The Year Ahead
We expect last year’s progress to continue in 2024 as improved economic conditions lead to more vibrancy in the financial sector. In the face of decelerating global growth, lowering inflation, increasing conflict (caused by wars such as the ongoing Russian-Ukraine War, the Israeli-Palestinian War, the Red Sea crisis, and other international and domestic flashpoints) and the political risks and uncertainty expected with what is being called “the ultimate election year” (it is reported that 49% of the global population of voters will head to the polls for national elections this year - more voters than ever in history), we project that some existing foreign investors will consider the improving domestic situation as the perfect opportunity to exit their investments, leading to the introduction of new investors. This will result in significant M&A activity, especially in the financial services sector. Our sector specific outlook is as follows.
Securities & Investments
Capital Markets
We expect activities in the GSE’s equity market to continue the growth trajectory, fuelled primarily by rights issues and new listings of shares issued by banks seeking to raise funding to improve CAR and meet regulatory capital prescriptions.
In the bonds market, activities on the GFIM should also pick up, as confidence in the national economy leads to more trades involving the bonds issued under the DDEP. We also expect that dropping interest rates, improving macroeconomic conditions and the desire for more diversified investment products will lead to new offerings of corporate debt instruments in 2024.
Trading options in the capital markets is expected to be deepened through the finalisation and issuance of the draft Securities Industry (Financial Resources) Guidelines, which the SEC published in 2023. Among others, the draft guidelines will provide detailed regulatory guidance for the treatment of securities borrowing and lending agreements, securities margin financing, short selling, off-exchange traded derivative contracts, interest rate swap agreements, foreign exchange agreements, and repurchase transactions.
Alternative Investments
The fact that the number of licensed private funds doubled in 2023 attests to the burgeoning demand for alternative investments. We expect this interest to bring the regulatory framework for private funds into sharper focus in 2024. Both industry and the SEC are aligned that a light touch legal regime is required, and we anticipate that some changes will be made in that regard. It is our expectation that the licensing of the new private funds will lead to more M&A activity and increased debt financing sources, as fund managers raise equity and debt investments from qualified investors and channel these investments into the real sector. The Venture Capital Trust Fund (VCTF) has already established 2 new funds (the Startup Catalyst Fund and the Strategic Industries Funds) and committed an aggregate of USD 16 million in investments across 4 Ghanaian funds, in furtherance of its agenda to provide SMEs with alternative sources of attractive, long-term financing. SME investments will also receive a major boost with the finalisation of the Securities Industry (Crowdfunding) Guidelines, which is expected to be issued in the course of the year.
We expect to see a lot of activity in the banking sector, as banks attempt to increase their capital and restore their CAR to pre-regulatory relief levels. Credit bureaus, which are also regulated by the Bank of Ghana, have to raise capital to meet their increased capital requirements. These may lead to M&A activity in the banking and credit sector in 2024. The Government may increase its stake within the banking industry, given its plans to use its special purpose vehicle (Ghana Amalgamated Trust PLC) to recapitalise banks such as the National Investment Bank, Agricultural Development Bank PLC, Consolidated Bank Ghana LTD, and GCB Bank PLC. If the Ghana Financial Stability Fund is implemented as is currently being proposed, the Government may also acquire shares in any other bank which approaches it for solvency support. As macroeconomic conditions improve and banks are recapitalised, we expect that banks will increase their extension of credit to the private sector, thereby reversing the contraction experienced last year.
Banking and Credit
Insurance
With the enactment of the recent amendment to the VAT laws, suppliers of non-life insurance products will now be required to account for VAT on their supplies and may recover or deduct input tax equal to the tax fraction of any amount paid during the tax period to indemnify another person under a non-life insurance contract. The deduction applies where the supply of the non-tax deduction is a taxable supply, the payment is not in respect of the supply of goods or services to (or the importation of goods or services by) the taxable person, the supply of the non-life insurance contract is not zero-rated supply, and the payment does not result from the supply of goods or services to that other person where those goods are situated offshore or the services are physically performed offshore.
Tax
It is expected that the GRA will continue its aggressive domestic revenue mobilisation drive. As usual, this will result in more legislative and administrative steps to increase existing tax rates, introduce or operationalise new taxes, and encourage tax compliance. For instance, the Government intends to operationalise its special voluntary disclosure programme (SVDP) in 2024. The SVDP is intended to deter tax evasion and ensure tax transparency by giving tax payers the opportunity to voluntarily disclose information on accounts and income held abroad to avoid the penalties associated with tax non-compliance on those incomes.
The Ministry of Finance issued administrative guidelines in 2023 to support the implementation of the Exemptions Act, 2022 (Act 1083) (Exemptions Act). However, the guidelines fail to clarify some confusion regarding the wording and interpretation of section 36(3) of the Exemptions Act. The issue relates to the fact that although section 36(2) of the Exemptions Act expressly saves and continues in force any tax exemption arising from (A) a resolution of Parliament, or (B) an agreement signed between the Government and any person on the basis of a tax exemption provision in any law which has now been repealed by the Exemptions Act, section 36(3) of the Exemptions Act requires “the holder of an exemption” to apply to the Minister of Finance within 6 months after the coming into force of the Exemptions Act to continue to benefit from the exemption. The construction of section 36 of the Exemptions Act suggests that the requirement to apply to the Minister of Finance under section 36(3) of the Exemptions Act cannot apply to persons whose tax exemptions have been saved under section 36(2) of the Exemptions Act. However, that is exactly how the GRA is interpreting this provision, thereby denying several institutions such as multilateral corporations and development finance institutions which operate pursuant to international agreements which have already been approved by Parliament the benefit of their contractual and Parliamentary approved tax exemptions. We expect that this issue will be finally resolved in 2024, perhaps through the enactment of the regulations to the Exemptions Act, which is currently at drafting stage.
The GRA also expects to issue practice notes for the implementation of the minimum chargeable income system, which is scheduled for full operationalisation in 2024.
Restructuring, Administration and Insolvency
The increase in NPLs attests to the struggles businesses have endured under the tough macroeconomic conditions and high interest rates of recent years. It is expected that the finalisation and enactment of the subsidiary legislation for the Corporate Insolvency and Restructuring Act, 2020 (Act 1015) will lead to increased deployment of the new legal tools which have been introduced to rescue businesses and liquidate insolvent businesses.
An expected key development in restructuring, administration and insolvency practice will be the enactment of the Chartered Institute of Restructuring and Insolvency Practitioners Bill (which is currently in the early stages of parliamentary review). The new legislation will (among others):
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restructure the existing Ghana Association of Restructuring and Insolvency Advisors into a Chartered Institute of Restructuring and Insolvency Practitioners;
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promote the study of insolvency;
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train and recommend insolvency practitioners for licencing; and
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support the Insolvency Services Division of the Office of the Registrar of Companies in carrying out its regulatory responsibilities within the insolvency industry.
