An­tho­ny Wil­son

Re­pub­lic Bank's de­ci­sion to in­crease its stake in the HFC Bank in Ghana from 8.9 per cent to just over 32 per cent is one of the more in­ter­est­ing de­vel­op­ments in the lo­cal cor­po­rate sec­tor in a long time.

The Re­pub­lic Bank pur­chase of ad­di­tion­al shares in HFC Bank is a de­vel­op­ment that means that in the space of six months or so Re­pub­lic has gone from ze­ro pres­ence to be­ing the sin­gle largest share­hold­er of a bank in the sec­ond biggest econ­o­my in West Africa and the lo­cal bank has al­so ce­ment­ed its po­si­tion in Bar­ba­dos by ac­quir­ing the re­main­ing 34.86 per cent share­hold­ing in what used to be known as the Bar­ba­dos Na­tion­al Bank. Re­pub­lic Bank (Bar­ba­dos) Ltd is now a whol­ly owned sub­sidiary.

The ac­qui­si­tion of 68,854,703 shares at US$0.30 a share from the Au­re­os Africa Fund may have been op­por­tunis­tic but it cer­tain­ly pro­vides the lo­cal fi­nan­cial in­sti­tu­tion with a plat­form to serve as a beach­head for lo­cal in­vest­ments in Ghana's hy­dro­car­bon in­dus­try.

In the re­cent past, the state-owned Na­tion­al Gas Com­pa­ny, the ma­jor­i­ty state-owned Phoenix Park Gas Proces­sors as well as some pri­vate lo­cal in­ter­est, which in­clude I am told Prof Ken Julien, have been in Ghana look­ing at op­por­tu­ni­ties in the en­er­gy sec­tor there.

The es­tab­lish­ment of Re­pub­lic Bank in Ghana cer­tain­ly will pro­vide the im­pe­tus for the reach in­to the West African en­er­gy scene by lo­cal firms.

The ac­qui­si­tion of the stake trig­gers the takeover code in Ghana and in its state­ment on Mon­day, Re­pub­lic said that it had ap­plied to the reg­u­la­tors there for an ex­emp­tion from the code.

If the ex­emp­tion is not grant­ed, the lo­cal bank will be re­quired to make a bid for all of the out­stand­ing shares of HFC, which is prob­a­bly what Re­pub­lic Bank re­al­ly wants. If it did not re­al­ly want to own all of HFC, it could eas­i­ly have said that was sell­ing down three per cent of the bank to take it be­low the takeover thresh­old.

Ghana is not a risk-free econ­o­my.

Ghana's gross in­ter­na­tion­al re­serves (GIR) at the end of 2012 amount­ed to US$5.4 bil­lion. This pro­vid­ed the West African na­tion with three months of im­port cov­er, which is not ter­rif­ic if one con­sid­er that T&T's im­port cov­er­age is over 11 months.

At the end of 2012, Ghana's stock of to­tal pub­lic debt stood at US$16.5 mil­lion, which was 46.7 per cent of GDP, with its ex­ter­nal debt amount­ing to US$8.0 bil­lion–just un­der half of its to­tal debt.

What's more, Ghana's to­tal pub­lic debt is on an up­ward tra­jec­to­ry giv­en the fact that it re­port­ed a fis­cal deficit of 12.1 per cent of GDP in 2012, com­pared with an es­ti­mate of 6.7 per cent.

It is an econ­o­my that is grap­pling with a rate of in­fla­tion, ac­cord­ing to a Bloomberg re­port on Wednes­day, that rose by 10.9 per cent in May, ac­cel­er­at­ting for the fourth con­sec­u­tive month.

High in­fla­tion and the dou­ble-dig­it bud­get deficit has forced the cen­tral bank in Ghana to in­crease the cost of mon­ey in an at­tempt to staunch ris­ing price and sta­bi­lize the coun­try's de­pre­ci­at­ing cur­ren­cy.

Not on­ly does Ghana face high in­fla­tion and a bud­get deficit that needs to be roped in, its na­tion­al cur­ren­cy, called the ce­di, is los­ing val­ue against the US dol­lar. The ce­di de­pre­ci­at­ed 14 per cent against the dol­lar dur­ing 2012 and by 4.9 per cent since the start of the year.

Ghana's in­fla­tion rate means that the coun­try's cen­tral bank has been forced to keep to in­crease its pol­i­cy in­ter­est rate to 16 per cent from 15 per cent. (T&T's re­po rate, which is anal­o­gous to Ghana's pol­i­cy rate, is 2.75 per cent).

In a Reuters re­port on Wednes­day, Ghana's cen­tral bank Gov­er­nor, Hen­ry Kofi Wampah, said: "On the bal­ance, the (mon­e­tary pol­i­cy) com­mit­tee held the view that the risks to in­fla­tion out­look were el­e­vat­ed and out­weighed the risks to growth and there­fore de­cid­ed to in­crease the pol­i­cy rate from 15 to 16 per cent.

There are ma­jor up­side risks to in­fla­tion out­look: they are height­ened in­fla­tion risks and ex­change rate ex­pec­ta­tions, lin­ger­ing fis­cal pres­sures, chal­lenges in the en­er­gy sec­tor, the ef­fect of weak­ened com­mod­i­ty prices in the ex­ter­nal sec­tor and the like­li­hood of full cost re­cov­ery in the en­er­gy sec­tor."

In a Fi­nan­cial Times re­port, Razia Khan, head of Africa re­search at Stan­dard Char­tered, was quot­ed as say­ing that the in­crease in the pol­i­cy in­ter­est rate re­flect­ed both a tech­ni­cal de­ci­sion to move the pol­i­cy rate clos­er to mar­ket in­ter­est rates � yields on short-term trea­sury bills are above 20 per cent � and a move to de­fend the ce­di.

"In terms of de­mand for Ghana­ian as­sets, for for­eign in­vestors the con­cern was how much does the cur­ren­cy weak­en. Yields are still very at­trac­tive, all in­vestors need­ed was some re­as­sur­ance," Khan said. "Just the view that the Bank of Ghana is will­ing to be proac­tive should help calm sen­ti­ment on the for­eign ex­change mar­kets."

High in­fla­tion and a high bud­get deficit al­so means that when Ghana is­sued a three-year note late last month, the mar­ket re­quired that it of­fer po­ten­tial in­vestors the prince­ly yield of 19.24 per cent. T&T, by com­par­i­son, is­sued a sev­en-year note last month at 2.6 per cent and of­fer­ing a yield to ma­tu­ri­ty of 1.95 per cent.

On the oth­er hand, the Ghana econ­o­my grew by an es­ti­mat­ed 7.1 per cent in 2012–as a re­sult of the fact that oil and gold prices were high­er last year than to­day–and some es­ti­mates are that it is fore­cast to ex­pand 8 per­cent this year.

That growth is fu­el­ing de­mand for im­ports, the de­mand for for­eign cur­ren­cy and al­so a de­mand for con­sumer loans by the pop­u­la­tion.

This means that while Ghana is a chal­lenge, there are al­so sig­nif­i­cant op­por­tu­ni­ties there.

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