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22 December 2009 | Business & Finance

Ghana Stocks Bounce Back

Daily Guide

The Ghana Stock Exchange's All-Share Index is likely to increase by 25 to 30 percent next year as the West African nation starts producing oil for export, according to Christopher Hartland-Peel, a London-based analyst at Exotix, an investment bank which focuses on emerging markets.

“We view Ghana as one of the countries that are going to be among the strongest growing economies in Africa because of the oil production,” Hartland-Peel said in a phone interview.

Ghana's benchmark equity index has fallen by 49 percent this year after gaining 58 percent in 2008. The bourse plummeted as international investors fled assets perceived as risky because of the global credit crisis, depreciation in the currency that triggered 20 percent inflation and a $1 billion International Monetary Fund bailout.

Stocks are poised to rebound as Ghana's Jubilee oil field, which is located in the country's offshore, is scheduled to start production in the fourth quarter of 2010.

Discovered in 2007, the field may hold as much as 1.8 billion barrels of oil, with initial production estimated at 120,000 barrels a day, according to Tullow Oil Plc, which owns a 34.7 percent stake in the field.

Ghana will be one of the world's top 50 oil producers, according to Tullow.

Oil revenue will help Ghana to recover from an economic crisis that drove its currency, the cedi, down 15 percent against the dollar in the six months through July.

The depreciation boosted the cost of imported goods, increasing the consumer price inflation to a five-year peak of 20.7 percent.

Borrowing costs soared as the rate on 91-day Treasury bills doubled from a year earlier to as high as 24.7 percent.

The average yield at the most recent auction was 24.1 percent.

Stocks will not rebound until an economic recovery reduces bond yields, according to Hartland-Peel who in August predicted a “gradual recovery” for stocks.

“If you can get 23 to 24 percent in Treasury bills, why put your money in the stock market?” he asked.

High inflation and interest rates are the “greatest” challenges facing the bourse, Ekow Afedzie, Deputy Managing Director of the Ghana Stock Exchange, said in an interview in Abuja, Nigeria on December 3 2009.

 “Once we get these going in the right direction, the market will rebound,” Afedzie added.

The central bank reduced its key lending rate for the first time in nearly three years last month by 50 basis points to 18 percent.

Further cuts may follow after consumer inflation fell for the fifth straight month to 16.9 percent in November.

The Finance Minister, Kwabena Duffuor said last month that the country's budget deficit will fall to about 10.2 percent this year and 7.5 percent in 2010 from a peak of 24.2 percent in 2008.

Economic growth will likely reach 5.9 percent this year and 6.5 percent in 2010 after a growth of 7.3 percent in 2008.

The cedi has gained 4.9 percent against the dollar since the International Monetary Fund agreed in July to lend Ghana $1.02 billion over three years.

According to Exotix, companies that suffered declining profits this year, including Guinness Ghana Breweries Ltd, the country's biggest beer maker and the local unit of Unilever Plc, will rebound as the economy recovers in 2010.

The profit of Guinness Ghana fell 32.5 percent this year but jumped by 63 percent in 2008.

The company, which is based in Accra, said on November 17 2009 that its profit for the year ending in June fell by 17 percent to 11.4 million cedis ($8 million).

Unilever, the local producer of household products such as Omo laundry soap and Blue Band margarine, revealed that its net income for the nine months through September fell by 96 percent to 1.05 million cedis.

Unilever Ghana's profits dropped 15 percent this year but rose 190 percent in 2008.

Ghana Commercial Bank, the country's biggest bank with 157 branches, lost 36 percent this year.

The stocks may also benefit from 1 billion cedis that is expected to be invested in Ghana's securities markets through a government pension-reform program that starts next year, allowing private brokers to develop and manage corporate retirement plans.

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