Ghana, a frontier emerging market

Ghana’s macro-economic recovery reform programme has paid off, making it a vibrant capital market, with its potentials attracting lots of foreign direct investments, over the past five years.
With political stability in the country, coupled with the serene business atmosphere in which businesses operate, has placed the country among a league of eight Sub-Saharan African countries, outside South Africa, heading towards emerging market status, a quarterly magazine of the International Monetary Fund (IMF), called Finance and Development, has revealed.
The IMF has thus described the country, as a ‘frontier emerging market’, meaning that the Ghanaian economy would attain the status of emerging market, as soon as it matures.
The seven other countries, which fall into this category (frontier emerging markets), include Botswana, Kenya, Mozambique, Tanzania, Uganda, Zambia and Nigeria.
Emerging market refers to developing countries with stock markets, which are beginning to demonstrate the features of the mature stock markets in industrialised countries.
Nigeria, according to the magazine, was the largest country in this group.
These countries qualified to the position of a frontier emerging market, because of the massive growth their economies are enjoying, which was led by the private sector growth.
“Emerging markets are attractive to investors, because they offer rates of return that are high, relative to mature markets, and offer opportunities for investors to diversify risk. High GDP signals that there are opportunities for investors to buy into the country’s overall prospects, or seek out opportunities, by identifying undervaluation in specific sectors. Together these countries account for about 40 per cent of the region’s population outside South Africa, and almost one-half of its GDP,” noted the report.
According to the IMF, the countries that have fallen under frontier emerging markets, have installed sound economic institutions to avoid the boom-bust cycle of the past.
“Take the case of Nigeria, since the current oil boom started in 2004, its economic performance has been far better, than in previous booms in 1974-78, 1979-83 and 1990-94, measuring non-oil growth or inflation. During 2005-06, it received Paris Club debt relief, and bought back much of the remainder of its external debt. Since then, trade in Nigeria debt has been mainly in domestic issues. Nigeria debt trading is ranked 21st globally at the end of 2007,” noted the IMF.
Emerging markets, according to the IMF, offers institutional investors the prospect of good returns, and a means to diversify risk, through investments in financial markets.
Ghana, as part of its reform to put the country on a sound economic track, in September last year listed a US$750 million Euro bond on the London Stock Exchange, which was four times over subscribed, exceeding an amount of US$3.2 billion.
The IMF, in one of its reports issued in Washington, said the bond sales was one of the benchmarks of growing interest of investors in Africa, and in emerging and developing countries worldwide.
The IMF, however, advised African central banks to give adequately to financial sector stability, against a tradition in the region that had long focused on financial sector development.
“The banking system is the main conduit through which foreign inflows are intermediated, and so bank capital and risk management practices, must be monitored carefully,” noted the IMF.