The business environment in Ghana reveals a worrying trend, which requires urgent attention to boost investor confidence in corporate Ghana. The issue is a greater percentage of key projects and businesses deals are controlled by the state. Consequently, investors as well as local businessmen strive to win the favour of the political party in power to get lucrative contracts and business deals. In the end as the ruling party is out of power, the business deals and contracts awarded come to an abrupt end. Usually the in-coming government tend to review or cancel most contracts and business deals of the preceding government.
Business deals
It is a known fact that the government is the key client in business deals in the retail as well as manufacturing sector. The government is a valued customer for the auto companies in the country. It buys more cars from these companies than individuals or private companies combined. The government buys cars for serving ministers and other appointees. It buys fleets of cars for the presidential motorcades and state protocol cars. The NPP government bought fleets of luxury cars during Ghana at 50 celebrations. The government approves car loans for 200 sitting MPs to buy cars every four years. When the government approved £50.000 car loans for MPs this year there were reports, car dealers flocked parliament house looking for business deals.
Again the government is a key client to most construction and engineering companies.
Service providers like the banks, insurance companies, telephone/mobile phone providers, hotels all regard the state as their valued client. The state usually book hotel rooms for conferences and foreign dignitaries on regular basis. All the state cars require insurance policies etc. The state borrows from the banks. In fact state organisations and affiliate bodies control business deals in the energy, road & highway, education, health, aviation, oil etc sector.
The reality is most businesses recognise the significant role the state plays in the expansion of their business and are not taking chances. They also know such lucrative deals play key role in their profit margin. As a result, most contracts and business deals are often tainted with political under dealings. The sinister thing is companies or individuals on the other side of the political divide are denied such opportunities.
Regrettably, these practices do not create favourable environment for the development of indigenous businesses. Given that, a party in power have life spans of at most 8yrs in power. A change in government will definitely spell doom to most of these party affiliated or favoured companies. In the past, we have thriving party affiliated companies like EA Masai Group of Companies and CASHPRO that were hard hit after the NDC lost the election in 2000. Apart from that most construction companies, advertising agencies, consulting firms etc that were given thirst-quenching contracts during the days of the NDC folded up when the NPP won the election.
This phenomenon is once again surfacing with the NPP out of control. Just within eighth months of losing the election, some NPP affiliated companies are folding up with lightning speed. Databank Financial Services is reported to be experiencing some hitches after acquiring the toxic assets of Statesman newspaper. This paper was allegedly receiving state support. This has been withdrawn by the current government just as NPP withdrew state support for the Palaver/Democrat newspapers some years back.
Caterers providing meals for the School Feeding Programmes are feeling the pinch as their contracts are under scrutiny. Overall most businesses that came with the NPP regime are going into oblivion as their contracts are being axed. The Ghana@50 Committee and some others are examining some NPP business deals and contracts.
There was an influx of Nigerian business moguls in the country during the NPP regime. Currently businesses of some of these moguls are systematically going into extinction. TV stations, advertising companies and other businesses owned by these moguls are struggling to remain buoyant because contracts are not forth coming.
Disincentive to investment
The irony is our political leaders go globetrotting in the name of wooing investors. JA Kuffour went globetrotting during his 8 years in power looking for investors. Now that the NPP is out of power most of these investors are struggling to survive. Similarly, JJ Rawlings also globe trotted and brought in some investors. Most of these investors suffered awfully under NPP regime as well.
When the NPP took over in 2001, they reviewed most of the contracts awarded by NDC. An example is the review of the defunct Ghana Telecom contract with the Malaysians. Presently there are rumours NDC is considering reviewing the sale of the same Ghana Telecom to Vodafone. They are also looking at reviewing the sale of the defunct Ghana Airways, which is now Ghanaian International Airlines.
What these politicians do not realised is cynical sales of state enterprises and subsequent calls for review of such sales results in lack of investor confidence in the system. In order to continue reaping the benefits of direct foreign investments its necessary we put in place safety mechanisms to shield investors. A change in regime should not mean an automatic re-evaluation of contracts and business deals of the preceding regime. We should find a way of circumventing this routine of the demise of businesses with the fall of the party in power. Perhaps we should get neutral bodies to handle state contracts, business deals and sale of state enterprises.
Conclusion
Business and politics in Ghana is too entwined and there is the need to delink both. Award of business deals and contracts must be on merits and ability to deliver and not on political affiliation. Business moguls and ventures who affiliate themselves to political parties must also realised it comes with a price. The demise of that party could spell an instant doom to their investments. Businessmen who want to remain in politics must be aware the life span of their businesses could be just 4 years or at most 8 years.
Thursday, 3 February 2011
The Club 100; Ghana’s FSTE 100
One of the greatest achievements of the Ghana Investment Promotion Council (GIPC) is the introduction of Ghana Club 100 (GC 100) in 1998. The GC 100 is made up of the top 100 high performing companies in Ghana from both public and private sectors. According to GIPC reports the idea behind the creation is to provide a world-class forum for top ranking businesses to interact and share techniques for the overall benefit of the economy. The listing, grading and awarding is carried out annually. During the events new companies could be upgraded and old ones eliminated from the list. This is very noble idea and I will like to commend the initiators of such fine idea.
The GIPC reports went on to say that at the inception of GC 100 in 1998 the total turnover of members companies was 6.5 trillion cedis and a total net asset was 9.7 trillion cedis with 1.03 trillion cedis in pre-tax profits. In the maiden edition of GC 100 Ashanti Goldfields Company Limited took the top spot as a leading performer in the mining sector. Volta River Authority (VRA) was adjudged the highest net asset- based company and top performer in the energy sector. Social Security and National Insurance Trust (SSNIT) was the highest profit making company in the financial sector. (www.gipc.org.gh/gc100)
Evaluation GC100 members
In 1998 when GC 100 was introduced GIPC evaluated companies on the basis of their net asset size, profit before tax, number of employees, return on equity and growth trends. This evaluation gave state owned companies advantage over the private companies, so state owned companies like SSNIT, Ghana Oil, Ghana Telecom, VRA, and State Insurance dominated the programme. Taking a close look the criteria, its evident very few private owned companies could compete with the state owned ones for the top spots.
For instance the use of net assets size, employee numbers and growth trend will put, companies like SSNIT, VRA, Ghana Telecom and Ghana oil way ahead of other competitors. Very few private companies in Ghana could employ more staff than the above named companies. Besides only few private companies could declare more profit or have more net asset size than any of them. The criteria were flawed on the onset and drew a lot of criticism from the Ghanaian business community. Some critics argued the criteria resulted in loss making companies appearing on the list thus defeating the purpose for which it was introduced.
Talking about loss making companies I believe the critics were right. Some few years down the line some of these highflying companies, which were top on the list, either went into administration or were acquired by other companies. A typical example is VALCO an aluminium smelting company, which was owned by the Kaiser Aluminium Corp of the USA. It folded its operations in Ghana and sold its holding to the Ghana Government. Another example is Ghana Telecom. It went into administration and was put up for sale. Vodafone, a very reputable company, later acquired it. (www.gipc.org.gh/gc100)
New Changes
Amidst the criticism and call for changes GIPC reviewed the criteria for selecting members of the Ghana Club 100, citing implementation problems. In the course of the review some very important changes were made. For instance companies with 100 per cent government holdings were disqualified from participating in the programme. Only limited liability companies with less than 50 per cent government shareholdings were allowed to take part. Qualifying companies must also post positive cumulative net profit for three years running prior to the competition. Apart from turnover companies were also judged on profitability, turnover, and growth rate in turnover and net assets. The review made it possible for small businesses to participate in the programme. The GC 100 also became more competitive and attracted more members.
Further changes were introduced in the 2005 edition of GC 100. For the first time in all the edition of the GC100 a company’s corporate social responsibility was recognized. The GIPC considered what it described as six core areas under this element. These are health, education, poverty alleviation, environment, and social care.
Result of the changes
The changes resulted in new and smaller businesses becoming GC 100 members. It also resulted in Rural Banks taking top spots in the GC100 membership. In fact a particular trend emerged in the Ghanaian corporate community as a result of these changes. There was what I will refer to as ‘fairly new business’ taking up centre stage and out performing the more traditional companies. These ‘‘fairly new business’ are businesses which are new entrants in the corporate scene in Ghana compare to the more traditional ones which has been in existence for decades. One such fairly new business’ is MTN Ghana Ltd.
This company provides a telecom services in Ghana. Its service brand the MTN is a leading brand in Ghanaian mobile telecommunication services market and has a very high market positioning in the Ghanaian telecom market. MTN offers both post and pre-paid services to its customers and it’s a market leader in the increasingly competitive mobile communications market with an impressive 60% market share. For four years running Scancom has topped the list for the GC100 as the most fast growing, most profit making and most employerable company in Ghana.
Conclusion
The trend which I referred to was revealed more in 2005 edition of the GC 100. The fairly new businesses (which entered the Ghana corporate world with a storm) out performed the hitherto well established companies like Unilever, Nestle Ghana Ltd etc. Unilever was 39th on the list. Out of the ten best performing companies of the 2005 GC100 seven (7) of them belong to theses fairly new businesses. This should be a big challenge to the Unilevers, Guineas Ghana Ltd etc.
Francis Kwaku Egu, UK
Kwakuhull@yahoo.com
The GIPC reports went on to say that at the inception of GC 100 in 1998 the total turnover of members companies was 6.5 trillion cedis and a total net asset was 9.7 trillion cedis with 1.03 trillion cedis in pre-tax profits. In the maiden edition of GC 100 Ashanti Goldfields Company Limited took the top spot as a leading performer in the mining sector. Volta River Authority (VRA) was adjudged the highest net asset- based company and top performer in the energy sector. Social Security and National Insurance Trust (SSNIT) was the highest profit making company in the financial sector. (www.gipc.org.gh/gc100)
Evaluation GC100 members
In 1998 when GC 100 was introduced GIPC evaluated companies on the basis of their net asset size, profit before tax, number of employees, return on equity and growth trends. This evaluation gave state owned companies advantage over the private companies, so state owned companies like SSNIT, Ghana Oil, Ghana Telecom, VRA, and State Insurance dominated the programme. Taking a close look the criteria, its evident very few private owned companies could compete with the state owned ones for the top spots.
For instance the use of net assets size, employee numbers and growth trend will put, companies like SSNIT, VRA, Ghana Telecom and Ghana oil way ahead of other competitors. Very few private companies in Ghana could employ more staff than the above named companies. Besides only few private companies could declare more profit or have more net asset size than any of them. The criteria were flawed on the onset and drew a lot of criticism from the Ghanaian business community. Some critics argued the criteria resulted in loss making companies appearing on the list thus defeating the purpose for which it was introduced.
Talking about loss making companies I believe the critics were right. Some few years down the line some of these highflying companies, which were top on the list, either went into administration or were acquired by other companies. A typical example is VALCO an aluminium smelting company, which was owned by the Kaiser Aluminium Corp of the USA. It folded its operations in Ghana and sold its holding to the Ghana Government. Another example is Ghana Telecom. It went into administration and was put up for sale. Vodafone, a very reputable company, later acquired it. (www.gipc.org.gh/gc100)
New Changes
Amidst the criticism and call for changes GIPC reviewed the criteria for selecting members of the Ghana Club 100, citing implementation problems. In the course of the review some very important changes were made. For instance companies with 100 per cent government holdings were disqualified from participating in the programme. Only limited liability companies with less than 50 per cent government shareholdings were allowed to take part. Qualifying companies must also post positive cumulative net profit for three years running prior to the competition. Apart from turnover companies were also judged on profitability, turnover, and growth rate in turnover and net assets. The review made it possible for small businesses to participate in the programme. The GC 100 also became more competitive and attracted more members.
Further changes were introduced in the 2005 edition of GC 100. For the first time in all the edition of the GC100 a company’s corporate social responsibility was recognized. The GIPC considered what it described as six core areas under this element. These are health, education, poverty alleviation, environment, and social care.
Result of the changes
The changes resulted in new and smaller businesses becoming GC 100 members. It also resulted in Rural Banks taking top spots in the GC100 membership. In fact a particular trend emerged in the Ghanaian corporate community as a result of these changes. There was what I will refer to as ‘fairly new business’ taking up centre stage and out performing the more traditional companies. These ‘‘fairly new business’ are businesses which are new entrants in the corporate scene in Ghana compare to the more traditional ones which has been in existence for decades. One such fairly new business’ is MTN Ghana Ltd.
This company provides a telecom services in Ghana. Its service brand the MTN is a leading brand in Ghanaian mobile telecommunication services market and has a very high market positioning in the Ghanaian telecom market. MTN offers both post and pre-paid services to its customers and it’s a market leader in the increasingly competitive mobile communications market with an impressive 60% market share. For four years running Scancom has topped the list for the GC100 as the most fast growing, most profit making and most employerable company in Ghana.
Conclusion
The trend which I referred to was revealed more in 2005 edition of the GC 100. The fairly new businesses (which entered the Ghana corporate world with a storm) out performed the hitherto well established companies like Unilever, Nestle Ghana Ltd etc. Unilever was 39th on the list. Out of the ten best performing companies of the 2005 GC100 seven (7) of them belong to theses fairly new businesses. This should be a big challenge to the Unilevers, Guineas Ghana Ltd etc.
Francis Kwaku Egu, UK
Kwakuhull@yahoo.com
Fairtrade Certification and Ghana cocoa products
Fairtrade certification system is designed to allow consumers identify goods which meet agreed Fairtrade standards. The certification is overseen by a standard-setting body known as Fairtrade Labelling Organisations International (FLO). The system involves independent auditing of producers and traders to ensure the agreed standards are met. (www.fairtrade.org). Fairtrade makes provision for what is referred to as Fairtrade social premium. This is an annual payment made to farming communities valued at 5% of their sales. The Premium is described by Fairtrade as an additional percentage price paid by consumers on top of each box of Fairtrade labelled products sold by FLO certified producers in developed countries. (www.fairtrade.org.)
Cocoa products from Ghana
Ghana’s Fairtrade chocolates have made in rolls into the world retail market and are making impact on the market. Currently Ghana’s Fairtrade cocoa products such as chocolates are marketed by major retail shops in the UK and the USA via Divine Chocolate Inc. Divine Chocolate Inc is a chocolate manufacturing company based in the UK. This company is partly owned by a Ghanaian farmers’ group Kuapa Kokoo. The company has direct access to cocoa beans grown by Ghanaian cocoa farmers. In 2007 alone Divine Inc used 1420 tons of Ghanaian cocoa beans to make a variety of chocolate products.
Divine has its own Fairtrade brand names which are sold by supermarkets like TESCO, Sainsbury and ASDA in the UK. One brand of the chocolate is the Dubble which is reported to be the only Fairtrade chocolate created specifically for the youth market. The Dubble range includes a crunchy milk chocolate 40g bar made with caramelised crisped rice, a Dubble Easter Egg and Dubble Mini Speckled Eggs. Some of these chocolates have wrappings adorned in traditional Ghanaian Adinkra symbols. It is worth noting that the Co-op, UK has converted all its own-label chocolate to Fairtrade, through Divine and Kuapa Kokoo. Divine Inc Fairtrade brand is also sold in the USA and other countries. In the USA the company has a branch of which Kuapa owns 33% shares. (www.divinechocolate.com)
The most important thing is Ghanaian farmers have a huge share in any profit made by the company because they own 45% of the company. Kuapa Kokoo receives four income streams from Divine Chocolate. These are a Fairtrade price (this is minimum $1600 per tonne, but if world price is higher Divine pays the world price). It also receives a Fairtrade premium payment of $150 per tonne and a producer support & development which is usually 2% of Divine turnover. Finally it receives dividend payments from Divine.
Kuapa’s stakes in Divine has definitely given the farmers group a solid financial base with very good growth prospects. It has also raised the group’s status in the world market, and given it 'a seat at the table' in international cocoa forums. Through owning Divine Kuapa Kokoo has been able to develop the skills, expertise and knowledge it needs to engage with the world market. (www.divinechocolate.com)
Cocoa price stability
The cocoa farmers are paid guaranteed prices for their products due to this a drop in cocoa price on the world market will not have adverse effect on their income. The guaranteed price has therefore stabilized the market for the farmers. In most developing countries, the terms of trade for primary commodities are very volatile and unpredictable. Attempts by Fairtrade to curb this situation have really served as boost to stakeholders in the industry. For instance a fall in price of cocoa will not only affect our cocoa farmers but also have diverse implications for the economy. One could agued that the presence of Fairtrade in Ghana has contributed significantly in bringing some stability to a very volatile and unpredictable market.
The introduction of Fairtrade in Ghana has contributed in creating a ready market for our cocoa farmers. Unlike the past when access to the market was very lengthy the farmers can now sell their beans directly to Kuapa, the farmers’ coops. Kuapa has really done a good job by training the farmers on how to use the scale in weighing the beans. This means they do not have to depend on the purchasing clerks to do this job. These purchasing clerks were alleged to be using inaccurate scales which denied the farmers of receiving the right amount for the cocoa.
The environment
One positive impact of Fairtrade in the farming communities is the creation of awareness on the need of saving the environment. The farmers and their families depend largely on fire wood as their source of energy. Cutting down of trees for fire have negative effects on the environment and contributes to global warming. One of the principles of Fairtrade among other things is to protect the environment and to safeguard natural resources. Destroying the environment is definitely against this principle (www.ifat.org). The good thing is that the payment of end of year bonuses to farmers from Fairtrade premium will make it possible for the farmers to switch to LG gases and other environmentally friendly sources of energy.
Conclusion
Currently a lot of cities in the UK have been declared as Fairtrade cities in support of the poor farmers in developing countries. For instance New Castle, Liverpool, Kingston – Upon -Hull have receive Fairtrade status Apart from that most of the big retail shops like TESCO, Sainsbury, Waitrose etc sell Fairtrade labelled products. In fact products from Divine which is partly owned by Ghanaian farmers are available in all major supermarkets in UK. (www.divinechocolate.com)
Cocoa products from Ghana
Ghana’s Fairtrade chocolates have made in rolls into the world retail market and are making impact on the market. Currently Ghana’s Fairtrade cocoa products such as chocolates are marketed by major retail shops in the UK and the USA via Divine Chocolate Inc. Divine Chocolate Inc is a chocolate manufacturing company based in the UK. This company is partly owned by a Ghanaian farmers’ group Kuapa Kokoo. The company has direct access to cocoa beans grown by Ghanaian cocoa farmers. In 2007 alone Divine Inc used 1420 tons of Ghanaian cocoa beans to make a variety of chocolate products.
Divine has its own Fairtrade brand names which are sold by supermarkets like TESCO, Sainsbury and ASDA in the UK. One brand of the chocolate is the Dubble which is reported to be the only Fairtrade chocolate created specifically for the youth market. The Dubble range includes a crunchy milk chocolate 40g bar made with caramelised crisped rice, a Dubble Easter Egg and Dubble Mini Speckled Eggs. Some of these chocolates have wrappings adorned in traditional Ghanaian Adinkra symbols. It is worth noting that the Co-op, UK has converted all its own-label chocolate to Fairtrade, through Divine and Kuapa Kokoo. Divine Inc Fairtrade brand is also sold in the USA and other countries. In the USA the company has a branch of which Kuapa owns 33% shares. (www.divinechocolate.com)
The most important thing is Ghanaian farmers have a huge share in any profit made by the company because they own 45% of the company. Kuapa Kokoo receives four income streams from Divine Chocolate. These are a Fairtrade price (this is minimum $1600 per tonne, but if world price is higher Divine pays the world price). It also receives a Fairtrade premium payment of $150 per tonne and a producer support & development which is usually 2% of Divine turnover. Finally it receives dividend payments from Divine.
Kuapa’s stakes in Divine has definitely given the farmers group a solid financial base with very good growth prospects. It has also raised the group’s status in the world market, and given it 'a seat at the table' in international cocoa forums. Through owning Divine Kuapa Kokoo has been able to develop the skills, expertise and knowledge it needs to engage with the world market. (www.divinechocolate.com)
Cocoa price stability
The cocoa farmers are paid guaranteed prices for their products due to this a drop in cocoa price on the world market will not have adverse effect on their income. The guaranteed price has therefore stabilized the market for the farmers. In most developing countries, the terms of trade for primary commodities are very volatile and unpredictable. Attempts by Fairtrade to curb this situation have really served as boost to stakeholders in the industry. For instance a fall in price of cocoa will not only affect our cocoa farmers but also have diverse implications for the economy. One could agued that the presence of Fairtrade in Ghana has contributed significantly in bringing some stability to a very volatile and unpredictable market.
The introduction of Fairtrade in Ghana has contributed in creating a ready market for our cocoa farmers. Unlike the past when access to the market was very lengthy the farmers can now sell their beans directly to Kuapa, the farmers’ coops. Kuapa has really done a good job by training the farmers on how to use the scale in weighing the beans. This means they do not have to depend on the purchasing clerks to do this job. These purchasing clerks were alleged to be using inaccurate scales which denied the farmers of receiving the right amount for the cocoa.
The environment
One positive impact of Fairtrade in the farming communities is the creation of awareness on the need of saving the environment. The farmers and their families depend largely on fire wood as their source of energy. Cutting down of trees for fire have negative effects on the environment and contributes to global warming. One of the principles of Fairtrade among other things is to protect the environment and to safeguard natural resources. Destroying the environment is definitely against this principle (www.ifat.org). The good thing is that the payment of end of year bonuses to farmers from Fairtrade premium will make it possible for the farmers to switch to LG gases and other environmentally friendly sources of energy.
Conclusion
Currently a lot of cities in the UK have been declared as Fairtrade cities in support of the poor farmers in developing countries. For instance New Castle, Liverpool, Kingston – Upon -Hull have receive Fairtrade status Apart from that most of the big retail shops like TESCO, Sainsbury, Waitrose etc sell Fairtrade labelled products. In fact products from Divine which is partly owned by Ghanaian farmers are available in all major supermarkets in UK. (www.divinechocolate.com)
Contributions of Fairtrade to the cocoa industry in Ghana
A report published by Reuters Television revealed Ghana produces 14% of the total production of the world's cocoa. In spite of this glowing achievement cocoa farmers receive a very little percentage of the revenue generated by chocolate manufacturing companies across the globe through the sales of chocolate bars (Reuters 2009). An International Cocoa Organisation (ICO) reports also revealed that West African farmers, supply 70 percent of all cocoa to feed the chocolate industry worldwide. While these companies create wealth for their shareholders the farmers in West Africa live in abject poverty. According to the International Institute of Tropical only half of the international cocoa price on the world market goes to farmers in West Africa while in other countries farmers receive up to 90 percent of that price.
Statistics such as the above one could argue prompted well meaning organisations such as Comic Relief, Oxfam, Christian Aid, Bill & Melinda Gates Foundation etc to throw in their weight in support of the farmers in West Africa. For instance the World Cocoa Foundation started a five-year project aimed at doubling incomes of farmers by 2013. The project plans to reach about 200,000 small cocoa farming households in Cameroon, Cote d'Ivoire, Ghana, Liberia, and Nigeria (http://seattletimes.nwsource.com)
Supply chain of cocoa
Prior to the advent of fair trade in the country the industry was very fragmented. The cocoa trade was controlled by middlemen who created so much inefficiency in the supply chain. Many of the farmers were excluded from mainstream world markets because they access these markets through long trading chains. These middlemen exploited the poor farmers leaving them with very little income. In addition to this prices paid for farm produce from these countries on the world market were not quite encouraging. Fairtrade in conjunction with other organizations contributed tremendously in increasing the income level of cocoa farmers in the country by eliminating middlemen in the supply chain of the cocoa industry.
Fairtrade organisations achieved this feat by helping the farmers to form co-ops known as Kuapa. This coop which started with just a few members currently has about 48,854 farmers from 1,124 village-level farmer societies. Kuapa members produced 63,000 tons of cocoa beans in 2004, representing 8% of Ghana's total production of 736,000 tons. The farmers became empowered and gained bargaining power after becoming one unit. The coop buys cocoa beans directly from the farmers at a very fair price compared to what they were receiving from the middlemen. (www.fairtrade.org.uk).
Cocoa price fluctuation
Cocoa price on the world market has been unstable over the years. The instability of cocoa price on the market poses a great challenge to farmers as well as the producing countries. According to the ICO report in 2000 cocoa price was $714 per ton. This price somewhat increased to $1,280 per ton in 2002. In 2003/04 prices went high at an average of around $1,600. The report went on to reveal that the second and third quarters of the 2005/06 cocoa season were characterized by high volatility in cocoa prices. (www.fairtrade.org.uk).
The cause of this was attributed to arbitrage trading due to the depreciation of the US dollar and the interruption of supplies due to some problems in Ghana and Côte d’Ivoire. In Ghana there was a dispute between licensed buyers and COCOBOD over logistical problems and a shortage of jute sacks. The problem in Côte d’Ivoire was in relation to the political situation in the country. Average international cocoa prices, as measured by the ICO daily price, was US$1,854 per ton in 2006/2007. (ICO reports 2005/06)
One most important Fairtrade contribution to cocoa farmers in Ghana is that in spite of fluctuation of cocoa in the world market farmers are guaranteed a maximum price for their cocoa. In addition to that the farmers receive premium through Kuapa and invest in the needs of the farmers. For instance in 2004 when the world cocoa price was $1600 per ton Kuapa received the world price plus $150 per ton premium for investment in commercial, social or environmental projects. It provides higher prices to farmers than Ghana government’s guaranteed price. It also provides end of year bonus and other extra incomes to increase the income level of farmers (www.fairtrade.org.uk).
Fairtrade certified products
The Fairtrade certification system has contributed significantly to promoting Ghana’s cocoa and other Fairtrade certified crops across the globe. The certification is an independent consumer label which appears on products. The label guarantees that disadvantaged producers are paid a better deal for their products. A report by Fair Trade Foundation UK revealed sales of Fairtrade cocoa products for the quarter April to June 2008 increased from £5m to £6m for the same period last year. At the same time volume sales, the real indicator of the amount of Fairtrade premiums that go back to producer groups to spend on community development projects such as schools and clinics, have increased by 17%.
Fair Trade Foundation UK reports that total sales of Fairtrade products for the quarter April to June 2008 grew from an estimated retail value of £113m to £176m. The growth is very significant because it is estimated that more than 7.5 million people involved in agricultural sector (farmers, workers and their families) in 59 developing countries will benefit from the international Fairtrade system.
Apart from the above Fair Trade Foundation, UK report indicates sales of Fairtrade goods in the UK are on high increase. Since 2001, sales volumes have grown by 40-50% on average, with one million households buying Fairtrade goods between December 2007 and December 2008, the foundation said. The value of these goods was £500m in 2007 and £700m in 2008, it added. The report went on to say that the economic recession across the globe has not affected purchases of Fairtrade goods - the rate of growth is still increasing. (Fairtrade Foundation UK).
Finally a survey conducted by CAPI OmniBus shows that consumers’ appetite for products carrying the Fairtrade mark has increased in all areas. The survey went on to say demand for Fairtrade in schools, colleges and universities has nearly tripled from 10% to 29% and demand in other sectors such as hotels and B&Bs, cafes, restaurants, pubs, supermarkets and smaller stores continues to flourish. In the workplace the number of people wanting Fairtrade has more than doubled from 9% to 21% (Fair Trade Foundation UK).
Conclusion
Fairtrade is becoming a world phenomenon and the organisations involved in promoting it have genuine concerns in improving the lot of farmers in the developing countries. It is up to the farmers to take up the challenge and embrace Fairtrade for their own good. Farmers who are not yet members of Kuapa Kokoo or any Fairtrade group should do the noble thing by joining in order to reap the benefit of premium payments. The market for Fairtrade products is rapidly expanding with more supermarkets as well as companies and organisations getting involved.
Statistics such as the above one could argue prompted well meaning organisations such as Comic Relief, Oxfam, Christian Aid, Bill & Melinda Gates Foundation etc to throw in their weight in support of the farmers in West Africa. For instance the World Cocoa Foundation started a five-year project aimed at doubling incomes of farmers by 2013. The project plans to reach about 200,000 small cocoa farming households in Cameroon, Cote d'Ivoire, Ghana, Liberia, and Nigeria (http://seattletimes.nwsource.com)
Supply chain of cocoa
Prior to the advent of fair trade in the country the industry was very fragmented. The cocoa trade was controlled by middlemen who created so much inefficiency in the supply chain. Many of the farmers were excluded from mainstream world markets because they access these markets through long trading chains. These middlemen exploited the poor farmers leaving them with very little income. In addition to this prices paid for farm produce from these countries on the world market were not quite encouraging. Fairtrade in conjunction with other organizations contributed tremendously in increasing the income level of cocoa farmers in the country by eliminating middlemen in the supply chain of the cocoa industry.
Fairtrade organisations achieved this feat by helping the farmers to form co-ops known as Kuapa. This coop which started with just a few members currently has about 48,854 farmers from 1,124 village-level farmer societies. Kuapa members produced 63,000 tons of cocoa beans in 2004, representing 8% of Ghana's total production of 736,000 tons. The farmers became empowered and gained bargaining power after becoming one unit. The coop buys cocoa beans directly from the farmers at a very fair price compared to what they were receiving from the middlemen. (www.fairtrade.org.uk).
Cocoa price fluctuation
Cocoa price on the world market has been unstable over the years. The instability of cocoa price on the market poses a great challenge to farmers as well as the producing countries. According to the ICO report in 2000 cocoa price was $714 per ton. This price somewhat increased to $1,280 per ton in 2002. In 2003/04 prices went high at an average of around $1,600. The report went on to reveal that the second and third quarters of the 2005/06 cocoa season were characterized by high volatility in cocoa prices. (www.fairtrade.org.uk).
The cause of this was attributed to arbitrage trading due to the depreciation of the US dollar and the interruption of supplies due to some problems in Ghana and Côte d’Ivoire. In Ghana there was a dispute between licensed buyers and COCOBOD over logistical problems and a shortage of jute sacks. The problem in Côte d’Ivoire was in relation to the political situation in the country. Average international cocoa prices, as measured by the ICO daily price, was US$1,854 per ton in 2006/2007. (ICO reports 2005/06)
One most important Fairtrade contribution to cocoa farmers in Ghana is that in spite of fluctuation of cocoa in the world market farmers are guaranteed a maximum price for their cocoa. In addition to that the farmers receive premium through Kuapa and invest in the needs of the farmers. For instance in 2004 when the world cocoa price was $1600 per ton Kuapa received the world price plus $150 per ton premium for investment in commercial, social or environmental projects. It provides higher prices to farmers than Ghana government’s guaranteed price. It also provides end of year bonus and other extra incomes to increase the income level of farmers (www.fairtrade.org.uk).
Fairtrade certified products
The Fairtrade certification system has contributed significantly to promoting Ghana’s cocoa and other Fairtrade certified crops across the globe. The certification is an independent consumer label which appears on products. The label guarantees that disadvantaged producers are paid a better deal for their products. A report by Fair Trade Foundation UK revealed sales of Fairtrade cocoa products for the quarter April to June 2008 increased from £5m to £6m for the same period last year. At the same time volume sales, the real indicator of the amount of Fairtrade premiums that go back to producer groups to spend on community development projects such as schools and clinics, have increased by 17%.
Fair Trade Foundation UK reports that total sales of Fairtrade products for the quarter April to June 2008 grew from an estimated retail value of £113m to £176m. The growth is very significant because it is estimated that more than 7.5 million people involved in agricultural sector (farmers, workers and their families) in 59 developing countries will benefit from the international Fairtrade system.
Apart from the above Fair Trade Foundation, UK report indicates sales of Fairtrade goods in the UK are on high increase. Since 2001, sales volumes have grown by 40-50% on average, with one million households buying Fairtrade goods between December 2007 and December 2008, the foundation said. The value of these goods was £500m in 2007 and £700m in 2008, it added. The report went on to say that the economic recession across the globe has not affected purchases of Fairtrade goods - the rate of growth is still increasing. (Fairtrade Foundation UK).
Finally a survey conducted by CAPI OmniBus shows that consumers’ appetite for products carrying the Fairtrade mark has increased in all areas. The survey went on to say demand for Fairtrade in schools, colleges and universities has nearly tripled from 10% to 29% and demand in other sectors such as hotels and B&Bs, cafes, restaurants, pubs, supermarkets and smaller stores continues to flourish. In the workplace the number of people wanting Fairtrade has more than doubled from 9% to 21% (Fair Trade Foundation UK).
Conclusion
Fairtrade is becoming a world phenomenon and the organisations involved in promoting it have genuine concerns in improving the lot of farmers in the developing countries. It is up to the farmers to take up the challenge and embrace Fairtrade for their own good. Farmers who are not yet members of Kuapa Kokoo or any Fairtrade group should do the noble thing by joining in order to reap the benefit of premium payments. The market for Fairtrade products is rapidly expanding with more supermarkets as well as companies and organisations getting involved.
Ghana International Airline: Exploring new flight routes
A Ghana International Airline (GIA) the nation’s flag carrier is reported to be having problem-getting passengers on its London – Accra route. According to GIA reports, there is a massive drop in figures for passengers plying London to Accra for the last few years. This report is a bit worrying because apparently, this route could be one of the profitable and lucrative routes for GIA all things being equal. GIA is attributing the decline to errant sale agents bent on sabotaging the activities of GIA. Well a decline in passengers on the Accra – London route does not sound good and it’s very necessary GIA put in the necessary measures to get passengers flying on this route again.
Branding
The problem is GIA is unfortunate to have inherited a very bad image from the defunct Ghana Airways. The company was noted for its poor customer satisfaction records. The primarily concerned of any meaningful organisation is to provide excellent customer service, and to add value to the customers experience at different stages in the value chain. This was something the defunct Ghana Airways failed to deliver on. It failed to provide good quality service and paid little attention to customer feedbacks on the service they provide in order to improve their services. Flights were cancelled at will without considering the damage effects on customers. There were also so many flight delays, which often results in some customers loosing business opportunities. All these resulted in lack of customer confidence in the airline.
Customer Service rules of 10s
GIA need to work hard in carving its own brand name or image to steer away from the bad image of its predecessor. In order to achieve this it needs to be concerned with a vigorous customer services drive and value added services. A study conducted by Institute of Customer Service (UKCSI) revealed that a dissatisfied customer is likely to tell up to 10 people about his / her disappointments and 13% of that will tell about 20 other people. The customer service rules of 10s also states that it takes just 10 seconds for a customer to lose his/her respect for a company but about 10yrs for the damage to be repair.
Looking at the above, its imperative that the damage caused by GIA’s predecessor to its image is enormous and lot need to be done by the company to regain confidence of customers. For instance, GIA must strive to attain a very good departure records. It also needs to reduce its flight cancellations and delays to barest minimal level. In fact, GIA requires a holistic branding package, which could also mean adopting a new name or image. The name Ghana International Airline reminds customers of the old Ghana Airways and brings back bad memories for customers who had to spend days sleeping at the corridors of Kotoka or Heathrow because of cancellation or delays.
E-ticketing
The recent introduction of e-ticketing by GIA could be described as a very good strategic decision. The airline is the first African carrier to be operating e-ticketing system. This is done via the airlines’ website and other online channels. This innovation will not only reduce their cost of operation with regards to payment of commission to travel agents but will also bring them abreast to new innovations in the airline industry worldwide. It will also reduce their administration costs.
Ticketing increases cost of operation for airlines. Due to this most airlines are trying to eliminate ticketing from their system of operation in order to reduce cost. The ‘no frills – low cost’ airlines like Easy jet, Ryan Air etc have records of operating ticketless system to perfection. They depend on online booking for most of their booking services. Easy Jet for instance takes about 90% of its bookings online and other airlines such KLM have introduced e-tickets where electronic tickets are emailed directly to customers.
Airport charges
One area GIA could start considering with regards to cost cutting is flying from inexpensive airports in either UK or Germany. Comparatively such airports have much lower airport charges. Flying from airports in London or Düsseldorf would only double the price of their ticket. The emergence of cheap-chartered flights run by companies such as Lycafly.com etc has made the industry very competitive. These companies offer promotional prices, which are very attractive particularly to students. Currently Lycafly.com sells a return Accra- London ticket for £388 and KLM is selling the same ticket for £398. These offers are threats to GIA so it needs to start looking at ways of reducing cost in its operations to remain in business.
Exploring new flight routes
Accra - London route is regarded by GIA as prestigious and cosmetic route because it yields very little profit compared to the Düsseldorf route. Short haul flights along the West Coast of Africa are even considered more profitable with very good future prospects than the Accra - London route. Well there is no point in plying an over crowded Accra - London route which has a very strong competition when other routes could be explored.
GIA could consider landing slot in any of the smaller airports in the northern part of England. Manchester or New Castle airports would have been ideal but that will mean paying higher airport charges. There is quite a sizeable amount of Ghanaians and other West Africans concentrated in Northern England and the Midlands. These people usually travel to London to catch flight to Ghana or other West African countries. The presence of GIA in any airport in the North or Midlands would likely have a good patronage.
Currently KLM is market leader in the region. It City Hopper planes flies from Manchester and Humberside Airports on regular basis. Customers flying KLM from these airports to Ghana had to make a transit through Schipol in Amsterdam. There is the inconvenience of spending hours waiting at Schipol in order to catch a flight to Accra. If GIA enters the market it will have a competitive advantage of flying customers direct to Accra.
GIA also needs to concentrate on satisfying its existing customers rather than spending money in trying to woe new ones. This is because according to a survey conducted by Institute of Customer Service (UKCSI) in 2007 65% of annual sales of companies usually comes from existing satisfied customers and not new ones. The report went on to say that it cost 5 times more money for companies to find a new customer than to maintain an existing one.
Share holding
Currently the government holds 70% shares in GIA making it the majority shareholder. The remaining 30% is owned by a US consortium (GLA – USA). Considering the apathy displayed by people put in charge of government businesses the idea does not sound good whatsoever. Many examples abound. There was the Ghana Telecom (GT), the defunct Ghana Airways, GWSC etc. The airline business is very competitive and volatile. If they in doubt they should find out from British Airways (BA). The airline has just declared a pre-tax loss of £401. Such a business needs to be run purely on commercial basis with the primary aim of making profit. It is therefore imperative for the government to offload its 70% shares to private investors who will run it more efficiently.
Conclusion
GIA must be regarded as business entity and must be run as such with a paramount aim of increasing shareholders wealth. Anything short of this will spell a doom for the airline particularly in these turbulent times when the financial crisis is affecting many companies around the globe. The company has done so well in developing its own Ghanaian crew made of pilots, cabin crews etc so what it needs now is stability.
Francis Kwaku Egu, UK
Branding
The problem is GIA is unfortunate to have inherited a very bad image from the defunct Ghana Airways. The company was noted for its poor customer satisfaction records. The primarily concerned of any meaningful organisation is to provide excellent customer service, and to add value to the customers experience at different stages in the value chain. This was something the defunct Ghana Airways failed to deliver on. It failed to provide good quality service and paid little attention to customer feedbacks on the service they provide in order to improve their services. Flights were cancelled at will without considering the damage effects on customers. There were also so many flight delays, which often results in some customers loosing business opportunities. All these resulted in lack of customer confidence in the airline.
Customer Service rules of 10s
GIA need to work hard in carving its own brand name or image to steer away from the bad image of its predecessor. In order to achieve this it needs to be concerned with a vigorous customer services drive and value added services. A study conducted by Institute of Customer Service (UKCSI) revealed that a dissatisfied customer is likely to tell up to 10 people about his / her disappointments and 13% of that will tell about 20 other people. The customer service rules of 10s also states that it takes just 10 seconds for a customer to lose his/her respect for a company but about 10yrs for the damage to be repair.
Looking at the above, its imperative that the damage caused by GIA’s predecessor to its image is enormous and lot need to be done by the company to regain confidence of customers. For instance, GIA must strive to attain a very good departure records. It also needs to reduce its flight cancellations and delays to barest minimal level. In fact, GIA requires a holistic branding package, which could also mean adopting a new name or image. The name Ghana International Airline reminds customers of the old Ghana Airways and brings back bad memories for customers who had to spend days sleeping at the corridors of Kotoka or Heathrow because of cancellation or delays.
E-ticketing
The recent introduction of e-ticketing by GIA could be described as a very good strategic decision. The airline is the first African carrier to be operating e-ticketing system. This is done via the airlines’ website and other online channels. This innovation will not only reduce their cost of operation with regards to payment of commission to travel agents but will also bring them abreast to new innovations in the airline industry worldwide. It will also reduce their administration costs.
Ticketing increases cost of operation for airlines. Due to this most airlines are trying to eliminate ticketing from their system of operation in order to reduce cost. The ‘no frills – low cost’ airlines like Easy jet, Ryan Air etc have records of operating ticketless system to perfection. They depend on online booking for most of their booking services. Easy Jet for instance takes about 90% of its bookings online and other airlines such KLM have introduced e-tickets where electronic tickets are emailed directly to customers.
Airport charges
One area GIA could start considering with regards to cost cutting is flying from inexpensive airports in either UK or Germany. Comparatively such airports have much lower airport charges. Flying from airports in London or Düsseldorf would only double the price of their ticket. The emergence of cheap-chartered flights run by companies such as Lycafly.com etc has made the industry very competitive. These companies offer promotional prices, which are very attractive particularly to students. Currently Lycafly.com sells a return Accra- London ticket for £388 and KLM is selling the same ticket for £398. These offers are threats to GIA so it needs to start looking at ways of reducing cost in its operations to remain in business.
Exploring new flight routes
Accra - London route is regarded by GIA as prestigious and cosmetic route because it yields very little profit compared to the Düsseldorf route. Short haul flights along the West Coast of Africa are even considered more profitable with very good future prospects than the Accra - London route. Well there is no point in plying an over crowded Accra - London route which has a very strong competition when other routes could be explored.
GIA could consider landing slot in any of the smaller airports in the northern part of England. Manchester or New Castle airports would have been ideal but that will mean paying higher airport charges. There is quite a sizeable amount of Ghanaians and other West Africans concentrated in Northern England and the Midlands. These people usually travel to London to catch flight to Ghana or other West African countries. The presence of GIA in any airport in the North or Midlands would likely have a good patronage.
Currently KLM is market leader in the region. It City Hopper planes flies from Manchester and Humberside Airports on regular basis. Customers flying KLM from these airports to Ghana had to make a transit through Schipol in Amsterdam. There is the inconvenience of spending hours waiting at Schipol in order to catch a flight to Accra. If GIA enters the market it will have a competitive advantage of flying customers direct to Accra.
GIA also needs to concentrate on satisfying its existing customers rather than spending money in trying to woe new ones. This is because according to a survey conducted by Institute of Customer Service (UKCSI) in 2007 65% of annual sales of companies usually comes from existing satisfied customers and not new ones. The report went on to say that it cost 5 times more money for companies to find a new customer than to maintain an existing one.
Share holding
Currently the government holds 70% shares in GIA making it the majority shareholder. The remaining 30% is owned by a US consortium (GLA – USA). Considering the apathy displayed by people put in charge of government businesses the idea does not sound good whatsoever. Many examples abound. There was the Ghana Telecom (GT), the defunct Ghana Airways, GWSC etc. The airline business is very competitive and volatile. If they in doubt they should find out from British Airways (BA). The airline has just declared a pre-tax loss of £401. Such a business needs to be run purely on commercial basis with the primary aim of making profit. It is therefore imperative for the government to offload its 70% shares to private investors who will run it more efficiently.
Conclusion
GIA must be regarded as business entity and must be run as such with a paramount aim of increasing shareholders wealth. Anything short of this will spell a doom for the airline particularly in these turbulent times when the financial crisis is affecting many companies around the globe. The company has done so well in developing its own Ghanaian crew made of pilots, cabin crews etc so what it needs now is stability.
Francis Kwaku Egu, UK
Dividend Payment and Share Prices in Ghana
The growth of businesses in corporate Ghana will depend much more on the ability of these businesses to expand and have greater market share not only in Ghana but also beyond the boundaries of Ghana. This means businesses will have to raise additional capital either from retained earnings, share capital or borrowing in order to expand. Basically, the size of retained earnings of a business depends largely on what is paid out to share holders or the dividend policy of the business. Many views have been expressed on whether businesses should pay dividends to shareholders or should rather invest retained earnings into projects with positive NPVs.
Considering the fact that gearing usually has negative implications on the image of a business and retained earnings is difficult to come by, the probable option will be the raising of share capital. In recent times many investors within the West African sub region and even beyond have found Ghana as an attractive business environment to invest their capital. Most of these investors are risk averse. They will therefore prefer to invest in shares of high performing businesses instead of setting up their on businesses. Businesses in Ghana must therefore find a way of attracting these investors. One way of attracting them is by adopting very good dividend policies and having very good payment records.
Apart from the above, the flourishing of the stock exchange in Ghana could depend to some extent on the dividend policies and payment records of businesses in Ghana. Dividend policy is known to be very important in signalling share prices. Researchers have hypothesized that a firm uses dividend policy as a signal to outsiders regarding the stability and growth prospects of the firm. Woodridge and Ghosh (1988, 1991) argued that stock price is affected by dividend pattern, hence the reluctance of managers to eliminate or reduce dividend payments. Petit (1972) found a strong positive relationship between dividend changes and stock price changes, and that the size of the stock price reaction depended heavily on the size of the dividend change.
Dividend Policy and Share Prices
Dividend policy theory is described as the effect of change in dividends on a firm’s value. Brealey et al (1986: p 417) defined dividend policy as “the trade off between retaining earnings on the one hand and paying out cash and issuing new shares on the other.” Woolridge (1960) observed that in order to measure the effects of dividend changes on stock prices, it is important to distinguish between anticipated and unanticipated changes in dividends. Dividends itself are described as payments made by businesses to their shareholders. It is the distribution of the business’ recent profit to its owners and also a reward for investing in a business.
According to a study conducted by Smith and Watts (1995) based on a sample of US businesses, dividends tend to be lower when there are more investment opportunities. However, many businesses tend to base their dividends on the profit or earnings of the most recent year. They concluded that there are many factors that determine dividend policy of firms.
Dividend Controversy
Dividend payment has generated a lot of controversy among researchers. It is a puzzle, which researchers are finding it very hard to solve. Over the past years, researchers have come out with three schools of thought in an attempt to solve the dividend puzzle. One school of thought argues that dividends are attractive and have a positive influence on stock prices. A second bloc believes that stock prices are negatively correlated with dividend payout levels. The third group of theorists maintain that a firm’s dividend policy is irrelevant in stock price valuation.
Miller and Modigliani (MM theory- 1961) belong to the third group of theorists who believe dividend payments are irrelevant to stock prices. According to them, the investor is indifferent between dividend payment and capital gains. Their theory focuses on what makes dividend policy matter, just like their capital structure propositions. Other studies done by researchers such as Black and Scholes (1974), Miller and Scholes (1978, 1982), and Bernstein (1996) maintain that dividend policy makes no difference because it has no effect on either stock prices or the cost of equity.
The MM theory was criticised for being unable to address the importance of dividend payments in businesses. According to the critics, if dividends are irrelevant as claimed by the theory, why do firms struggle to maintain dividend payments? Some firms even have to borrow to pay dividends. R.R Petit (1972) in his ‘dividend information hypotheses’ argued that market changes in dividend policy affect stock prices. The hypothesis further went on to explain that dividend increases send a good signal to the market while dividend cuts send bad signals. The argument in short is that dividend changes signal information to the market.
Conclusion
The truth is for any firm to be able to pay dividend to its shareholders that firm must first declare profit. It is true some managers borrow money to pay dividend but I do not think businesses in Ghana have got to that level yet. Luckily, when the unaudited financial reports of some of the GSE listed companies for the 2007 financial year were released, the results were quite encouraging. Most of the companies declared profits with the exception of Sam-Woode Ltd (SWL). Some of the companies, which declared profits showed remarkable increase in profit over the previous years. Though there were drops in profit of some of the listed companies compared to the profits they declared the previous year, it is still encouraging considering the current financial turbulence across the globe.
Considering the fact that gearing usually has negative implications on the image of a business and retained earnings is difficult to come by, the probable option will be the raising of share capital. In recent times many investors within the West African sub region and even beyond have found Ghana as an attractive business environment to invest their capital. Most of these investors are risk averse. They will therefore prefer to invest in shares of high performing businesses instead of setting up their on businesses. Businesses in Ghana must therefore find a way of attracting these investors. One way of attracting them is by adopting very good dividend policies and having very good payment records.
Apart from the above, the flourishing of the stock exchange in Ghana could depend to some extent on the dividend policies and payment records of businesses in Ghana. Dividend policy is known to be very important in signalling share prices. Researchers have hypothesized that a firm uses dividend policy as a signal to outsiders regarding the stability and growth prospects of the firm. Woodridge and Ghosh (1988, 1991) argued that stock price is affected by dividend pattern, hence the reluctance of managers to eliminate or reduce dividend payments. Petit (1972) found a strong positive relationship between dividend changes and stock price changes, and that the size of the stock price reaction depended heavily on the size of the dividend change.
Dividend Policy and Share Prices
Dividend policy theory is described as the effect of change in dividends on a firm’s value. Brealey et al (1986: p 417) defined dividend policy as “the trade off between retaining earnings on the one hand and paying out cash and issuing new shares on the other.” Woolridge (1960) observed that in order to measure the effects of dividend changes on stock prices, it is important to distinguish between anticipated and unanticipated changes in dividends. Dividends itself are described as payments made by businesses to their shareholders. It is the distribution of the business’ recent profit to its owners and also a reward for investing in a business.
According to a study conducted by Smith and Watts (1995) based on a sample of US businesses, dividends tend to be lower when there are more investment opportunities. However, many businesses tend to base their dividends on the profit or earnings of the most recent year. They concluded that there are many factors that determine dividend policy of firms.
Dividend Controversy
Dividend payment has generated a lot of controversy among researchers. It is a puzzle, which researchers are finding it very hard to solve. Over the past years, researchers have come out with three schools of thought in an attempt to solve the dividend puzzle. One school of thought argues that dividends are attractive and have a positive influence on stock prices. A second bloc believes that stock prices are negatively correlated with dividend payout levels. The third group of theorists maintain that a firm’s dividend policy is irrelevant in stock price valuation.
Miller and Modigliani (MM theory- 1961) belong to the third group of theorists who believe dividend payments are irrelevant to stock prices. According to them, the investor is indifferent between dividend payment and capital gains. Their theory focuses on what makes dividend policy matter, just like their capital structure propositions. Other studies done by researchers such as Black and Scholes (1974), Miller and Scholes (1978, 1982), and Bernstein (1996) maintain that dividend policy makes no difference because it has no effect on either stock prices or the cost of equity.
The MM theory was criticised for being unable to address the importance of dividend payments in businesses. According to the critics, if dividends are irrelevant as claimed by the theory, why do firms struggle to maintain dividend payments? Some firms even have to borrow to pay dividends. R.R Petit (1972) in his ‘dividend information hypotheses’ argued that market changes in dividend policy affect stock prices. The hypothesis further went on to explain that dividend increases send a good signal to the market while dividend cuts send bad signals. The argument in short is that dividend changes signal information to the market.
Conclusion
The truth is for any firm to be able to pay dividend to its shareholders that firm must first declare profit. It is true some managers borrow money to pay dividend but I do not think businesses in Ghana have got to that level yet. Luckily, when the unaudited financial reports of some of the GSE listed companies for the 2007 financial year were released, the results were quite encouraging. Most of the companies declared profits with the exception of Sam-Woode Ltd (SWL). Some of the companies, which declared profits showed remarkable increase in profit over the previous years. Though there were drops in profit of some of the listed companies compared to the profits they declared the previous year, it is still encouraging considering the current financial turbulence across the globe.
Ghana International Airline: Exploring new flight routes
A Ghana International Airline (GIA) the nation’s flag carrier is reported to be having problem getting passengers on its London – Accra route. According to GIA reports there is a massive drop in figures for passengers plying London to Accra for the last few years. This report is a bit worrying because apparently this route could be one of the profitable and lucrative routes for GIA all things being equal. GIA is attributing the decline to errant sale agents bent on sabotaging the activities of GIA. Well a decline in passengers on the Accra – London route doesn’t sound good and it’s very necessary GIA put in the necessary measures to get passengers flying on this route again.
Branding
The problem is GIA is unfortunate to have inherited a very bad image from the defunct Ghana Airways. The company was noted for its poor customer satisfaction records. The primarily concerned of any meaningful organisation is to provide excellent customer service, and to add value to the customers experience at different stages in the value chain. This was something the defunct Ghana Airways failed to deliver on. It failed to provide good quality service and paid little attention to customer feedbacks on the service they provide in order to improve their services. Flights were cancelled at will without considering the damage effects on customers. There were also so many flight delays which often results in some customers loosing business opportunities. All these resulted in lack of customer confidence in the airline.
Customer Service rules of 10s
GIA need to work hard in carving its own brand name or image to steer away from the bad image of its predecessor. In order to achieve this it needs to be concerned with a vigorous customer services drive and value added services. A study conducted by Institute of Customer Service (UKCSI) revealed that a dissatisfied customer is likely to tell up to 10 people about his / her disappointments and 13% of that will tell about 20 other people. The customer service rules of 10s also states that it takes just 10 seconds for a customer to lose his/her respect for a company but about 10yrs for the damage to be repair.
Looking at the above its imperative that the damage caused by GIA’s predecessor to its image is enormous and lot need to be done by the company to regain confidence of customers. For instance GIA must strive to attain a very good departure records. It also needs to reduce its flight cancellations and delays to barest minimal level. In fact GIA requires a holistic branding package which could also mean adopting a new name or image. The name Ghana International Airline reminds customers of the old Ghana Airways and brings back bad memories for customers who had to spend days sleeping at the corridors of Kotoka or Heathrow because of cancellation or delays.
E-ticketing
The recent introduction of e-ticketing by GIA could be described as a very good strategic decision. The airline is the first African carrier to be operating e-ticketing system. This is done via the airlines’ website and other online channels. This innovation will not only reduce their cost of operation with regards to payment of commission to travel agents but will also bring them abreast to new innovations in the airline industry worldwide. It will also reduce their administration costs.
Ticketing increases cost of operation for airlines. Due to this most airlines are trying to eliminate ticketing from their system of operation in order to reduce cost. The ‘no frills – low cost’ airlines like Easy jet, Ryan Air etc have records of operating ticketless system to perfection. They depend on online booking for most of their booking services. Easy Jet for instance takes about 90% of its bookings online and other airlines such KLM have introduced e-tickets where electronic tickets are emailed directly to customers.
Airport charges
One area GIA could start considering with regards to cost cutting is flying from inexpensive airports in either UK or Germany. Comparatively such airports have much lower airport charges. Flying from airports in London or Düsseldorf would only double the price of their ticket. The emergence of cheap chartered flights run by companies such as Lycafly.com etc has made the industry very competitive. These companies offer promotional prices which are very attractive particularly to students. Currently Lycafly.com sells a return Accra- London ticket for £388 and KLM is selling the same ticket for £398. These offers are threats to GIA so it needs to start looking at ways of reducing cost in its operations to remain in business.
Exploring new flight routes
Accra - London route is regarded by GIA as prestigious and cosmetic route because it yields very little profit compared to the Düsseldorf route. Short haul flights along the West Coast of Africa are even considered to be more profitable with very good future prospects than the Accra - London route. Well there is no point in plying an over crowded Accra - London route which has a very strong competition when other routes could be explored.
GIA could consider landing slot in any of the smaller airports in the northern part of England. Manchester or New Castle airports would have been ideal but that will mean paying higher airport charges. There is quite a sizeable amount of Ghanaians and other West Africans concentrated in Northern England and the Midlands. These people usually travel to London to catch flight to Ghana or other West African countries. The presence of GIA in any airport in the North or Midlands would likely have a good patronage.
Currently KLM is market leader in the region. It City Hopper planes fly from Manchester and Humberside Airports on regular basis. Customers flying KLM from these airports to Ghana had to make a transit through Schipol in Amsterdam. There is the inconvenience of spending hours waiting at Schipol in order to catch a flight to Accra. If GIA enters the market it will have a competitive advantage of flying customers direct to Accra.
GIA also needs to concentrate on satisfying its existing customers rather than spending money in trying to woe new ones. This is because according to a survey conducted by Institute of Customer Service (UKCSI) in 2007 65% of annual sales of companies usually come from existing satisfied customers and not new ones. The report went on to say that it cost 5 times more money for companies to find a new customer than to maintain an existing one.
Share holding
Currently the government holds 70% shares in GIA making it the majority share holder. The remaining 30% is owned by a US consortium (GLA – USA). Considering the apathy displayed by people put in charge of government businesses the idea doesn’t sound good whatsoever. A lot of examples abound. There was the Ghana Telecom (GT), the defunct Ghana Airways, GWSC etc. The airline business is very competitive and volatile. If they in doubt they should find out from British Airways (BA). The airline has just declared a pre-tax loss of £401m. Such a business needs to be run purely on commercial basis with the primary aim of making profit. It is therefore imperative for the government to offload its 70% shares to private investors who will run it more efficiently.
Conclusion
GIA must be regarded as business entity and must be run as such with a paramount aim of increasing share holders wealth. Anything short of this will spell a doom for the airline particularly in these turbulent times when the financial crisis is affecting a lot of companies around the globe. The company has done so well in developing its own Ghanaian crew made of pilots, cabin crews etc so what it needs now is stability.
Francis Kwaku Egu, UK
Kwakuhull@yahoo.com
Branding
The problem is GIA is unfortunate to have inherited a very bad image from the defunct Ghana Airways. The company was noted for its poor customer satisfaction records. The primarily concerned of any meaningful organisation is to provide excellent customer service, and to add value to the customers experience at different stages in the value chain. This was something the defunct Ghana Airways failed to deliver on. It failed to provide good quality service and paid little attention to customer feedbacks on the service they provide in order to improve their services. Flights were cancelled at will without considering the damage effects on customers. There were also so many flight delays which often results in some customers loosing business opportunities. All these resulted in lack of customer confidence in the airline.
Customer Service rules of 10s
GIA need to work hard in carving its own brand name or image to steer away from the bad image of its predecessor. In order to achieve this it needs to be concerned with a vigorous customer services drive and value added services. A study conducted by Institute of Customer Service (UKCSI) revealed that a dissatisfied customer is likely to tell up to 10 people about his / her disappointments and 13% of that will tell about 20 other people. The customer service rules of 10s also states that it takes just 10 seconds for a customer to lose his/her respect for a company but about 10yrs for the damage to be repair.
Looking at the above its imperative that the damage caused by GIA’s predecessor to its image is enormous and lot need to be done by the company to regain confidence of customers. For instance GIA must strive to attain a very good departure records. It also needs to reduce its flight cancellations and delays to barest minimal level. In fact GIA requires a holistic branding package which could also mean adopting a new name or image. The name Ghana International Airline reminds customers of the old Ghana Airways and brings back bad memories for customers who had to spend days sleeping at the corridors of Kotoka or Heathrow because of cancellation or delays.
E-ticketing
The recent introduction of e-ticketing by GIA could be described as a very good strategic decision. The airline is the first African carrier to be operating e-ticketing system. This is done via the airlines’ website and other online channels. This innovation will not only reduce their cost of operation with regards to payment of commission to travel agents but will also bring them abreast to new innovations in the airline industry worldwide. It will also reduce their administration costs.
Ticketing increases cost of operation for airlines. Due to this most airlines are trying to eliminate ticketing from their system of operation in order to reduce cost. The ‘no frills – low cost’ airlines like Easy jet, Ryan Air etc have records of operating ticketless system to perfection. They depend on online booking for most of their booking services. Easy Jet for instance takes about 90% of its bookings online and other airlines such KLM have introduced e-tickets where electronic tickets are emailed directly to customers.
Airport charges
One area GIA could start considering with regards to cost cutting is flying from inexpensive airports in either UK or Germany. Comparatively such airports have much lower airport charges. Flying from airports in London or Düsseldorf would only double the price of their ticket. The emergence of cheap chartered flights run by companies such as Lycafly.com etc has made the industry very competitive. These companies offer promotional prices which are very attractive particularly to students. Currently Lycafly.com sells a return Accra- London ticket for £388 and KLM is selling the same ticket for £398. These offers are threats to GIA so it needs to start looking at ways of reducing cost in its operations to remain in business.
Exploring new flight routes
Accra - London route is regarded by GIA as prestigious and cosmetic route because it yields very little profit compared to the Düsseldorf route. Short haul flights along the West Coast of Africa are even considered to be more profitable with very good future prospects than the Accra - London route. Well there is no point in plying an over crowded Accra - London route which has a very strong competition when other routes could be explored.
GIA could consider landing slot in any of the smaller airports in the northern part of England. Manchester or New Castle airports would have been ideal but that will mean paying higher airport charges. There is quite a sizeable amount of Ghanaians and other West Africans concentrated in Northern England and the Midlands. These people usually travel to London to catch flight to Ghana or other West African countries. The presence of GIA in any airport in the North or Midlands would likely have a good patronage.
Currently KLM is market leader in the region. It City Hopper planes fly from Manchester and Humberside Airports on regular basis. Customers flying KLM from these airports to Ghana had to make a transit through Schipol in Amsterdam. There is the inconvenience of spending hours waiting at Schipol in order to catch a flight to Accra. If GIA enters the market it will have a competitive advantage of flying customers direct to Accra.
GIA also needs to concentrate on satisfying its existing customers rather than spending money in trying to woe new ones. This is because according to a survey conducted by Institute of Customer Service (UKCSI) in 2007 65% of annual sales of companies usually come from existing satisfied customers and not new ones. The report went on to say that it cost 5 times more money for companies to find a new customer than to maintain an existing one.
Share holding
Currently the government holds 70% shares in GIA making it the majority share holder. The remaining 30% is owned by a US consortium (GLA – USA). Considering the apathy displayed by people put in charge of government businesses the idea doesn’t sound good whatsoever. A lot of examples abound. There was the Ghana Telecom (GT), the defunct Ghana Airways, GWSC etc. The airline business is very competitive and volatile. If they in doubt they should find out from British Airways (BA). The airline has just declared a pre-tax loss of £401m. Such a business needs to be run purely on commercial basis with the primary aim of making profit. It is therefore imperative for the government to offload its 70% shares to private investors who will run it more efficiently.
Conclusion
GIA must be regarded as business entity and must be run as such with a paramount aim of increasing share holders wealth. Anything short of this will spell a doom for the airline particularly in these turbulent times when the financial crisis is affecting a lot of companies around the globe. The company has done so well in developing its own Ghanaian crew made of pilots, cabin crews etc so what it needs now is stability.
Francis Kwaku Egu, UK
Kwakuhull@yahoo.com
MTN (Ghana) – Customer Relationship Building and Customer Loyalty
Good customer relation is considered one of the major keys to the success of many businesses across the globe. In recent times, most companies are shifting from the old-fashioned method of TV and Radio adverts and concentrating on building good relationship with their existing customers. Companies in attempt to consolidate these relationships have introduced some innovations such as issuing club cards to their customers. Under the club card system card holders are given points based on amount of money spend with the business. The super market chain TESCO in the UK is operating such a system and this has given it competitive advantage over its competitors like ASDA (Walt Mart), Morrison and Sainsbury.
Customer relationship building
A study by Institute of Customer Relation, UK revealed it cost firms more money to get new customers than maintaining old ones. Due to this some banks in the UK, e.g. NATWEST, Lloyds TSB, HSBC etc are strategically shifting from investing into fresh customer winning adverts to focusing on satisfying existing customers. They are concentrating more on consolidating their hold on existing customers by offering them new deals on loans, mortgages etc. In addition, T-Mobile UK the mobile phone service provider has a very good scheme in which it offers discount to loyal customers on most of their price plans.
Relationship building and gaining customer loyalties are marketing strategies that have become huge phenomenon in corporate Ghana in recent times. A market research survey conducted revealed Ghanaian consumers have seen so many adverts on television and are ignoring these adverts. As a result of this most companies are gradually moving from engaging in vigorous Bill Boards, TV etc adverts and are rather focusing on building healthy relationships with their existing customers. Companies are turning their attention on servicing their existing customers by offering them better deals like promotional sales (buy one get one free) reduction sales etc.
MTN Customer relation and loyalty model
A Ghanaian based company that is performing so well with regards this new wave of change is Mobile Telecommunications Network (MTN) Ghana. The company has developed what could be described as MTN Customer Relation and Customer Loyalty Model. This model has contributed positively to the significant gains in market share of the mobile phone industry in Ghana by the company. For instance, the company is making conscious efforts in establishing relationships with governments and community groups, which constitute chunks of its customer base. Concerning government the company has set up a foundation to serve that purpose. The foundation in 2008 committed an amount of $600,000 for the refurbishment of part of the labour ward of the Korle-Bu Maternity Block. It has also contributed significantly to other sector of the economy e.g. sports. Currently the company’s Rally Round the Flag Promotion will contribute significantly to course of The Black Star in the impending FIFA 2010 World Cup in South Africa.
The company’s involvement with the communities is evident in its participation in the celebration of local festivals in the country. This is done through the company’s Yello Train programme. The Yello Train for instance was present at the Aboakyer festival in Winneba last year. The participation in Ghanaian festival by the company is an exceptional way of working its way into the hearts of its customers. The company may not be operating club card system like TESCO but this strategy is an effective way of building relation with its customers.
Apart from the community, the company is strategically winning the loyalty of its existing individual customers by offering them very exciting deals. For instance through its MTN Zone service it offers up to 99% discounts to customers making calls within the same network. Pay As You Go subscribers could also share credit with each other on the Me2u service. The introduction of Blackberry phones and its affiliate services on the Ghanaian market has also given the company a high positioning within the target market. The company also provides unique customized ringtones in Ghanaian hiplife music, gospel songs and pop music.
Currently the company has long-term competitive advantage over its competitors like Kasapa, Figo and One Touch in terms of its coverage area and variety of services provided. One of such unique services is SG-SSB Sikatext Phone Banking. This service allows subscribers who are also SSB customers check their bank balances and request mini bank statement. It also allows them monitor the exchange rates on the foreign exchange market on regular basis. Most businessmen who depend on the foreign exchange market will find this service very useful.
Price plans system
The above successes notwithstanding, one area which the company should consider focusing its attention on with regards to maintaining customer loyalty is introducing more innovative schemes like price plans system. Under the price plans scheme customers are usually put on contracts that could range from 12 -18 months. Customers on contracts are given the option of getting free hand sets, which would be charged, on the price plans. Monthly bills will then be issued to customers to save them the pains of buying phone credits on regular basis under the Pay As You Go system. The company has too many of the customers on the Pay As You Go system and this is not good enough for long-term stability of the company.
There is the chance of the company negotiating deals with mobile phones producers like Nokia or Sony Ericson to supply them handsets at competitive prices.
The company will be able to generate more profit from the sale of handsets considering the number of working class customers they have. This will boost their profit margins because customers on contract phones tend to make more calls than those on Pay as you Go. The only problem is this could affect the company’s working capital because it has to pre finance this service.
Conclusion
The company has been very successful in its relationship building strategy in Ghana. However, in order for it to maintain its role as market leader in the industry it is very vital it provides cheap phone calls to its customers. Their current phone tariff is high and is beyond the purchasing power of most Ghanaians. A new entrant like Vodafone on the market could pose a threat to MTN particularly if Vodafone is able to come out with cheaper tariffs or introduce the contract system.
Customer relationship building
A study by Institute of Customer Relation, UK revealed it cost firms more money to get new customers than maintaining old ones. Due to this some banks in the UK, e.g. NATWEST, Lloyds TSB, HSBC etc are strategically shifting from investing into fresh customer winning adverts to focusing on satisfying existing customers. They are concentrating more on consolidating their hold on existing customers by offering them new deals on loans, mortgages etc. In addition, T-Mobile UK the mobile phone service provider has a very good scheme in which it offers discount to loyal customers on most of their price plans.
Relationship building and gaining customer loyalties are marketing strategies that have become huge phenomenon in corporate Ghana in recent times. A market research survey conducted revealed Ghanaian consumers have seen so many adverts on television and are ignoring these adverts. As a result of this most companies are gradually moving from engaging in vigorous Bill Boards, TV etc adverts and are rather focusing on building healthy relationships with their existing customers. Companies are turning their attention on servicing their existing customers by offering them better deals like promotional sales (buy one get one free) reduction sales etc.
MTN Customer relation and loyalty model
A Ghanaian based company that is performing so well with regards this new wave of change is Mobile Telecommunications Network (MTN) Ghana. The company has developed what could be described as MTN Customer Relation and Customer Loyalty Model. This model has contributed positively to the significant gains in market share of the mobile phone industry in Ghana by the company. For instance, the company is making conscious efforts in establishing relationships with governments and community groups, which constitute chunks of its customer base. Concerning government the company has set up a foundation to serve that purpose. The foundation in 2008 committed an amount of $600,000 for the refurbishment of part of the labour ward of the Korle-Bu Maternity Block. It has also contributed significantly to other sector of the economy e.g. sports. Currently the company’s Rally Round the Flag Promotion will contribute significantly to course of The Black Star in the impending FIFA 2010 World Cup in South Africa.
The company’s involvement with the communities is evident in its participation in the celebration of local festivals in the country. This is done through the company’s Yello Train programme. The Yello Train for instance was present at the Aboakyer festival in Winneba last year. The participation in Ghanaian festival by the company is an exceptional way of working its way into the hearts of its customers. The company may not be operating club card system like TESCO but this strategy is an effective way of building relation with its customers.
Apart from the community, the company is strategically winning the loyalty of its existing individual customers by offering them very exciting deals. For instance through its MTN Zone service it offers up to 99% discounts to customers making calls within the same network. Pay As You Go subscribers could also share credit with each other on the Me2u service. The introduction of Blackberry phones and its affiliate services on the Ghanaian market has also given the company a high positioning within the target market. The company also provides unique customized ringtones in Ghanaian hiplife music, gospel songs and pop music.
Currently the company has long-term competitive advantage over its competitors like Kasapa, Figo and One Touch in terms of its coverage area and variety of services provided. One of such unique services is SG-SSB Sikatext Phone Banking. This service allows subscribers who are also SSB customers check their bank balances and request mini bank statement. It also allows them monitor the exchange rates on the foreign exchange market on regular basis. Most businessmen who depend on the foreign exchange market will find this service very useful.
Price plans system
The above successes notwithstanding, one area which the company should consider focusing its attention on with regards to maintaining customer loyalty is introducing more innovative schemes like price plans system. Under the price plans scheme customers are usually put on contracts that could range from 12 -18 months. Customers on contracts are given the option of getting free hand sets, which would be charged, on the price plans. Monthly bills will then be issued to customers to save them the pains of buying phone credits on regular basis under the Pay As You Go system. The company has too many of the customers on the Pay As You Go system and this is not good enough for long-term stability of the company.
There is the chance of the company negotiating deals with mobile phones producers like Nokia or Sony Ericson to supply them handsets at competitive prices.
The company will be able to generate more profit from the sale of handsets considering the number of working class customers they have. This will boost their profit margins because customers on contract phones tend to make more calls than those on Pay as you Go. The only problem is this could affect the company’s working capital because it has to pre finance this service.
Conclusion
The company has been very successful in its relationship building strategy in Ghana. However, in order for it to maintain its role as market leader in the industry it is very vital it provides cheap phone calls to its customers. Their current phone tariff is high and is beyond the purchasing power of most Ghanaians. A new entrant like Vodafone on the market could pose a threat to MTN particularly if Vodafone is able to come out with cheaper tariffs or introduce the contract system.
Depreciation of the Cedi and its impact on small businesses
The cedi in the past few years is depreciating against major foreign currencies on the foreign exchange market in a very alarming rate. It is true that the financial turbulence in the world is having knock on effects on major economies but the rate at which the currency is depreciating is quite disturbing so attempts need to be made to curb the situation. Allowing the cedi to fall freely at the current rate has serious financial ramifications for the business community particularly small businesses.
Some analysts argue that the current depreciation level is just a matter of the chicken coming to roost because the cedi had shown symptoms of weakness several months ago. The only thing that has kept the cedi afloat was the central bank injecting massive amount of money to prop it up. For instance, the Central Bank was reported to have released $288 million in 2007 to serve that purpose. In 2008, a further $918 million was used by the bank to prop up the falling cedi. The central bank is known to have spent over $1.2 billion to prop up the cedi between July 2007 and December 2008.
The coffers have dried up and there is not enough money to prop the cedi up any longer so it is noose diving. The currency has depreciated twice six months running. It depreciated by 25.3% against the dollar in December 2008 and again depreciated by 13.6% in the first quarter of 2009. Many reasons have been put forward to explain the reasons why the cedi has been so weakened.
Causes of the depreciation
One line of thought is that the timing of the redenomination of the cedi was not the best. According to this line of thought, this was done at the time when the country was experiencing double-digit headline inflation, negative balance of government finances and declining foreign reserves.
The other school of thought is that there is too much excess demand for the dollar in the local economy. Apart from that, falling cocoa and gold prices on the international markets have also played significant roles in the depreciation. The fall in the prices of these major exports meant a reduction in the inflow of foreign exchange to the economy.
Economic Advisory Council (EAC),
The government needs to take the necessary actions to bring the problem under control. The setting up of the Economic Advisory Council (EAC) by the government is a step in the right direction. This 10-member team made up of some renowned economic and financial experts will be able to deal with the situation. There may be other pressing issues they may have to tackle but stabilizing the cedi should be a high priority. This is because as we are all aware prices of goods and services in the country are tied to the dollar, pounds etc. Consequently, a fall in the cedi has ripple effects on everything on the market. Prices of foodstuffs will shoot up and that of transportation spiral. A hike in prices will spell a doom for the ordinary Ghanaian some of whom struggle to get three square meals a day.
On the other hand, if the EAC have other pressing things to tackle they could assemble a team of experts to handle this job. These experts could be drawn from within the government or from without. This is a serious national crisis so politics must be put aside for the common good of the country. Playing politics with the problem will hit hard at small businesses.
Dubai and China trade routes
One group of people who will be hit is the traders who ply the Dubai and China trade routes. These trade routes have become busy and vital routes for Ghanaian traders who deal in assorted ranges of wares like mobile handsets, dresses, and children wares, which are purchased in hard currencies (e.g. US dollars). The traders buy these hard currencies from the foreign exchange market. A strong cedi will therefore give them more dollars and thus more goods and vice versa. This will increase their profit margin, as they will be able to buy more goods. The current currency situation will affect their working capital because many of them will run at a loss. They may try passing the extra cost to consumers which will price many consumers out of the market.
Small Businesses
Small businesses that will be most hit will be those in the building sector. Most of the businesses involved in this sector import their wares from outside the country. For instance, most of the modern roofing sheets used to roof houses in the posh areas of Accra is imported from countries such as Australia, South Africa, and Canada. Prices of these sheets are tied to the dollar. A change in the rate of the dollar often results in upward adjustment to the prices of these sheets. Surprisingly most Ghanaians have a high appetite for these imported sheets than the locally manufactured ones like those produced by ACP and others.
Apart from the roofing sheets prices of other building materials such as door locks, floor tiles and interior decorations will be affected. Looking at the acute accommodation problem in the country the last thing to do is to disrupt this sector. This is because this could aggravate an already precarious situation.
Those in the textile industry will not be spared either. This industry is already in tatters with most of their production lines shut down. Attempts by government to revamp the industry will be jeopardized.
Second hand goods dealers
Another group of small businesses, which will not be spared the brunt, is the second hand spare parts dealers in Abossey Okine in Accra and Suame Magazine in Kumasi. Even though some of these second hand spare parts dealers can be very dubious, they have contributed positively to the economy in so many ways. For instance, they have kept the transport industry alive and kept the commuting public going. The collapse of this will not auger well for the country particularly since our leaders have huge appetite for BMW 7 Series, Chryslers, Jeeps etc cars which need to be serviced regularly with parts we do not produce ourselves but are sold by these dealers.
Closely tied to this industry is the secondhand car dealing industry. Ghanaian middle-income earners who cannot cough up $70 million for BMW 7 Series depend on this industry. The same applies to some of the industrious Ghanaians who have spent the best part of their youth abroad struggling to get the hard-earned cash most people strive for. They also rely on these second hand cars because they cannot afford the brand new expensive ones some of our politicians can through deceit and lies.
The second hand clothing sellers at Tema Station, Makola in Accra and Kejetia will not be spared either and so is the new shopping malls like Shoprite at Spinters Road and Maximart at East Legon. One most important thing is these small businesses employ quite a sizeable number of our youth and school leavers. They have at least taken a few of them from the ‘Dog Chain’, and ‘Shoeshine industries’ and street hawking (at the traffic lights of Airport, Dzorwolo etc) and given them jobs that they can be proud of doing.
I do not believe in the ‘nothing can be done to save the situation’ theories put forward by some experts. The task of remedying the situation should be given to experts with the capability to do the job; experts who can clearly identify the problem and accurately prescribe solutions. These experts are abundant in the country and it is up to those at the helm of affairs to fish them out and tap on their expertise. In this precarious time, we should fervently avoid self-styled experts that know next to nothing but spend precious time hopping from one radio station to the other blabbing. These blabbers are developing the country from the radio and television stations whiles the ordinary people are starving.
Some analysts argue that the current depreciation level is just a matter of the chicken coming to roost because the cedi had shown symptoms of weakness several months ago. The only thing that has kept the cedi afloat was the central bank injecting massive amount of money to prop it up. For instance, the Central Bank was reported to have released $288 million in 2007 to serve that purpose. In 2008, a further $918 million was used by the bank to prop up the falling cedi. The central bank is known to have spent over $1.2 billion to prop up the cedi between July 2007 and December 2008.
The coffers have dried up and there is not enough money to prop the cedi up any longer so it is noose diving. The currency has depreciated twice six months running. It depreciated by 25.3% against the dollar in December 2008 and again depreciated by 13.6% in the first quarter of 2009. Many reasons have been put forward to explain the reasons why the cedi has been so weakened.
Causes of the depreciation
One line of thought is that the timing of the redenomination of the cedi was not the best. According to this line of thought, this was done at the time when the country was experiencing double-digit headline inflation, negative balance of government finances and declining foreign reserves.
The other school of thought is that there is too much excess demand for the dollar in the local economy. Apart from that, falling cocoa and gold prices on the international markets have also played significant roles in the depreciation. The fall in the prices of these major exports meant a reduction in the inflow of foreign exchange to the economy.
Economic Advisory Council (EAC),
The government needs to take the necessary actions to bring the problem under control. The setting up of the Economic Advisory Council (EAC) by the government is a step in the right direction. This 10-member team made up of some renowned economic and financial experts will be able to deal with the situation. There may be other pressing issues they may have to tackle but stabilizing the cedi should be a high priority. This is because as we are all aware prices of goods and services in the country are tied to the dollar, pounds etc. Consequently, a fall in the cedi has ripple effects on everything on the market. Prices of foodstuffs will shoot up and that of transportation spiral. A hike in prices will spell a doom for the ordinary Ghanaian some of whom struggle to get three square meals a day.
On the other hand, if the EAC have other pressing things to tackle they could assemble a team of experts to handle this job. These experts could be drawn from within the government or from without. This is a serious national crisis so politics must be put aside for the common good of the country. Playing politics with the problem will hit hard at small businesses.
Dubai and China trade routes
One group of people who will be hit is the traders who ply the Dubai and China trade routes. These trade routes have become busy and vital routes for Ghanaian traders who deal in assorted ranges of wares like mobile handsets, dresses, and children wares, which are purchased in hard currencies (e.g. US dollars). The traders buy these hard currencies from the foreign exchange market. A strong cedi will therefore give them more dollars and thus more goods and vice versa. This will increase their profit margin, as they will be able to buy more goods. The current currency situation will affect their working capital because many of them will run at a loss. They may try passing the extra cost to consumers which will price many consumers out of the market.
Small Businesses
Small businesses that will be most hit will be those in the building sector. Most of the businesses involved in this sector import their wares from outside the country. For instance, most of the modern roofing sheets used to roof houses in the posh areas of Accra is imported from countries such as Australia, South Africa, and Canada. Prices of these sheets are tied to the dollar. A change in the rate of the dollar often results in upward adjustment to the prices of these sheets. Surprisingly most Ghanaians have a high appetite for these imported sheets than the locally manufactured ones like those produced by ACP and others.
Apart from the roofing sheets prices of other building materials such as door locks, floor tiles and interior decorations will be affected. Looking at the acute accommodation problem in the country the last thing to do is to disrupt this sector. This is because this could aggravate an already precarious situation.
Those in the textile industry will not be spared either. This industry is already in tatters with most of their production lines shut down. Attempts by government to revamp the industry will be jeopardized.
Second hand goods dealers
Another group of small businesses, which will not be spared the brunt, is the second hand spare parts dealers in Abossey Okine in Accra and Suame Magazine in Kumasi. Even though some of these second hand spare parts dealers can be very dubious, they have contributed positively to the economy in so many ways. For instance, they have kept the transport industry alive and kept the commuting public going. The collapse of this will not auger well for the country particularly since our leaders have huge appetite for BMW 7 Series, Chryslers, Jeeps etc cars which need to be serviced regularly with parts we do not produce ourselves but are sold by these dealers.
Closely tied to this industry is the secondhand car dealing industry. Ghanaian middle-income earners who cannot cough up $70 million for BMW 7 Series depend on this industry. The same applies to some of the industrious Ghanaians who have spent the best part of their youth abroad struggling to get the hard-earned cash most people strive for. They also rely on these second hand cars because they cannot afford the brand new expensive ones some of our politicians can through deceit and lies.
The second hand clothing sellers at Tema Station, Makola in Accra and Kejetia will not be spared either and so is the new shopping malls like Shoprite at Spinters Road and Maximart at East Legon. One most important thing is these small businesses employ quite a sizeable number of our youth and school leavers. They have at least taken a few of them from the ‘Dog Chain’, and ‘Shoeshine industries’ and street hawking (at the traffic lights of Airport, Dzorwolo etc) and given them jobs that they can be proud of doing.
I do not believe in the ‘nothing can be done to save the situation’ theories put forward by some experts. The task of remedying the situation should be given to experts with the capability to do the job; experts who can clearly identify the problem and accurately prescribe solutions. These experts are abundant in the country and it is up to those at the helm of affairs to fish them out and tap on their expertise. In this precarious time, we should fervently avoid self-styled experts that know next to nothing but spend precious time hopping from one radio station to the other blabbing. These blabbers are developing the country from the radio and television stations whiles the ordinary people are starving.
The Club 100; Ghana’s FSTE 100
One of the greatest achievements of the Ghana Investment Promotion Council (GIPC) is the introduction of Ghana Club 100 (GC 100) in 1998. The GC 100 is made up of the top 100 high performing companies in Ghana from both public and private sectors. According to GIPC reports the idea behind the creation is to provide a world-class forum for top ranking businesses to interact and share techniques for the overall benefit of the economy. The listing, grading and awarding is carried out annually. During the events new companies could be upgraded and old ones eliminated from the list. This is very noble idea and I will like to commend the initiators of such fine idea. According to GIPC reports at its inception in 1998 the total turnover of GC 100 members was 6.5 trillion cedis and a total net asset was 9.7 trillion cedis with 1.03 trillion cedis in pre-tax profits. In the maiden edition of GC 100 Ashanti Goldfields Company Limited took the top spot as a leading performer in the mining sector. Volta River Authority (VRA) was adjudged the highest net asset- based company and top performer in the energy sector. Social Security and National Insurance Trust (SSNIT) was the highest profit making company in the financial sector. (www.gipc.org.gh/gc100/index.asp)
Evaluation GC100 members
In 1998 when GC 100 was introduced GIPC evaluated companies on the basis of their net asset size, profit before tax, number of employees, return on equity and growth trends. This evaluation gave state owned companies advantage over the private companies, so state owned companies like Ghana Telecom, SSNIT, Ghana Oil, VRA, and State Insurance dominated the programme. Taking a close look the criteria, its evident very few private owned companies could compete with the state owned ones for the top spots. For instance the use of net assets size, employee numbers and growth trend will put, companies like SSNIT, VRA and Ghana Telecom way ahead of other competitors. Very few private companies in Ghana could employ more staff than the above named companies. Besides only few private companies could declare more profit or have more net asset size than any of them. The criteria were flawed on the onset and drew a lot of criticism from the Ghanaian business community. Some critics argued the criteria resulted in loss making companies appearing on the list thus defeating the purpose for which it was introduced.
Talking about loss making companies I believe the critics were right. Some few years down the line some of these highflying companies, which were top on the list, either went into administration or were acquired by other companies. A typical example is VALCO an aluminium smelting company, which was owned by the Kaiser Aluminium Corp of the USA. It folded its operations in Ghana and sold its holding to the Ghana Government. Another example is Ghana Telecom. It went into administration and was put up for sale. Vodafone, a very reputable company, later acquired it. (www.gipc.org.gh/gc100/index.asp)
New Changes
Amidst the criticism and call for changes GIPC reviewed the criteria for selecting members of the Ghana Club 100, citing implementation problems. In the course of the review some very important changes were made. For instance companies with 100 per cent government holdings were disqualified from participating in the programme. Only limited liability companies with less than 50 per cent government shareholdings were allowed to take part. Besides qualifying companies must post positive cumulative net profit three years running prior to the competition. Apart from turnover companies were also judged on the following profitability, turnover, and growth rate in turnover and net assets. The review made it possible for small businesses to participate in the programme. The GC 100 also became more competitive and attracted more members. The initial registration fee of 500,000 cedis was also dropped and companies were allowed to register free. (GNA 2003 -04-09).
Further changes were introduced in the 2005 edition of GC 100. For the first time in all the edition of the GC100 a company’s corporate social responsibility was recognized. The GIPC considered what it described as six core areas under this element. These were health, education, poverty alleviation, environment, and social care.
Result of the changes
The changes resulted in new and smaller businesses becoming GC 100 members. It also resulted in Rural Banks taking top spots in the GC100 membership. In fact a particular trend emerged in the Ghanaian corporate community as a result of these changes. There was what I will refer to as ‘fairly new business’ taking up centre stage and outmuscling the more traditional companies. These ‘‘fairly new business’ are businesses which are new entrants in the corporate scene in Ghana compare to the more traditional ones which has been in existence for decades. One such fairly new business’ is Scancom Ghana Ltd. This company provides a telecom services in Ghana. Its service brand the ‘Areeba’ is a leading brand in Ghanaian mobile telecommunication services market and has a very high market positioning in the Ghanaian telecom market with about 2,300,000 subscribers on the Areeba network. Spacefon offers both post and pre-paid services to its customers and its a market leader in the increasingly competitive mobile communications market with an impressive 60% market share. For four years running Scancom has topped the list for the GC100 as the most fast growing, most profit making and most employerable company in Ghana.
The trend which I referred was revealed more in 2005 edition of the GC 100. On this list the fairly new businesses (which entered the Ghana business sector with a storm) out performed the hitherto well established companies like Unilever, Nestle Ghana Ltd etc. Unilever was 39th on the list. Out of the ten best performing companies of the 2005 GC100 seven (7) of them belong to theses fairly new businesses. This should be a big challenge to the Unilevers, Guineas Ghana ltd etc.
The Rural Banks
The rural banks were some small businesses that benefited from the review. They burst onto the scene with very wonderful results. Their number increased from 12 in the 2003 edition to 14 in the following year and then to 20 in the 2005 edition. Rural banks in Ghana were set up with the primary aim of providing banking services in the rural communities. Most of them began as small businesses but today they are rated as high performing businesses. Out of about 120 rural banks in Ghana 20 of them feature on 2005 edition of the GC100 with one of them Atwima Kwawuman Rural Bank ranking among the top 10 GC 100 members. This edition saw the hitherto bigger banks trailing behind smaller rural banks. Barclays Bank Ghana Ltd, which is a big name in Ghana, was 14th on the list while Standard Chartered Bank Ghana Ltd was 22nd. Stanbic Bank Ghana was 24th. The last two big trailed behind Kakum Rural Bank, which is 16th on the list. On the whole seven (7) rural banks were among the first 50 GC 100 ranked companies as most effective and efficient businesses in the country. This is no mean achievement and the managers of these rural banks must be given pats on the back
The name Club 100
The name Ghana Club 100 sounds more casual to me. I have no qualm with the name but just that it sounds more like a social club, football club, Disco Club etc. Let me say a social club of the first top 100 companies in corporate Ghan. I believe the name Ghana Investment Promotion Council (GIPC 100) will be more appropriate. This will give it a corperate touch and make it more businesslike. Apart from the name the GC100 itself should be organise in a way that it could be linked to the share index of Ghana Stock Exchange (GSE). One criterion which could be introduced to make this possible is all GC 100 members must be listed on the Ghana Stock Exchange.
Imagine all these high performing 100 companies listing on the stock exchange? It will not only expand the stock exchange but also serve as a bed rock for the future creation of the first most 100 capitalised companies in the country. Currently a look at the GSE website revealed that out of GC100 members only nine (9) members were listed and engaged in trading of ordinary shares on the market. Out of the first 10 members only Guinness Ghana Limited was listed. Guinness Ghana Limited was third on the list of GC100. Surprisingly Spacefon which has taken the top spot for four consecutive times was not among 34 companies listed on the stock exchange. (GSE have year report 2008)
Listing of GC100 members on stock exchange
The listing of all GC 100 members on the stock exchange will not only expand the stock market but will also increase their pool of investors. The companies will also raise additional equity capital by selling their stocks, bonds or other securities to obtain long term finance for expansion in sales or increase in their working capital. It is obvious that most of these companies are new and therefore will not have internally generated funds like retain earnings and non- cash charges against profit (e.g. depreciation). Secondly equity finance unlike debts is irredeemable with no obligation to pay. It will also pave the way for new entrants to the GC 100 to go on the market with their initial public offerings (IPO’s).
The good thing is that the Ghanaian public is gradually becoming keen on investing in shares. Most people are now aware that holding shares (ordinary) in a business not only yields dividend but also gives additional benefits of ownership of the business. This is because GSE is doing a wonderful job in educating the public. Aside of that other financial institutions like the Credit Union Ghana (CU) are also playing major role in enlightening the public. The Credit Union is mobilising savings from its members and investing them into shares on behalf of its members. Members therefore receive some interest on their savings in the form of dividend. They CU which originally deals with members at workplaces, is now targeting the self employed. They are also working in collaboration with some churches in Ghana and getting the members of these churches on board as members of the Credit Union. Dividend payment is therefore very pivotal in the development of the stock market in Ghana and this must be taken seriously. Therefore businesses need to come with very good dividend policy that will entice the public into investing into shares.
Share Trading
A report from GSE indicates trading on the exchange for the first half quarter of 2008 was quite encouraging. There was high demand for shares and there were also gains in some share prices. According to the report nine (9) out of the thirty- four (34) companies listed had gains of over 20% in their share prices with the highest gain of 58% going to Cal Bank. Besides the GSE All-share Index moved up from 6,718.88 points at the beginning of January 2008 to 0,346.30 in June 2008 representing a half year gain of 56.77% compared with a gain of 5.76% for the same period in 2007. Total market capitalization of the Exchange as at June 30, 2007 was GH¢11.47 million (US$12.34 million). Between January and June 2007, 135.85 million shares were traded. (GSE 2nd quarter report 2008).
These results are quite amazing compared to the fall in share indexes in the world markets. For instance the FTSE-100 index of leading shares in the UK fell 7.65 points, or 0.2%, at 4052.23. The Germany's DAX index fell 1% to 4219.42 points and the Paris CAC shed 1.2% to 2869.62. The Dow Jones Industrial Average fell by 105.30 points, or 1.28%, to 8122.80. (The Herald, 27/01/09)
Share prices in the world major stock markets are not faring any better. In the UK apart from the banking sector making some gains the story doesn’t look good in some companies. There were gains in the shares prices of Royal Bank of Scotland from 14.5p to 16p an increase of 10.34 per cent and Lloyds Banking Group from 65p, to 68.6p an increase of per cent or 3.6p. The gain in the share prices in the banking sector was attributed to recent initiatives by the UK and USA government to shore up lending. This imitative is believe to be having some positive effect in the US and UK (The Independence 27/01/09)
Ghana’s FTSE 100
One can argue that the GIPC modelled GC 100 along the line of the FTSE 100 of the London Stock Exchange or the Hang Seng of Hong Kong. The FTSE 100 is a share index of the 100 most highly capitalised UK companies listed on the London Stock exchange. The index began in 1984 with just 1000 companies but this increased to 6950.6 companies in 1999. The index is maintained by the FTSE Group, which is owned by the Financial Times and the London Stock Exchange. FTSE 100 companies represent about 80% of the market capitalisation of the whole London Stock Exchange.
As of 2006, the threshold for inclusion in FSTE 100 was about £2.9 billion and component companies must meet a number of requirements set out by the FTSE Group. For instance they must have full listing on the London Stock Exchange with Sterling or Euro dominated price on SET. In December 29 2006 the 6 largest constituents of the index were BP, Royal Dutch Shell, HSBC Holdings, the Vodafone Group, the Royal Bank of Scotland Group and GlaxoSmithKline, which were each valued at more than £60 billion.
The Hang Seng Index
Apart from the FTSE 100 the GC100 also have certain things in common with the Hang Seng except that the Hand Seng is weighted stock market index. The Hang Seng Index (HIS) is a freefloat-adjusted market capitalization – weighted stock market index in Hong Kong. This is made up of 45 companies which represent about 67% of capitalization of the Hong Kong Stock Exchange. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. Hang Seng members companies are selected based on their market capitalisation, turnover rankings and financial performance. (Wikipedia encyclopedia)
GIPC uses similar criteria in ranking the GC100 members in its editions: company size, profitability, growth, and net profit assets.A close look at the 2005 editions of the GC 100 reveals a slight deviation from the original performance indicators used in earlier editions. The introduction of the corporate social responsibility as one of the indicators is quite good but it will be better if GIPC keeps to its original indicators. These indicators could pave the way for GC 100 following in the path of FSTE 100 or the Hang Seng.
Conclusion
GC 100 is an excellent performance assessment mechanism in institutions in corporate Ghana. It has really gained international recognition and any foreign investors will definitely like to invest in the top performing companies in the rank. However GIPC should consider changing the name Club 100 to GIPC 100 or any other name and Club 100 members must be listed on the stock exchange. Finally GIPC should try to link GC 100 to the GSE share index so that Ghana could also have its own FSTE 100 or Hang Seng in the near future.
Evaluation GC100 members
In 1998 when GC 100 was introduced GIPC evaluated companies on the basis of their net asset size, profit before tax, number of employees, return on equity and growth trends. This evaluation gave state owned companies advantage over the private companies, so state owned companies like Ghana Telecom, SSNIT, Ghana Oil, VRA, and State Insurance dominated the programme. Taking a close look the criteria, its evident very few private owned companies could compete with the state owned ones for the top spots. For instance the use of net assets size, employee numbers and growth trend will put, companies like SSNIT, VRA and Ghana Telecom way ahead of other competitors. Very few private companies in Ghana could employ more staff than the above named companies. Besides only few private companies could declare more profit or have more net asset size than any of them. The criteria were flawed on the onset and drew a lot of criticism from the Ghanaian business community. Some critics argued the criteria resulted in loss making companies appearing on the list thus defeating the purpose for which it was introduced.
Talking about loss making companies I believe the critics were right. Some few years down the line some of these highflying companies, which were top on the list, either went into administration or were acquired by other companies. A typical example is VALCO an aluminium smelting company, which was owned by the Kaiser Aluminium Corp of the USA. It folded its operations in Ghana and sold its holding to the Ghana Government. Another example is Ghana Telecom. It went into administration and was put up for sale. Vodafone, a very reputable company, later acquired it. (www.gipc.org.gh/gc100/index.asp)
New Changes
Amidst the criticism and call for changes GIPC reviewed the criteria for selecting members of the Ghana Club 100, citing implementation problems. In the course of the review some very important changes were made. For instance companies with 100 per cent government holdings were disqualified from participating in the programme. Only limited liability companies with less than 50 per cent government shareholdings were allowed to take part. Besides qualifying companies must post positive cumulative net profit three years running prior to the competition. Apart from turnover companies were also judged on the following profitability, turnover, and growth rate in turnover and net assets. The review made it possible for small businesses to participate in the programme. The GC 100 also became more competitive and attracted more members. The initial registration fee of 500,000 cedis was also dropped and companies were allowed to register free. (GNA 2003 -04-09).
Further changes were introduced in the 2005 edition of GC 100. For the first time in all the edition of the GC100 a company’s corporate social responsibility was recognized. The GIPC considered what it described as six core areas under this element. These were health, education, poverty alleviation, environment, and social care.
Result of the changes
The changes resulted in new and smaller businesses becoming GC 100 members. It also resulted in Rural Banks taking top spots in the GC100 membership. In fact a particular trend emerged in the Ghanaian corporate community as a result of these changes. There was what I will refer to as ‘fairly new business’ taking up centre stage and outmuscling the more traditional companies. These ‘‘fairly new business’ are businesses which are new entrants in the corporate scene in Ghana compare to the more traditional ones which has been in existence for decades. One such fairly new business’ is Scancom Ghana Ltd. This company provides a telecom services in Ghana. Its service brand the ‘Areeba’ is a leading brand in Ghanaian mobile telecommunication services market and has a very high market positioning in the Ghanaian telecom market with about 2,300,000 subscribers on the Areeba network. Spacefon offers both post and pre-paid services to its customers and its a market leader in the increasingly competitive mobile communications market with an impressive 60% market share. For four years running Scancom has topped the list for the GC100 as the most fast growing, most profit making and most employerable company in Ghana.
The trend which I referred was revealed more in 2005 edition of the GC 100. On this list the fairly new businesses (which entered the Ghana business sector with a storm) out performed the hitherto well established companies like Unilever, Nestle Ghana Ltd etc. Unilever was 39th on the list. Out of the ten best performing companies of the 2005 GC100 seven (7) of them belong to theses fairly new businesses. This should be a big challenge to the Unilevers, Guineas Ghana ltd etc.
The Rural Banks
The rural banks were some small businesses that benefited from the review. They burst onto the scene with very wonderful results. Their number increased from 12 in the 2003 edition to 14 in the following year and then to 20 in the 2005 edition. Rural banks in Ghana were set up with the primary aim of providing banking services in the rural communities. Most of them began as small businesses but today they are rated as high performing businesses. Out of about 120 rural banks in Ghana 20 of them feature on 2005 edition of the GC100 with one of them Atwima Kwawuman Rural Bank ranking among the top 10 GC 100 members. This edition saw the hitherto bigger banks trailing behind smaller rural banks. Barclays Bank Ghana Ltd, which is a big name in Ghana, was 14th on the list while Standard Chartered Bank Ghana Ltd was 22nd. Stanbic Bank Ghana was 24th. The last two big trailed behind Kakum Rural Bank, which is 16th on the list. On the whole seven (7) rural banks were among the first 50 GC 100 ranked companies as most effective and efficient businesses in the country. This is no mean achievement and the managers of these rural banks must be given pats on the back
The name Club 100
The name Ghana Club 100 sounds more casual to me. I have no qualm with the name but just that it sounds more like a social club, football club, Disco Club etc. Let me say a social club of the first top 100 companies in corporate Ghan. I believe the name Ghana Investment Promotion Council (GIPC 100) will be more appropriate. This will give it a corperate touch and make it more businesslike. Apart from the name the GC100 itself should be organise in a way that it could be linked to the share index of Ghana Stock Exchange (GSE). One criterion which could be introduced to make this possible is all GC 100 members must be listed on the Ghana Stock Exchange.
Imagine all these high performing 100 companies listing on the stock exchange? It will not only expand the stock exchange but also serve as a bed rock for the future creation of the first most 100 capitalised companies in the country. Currently a look at the GSE website revealed that out of GC100 members only nine (9) members were listed and engaged in trading of ordinary shares on the market. Out of the first 10 members only Guinness Ghana Limited was listed. Guinness Ghana Limited was third on the list of GC100. Surprisingly Spacefon which has taken the top spot for four consecutive times was not among 34 companies listed on the stock exchange. (GSE have year report 2008)
Listing of GC100 members on stock exchange
The listing of all GC 100 members on the stock exchange will not only expand the stock market but will also increase their pool of investors. The companies will also raise additional equity capital by selling their stocks, bonds or other securities to obtain long term finance for expansion in sales or increase in their working capital. It is obvious that most of these companies are new and therefore will not have internally generated funds like retain earnings and non- cash charges against profit (e.g. depreciation). Secondly equity finance unlike debts is irredeemable with no obligation to pay. It will also pave the way for new entrants to the GC 100 to go on the market with their initial public offerings (IPO’s).
The good thing is that the Ghanaian public is gradually becoming keen on investing in shares. Most people are now aware that holding shares (ordinary) in a business not only yields dividend but also gives additional benefits of ownership of the business. This is because GSE is doing a wonderful job in educating the public. Aside of that other financial institutions like the Credit Union Ghana (CU) are also playing major role in enlightening the public. The Credit Union is mobilising savings from its members and investing them into shares on behalf of its members. Members therefore receive some interest on their savings in the form of dividend. They CU which originally deals with members at workplaces, is now targeting the self employed. They are also working in collaboration with some churches in Ghana and getting the members of these churches on board as members of the Credit Union. Dividend payment is therefore very pivotal in the development of the stock market in Ghana and this must be taken seriously. Therefore businesses need to come with very good dividend policy that will entice the public into investing into shares.
Share Trading
A report from GSE indicates trading on the exchange for the first half quarter of 2008 was quite encouraging. There was high demand for shares and there were also gains in some share prices. According to the report nine (9) out of the thirty- four (34) companies listed had gains of over 20% in their share prices with the highest gain of 58% going to Cal Bank. Besides the GSE All-share Index moved up from 6,718.88 points at the beginning of January 2008 to 0,346.30 in June 2008 representing a half year gain of 56.77% compared with a gain of 5.76% for the same period in 2007. Total market capitalization of the Exchange as at June 30, 2007 was GH¢11.47 million (US$12.34 million). Between January and June 2007, 135.85 million shares were traded. (GSE 2nd quarter report 2008).
These results are quite amazing compared to the fall in share indexes in the world markets. For instance the FTSE-100 index of leading shares in the UK fell 7.65 points, or 0.2%, at 4052.23. The Germany's DAX index fell 1% to 4219.42 points and the Paris CAC shed 1.2% to 2869.62. The Dow Jones Industrial Average fell by 105.30 points, or 1.28%, to 8122.80. (The Herald, 27/01/09)
Share prices in the world major stock markets are not faring any better. In the UK apart from the banking sector making some gains the story doesn’t look good in some companies. There were gains in the shares prices of Royal Bank of Scotland from 14.5p to 16p an increase of 10.34 per cent and Lloyds Banking Group from 65p, to 68.6p an increase of per cent or 3.6p. The gain in the share prices in the banking sector was attributed to recent initiatives by the UK and USA government to shore up lending. This imitative is believe to be having some positive effect in the US and UK (The Independence 27/01/09)
Ghana’s FTSE 100
One can argue that the GIPC modelled GC 100 along the line of the FTSE 100 of the London Stock Exchange or the Hang Seng of Hong Kong. The FTSE 100 is a share index of the 100 most highly capitalised UK companies listed on the London Stock exchange. The index began in 1984 with just 1000 companies but this increased to 6950.6 companies in 1999. The index is maintained by the FTSE Group, which is owned by the Financial Times and the London Stock Exchange. FTSE 100 companies represent about 80% of the market capitalisation of the whole London Stock Exchange.
As of 2006, the threshold for inclusion in FSTE 100 was about £2.9 billion and component companies must meet a number of requirements set out by the FTSE Group. For instance they must have full listing on the London Stock Exchange with Sterling or Euro dominated price on SET. In December 29 2006 the 6 largest constituents of the index were BP, Royal Dutch Shell, HSBC Holdings, the Vodafone Group, the Royal Bank of Scotland Group and GlaxoSmithKline, which were each valued at more than £60 billion.
The Hang Seng Index
Apart from the FTSE 100 the GC100 also have certain things in common with the Hang Seng except that the Hand Seng is weighted stock market index. The Hang Seng Index (HIS) is a freefloat-adjusted market capitalization – weighted stock market index in Hong Kong. This is made up of 45 companies which represent about 67% of capitalization of the Hong Kong Stock Exchange. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. Hang Seng members companies are selected based on their market capitalisation, turnover rankings and financial performance. (Wikipedia encyclopedia)
GIPC uses similar criteria in ranking the GC100 members in its editions: company size, profitability, growth, and net profit assets.A close look at the 2005 editions of the GC 100 reveals a slight deviation from the original performance indicators used in earlier editions. The introduction of the corporate social responsibility as one of the indicators is quite good but it will be better if GIPC keeps to its original indicators. These indicators could pave the way for GC 100 following in the path of FSTE 100 or the Hang Seng.
Conclusion
GC 100 is an excellent performance assessment mechanism in institutions in corporate Ghana. It has really gained international recognition and any foreign investors will definitely like to invest in the top performing companies in the rank. However GIPC should consider changing the name Club 100 to GIPC 100 or any other name and Club 100 members must be listed on the stock exchange. Finally GIPC should try to link GC 100 to the GSE share index so that Ghana could also have its own FSTE 100 or Hang Seng in the near future.
Managing Ghana’s Oil Revenue: GNPC is capable
The current debate is whether Ghana has the capacity to manage its oil revenue astutely. Sceptics within the oil industry believe the oil revenue would be mismanaged just like the revenues from cocoa and other extractive minerals. These doubters have examples to support their arguments. For instance, they argued that in the 1970s a Ghanaian shipload of cocoa grains destined for a buyer abroad allegedly did not get to its destination. It vanished on the high seas without a trace. Neither the ship nor its content was accounted for by the authorities at the time. In addition, Ghana is known to have one of the largest gold mines in the world. Gold represented 34% of the Ghana’s exports (12% of GDP) in 2000-2003. (www.eiti.org/Ghana). Again, a report published by Reuters Television in 2009 showed that Ghana produces 14% of the total production of the world's cocoa. However, the wealth created from these foreign exchange earners do not reflect in the lives of the ordinary people and the infrastructural development in the country is awful. The question then is would Ghana’s oil revenue be managed prudently compared to revenue from cocoa or gold?
The question is a very tricky one albeit, the motivating news is Ghana National Petroleum Corporation (GNPC) is an efficient organisation with the capabilities of managing the oil revenue astutely. For decades now, GNPC has proved it had the resources and capabilities that are superior to those of its competitors in the West African sub region (Porter 1985). In addition, GNPC had been successful in matching its resources with oil exploration activities to the environment in which it operates (Johnson and Scholes (2002). Since its formation, GNPC had focused on its core business, which is oil exploration. However, in order to realise this objective it diversified its activities to generate additional income to fund oil exploration. It went into gold mining and cocoa farming. Currently GNPC owns 90% stake in Prestea Sankofa Gold Limited after its partners SAMAX Gold Resource ceded its interest. (www.gnpcghana.com).
GNPC strategically went into oil production in addition to exploration in the 1990s to generate revenue. It acquired oilrigs and oil vessels at a time when Ghana has no oil. Oilrigs such as North Sea Pioneer, K/S Asterie, Chaparral, D511 etc formed part of GNPC marine assets. The North Sea Pioneer was involved in exploration activities at the Tano oilfield and K/S Asterie and others were into oil production in Gabon and Angola. GNPC generated US$14.6 million by hiring D511 to Transocean to drill in Mexico. Some critics questioned the rational behind GNPC acquiring oilrigs and other marine assets at the time Ghana had no oil. The top management of GNPC at the time were vilified for not being risk averse. The point is although GNPC made losses in the oil production business the one most important fact is it trained local experts in the field.
Overall GNPC has record of accomplishment and have proven in the past that it has the capability to manage the oil revenue in Ghana. The handling of the oil revenue should therefore be left in the capable hands of experts of GNPC. It has the existing structures and personnel in place to take prudent investment decisions with the oil revenue. These experts had already exhibited their skills and ability to get very good contract deals for Ghanaians. A case in point is the participatory interest Ghana has in the oil fields. Oil exploration companies are known to offer up to 10% shares in any oil discovered particularly in developing countries. This notwithstanding GNPC had been able to increase Ghana’s initial 10% participatory interest to 13.7% by acquiring 3.7% interest in the Jubilee Fields. Experts believe this figure could rise to 15% in the near future due to more acquisitions. Due to the diligence of the professionals at GNPC, some analysts believe royalty deals with the oil exploration companies could take Ghana’s stake in the oil to 50%. Furthermore, in attempt to increase Ghana’s stake in the oil fields GNPC together with Chinese oil giant (CNOOC) made a joint $5 billion bid for the oilfields. This offer according to Reuters was higher than a bid of $4 billion from Exxon Mobil for Kosmos Energy LLC's assets (Reuters). Though the deal did not go through GNPC is on the alert to buy out more stakes in the oil field.
In additional to the above, under the Ministry of Energy’s guidelines all oil and affiliate companies wanting to do business in the oil industry in Ghana, has to register and apply for permit from GNPC. Companies could pay about $3000 registration fees to operate in the industry. Currently there are approximately 400 such companies, which have registered with GNPC. This means GNPC would generate some funds from these registering fees. Income from registration fees and permit is likely to increase because more companies would register as the oil sector expands. Charging registration fee is a creditable idea because it would not only generate extra income but also help in regulating the industry.
GNPC I must say has gained a lot of experience from working in close collaboration with Petrobras of Brazil, Statoil of Norway, Petro-Canada International and Nigeria National Petroleum Corporation (NNPC). Petrobras of Brazil for example is the fourth biggest oil energy company in the world and eighth biggest global company in market value of $164.8 billion. (www.pertobras.com.br). A further positive point is GNPC for the past few years had worked with the investment bank, Morgan and Stanley. It therefore had sufficient idea on how to invest the oil revenue in projects with positive NPVs. According a GNPC press released in 30 June 2009 GNPC engaged Morgan Stanley 2009 as its financial adviser to handle the offshore oil and gas assets of the country.
Finally, Ghana has achieved compliance with Extractive Industries Transparency Initiative (EITI) in October 2010. It means Ghana has to abide by EITI principle of accountability and transparency by publishing revenue streams and expenditure on oil on regular basis to the public. This action could cut down underhand dealings in the oil industry to a large degree. EITI is the worldwide benchmark for better transparency in the oil, gas and mining sectors. Its Secretariat is based in Oslo Norway. In order for a country to achieve compliant status with EITI, it has to complete a rigorous, independent assessment of disclosure and reporting practices. (www.eiti.org).
Concisely GNPC has the capability to manage the oil revenue sufficiently. There is no need creating a rival organisation to GNPC, which has been in the oil business for decades. So far, the management at GNPC is doing a great job. They seek the best interest of Ghanaians. What the government needs to do is to strengthen the existing structures at GNPC by passing very good legislations that would make GNPC more vibrant.
Francis Kwaku Egu, UK
kwakuhull@yahoo.com
The question is a very tricky one albeit, the motivating news is Ghana National Petroleum Corporation (GNPC) is an efficient organisation with the capabilities of managing the oil revenue astutely. For decades now, GNPC has proved it had the resources and capabilities that are superior to those of its competitors in the West African sub region (Porter 1985). In addition, GNPC had been successful in matching its resources with oil exploration activities to the environment in which it operates (Johnson and Scholes (2002). Since its formation, GNPC had focused on its core business, which is oil exploration. However, in order to realise this objective it diversified its activities to generate additional income to fund oil exploration. It went into gold mining and cocoa farming. Currently GNPC owns 90% stake in Prestea Sankofa Gold Limited after its partners SAMAX Gold Resource ceded its interest. (www.gnpcghana.com).
GNPC strategically went into oil production in addition to exploration in the 1990s to generate revenue. It acquired oilrigs and oil vessels at a time when Ghana has no oil. Oilrigs such as North Sea Pioneer, K/S Asterie, Chaparral, D511 etc formed part of GNPC marine assets. The North Sea Pioneer was involved in exploration activities at the Tano oilfield and K/S Asterie and others were into oil production in Gabon and Angola. GNPC generated US$14.6 million by hiring D511 to Transocean to drill in Mexico. Some critics questioned the rational behind GNPC acquiring oilrigs and other marine assets at the time Ghana had no oil. The top management of GNPC at the time were vilified for not being risk averse. The point is although GNPC made losses in the oil production business the one most important fact is it trained local experts in the field.
Overall GNPC has record of accomplishment and have proven in the past that it has the capability to manage the oil revenue in Ghana. The handling of the oil revenue should therefore be left in the capable hands of experts of GNPC. It has the existing structures and personnel in place to take prudent investment decisions with the oil revenue. These experts had already exhibited their skills and ability to get very good contract deals for Ghanaians. A case in point is the participatory interest Ghana has in the oil fields. Oil exploration companies are known to offer up to 10% shares in any oil discovered particularly in developing countries. This notwithstanding GNPC had been able to increase Ghana’s initial 10% participatory interest to 13.7% by acquiring 3.7% interest in the Jubilee Fields. Experts believe this figure could rise to 15% in the near future due to more acquisitions. Due to the diligence of the professionals at GNPC, some analysts believe royalty deals with the oil exploration companies could take Ghana’s stake in the oil to 50%. Furthermore, in attempt to increase Ghana’s stake in the oil fields GNPC together with Chinese oil giant (CNOOC) made a joint $5 billion bid for the oilfields. This offer according to Reuters was higher than a bid of $4 billion from Exxon Mobil for Kosmos Energy LLC's assets (Reuters). Though the deal did not go through GNPC is on the alert to buy out more stakes in the oil field.
In additional to the above, under the Ministry of Energy’s guidelines all oil and affiliate companies wanting to do business in the oil industry in Ghana, has to register and apply for permit from GNPC. Companies could pay about $3000 registration fees to operate in the industry. Currently there are approximately 400 such companies, which have registered with GNPC. This means GNPC would generate some funds from these registering fees. Income from registration fees and permit is likely to increase because more companies would register as the oil sector expands. Charging registration fee is a creditable idea because it would not only generate extra income but also help in regulating the industry.
GNPC I must say has gained a lot of experience from working in close collaboration with Petrobras of Brazil, Statoil of Norway, Petro-Canada International and Nigeria National Petroleum Corporation (NNPC). Petrobras of Brazil for example is the fourth biggest oil energy company in the world and eighth biggest global company in market value of $164.8 billion. (www.pertobras.com.br). A further positive point is GNPC for the past few years had worked with the investment bank, Morgan and Stanley. It therefore had sufficient idea on how to invest the oil revenue in projects with positive NPVs. According a GNPC press released in 30 June 2009 GNPC engaged Morgan Stanley 2009 as its financial adviser to handle the offshore oil and gas assets of the country.
Finally, Ghana has achieved compliance with Extractive Industries Transparency Initiative (EITI) in October 2010. It means Ghana has to abide by EITI principle of accountability and transparency by publishing revenue streams and expenditure on oil on regular basis to the public. This action could cut down underhand dealings in the oil industry to a large degree. EITI is the worldwide benchmark for better transparency in the oil, gas and mining sectors. Its Secretariat is based in Oslo Norway. In order for a country to achieve compliant status with EITI, it has to complete a rigorous, independent assessment of disclosure and reporting practices. (www.eiti.org).
Concisely GNPC has the capability to manage the oil revenue sufficiently. There is no need creating a rival organisation to GNPC, which has been in the oil business for decades. So far, the management at GNPC is doing a great job. They seek the best interest of Ghanaians. What the government needs to do is to strengthen the existing structures at GNPC by passing very good legislations that would make GNPC more vibrant.
Francis Kwaku Egu, UK
kwakuhull@yahoo.com
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