identifying commercial capital and risk mitigation …

JUNE 2018

This publication was produced for review by the United States Agency for International Development/Ghana mission by The Palladium Group.

IDENTIFYING COMMERCIAL CAPITAL AND RISK MITIGATION SOURCES FOR GHANA JUNE 2018 FINANCING GHANAIAN AGRICULTURE PROJECT (USAID FinGAP)

FINANCING GHANAIAN AGRICULTURE PROJECT (USAID FinGAP)

IDENTIFYING COMMERCIAL CAPITAL AND RISK MITIGATION SOURCES FOR GHANA, JUNE 2018

DISCLAIMER

This report is made possible by the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of The Palladium Group and do not necessarily reflect the views of USAID or the United States Government.

IDENTIFYING COMMERCIAL CAPITAL AND RISK MITIGATION SOURCES FOR GHANA

JUNE 2018



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CONTENTS

ACRONYMS & ABBREVIATIONS 4

OVERVIEW 5

A. BACKGROUND AND SCOPE OF WORK 5

EXECUTIVE SUMMARY 7

A. OBJECTIVE OF SOW 10

B. FINDINGS, RECOMMENDATIONS AND OBSERVATIONS 10

METHODOLOGY 12

A. SAMPLE QUESTIONS AND RESPONSES 12

KEY FINDINGS 14

A. SUMMARY FINDINGS 14

ANALYSIS OF GOG’s POLICIES 17

A. BACKDROP 17

B. THE GOVERNMENT OF GHANA’S POLICY FOCUS 17

C. IMPORTANT GOG ACTIVITIES TO INSTITUTIONALIZE ITS INVESTOR POLICY FOCUS 19

ANALYSIS OF FUNDING AND RISK MITIGATION SOURCES 20

A. GHANA’S FOREIGN CAPITAL INFLOWS 20

B. UNDERSTANDING THE INTEREST AND NEEDS OF CAPITAL AND RISK MITIGATION SOURCES 21

C. TARGETING RISK MITIGATION SOURCES TO ENHANCE INVESTMENT FLOWS 25

D. TARGETING DIRECT INVESTMENT FLOWS (IMPACT AND NON-IMPACT) 28



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SOURCES OF MAJOR INSTITUTIONAL CAPITAL 30

A. FOREIGN CAPITAL MOBILIZATION 30

B. FOCUS OF MAJOR IMPACT CAPITAL FLOWS 30

ANALYSIS OF FOREIGN CAPITAL FLOWS TO GHANA 34

CASE STUDIES OF RECENT CAPITAL MOBILIZATION INTO GHANA 36

QUANTUM TERMINALS LISTS GH¢45M BOND ON GHANA FIXED INCOME MARKET 36

SIEMENS TO INVEST $200 MILLION IN GHANA'S ENERGY SECTOR 36

CHINA NATIONAL BUILDING MATERIAL (CNBM) CORPORATION $400 MILLION CREDIT FACILITY 37

MTN INITIAL PUBLIC OFFERING 37

CONCLUSIONS 39

RECOMMENDATIONS 40

ANNEX 1 – USING THE IFC AND PARTNERS TO MOBILIZE LARGE SCALE CAPITAL FOR GHANA 42

ANNEX 2 – GIPC SELECTED SLIDES 43

ANNEX 3 – MOF SLIDES 44

ANNEX 4 – DETAILED DATA AND ANALYSIS OF CAPITAL FLOWS 45

CAPITAL INFLOW IN SUB-SAHARAN AFRICA 47

FOREIGN INVESTOR PARTICIPATION 48



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ACRONYMS & ABBREVIATIONS FinGAP Financing Ghanaian Agriculture Project DCA USAID’s Development Credit Authority (DCA) Loan/Credit Partial Guarantee DFI Development Finance Institution FDI Foreign Direct Investment GSE Ghana Stock Exchange GAX Ghana Alternative Market GFIM Ghana Fixed Income Market GH¢ Ghana Cedi / Ghanaian Cedi GIIN Global Impact Investing Network GIPC Ghana Investment Promotion Center GOG Government of Ghana IFI International Financial Institutions (European Investment Bank for example) LOP Life of Program MOF Ministry of Finance NIC National Insurance Commission, Ghana NPRA National Pensions Regulatory Authority PFG Partnership for Growth SEC Securities and Exchange Commission, Ghana SMiLE Small, Medium including Large Enterprises SSNIT Social Security and National Insurance Trust SOEs State Owned Enterprises Supply Side Issuers (and Facilitators) of Investable Instruments and Securities to be listed on

the capital markets UNCTAD United Nations Conference on Trade and Development USAID United States Agency for International Development USG United States Government



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OVERVIEW A. BACKGROUND AND SCOPE OF WORK

“Deep, liquid capital markets are fundamental to economic growth because they help channel the domestic savings of a nation to their most productive uses, and in so doing enable the private sector to invest, produce, and create jobs…However, a crucial step in developing capital markets is to develop the domestic “buy side”—that is, to encourage greater participation of local and regional institutional investors such as pension funds and insurance firms in domestic capital markets. Most fundamentally, these large pools of savings can evolve into important sources of long-term finance for economic growth—for infrastructure, for example. In addition, a well-functioning buy side reduces an economy’s reliance on foreign portfolio investors, increasing macroeconomic resilience to shocks caused by sudden capital inflows and outflows.” Quote from ‘Capital Markets in the East African Community: Developing the Buy Side’, a paper prepared by the Milken Institute Center for Financial Markets, January 2017. In recognition of the importance and opportunities for Ghana highlighted in the above points, USAID FinGAP from July 2017 to November 2017 undertook an initial Scope of Work (SOW) to assess the potential to stimulate Ghanaian based institutional capital and investment opportunities. This SOW was entitled the ‘Demand & Supply Sides for Capital Market Instruments and Feasibility Study of Infrastructure Bond Issuance in Ghana’. The SOW by design, started from the reality that the status quo flow of scarce domestic capital was dominated by investments in “safe-haven” T-Bills and GOG securities, thereby “crowding out” capital to the private sector and some major Ghanaian infrastructure needs. The initial question pursued was how to constructively facilitate and broaden the participation of this capital into other Ghanaian capital markets and infrastructure funding activities, thereby deepening the local capital markets. The SOW culminated with an engaging, interactive roundtable conference in Accra hosted by USAID FinGAP on November 17, 2017. The USAID FinGAP hosts and participants identified, discussed, and debated issues and opportunities to mobilize internal institutional capital – most recently estimated to be close to approximately $5 billion, and developing investable ideas ranging from enterprises to funding potential infrastructure related entities and needs through bonds, public listing of securities, and private placements. Regulatory adjustments were also tabled for further assistance by USAID FinGAP. As was a major goal, the SOW and the related conference established meaningful engagement between USAID FinGAP and the major local owners of capital, the Demand/Buy-Side (i.e., Institutional Investors, pension funds, insurance companies, mutual funds, banks, and others); their regulatory and oversight bodies (SEC, NPRA, NIC); the trading bodies (GSE, GAX, and GFIM); and the Supply/Issuer-Side (SMiLEs, SMEs, and infrastructure entities) looking for alternative financing to expensive bank loans through the issuance of equity (via shares) and/or debt (via bonds) on the GSE, GAX, or GFIM or through structured private placements. The conference was punctuated by the Ministry of Finance, regulatory authorities, and investors all asking USAID FinGAP to continue its work in this area and to engage the participants in building and broadening the opportunities, through more joint work.



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Since being selected as a Partnership for Growth (PFG) country, the Government of Ghana (GOG) has engaged in extensive analysis and consultations with the U. S. Government (USG) in developing a Joint Country Action Plan (JCAP) to assist Ghana to sustain and broaden its economic growth. This has included addressing two key constraints that inhibit private sector development and participation in the Ghanaian economy: unreliable and inadequate supply of electric power and lack of access to finance. The two main goals of the PFG JCAP are:

1. To strengthen the power sector; and 2. To increase access to finance (especially for the SME sector) and strengthen the

financial system.

The PFG Technical Working Group on Increasing Access to Finance (also known as the PFG “Access to Finance Team”) has 5 overall goals:

1) Reduce government engagement in the banking sector; 2) Strengthen Financial Sector regulation and supervision; 3) Develop the Financial Sector infrastructure; 4) Broaden and deepen the financial sector; 5) Encourage development finance and support SME access to finance.

The current Scope of Work behind the following Report is entitled “Identifying and Analyzing Impact, Commercial Capital, and Risk Mitigation Sources: Critical for Financing Agriculture and Key Selected Sectors in Ghana”. This SOW is designed to complement the Ghanaian Government’s own push to attract foreign investment through MoF’s and GIPC’s initiatives, among others. The intention is to identify the characteristics of, and potential options for, successfully realizing Ghana’s funding objectives for both industry/business, social and national hard asset infrastructure. As with the national Ghanaian focus, we set out to explore the sources of funding and investment risk mitigation that can be applied to the broader business/industrial sectors, as well as to national social and hard asset infrastructure needs. This therefore includes target areas like: agribusiness, value added companies – manufacturing/processing/energy, related value chain businesses, services – social and other and infrastructure (such as critical logistics and power). We also touch on recommendations on how to mobilize assets – financial and risk mitigation sources, to achieve Ghana’s objectives of mobilizing billions of dollars for its internal economic and social growth needs. PFG JCAP Goal 4, ‘Broaden and deepen the financial sector’ along with Goal 5, ‘Encourage development finance and support SME access to finance’ are the focus of this SOW. In support of these goals, this SOW includes an in-depth analysis of the trends and opportunities for mobilizing international capital and risk mitigation tools for Ghanaian needs – private sector (corporate/enterprise/projects) and public sector initiatives such as infrastructure. This is specifically with respect to tapping into a pool of global institutional assets which easily approximates over $200 billion in funds, and risk mitigation tools from mandated international impact, emerging markets, development, and commercial sources.



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EXECUTIVE SUMMARY The World Bank estimates that Africa’s infrastructure funding deficit alone approximates $100 billion per year. When this is added to the local business and social services related infrastructural needs (medical, education etc.), this figure increases. By some estimates, water and sanitation alone needs approximately $60 billion per year globally, with Africa being a large component. President Akufo-Addo was in the US in February 2018 to, among other things, encourage international investors and institutions to come to Ghana and invest in businesses, infrastructure, and other critical sectors. We discuss this in the section on GIPC’s targets for attracting capital. Ghana has been actively courting international investors to build capital flows into the developing economy as local private institutional capital (meaning pensions – including SSNIT, mutual funds, and insurance companies), despite being close to approximately $5 billion, falls short in terms of Ghanaian economic investment needs. Below is an instructive sensitivity analysis from the Brookings Institution. This analysis is based on a 2013 OECD survey data on 33 countries’ pension assets and their commitments to domestic infrastructure investments. This analysis is meant to demonstrate the potential capacity/range of each system’s pensions, to invest in domestic infrastructure using a range Pessimistic (.01% of assets are invested) versus Optimistic (20.3% of assets are invested) times the assets in each system – 5.3% is the Average in this analysis based on the 2013 OECD benchmark. Table 1: African Pension Funds

Brookings Institute Research Paper – Leveraging African Pension Fund for Financing Infrastructure Development. March 2017



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Updating this analysis to 2018 and extrapolating, we can estimate a range for potential investment by Ghanaian pension funds’ assets into infrastructure. Based on Ghana’s reported pension assets (including SSNIT) of approximately $4.3 billion for year ended 2017, the range for Ghana is as follows: The Pessimistic result is an immaterial $4.3 million; Optimistic is $870 million; and Average being $227 million. In reality, Ghana’s infrastructure needs (railways $6 to $7 billion) are considerably larger. Table 2: Potential Asset Allocation to Ghana’s Infrastructure

Source: FinGAP analysis by consultant Given the lack of financial capacity of Ghana’s institutional investors, it is not a surprise that at the Annual World Bank Springs Meetings in Washington DC, Ghana’s MoF and GIPC actively met with international investors to attract more interest into Ghana as an investment destination. Ghana’s MoF and GIPC continue to conduct international roadshows from North America to Asia in pursuit of this potential investment capital. The objective according to MoF and GIPC officials (interviewed for this Report) is to mobilize $20 to $40 billion to fund initiatives across public and private sector infrastructure and enterprise development – ambitiously over the next four years, and up to $40 billion over the next six years. Some of this will be directed through public private partnerships (PPPs). This will include using local entities like the Ghana Infrastructure Investment Fund (GIIF) – the MoF funded $250 million (targeted $1 billion) infrastructure investment fund. GIIF is an investor in the new airport terminal in Accra along with banks such as Development Bank of South Africa (DBSA). In reality, SSNIT, GIIF, and the local institutional investment base (pensions, mutual funds, insurance companies) are simply too small in terms of financial resources to meet Ghana’s national and private sector capitalization needs. The internal institutional investable assets are estimated at approximately $5 billion in combined resources (pensions, mutual funds, and insurance companies). Therefore, corporate investment partners, DFIs, MDBs, IFIs, banks, plus private sector equity/debt partners are an important solution. This foreign capital (official and private) is critical to fund gaps between the national ambitions and the limited local capital market capabilities – based on the resources of local investors. In addition, MoF has been stretched in its abilities to fund GOG operating and capital investment needs and so is allocating conservatively and trying to shore up Ghanaian tax revenue collections. This fiscal activity was emphasized by MoF officials during its World Bank meetings in 2018 and during recent bond roadshows. Investors interviewed in the context of this SOW also expressed their positive appreciation of these initiatives by GOG. These revenue initiatives need to be pursued, however in a manner that does not also hinder small and larger enterprise investment and development by business operators (internal and foreign).



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From the public sector finance side there has been a domino effect of stretched GOG budgets. SOEs such as power companies (Volta River Authority, Electricity Company Ghana, and Ghana Grid Company and several other related entities) with debt to banks have been slow to receive their payments from their customer GOG Ministries, parastatals, services, and agencies. They have consequently been slow to repay banks. This has then led to capital (real and regulatory) adequacy issues for banks that might otherwise have more capital to lend. These entities have been strapped to repay bank loans of several billion dollars, thereby forcing banks into their capital adequacy constraints (needing to reserve more capital on their balance sheets for impaired loans). This has reportedly had the added negative impact of limiting their already scarce lending capital further. This issue has been manifested by the banks’ underperforming loan exposures to SOEs like the Volta River Authority, Electricity Company Ghana, and Ghana Grid Company and several other related entities, and the issues created for Ghanaian banks. MoF and the GOG moved to ease some of this pressure on the banks by using the Energy Sector Levy Act and creating the related ESLA PLC (Special Purpose Vehicle) backed energy bonds. These bonds were essentially swapped on the banks’ books to effectively repay the banks’ energy SOE related debt. This was created to specifically assist in the resolution of debt owed to energy sector exposed banks. The bonds issued against this program in 2017 were targeting approximately $2.5 billion. The effective result was that banks were partially bailed out with a swap for newly issued debt. Despite initiatives like the Energy Bond issuance and more recent GOG debt issuances, more is needed. For example, the power sector still needs substantial new investment. According to a 2015 World Bank Report, 35% of Ghanaians do not have access to power, and those who do have to bear unpredictable blackouts, however rare. In its overtures to crowd in foreign capital, Ghana is also in a tricky spot – not unlike many emerging economies. Specifically, Ghana has attractive growth prospects but is also under fiscal constraints from its international partners like the IMF to not push more national debt onto the GOG balance sheet. This effectively limits Ghana’s official ability to take on capital from groups like the World Bank, AfDB, and other major international MDBs, IFIs, and DFIs in addition to private sector loans to stimulate growth. The grant windows and soft capital avenues become the more palatable solution to monitoring partners like the IMF. For Ghana, however, this is not enough capital. In one instance, an energy related company is interested in investing approximately $300 million into Ghana. Unlike in other markets were the governments can approach MDB, IFI, or DFI lenders to also mobilize hard currency investment, through state backed requests (for example the World Bank’s IBRD), Ghana’s is constrained. The company in question is therefore on its own to mobilize capital for investment into Ghana in vitally needed infrastructure. Therefore, in order to appeal to, and crowd-in foreign capital and risk mitigation sources, Ghana through the MoF is also trying to enhance the country’s balance sheet. This is by restructuring the maturity term structures on national debt to ease the burden of the shorter-term funding maturities on the GOG’s treasury, and to open up room for additional interim funding sources (private and official). In addition, MoF is pushing state-owned-enterprises (SOEs) to find their own sources of sustainable financing to meet their needs going forward – thus deleveraging the national balance sheet and taking pressure off the Finance Ministry and other GOG channels to provide public sector funding support. Outside of SOEs, this also applies to specific national projects as well as infrastructure.



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Ghana continues to make measured strides to facilitate mobilizing outside capital by announcing on March 4, 2018 through the Ministry of Finance, that it has committed $50 million (of which $10 million it had just funded), to its membership in the Africa Finance Corporation (AFC). This entity provides its member nations with access to capital at potentially favorable terms. AFC can do this with its capital base. It has made $3 billion in commitments to projects with $2.6 billion funded. Its members effectively benefit from AFC’s own access to good credit terms based on a strong credit rating internationally, and AFC’s guarantees. This mobilizes cheaper financing with the AFC’s participation. More initiatives and partnerships at the macro level need to be pursued to continue to drive outside investor interests and comfort regarding Ghana. The need for investment into Ghana and the GOG’s supportive policies and initiatives all represent opportunity for both Ghanaian and foreign investors and risk mitigation providers to engage in opportunities in Ghana. Quoting a GIIN-backed report, “According to the World Bank/IFC Doing Business index, Ghana has the highest scores in the West Africa region and has done well to provide a stable and enabling investment environment.” In short, Ghana has an opportunity to continue to develop as an attractive investment destination.

A. OBJECTIVE OF SOW

The main objectives of this SOW are to: identify and analyze the trends, tools, and opportunities to encourage non-Ghanaian impact and institutional investors, to invest, fund, and/or provide meaningful risk mitigation tools to facilitate capital flows into Ghana. In order to do this, and based on the time constraints on this initial SOW, we take initial steps to:

i. Identify the funding gaps in Ghana as indicated by GIPC and MoF; ii. Determine the priority groups of leading institutions in the relevant capital and risk

mitigation channels; iii. Analyze their relevant current focuses and interests as they could pertain to Ghana’s

needs; iv. Identify current encumbrances to their present involvement in Ghana; and v. Make recommendations to stimulate engagements in Ghana.

This SOW also complements prior and existing USAID FinGAP work in the areas of SMiLEs, SME, infrastructure funding, and expanding capital markets stimulation – including the 2017 Demand-Side SOW. The focus is now on identifying, analyzing, targeting, and stimulating the larger international sources who can significantly compliment anything that domestic activities can catalyze, and do so by considerable multiples. With roughly $5 billion in existence in the Ghanaian asset management context for investments (includes state backed SSNIT with $2 to $3 billion in diverse assets), this can serve as a major basis of confidence to attract international investors through the crowding-in effect. Risk mitigation tools will also help this process.

B. FINDINGS, RECOMMENDATIONS AND OBSERVATIONS Ghana has several options to meet its funding deficits due to its rich resource base (cocoa, oil, gold, timber, other) and also its economic management and political legacy that has given investors and funders comfort. Some of this is captured by the reduction in Ghana’s sovereign debt interest rate



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spreads (yields and coupons of sovereign debt) relative to its peers as discussed in the Key Findings section. This said, much more capital needs to be attracted, hence the GIPC’s stated goal of raising $10 billion in FDI in 2018 from $3.6 billion in 2017, and MoF’s attempts to push out yields on existing and new national debt. The positive findings are that Ghana remains a favorite of the international and impact investment community. As such it has options if GOG fulfills its regulatory, fiscal, and monetary policy roles to create an enabling environment for outside funders and partners. The recommendations and implementation findings of this Report are:

1. Ghana’s larger more immediate funding and risk mitigation tools will most likely come through its most active existing partners.

a. This is through DFIs (one of Ghana’s largest direct sources of foreign capital and risk mitigation tools like guarantees), MDBs such as the World Bank Group, and IFIs.

b. Currently, this has to be at the project or enterprise level and not backed by GOG’s balance sheet since Ghana has sovereign debt ceiling constraints placed by the IMF.

2. Non-Ghanaian corporate strategic investment partners (in areas like energy, mining, processing, and manufacturing) can also be a major source of support for Ghana’s economic growth capital needs.

3. Ghana should identify the appropriate financing tools and needs and match those to its own needs and repayment and support capabilities. This includes foreign private equity and debt like that coming from larger infrastructure funds and sovereign wealth funds, such as Singapore’s Sovereign Wealth Fund.

4. Ghana should create a roadmap for those who can provide such solutions as foreign partners.

5. Ghana and its institutions such as the GIPC, MoF, BoG (for FX repatriation), SEC, and GSE should continue to facilitate investor interest by identifying and creating an enabling environment and roadmap focusing on:

a. Attractive Sectors: this includes scale as some investors cannot invest in smaller transactions so larger enterprises may need to be offered for investors;

b. Investor/Ghana Acceptable Investment Structures: those with visible exits, liquidity and access to returns and FX for investors when needed;

c. Investor Friendly Ownership: for example investors were put-off by the MTN Ghana issuance’s early requirement that investment be through a Ghanaian proxy; and

d. Legal Structures and Regulations: to encourage investors.

6. Ghana also needs to be in a position to provide solutions and information for investor support mechanisms through the GIPC, GSE, and MoF that can be utilized by foreign investors to assist potential investment capital seeking to enter Ghanaian opportunities.

7. In addition, direct project investors and private debt and equity investors like infrastructure investment funds need to be advised on the windows of co-funding and guarantee sources that can be used to co-fund and de-risk Ghanaian direct investment or project exposures.



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METHODOLOGY The findings and recommendations of this report are based on analysis conducted from March 2018 to June 2018 under the current SOW and also from the 2017 Demand Side SOW discussed in the Executive Summary. During the course of 2017 and 2018, an advisor to USAID FinGAP engaged with local capital markets, bankers, institutional investors and business representatives in Ghana to understand their investment and financing needs. This was connected to similar in-country dialogues and meetings with GOG ministries/agencies (MoF, GIPC, NPRA, NIC, SEC among others) and also with industry bodies like the GSE. The goal was to build both an understanding of the needs and bottlenecks in expanding Ghana’s capital markets activities, and then to recommend solutions to match capital and risk mitigation tools with issuers and users of capital. In the context of this current SOW, the same consultant has then also utilized a similar approach with a focus on engagement with both GOG level, and also non-Ghanaian institutional capital/investors and risk mitigation sources (commercial, DFI, MDB, impact, and others). In order to achieve the analytical objectives of the SOW, the consultant conducted face-to-face meetings and calls with: Impact and non-impact investors, private sector institutional investors (banks, export import banks, pension funds, private debt/equity) in Africa, Europe, and US. He also engaged with risk mitigation sources such as the AfDB, OPIC and others, as well as major DFIs to get a sense of their breadth of potential avenues to engage in Ghana. All these entities invest/fund directly into companies, funds, sovereign securities, or other projects, as well as in direct social or strategic interventions. They also provide risk mitigation tools. The bottom line is that the impression of Ghana as a destination for capital and deployment of other tools (such as guarantees), remains positive and constructive – meaning all parties are interested in doing more in Ghana if possible.

A. SAMPLE QUESTIONS AND RESPONSES

Below is an example of the questions asked and responses to gauge investor attitudes toward involvement in Ghana. The investors were all told that their responses would be held as anonymous. This means that their interests in Ghana can be fairly broad in terms of what they can do as investors. The assortment of investors and institutions surveyed range from pensions with hundreds of billions of dollars in assets including commodity exposures to Ghana as elsewhere, private debt and equity firms (impact and purely commercial), DFIs, MDBs, IFI, banks, family office related larger funds, and strategic industrial investors. The responses below are an example of common comments. What is also discernable in respondents is that those with more representation in Ghana have less concerns about “corruption” or investment management risks. This is because they have established either first hand presence or have appropriate legal or other local representatives. (The respondent below is a broader emerging markets impact investor based in Europe. They have assets valued at approximately $750 million and are active in Africa. They also have capital in their several funds from DFIs and institutional and high net worth investors. This means that their interests in Ghana can be fairly broad in terms of what they can do as investors). The questions and responses follow:



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Table 3: Sample Questions and Responses - Emerging Market Impact Investor

# Question Response 1 Are you investing in or could you invest in Ghanaian sectors

below and what size commitment ($ min/max)?

a) Agribusiness/Processing, Yes – $500k - $15m

b) Commodities, Yes – $500k - $15m c) Energy (Oil and Gas, LPG), No d) Financial Institutions, Yes – $500k -

$30m e) Healthcare, Yes – $500k - $10m f) ICT, (Did you participate in the MTN

IPO?) g) Infrastructure, No h) Lodging, Yes – $500k - $10m i) Logistics (Transportation), Yes –

$500k - $10m j) Manufacturing, Yes – $500k - $10m k) Mining, No l) Power – Generation, Distribution, No m) Real Estate, Yes – $500k - $10m n) Renewables, No o) Sanitation, No p) SMEs, Yes – $500k - $10m q) Sovereign or State Securities, Yes –

$500k - $15m 2 What would be other sectors of interest? N/A 3 What types of instruments? Public/Private Debt/Equity, Trade Finance 4 If Guarantees – like AfDB, IFC or OPIC could be added to

investments, could you increase size and expand sectors? Yes

5 In the Agribusiness, what would it take to unlock investment to the sector compared to in other countries for which you have invested in agribusiness?

N/A

6 What are your 5 biggest concerns you would like to have addressed through both policy or market mechanisms to facilitate you investing more or initiating investment into Ghana?

1. Transparency, reliability, predictability of the country’s judicial system

2. Ghanaian banking sector not mature enough. BOG’s effort to consolidate the sector is commendable but they need to employ more stringent measures/oversight on the banks.

3. Immature capital market / illiquidity of equity

4. FX shortages and Currency fluctuations 7 How would you compare your preference to investing in Ghana

compared to: Nigeria, Kenya, or South Africa as some benchmark SSA economies?

Neutral. We are more bottom-up so we focus more on the company, business model, deal/legal structure

8 How would you make Ghana more investor friendly?

1. As investors we need to be comforted that we know that our interests are protected in the eyes of the law, policies are put in place that allow us to focus on supporting local businesses

2. Lack Communications/Investor relations with Foreign Investors

3. Well-balanced approach to foreign investment include avoiding negative



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# Question Response aspects of intraregional competition

4. Improvement in Private Equity Infrastructure

5. Reduce complexity and cost of regulatory process

KEY FINDINGS

A. SUMMARY FINDINGS

a. Ghana is not unique in its requirement for capital needs. According to the World Bank’s estimates, there is an annual $100 billion deficit in Africa infrastructure spending alone, before even considering other domains.

b. Ghana is well positioned to continue to attract a range of impact and non-impact

capital and other foreign interventions to support the GOG and private sectors objectives and needs. Ghana’s success in tapping the capital markets demonstrates this.

Figure 1: Sampling of Meaningful Potential Ghana Capitalization Sources



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c. The chart below was extracted from Ghana’s MoF Roadshow for investors captures Ghana’s improved sentiment among investors as captured in the reduction in its relative cost of debt as compared to an index of its peers’ debt (sovereign). Some of this reduction represents the results of GOG’s fiscal and other macro initiatives.

Figure 2: Ghana Credit vs. Other SSA & Emerging Markets

d. Ghana’s sectors match up well to the largest sources of capital in the international and impact investment spaces. These are the DFIs. This is discussed in the “Analysis of Funding and Risk Mitigation Sources” section below.

e. DFIs offer a range of tools and capital options that can accommodate Ghanaian

constraints on the national budget’s ability to assume more debt in order to fund domestic growth needs (both private and public sector-wise).

f. DFIs and impact investors of size can enable Ghanaian entities to lower their costs

of funding by utilizing risk mitigation tools discussed later in this Report. Some examples would be tools from the AfDB, IFC, FMO, OPIC, or MIGA. These do require in some cases, an “official” GOG-sponsored approach to such partners.



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g. Investors are interested in doing business in Ghana if the right types of transactions,

regulatory, business, and fiscal frameworks are in place.

h. Ghanaian institutions like MoF and GIPC are doing an initially good job engaging investors but they need to spread the breadth of engagements with international investors – conferences in Ghana and in the Americas, Asia, Europe, and the Middle East.

i. This will include more proactive investor relations activities but also institutional

(corporate and governmental agency) education on what investors and risk mitigation sources need to make their investment activities and approaches more positive.



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ANALYSIS OF GOG’s POLICIES

A. BACKDROP The following is a synopsis of the realities in the Ghanaian funding deficit arena and its initiatives. Figure 3: Ghana Funding Arena and Initiatives

B. THE GOVERNMENT OF GHANA’S POLICY FOCUS

Since 2010, Ghana has embarked on a transformation agenda geared towards enhancing economic growth through policy frameworks focused on key sectors of the economy. These policy initiatives include the following: Ghana Shared Growth and Development Agenda (GSGDA) I (2010 – 2013); Ghana Shared Growth and Development Agenda II (2014 – 2017); and The Coordinated Programme of Economic and Social Development Policies (2017-2024)

The GSGDA sought to lay the foundation for the structural transformation of the economy within the decade ending 2020 through industrialization, especially manufacturing, based on modernized agriculture. The average real GDP growth target for the medium-term, including the 2018 fiscal year, is expected to be 6.5% and is based on the following assumptions:

1. Projected continued growth in the upstream petroleum sector; 2. Projected growth in agriculture, particularly crops; 3. Projected increase in manufacturing and construction activities, sustained by a stable

electricity supply; and 4. Projected growth in the services sector.



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C. IMPORTANT GOG ACTIVITIES TO INSTITUTIONALIZE ITS INVESTOR POLICY FOCUS

Foreign investors first participated in a special five-year government bond auction in December 2006, followed by quarterly three-year bond auctions and a second five-year bond auction in July 2007. In August 2013, the government introduced its seven-year bond as part of its efforts to shift out the maturities of yield curves and to create more financing flexibility for issuers. In addition, the range of securities created by the shift to a longer maturity structure and the resulting benchmark yield curve is expected to ultimately foster the development of a domestic corporate and municipal bond market where corporations, MDAs, and state-owned and quasi-state-owned institutions are able to issue their own debt instruments at spreads above the domestic risk-free rate. In order to further mobilize foreign investment, the Government of Ghana in 2013 passed the Ghana Investment Promotion Centre Act (Act 865) to provide for the Ghana Investment Promotion Center (“GIPC”) as the agency responsible for the encouragement and promotion of investments in Ghana. In addition to GIPC, MoF and BoG have initiated well documented exercises including: 1) MoF sponsored GIIF (to co-invest in infrastructure with foreign investors/partners like DFIs); 2) the MoF sponsored Venture Capital Fund to demonstrate GOG’s confidence in the private sector and attract foreign partners; 3) maturity extensions by recapitalizations of the GOG balance sheet by issuing more longer dated paper and retiring shorter term maturities, thereby extending the range of yields and maturities an institutional investor can consider; 4) MoF multiple bond issuances into the international capital markets to familiarize foreign capital with Ghana and attract foreign institutional investment (for example Franklin Templeton bought reportedly approximately over 90% of the approximately $2 billion Fall 2017 GOG bond issuance); 5) active international roadshows in foreign markets; and 6) important monetary and fiscal policies to attract capital into Ghana. Some policies include:

1. No restrictions or limitations on direct investments, repatriation of capital, dividends, capital gains or profits.

2. No restrictions on outward direct investments. Banks are, however, required to submit reports to the BoG.

Some indications of the impact of these activities include:

1. Increased FDI. 2. Total estimated cost of registered projects with the GIPC, was $3.61 billion in 2017. This

amount represents an increase compared to 2016 and 2015, in which registered FDI totalled $2.24 billion and $2.33 billion, respectively.

3. The government attributes the recent increase in FDI primarily to improved economic conditions as well as proactive investment promotion strategies.



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ANALYSIS OF FUNDING AND RISK MITIGATION SOURCES

A. GHANA’S FOREIGN CAPITAL INFLOWS

Our analysis has sought to identify the critical areas of investment needed in Ghana (as articulated by GOG, GIPC and MoF), and to access the availability and focus of potential foreign capital sources and risk mitigation tools. We have focused on investment in general via capital markets instruments like bonds and equity and direct enterprise or project level investment. Ultimately, these areas can serve as the conduits for much needed investment flows into Ghana. We have done this with an awareness of the importance of areas like national infrastructure, services, and private sector needs. The following table shows a breakdown of the sectors of investment that receive funds from FDI sources. The task for GOG representatives and capital markets professionals in Ghana is to attract capital into priority sectors. The tables below exclude investments in minerals and petroleum sectors which were $549.5 million (minerals) and $493.9 million (petroleum) in 2017, as reported by the Minerals and Petroleum Commissions. Table 4: Overview of FDI Capital Inflows into Ghanaian Sectors

FOREIGN INVESTOR PARTICIPATION IN GHANA – DOMESTIC DEBT MARKET AND EXTERNAL PUBLIC DEBT As a reference point, the vast majority of Ghana’s financing historically has been provided by grants and concessionary loans from multilateral organizations and development partners. GOG is now keen to diversify these sources as the national debt ceiling restricts the flexibility for GOG to back or take on more debt and thereby be an internal provider of capital. Currently, multilateral creditors comprise a significant proportion of Ghana’s external debt at $6.44 billion, representing 37.5%. of Ghana’s total external debt as at the end of 2017. Of these:



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World Bank Group’s IDA is the largest creditor, holding 60.9% and 22.9% of Ghana’s total multilateral creditor debt and total external debt as at the end of 2017, respectively.

The African Development Bank Group has become an increasingly important creditor in recent years, with their share of multilateral creditor debt increasing from 5.8% as at the end of 2013 to 18.6% as at the end of 2017.

The other major component of Ghana’s external debt is held by commercial creditors, with $6.28 billion outstanding, representing 36.6% of Ghana’s total external debt as at the end of 2017.

Of note is that the majority of the recent increase in Ghana’s external debt has been financed from commercial creditors, with the increase in debt owed to commercial creditors between 2013 and 2017 representing 55.6% of the increase in total external debt across the same period.

At $3.68 billion, debt issued on the international capital markets comprises the majority of Ghana’s commercial creditor debt as at the end of 2017, and it has become an increasingly important source of financing for Ghana in recent years, accounting for 58.6% of commercial creditor debt as of the end of 2017 compared to 45.6% in 2013. This recent increase includes Ghana’s more recent $750 million 9.25% Amortizing Notes due 2022, issued in September 2016.

In short, Ghana has tapped a range of funding sources to meet its capitalization needs. Importantly with GOG being restricted on what it can issue itself based on debt ceilings imposed by the IMF, Ghana must continue to depend on attracting a diverse range of capital. See Annex 4 for more detailed charts and analysis.

B. UNDERSTANDING THE INTEREST AND NEEDS OF CAPITAL AND RISK MITIGATION SOURCES

Ghanaian-based initiatives (private and public sector projects and enterprises) should continue to be able to access the select pools of capital in Table 5 below. The parties below constitute a major subset of the sources of blended and concessional finance that can fund Ghana’s capital needs, and also provide risk mitigation tools. Ghana should continue to position its investor and industrial-related policies and resources (such as GIPC data) to accommodate the strengths and interests of these MDBs, IFIs, and DFI sources. This means becoming well versed in the various funding windows (programs) and risk tools of these groups and also working to position the value proposition to appeal to the right themes and funding windows of the parties below. The approach recommended is to correctly identify the themes and structures appropriate for these funders, access their resources, and blend these resources together. This can lower capital costs and improve liability maturity management – two major objectives of the MoF.



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Below is a representation of the resources of selected MDBs, IFIs, and DFIs active in Africa. Table 5: Selected MDBs, IFIs and DFIs Active in Africa

In approaching DFIs, MDBs, IFIs, impact and commercial sources of investment, Ghanaian parties should be aware of the mix of instruments available, the pricing, terms, and the conditions to access. Figure 4 captures the range blended capital (private, public, and impact) available. The X axis shows the types of parties and the entities that can approach these providers. For example, in the context of Ghana, it could be argued that given debt ceiling constraints, any options requiring GOG institutional backing will be more difficult. This means that local entities or enterprises wanting to access foreign financing have to deal directly with the points of access on the chart which accept non-government clients or partners. This also means that the cost of capital rises as the entities move to the right on the X axis.



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Figure 4: Types & Sources of Blended and Impact Financing

Ghana’s most recent $2 billion amortizing notes were issued to yield 7.625% and 8.627% for investors. Using Figure 4 in the “Capital Markets” area of the X axis, this suggests that Ghana’s bond yield was priced on the lower side, reflecting high investor interest.



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Figure 5 further captures the range of expected returns from investors in Ghanaian private and public sector. Figure 5: Blended and Impact Financing vs. Enterprise Life Cycles/Risks



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C. TARGETING RISK MITIGATION SOURCES TO ENHANCE INVESTMENT

FLOWS

DFIs, IFIs, MDBs, private companies, and others provide the risk mitigation tools profiled below. Risk mitigation tools include guarantees, insurance, and other credit enhancements that

are often used in combination with impact or related funding to strengthen the credit worthiness of a funding recipient.

Many providers of capital also provide risk mitigation tools which offer Ghana focused investors with the right combinations of blended funding and risk mitigation. These would include groups like: AfDB, CDC, FMO, OPIC, and the World Bank Group through the IBRD, IFC, and MIGA.

In the case of OPIC, capital markets protections can also be arranged if US investors and business investors are targeted for an investment in a foreign market like Ghana. This includes risk products that also enhance investor positions by guaranteeing 144A bond placements which can be quite large and attract global pensions, insurance, and other investors.



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GHANA’S RISK MITIGATION APPROACHES: SAMPLE OF SOURCES, INSTRUMENTS, RISKS PROFILE

Figure 6: Potential Providers and Types of Risk Mitigation Products

Source: Self-reported institutional data analyzed by USAID FinGAP Consultant



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Table 6: Key Characteristics of OIPC & European DFIs

The information in Table 6 suggests that in terms of DFIs, export-import bank financing of FDI into Ghana, and other trade finance, countries that have been investors into Ghana can utilize guarantees from their national institutions like DFIs and trade finance entities. Likewise, guarantees can also be obtained to encourage foreign investment and lower capital costs. The table below shows that DFIs use a range of investment instruments and guarantees. In addition, some tie their funding to their nationals having an interest in the enterprises being funded or guaranteed (OPIC for example) while others like FMO or CDC do not.



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D. TARGETING DIRECT INVESTMENT FLOWS (IMPACT AND NON-IMPACT)

FOREIGN DIRECT INVESTMENT According to UNCTAD and the World Bank, FDI remains the largest external source of finance for developing economies. It makes up 39% of total incoming finance in developing economies as a group, but less than a quarter in the Least Developed Countries, with a slightly declining trend since 2012. In addition, FDI has been the most stable component of the balance of payments over the past 15 years, and the most resilient to economic and financial crises. For Ghana specifically, FDI represents a key focal point for GOG and its agencies like MoF and GIPC. GIPC is targeting $10 billion in new FDI for 2018 alone. To put this in perspective, MoF and GIPC estimate that railroad investment for Ghana alone could costs between $6 billion to $7 billion. In short $10 billion is a portion of what Ghana needs to meet its infrastructure needs. This is why GOG and its partners must continue to innovate on attracting capital and risk mitigation sources to Ghana. Figure 7: FDI inflows, global and by group of economies 2005 – 2017 (Billions of dollars and per cent)

Ultimately, the intent of GOG is to attract crucial capital into the economy as a whole, for infrastructure, social services, and industry. As such, its strategies are and should continue to focus on the breadth of capital that can flow into the country to effect the increased investment capital flows desired.



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Figure 8: Global Capital Flows, 2002−2017 (Per cent of GDP)

Source: UNCTAD, based on IMF World Economic Outlook database. Includes only the 115 countries for which the breakdown of portfolio flows into debt and equity is available.



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SOURCES OF MAJOR INSTITUTIONAL CAPITAL

A. FOREIGN CAPITAL MOBILIZATION According to the GIIN data in Figure 9 surveying 158 major impact investors, Sub-Sahara Africa (SSA) is the major destination for impact capital. In addition, key economic sectors like agribusiness, energy, and infrastructure are shown below to be targeted as destinations from the surveyed investors. Of the impact capital, DFIs, MDBs, and IFIs constitute a major percentage of the direct investment. They have resources of well over $200 billion plus a range of risk mitigation and guarantee tools to enhance the costs and access to funding for their targeted partners. Below is a graphic representation of the GIIN 2017 Impact Investment Survey. The key is that this highlights SSA and sectors and demonstrates that Ghana is in the target spot for receiving impact capital flows. In addition, impact capital flows are $17.7 billion and therefore can be meaningful for Ghana. Figure 9: Capital to Impact Investment vs. Impact Investment by Region

B. FOCUS OF MAJOR IMPACT CAPITAL FLOWS INDICATIVE SECTOR ALLOCATIONS BY REGIONS Given the importance of impact investment capital for countries like Ghana, it is worth taking a closer look at the characteristics of such investments. Regionally (Africa, Asia, and Latin America),



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impact investors were broken down as: 10% SSA, 9% LAC, 5% S. Asia, 4% E. Asia, and 3% SE. Asia. Figure 10: Impact Investment Allocations by Regions

The trends in sector exposures are broad but the key is that in the areas of Ghana’s economic activities, sectors like food and agriculture, infrastructure, microfinance, financial services, healthcare, manufacturing, energy, ICT among others, are all active. In addition, there is still considerable room for more capital involvement. Figure 11: Indicative Sector Allocations by Regions



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INDICATIVE IMPACT INVESTOR TARGET RETURNS The target financial returns of the surveyed impact investors were broken down as: A) 66% Risk-adjusted market-rate returns, B) 18% Below-market rate returns – closer to market rate, and C) 16% Below-market rate returns – closer to capital preservation. This is captured in Figure 12. Figure 12: Breakdown of Target Financial Returns

Source: The GIIN These returns are spread across a number of instruments, though many of the impact only investment vehicles are focused in unsecured debt or private equity, which demands higher returns.



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Figure 13: Capital Sources, Instruments, Risks and Return Profiles



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ANALYSIS OF FOREIGN CAPITAL FLOWS TO GHANA

Specifically, in terms of FDI into the ECOWAS region (as of a 2015 GIIN survey), Ghana accounted for 20% of the total, or $3.2 billion, as of the GIIN survey report. According to GIIN and other sources, there are approximately 33 impact investors reportedly active in Ghana including 8 DFIs. There is room to increase this level of engagement with the correct GOG sponsored outreach and also the creation of investable opportunities and investor supportive policies. Tables 7 and 8 are from the GIPC’s recent Quarterly Investment Report (Volume 13, June 2018). It captures the movement in capital inflows into Ghana. Table 7: Comparative Full Year FDI Inflows (2016 vs. 2017)

Table 8: Comparative Quarterly FDI Inflows (Q4 2016 vs. Q4 2017)



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Both the total investment by sector and FDI by sector do not include oil and gas and minerals. These are reported by the Minerals Commission and the Petroleum Commission.

2017 FDI figures as highlighted in GIPC 2017 Q4 newsletter Minerals Commission – $ 549.54 million Petroleum Commission – $ 493.86 million



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CASE STUDIES OF RECENT CAPITAL MOBILIZATION INTO GHANA The following cases demonstrate the breadth of activities taking place in Ghana to mobilize investment into the country. The quantum in these four cases alone represents close to $1 billion. Ghana’s effective efforts to attract foreign investment is also shown by this activity. It should be noted that the MTN listing was meant for Ghanaian investors, but that foreign investors could partner with local capital to invest, according to bankers and foreign funds interviewed for this Report. Some noteworthy points are that:

1) This is primarily via the utilization of non-GOG obligations; 2) The sectors and areas of investment inflows cover a range from public initiatives to private

sector; 3) Some of the investment is linked to national objectives and initiatives like One District One

Factory - CNBM $400 million credit facility; and 4) The breadth of investment approach ranges from listed instruments to private direct

investment. From the Ghanaian perspective, more of this type of capital is being targeted for 2018 according to GIPC and MoF. GIPC alone is targeting $10 billion for 2018 with MoF targeting approximately $20 billion over the next for years and $40 billion within the next six years. QUANTUM TERMINALS LISTS GH¢45M BOND ON GHANA FIXED INCOME MARKET Quantum Terminals, a logistics company, was constructing three storage facilities, including for liquefied petroleum gas (LPG) storage across the country, at an estimated cost of $148 million to better serve the clients of the company. In May 2018, the company formally listed GH¢45 million worth of 10-year corporate bonds on the Ghana Fixed Income Market, becoming the first non-financial institution to issue a corporate bond on the Market. The capital would help the company to construct new storage terminals across the country. The bond has a 75% partial credit guarantee from GuarantCo., a company established to mobilize local currency investment for infrastructure projects and support the development of financial markets in low income countries, for the benefit of pension fund investors that have subscribed to the issue. African Alliance Securities Ghana Limited is the sponsor of Quantum Terminals Plc’s GH¢140 million Medium Term Note Program. The listing is the first tranche of a GH¢140 million bond program by the company. SIEMENS TO INVEST $200 MILLION IN GHANA'S ENERGY SECTOR In April 2018, during the Ghana Industrial Customer workshop organized by Siemens in Accra, Executive Vice President for Siemens Power and Gas Africa noted that the company is committed to assisting Ghana in meeting its energy needs. To this end the company was committed to investing over $200 million in Ghana’s energy sector. The investment will see the establishment of a



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combined cycle power plant with a capacity of 660 Megawatt thermal plant aimed at boosting the distribution of power in the country. Already, the company has 330 megawatts of installed capacity added to the national grid and was working with Rotan Energy to develop “efficient and environmentally friendly” 260 megawatts of thermal power.

CHINA NATIONAL BUILDING MATERIAL (CNBM) CORPORATION $400 MILLION CREDIT FACILITY In May 2018, Ghana’s Minister of Trade, Mr. Alan Kyeremanten, signed a $400 million turnkey financing facility with the China National Building Material (CNBM) Corporation for 22 enterprise projects under the One District One Factory Program. The agreement enables the start of projects for the processing of industrial starch, vegetable oil, garments, and alcohol. The projects are expected to create over 30,000 direct and indirect jobs across the country. As part of the arrangements, the CNBM will supply equipment and machinery to the business promoters, while the local financial institutions, comprising National Investment Bank (NIB), Universal Merchant Bank (UMB), the Agricultural Development Bank (ADB) and Barclays Bank, will facilitate the disbursement of the facility to investors. The funding for 10 of the 22 projects would be facilitated by the CNBM and Chinese financial institutions, while the remaining 12 would be joint ventures between metropolitan, municipal, and district assemblies (MMDAs) and the business promoters. MTN INITIAL PUBLIC OFFERING In November 2015, MTN Ghana successfully bid for the License from the NCA, which took effect from 21 June 2016 and is valid for a renewable period of 15 years. The License was awarded on condition that MTN Ghana achieve 35% Ghanaian ownership by 30 June 2018 provided that the Listing of the MTN Ghana Shares on the GSE would satisfy this condition. MTN Ghana in May 2018 has made a public offering of up to 35% of its equity (4,637,394,533 ordinary shares of MTN Ghana) through an Initial Public Offering. The Offer Shares will be acquired through an issuance of up to 2,489,698,667 new ordinary shares of MTN Ghana and a sale by the selling shareholder (Investcom Consortium) of up to 2,147,695,867 issued shares in MTN Ghana. The offer is expected to raise a total of GHS 3,478,045,900 through the issue and sale of the Offer Shares. The proceeds shall be utilized as follows: Table 9: MTN Proceeds Utilization

Expected Use of Funds Amount in GHS

Payment to the selling shareholder for the sale shares

1,563,968,324

Payment of dividends to the existing shareholders 1,826,899,697 Transaction Costs 87,177,879 - Costs to be borne by selling shareholder 46,803,576 - Cost to be borne by MTN Ghana 40,374,303 Total Consideration 3,478,045,900



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The minimum aggregate amount to be raised for the offer to be declared successful and implemented is GHS 347,804,590. If MTN Ghana only raises the minimum amount under the offer, then MTN Ghana shall utilize the amount raised as follows: Table 10: Minimum Aggregate Amount Proceeds Utilization

Expected Use of Funds Amount in GHS

Payment of dividends to the existing shareholders 293,912,559

Transaction Costs 53,892,031 Total Consideration 347,804,590



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CONCLUSIONS Through direct dialogues, meetings, and research with major providers of potential capital and risk mitigation solutions, it is agreed that Ghana is well positioned to attract a range of external capital sources to meet the national aspirations of public sector and private sector growth. The analysis is also based on similar metrics from speaking with businesses that are planning activities in Ghana such as a major energy entity backed by the European Union and DFIs. These groups all constitute major sources for both private sector and quasi-public sector flows into Ghana.

According to the GIIN, Ghana attracts approximately 20% of the FDI going into the ECOWAS region, which is indicative of how investors generally view Ghana. Quoting a GIIN backed report, “According to the World Bank / IFC Doing Business index, Ghana has the highest scores in the West Africa region and has done well to provide a stable and enabling investment environment. In short, Ghana has an opportunity to continue to develop as an attractive investment destination. This is partially because Ghana has a comparative advantage of offering investors stability (political and economic); a well-educated population that continues to grow as a consumer base (thereby establishing the growing demand for goods and services); Ghana has a good breadth of policy makers who generally understand or are willing to explore the needs of foreign capital partners (policy, regulatory, and financial infrastructure and institutions); and Ghana can offer a large breadth of sectors and projects into which investors can put sizable capital to work. In short, there is an opportunity to creatively mobilize meaningful capital into the private and public sectors through blended capital sources (DFIs, private debt and equity, sovereign wealth capital, commercial banks, and other sources). This quantum of capital easily approximates over $200 billion of approachable sources. Based on non-Ghanaian pension managers (US and European), insurance companies, private debt/equity, and other institutional investors interviewed, there is an existing appetite to diversify investments, but Ghana will need to offer scalable and transparent avenues to these investors – perhaps scale through state-owned enterprise (SOE) privatizations. For example, pension funds like the Dutch APG and PGGM stated in interviews that they cannot typically invest in opportunities less than $50 million. This has been one of their restrictions in entering into markets like Ghana although they know of Ghana from their commodities exposures in their portfolios. This makes them good candidates for more likely, larger investments in sectors like energy projects, minerals, and possibly attractive SOEs that might be able to offer predictable fixed income-type investments. To appeal to foreign capital sources, issuers and advisors will need to get creative. Some of this is happening with issuances like the PBC shelf issuance for close to $100 million and the $2.5 billion ESLA Energy Bond structure. These structures offer investors added back stops like forward purchasing agreements in the case of PBC and its customer Ghana Cocoa Board, or in the case of the Energy Bond, the repayments being guaranteed by the Ghanaian Energy Sector Levy. The evolving regulatory environment is becoming more favorable for debt and equity issuances, and GPIC and MoF should continue to engage with international investors via roadshows to provide investors with both comfort and also enable the regulatory and policy regimes to continue to be more investor friendly. The Ghanaian institutional investors have approximately $5 billion in assets to invest. If investors



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like GIIF or SSNIT put money into opportunities as lead investors, they can effectively provide comfort to foreign funders or investors to themselves get more involved. If structured correctly, this pool can lead foreign investment into Ghana and create a multiplier impact, effectively catalyzing the needed foreign investment into Ghana.

RECOMMENDATIONS Below are areas that GOG and enterprise sponsors should explore possibly with outside advisors, to get more perspective on international standards: 1. Ghana should prioritize and create a roadmap for foreign partners who can provide large scale

capital and risk mitigation solutions. Part of this could be through increasing the fiscal and investment incentives (tax holidays, hard currency access, reasonable competitive protections, incentives to set up investment offices in Ghana, etc.), that encourage certain levels of higher investment relative to smaller capital commitments. This will enable investors to see more visibility on returns on larger investments.

2. Ghana should continue holding investment promotion roadshows, creating investment opportunities and structures that larger investors as well as smaller foreign investors can participate, and identifying risk mitigation solutions that investors and strategic partners can utilize to take more active investment roles in Ghana. This can be facilitated by key stakeholders including: GIPC, MoF, BoG, SEC, GSE and bankers and advisors by identifying and creating an enabling environment and roadmap focusing on:

a. Attractive Sectors, including consideration of scale as some investors cannot invest in smaller transactions so larger enterprises may need to be offered for investors, such a privatized SOEs or larger project exposures for foreigners in sectors otherwise heavily reserved for Ghanaian only ownership – some energy related and retail for example;

b. Investor/Ghana acceptable investment structures, for example those with visible exits, liquidity and access to returns and FX for investors when needed;

c. Investor friendly ownership, for example investors were put off by the MTN Ghana issuance’s early requirement that investment be through a Ghanaian proxy; and

d. Legal structures and regulations to encourage investors. Advisors might also be registered and identified by GOG and GIPC in these areas. For example, companies and investors will oftentimes reach out to their Embassy Economic Attachés to gauge advisors’ and local partners’ credibility and desirability.

3. The backers of Ghanaian entities seeking funding need to decide how they can be best

positioned to access the resources (capital and risk mitigation tools) of: DFIs, MDBs, IFIs, impact and commercial sources of investment. In some instances (OPIC as an example) this will be enhanced by satisfying the non-Ghanaian ownership or tie-in requirements. This could be by having foreign nationals’ interests (ownership), partners, content (equipment or employees), or managerial involvement for the projects or businesses tied into the receiving Ghanaian entity.



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4. GOG may also have to consider in how to liberalize requirements for 100% Ghanaian ownership in certain sectors such as areas of retail and energy.

5. GOG should continue to focus on other policies and strategies that can encourage capital flows

into the country to effect the increased investment desired. These can include but are not limited to:

a. Reviewing policies such as the current minimum capital requirement of foreign

investment vis-à-vis the West African sub-region and or sub-Saharan Africa in general to determine whether Ghana is on the high end or otherwise. This has been a complaint by some would-be investors;

b. Providing solutions and information for investor support mechanisms through the GIPC, GSE, and MoF that can be utilized by foreign investors;

c. Providing advice to direct project investors and private debt and equity investors like infrastructure investment funds on the windows of co-funding and guarantee sources that can be used to co-fund and de-risk Ghanaian direct investment or project exposures.

6. There should be increased sensitization and education both within institutions of state, and at a

national business level sponsored by GOG, GIPC, GSE, MoF, and BoG to Ghanaian parties on the mix of instruments available, the pricing, the terms and conditions to access from DFIs, MDBs, IFIs, impact and commercial sources of investment. For example, in the context of Ghana currently, it could be argued that given debt ceiling constraints, any options requiring GOG institutional backing will be difficult. This means that local entities or enterprises wanting to access foreign financing have to deal directly with the entities which accept non-government clients or partners.

7. Lastly, GOG Ministries and agencies across disciplines, through mutual sponsorship and

cooperation with selected entities and programs such as USAID FinGAP (which sponsored 2017 workshops and activities with GIPC and MoF among others), and other outside advisors, should seek to carry out initiatives as described above to proactively reach needed foreign capital and other resource providers.



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ANNEX 1 – USING THE IFC AND PARTNERS TO MOBILIZE LARGE SCALE CAPITAL FOR GHANA Illustrative Analysis into Potential Partners: The following information discusses ways in which Ghanaian entities can engage with DFIs and other sources to access a range of financing and risk mitigation resources. The IFC example below demonstrates the access that any individual major DFI member of the MCA, can trigger for Ghanaian entities to reach broader funding and risk mitigation tools for Ghana.



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ANNEX 2 – GIPC SELECTED SLIDES Below is the cover of the GIPC Quarterly Investment Report reviewed for this assignment available for cross reference at: http://www.gipcghana.com/press-and-media/downloads/reports/24-q4-2017-gipc-quarterly-investment-report/file.html

http://www.gipcghana.com/press-and-media/downloads/reports/24-q4-2017-gipc-quarterly-investment-report/file.html

http://www.gipcghana.com/press-and-media/downloads/reports/24-q4-2017-gipc-quarterly-investment-report/file.html



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ANNEX 3 – MOF SLIDES Below is the cover of the Ministry of Finance report slide reviewed for this assignment available for cross reference at: https://www.mofep.gov.gh/sites/default/files/basic-page/Investor-Call-Presentation-2018-Q1_.pdf

https://www.mofep.gov.gh/sites/default/files/basic-page/Investor-Call-Presentation-2018-Q1_.pdf

https://www.mofep.gov.gh/sites/default/files/basic-page/Investor-Call-Presentation-2018-Q1_.pdf



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ANNEX 4 – DETAILED DATA AND ANALYSIS OF CAPITAL FLOWS Below is more detailed discussion of capital flows into Ghana. The tables and information are from the GIPC, MoF data, and USAID FinGAP consultant analysis and representation. FOREIGN CAPITAL INFLOW - Total Investment (FDI and Other) According to an analysis in the 2018 World Investment Report, modern industrial policies are a key driver of investment policy trends. In fact, more than 80% of investment policy measures recorded since 2010 are directed at the industrial system (manufacturing, complementary services and industrial infrastructure), and about half of these clearly serve an industrial policy purpose. Most are cross-industry; about 10% target specific manufacturing industries. This is important for GIPC, MoF, and GOG to keep in mind as they formulate their efforts to build inflows. In reality, this is exactly the path GIPC and MOF are pursuing – namely marrying policy initiatives that invite both business expansion and investment in Ghana. The same approach should be pursued to make SOEs and infrastructure project finance attractive to potential foreign sponsors. Without drawing too tight of a correlation, the key Ghanaian sectors drawing foreign investment capital over the years (not necessarily ranked by prioritization) have been: agriculture, manufacturing, building & construction, export trade, tourism, general trade, liaison and service. In line with GOG’s policy of transforming the economy through industrialization, especially manufacturing, our analysis notes a significant focus of investment on manufacturing, which has increased by $2.44 billion in 2017. These trends are captured in the linked charts below. Figure 14: Ghana Total Investment by Sector

2013

2014

2015

2016

2017

Ghana Total Investment by Sector

Manufacturing Liaison

Service Tourism

Building and Construction Export Trade

Agriculture General Trade



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Source: Ghana Investment Promotion Centre According to an analysis of GIPC data, the key sector of foreign direct investment has primarily been in manufacturing. The sector recorded a significant increase in FDI inflow of $2.37 billion in 2017, highlighting GOG’s gains of achieving a key strategic goal in manufacturing development from the GSGDA II policy. Agriculture also recorded a marginal increase of 4% from $6.67 million to $6.71 million in the same period. Figure 15: Ghana FDI Trend by Sector

Source: Ghana Investment Promotion Centre

2013

2014

2015

2016

2017

Ghana FDI Trend by Sector

Manufacturing Liaison Service

Tourism Building and Construction Export Trade

Agriculture General Trade



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CAPITAL INFLOW IN SUB-SAHARAN AFRICA Sub-Saharan Africa has seen a decline in FDI in 2017 from $39.4 billion to $28.5 billion, however within the same period Ghana in particular has recorded a 61% increase in FDI inflow from $2.24 billion to US $3.6 billion. Figure 16: Sub-Saharan Capital Inflow Trend

Source: UNCTAD 2018 World Investment Report – Investment and New Industrial Policies

2013 2014 2015 2016 2017

Sub-Saharan Capital Inflow Trend - 2013 - 2017($ million)

Ghana Nigeria West Africa Sub-Saharan Africa



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FOREIGN INVESTOR PARTICIPATION The following table shows a breakdown of registered Foreign Direct Investment (FDI) by country of origin for the periods indicated: Table 11: Registered FDI by Country (2015-2017)

The mix of foreign investor participation has varied over the years, however the role of China has been constant. As with China, many of the countries investing in Ghana have national or regional trade finance and guarantee institutions. Some of this is tied to their own DFIs’ and corporations’ activities, while other funding is from arms-length commercial and other impact investment or official sources. According to Global Impact Investing Network, DFIs are the major source of impact and direct investment capital into African countries. This is also the case for Ghana.

identifying commercial capital and risk mitigation …

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