After a slow start 10 years ago, Ghana's privatization programme is moving at a steady pace, but needs acceleration, say the World Bank and International Monetary Fund. So far the government has divested full and part stakes in more than 180 enterprises, including its largest banks, mining houses, manufacturing and service companies.
Some of the benefits have been substantial. One-time receipts from privatization have eased the growing pressure on fiscal accounts, livened up the Ghana Stock Exchange (GSE) and increased foreign investment, with private capital injections putting some former loss-making firms into the black. But privatization has also put over 45,000 people out of work in the 1988-95 period.
When privatization began
in 1988, there were 350 state-owned enterprises (SOEs), many of them loss-makers,
and over a fifth of recurrent spending went in loans and subsidies to keep
them afloat. The government was initially very ambivalent about the programme
and sent conflicting signals to potential buyers. Besides any ideological
issues, some officials felt that a stronger private sector might also mean
better financed opposition parties.
The first round of divestitures in 1988-93 raised only C64 bn, with 55 SOEs going into private ownership or management, while another 31 firms were liquidated. The turning point came in 1994, when the government put its most prized asset, Ashanti Goldfields Corporation (AGC), on the market. It offered 30 per cent of its 55 per cent stake in AGC on the Ghana and London Stock Exchanges. This deal, Africa's largest privatization to date, put Ghana on international investors' maps, and overnight transformed the Stock Exchange -- AGC's $1.8 bn accounted for 90 per cent of total capitalization -- making it Africa's third biggest stock market. Among another six divestitures in 1994 were those of Accra Breweries and Standard Chartered Bank. The year's divestments netted C447 bn, including C379 bn from AGC alone.
Donors helped to maintain the momentum by funding professional help for the Divestiture Implementation Committee (DIC) and the Financial Sector Adjustment Programme Secretariat (FINSAP). The latter body managed several key divestments, including the sale of 30 per cent of Ghana Commercial Bank to the public in 1996, and a similar stake in Ghana Telecom to the Malaysian Telekom consortium the same year.
By the end of 1995, the DIC had approved 195 divestitures. Some 79 sales had been completed, 31 firms were taken over and partly paid for and 85 were still awaiting purchase. Another 24 small and medium enterprises were due for sale by the end of 1997, 20 more in 1998 and a further 20 by 1999. Also planned this year is the privatization of the Ghana Insurance Corporation, the Electricity Corporation of Ghana and Ghana Railways, and Ghana National Petroleum Corporation (GNPC) by 2001.
Privatization has attracted substantial foreign investment into Ghana, although conflicting data makes this difficult to measure. The World Bank's 1997 Country Assistance Strategy for Ghana says net private foreign direct investment (FDI) rose from $25 mn in 1993 to $35 mn in 1995, before falling back to $20 mn in 1996. But the Bank's Global Development Finance (also 1997) puts net FDI at $125 mn, $233 mn and $230 mn respectively for the same years.
While privatization has so far partly eased the government's fiscal pressures, and turned loss-makers into profitable firms, quality investors do not come automatically, and Ghana, which is competing with other emerging markets for capital, has had to compromise on buyers for some of its most important assets. When FINSAP put Social Security Bank (SSB) and Ghana Commercial Bank (GCB) on the market in 1995 and 1996, it wanted to find respected international banks -- "strategic investors" -- to pump in capital and expertise.
When no acceptable candidate appeared, the government offered a 30 per cent stake to the public in 1995 and continued the search for a strategic investor. Two years later, FINSAP settled on the next best thing. A consortium of asset managers, including Morgan Stanley Asset Management and J.P. Morgan Asset Management, bought a majority stake, and hired the consultancy arm of Allied Irish Bank International to dynamize SSB's management.
FINSAP also appears to have compromised on the choice of investor for GCB, having accepted a down-payment from Malaysia's Denko Industrial Corporation in late 1996. Denko lacks a track record in international bank management, and analysts wonder what benefits the transaction will bring to GCB.
Some factors limiting the choice of investors are beyond the government's control. Foreign banks have shown little enthusiasm for buying African banks in recent years. Ghana's domestic market is also relatively small, and its attractions as an export base for West Africa are limited by its neighbours' low purchasing power.
The government has tried hard to attract investment, including international "road-shows" led by President Jerry Rawlings himself. But some analysts say more could be done at domestic level through tighter fiscal policy. The government, they insist, must cut spending, which means cutting its domestic borrowing, which would free up funds for the private sector and pave the way for lower interest rates.
