position Ghana as a leader in sustainable finance within the region.

Promoting Digital Transformation in Capital Markets

While upgrading trading platforms is an essential step, Mahama’s administration could also focus on integrating digital technologies like blockchain, artificial intelligence (AI), and big data analytics into capital market operations.

These technologies can enhance the efficiency of clearing and settlement systems, reduce transaction costs, and improve market transparency. By leveraging digital tools, Ghana could create a cutting-edge capital market ecosystem that attracts international investors seeking technologically advanced investment destinations.

Deepening Regional Market Integration

Lastly, Mahama’s policies could further explore regional integration with other African capital markets. By aligning Ghana’s market structure and regulatory framework with those of other African nations, the administration could facilitate cross-border investment flows and make Ghana a gateway for regional capital market activity.

This could enhance liquidity and deepen Ghana’s role in the broader African financial market, making it a hub for investors looking to tap into emerging opportunities across the continent.

Integrating these perspectives into the manifesto evaluation would provide a more comprehensive analysis of how Mahama’s policies could reshape Ghana’s financial landscape and accelerate its growth trajectory.

A Path Toward Economic Recovery

In the long term, Mahama’s policies promise to transform Ghana’s financial landscape by restoring confidence, enhancing market efficiency, and providing new growth opportunities for both issuers and investors. These reforms are essential for positioning Ghana as a regional hub for capital markets, driving economic recovery, and ensuring sustainable growth.

The capital markets are a barometer for the economy’s health, and by prioritizing their revival, the next NDC administration can significantly bolster investor sentiment, catalyse business expansion, and contribute to an overall improvement in financial stability.

This renewed confidence in the financial sector will not only benefit the markets but will have a positive ripple effect across the entire economy, paving the way for more inclusive and sustainable development in the years to come.

In conclusion, Mahama’s manifesto provides a clear and actionable path to restoring integrity in Ghana’s capital markets. By addressing both structural inefficiencies and investor concerns, these policies will likely reshape the financial landscape, fostering a climate of growth, innovation, and long-term stability. For investors, financial institutions, and the broader public, these reforms offer hope for a more prosperous and secure future.