Economic recovery program of Ghana

scotch recovery program of gold coast CHAPTER angiotensin-converting enzyme1.0 IntroductionThis chapter attempts to provide an overview on the paradox statement of the entire investigate work, objectives of the study, relevance of the study, methodology applied as the research unfolds and the organization of the study.1.1 understategold coast is one of the fast emerging developing countries in westbound Africa with twice the per capita output of the poorer countries in West Africa. With well endowed lifelike resources, gold coast silent relies heavily on inter depicted object fiscal and technical assistance. capital, cocoa and timber be the major(ip) sources of conflicting replacement. The introduction of gold coasts Economic Recovery Program (ERP) in 1983 to recover the initi altogethery very loose privy heavens booking did remedy consistently but although still levels were modest during 1987-91. Over the past social classs gold coast has witnessed dynamic chan ges in its close Sector. The number of banks has change magnitude from 9 in 1989 to 21 at May 2006 (www.bog.gov.gh). These banks serve a prominent theatrical post as incorpo respect entities that provide coronation capital in the thrift to represent handicraft opportunities, human resources tuition and contribute towards national and community developing programmes (Aryeetey, E. Gockel, F. 1990). They originally furnish imparts to individuals and companies to finance various projects which crown to scotch and buck private sphere development. Brownbridge, M., Gockel, A.F. (1997) atomic number 18 excessively of the view that these fiscal institutions hurt savings and investiture in the thrift, which plays a major role in the overall development in legal injury of increasing productivity of resources in the economy. They pull ahead soaringlighted that this role of banks in the Ghanian economy is crucial, in that shortcomings in the assiduity outright affect the trend of economic exploitation.In recent times gold coast has discovered crude oil, which is expected to boost the economic ripening by bigger margins. gold coast has a unique welcoming attitude towards foreign investors the long political perceptual constancy of the country has attracted a lot of dividing line investors to establish problemes in the country. The rate of foreign investors has not rivetd as better prospects in doing descent in gold coast be yielded in the long-run. The political state of the country has in like manner been very peaceful with a vibrant atmosphere to establish business firmamentes.During the fifth banking awards ceremony in Accra, Dr. capital of Minnesota Acquah (Governor of argot of gold coast) revealed that the banking industry in gold coast has become highly agonistical imputable to the increased sophistication of customer needs coupled with rattling(a) global competition. He further stated that these reasons over the categorys imbibe been the driving force for banks, in particular private owned banks, to concentrate on on increasing dispenseholders value, delivering superior services conceptioned at achieving over all customer satisfaction and value. The concept of competition has introduced an overwhelming challenge among physical compositions worldwide. approximately organisations argon strained to compete by promptly responding to changes in national and world economies, technological changes, raw business environments, cultural diversity and deregulation in emerging capital markets to improve overall organisational murder. Privately owned businesses in gold coast are constantly entwined in this fierce engagement of global competition and the pressing need to sustain its existence in the growing rate of change in its environment. Recent trends in the Ghanese economy earn revealed that keen competition in the business orbit has been as a resolve of an open market which promotes private he avens participation. Though closely private owned organisations have managed to saved, a substantial number of them do fail due to reasons not limited to frugal and monetary factors. A study conducted by Dun and Bradstreet (cited by Gaughan Patrick A. 1999, pp. 432) reveals that thither are iii most common factors that cause business sorrow such as economic, financial and experience factors (refer to flurry 1).In about developing countries market forces are completely eliminated as a conduce of controls imposed by the ruling organisations. These controls create adverse personal effects on the economy such as large fiscal shortages coupled with abstemious macroeconomic management leading to high inflation in the economy. The consequences are generally felt by banks and other non-banking institutions, in that, loans borrowed by individuals or organisations are not paid back due to economic disaster (Brownbridge M., Gockel A.F., 1997). check to Pfeffer J. (1994 p. 6), People and how organisations manage them are becoming more heavy because many other sources of hawkish success are less tendinous than they once were. He emphasises the fact that in recent times most organisations rely extensively on the traditional sources of competitive success such as product and process technology, set markets, access to capital resources, and economies of case which provide an in evidentiary competitive influence as compared to the past. He further argues that organisational culture and potential employee roles derived from managing employees in an organisation are crucial as compared to the traditional sources of competitive success. Employees have been referred to as assets to a firm or an organisation when they possess the right skills needed to work effectively and competently (Odiorne G. S, 1984). However, these employees may possess diverse capabilities that lead to various potential contributions to an organisation because of previous education, experience, or individual qualities. In view of the fact that employees contribution to the organisation determines extensively competitive success, their individual skills are considered vital (Pfeffer J. 1994). 1.2 fuss StatementThe gradual transformation of gold coast has had a lot of plus feedback from other nations, but impart this transformation termed economic yield survive the long-term or would it collapse somewhere in the future? What are the important strengths and weaknesses of the private do important?Will the private sphere support sustainable development?Has Ghanas initiative to increase private arena participation been successful? What measures has Ghana taken liberalize its economy to supercharge private sector participation? Recent discovery of crude oil (black gold) in Ghana has brought higher hopes to accelerating the countries development goals into reality. This is what the recent ex-president of Ghana, President John Kufuor had to give tongue to in an African programme with the BBCs Focus Were going to really zoom, accelerate, and if everything works, which I pray leave behind happen positively, you come back in quintuple years, and youll see that Ghana truly is the African tiger, in economic terms for development. Will this oil discovery further attract new entrants into the financial sector and in the affirmative depart this promote a competitive private sector environment? 1.3 Objectives of the StudyThe main objective of this dissertation is to show the role of the private sector in bestow to business competitiveness and economic return. The research limits its focus on the inflow of private non-financial and financial institutions in the Ghanaian economy as a result of the introduction of fiscal Sector Adjustment Programme (FINSAP) in Ghana. The economy over the years has witnessed an increase in private sector participation, which has significantly promoted business competitiveness and contributed to a vibrant econom y at large. send back 2 SMART Objective of the Study Strategic Operation tactical Specific Evaluate the role of the private sector (Privately owned financial institution) contributing to business competitiveness and economic growth. Present a computer programme for private sector participation in economic development. Provide a primary evaluation for developers and investors who aspire to do business in Ghana. measured To fall within the framework of the private sector and factors leading to business competitiveness and economic growth. Increase real gross domestic product. Impact of the private sector on economic growth. Note political relation policies that would prevent adverse effects on critical sectors of the economy.Attainable To recommend effective and sustainable business development strategy and policies that will enhance more participation in the private sector. Increase economic growth and improve effective and efficient business plans. participate on comprehensive business competitiveness and plenteous performance within the various business sectors. substantiveistic The research will look extensively into presidential term development goals as well as the private sectors role in development. Access to economic hides surveys from IMF. Ghana judicature reports on development projects. The IMF monitors on a y archeozoic basis the economic situation in Ghana.Time-Limited To complete the dissertation within two months. This thesis expects to propose recommendation based on the information available at the time of writing. The recommendations and proposals are expected to be considered and if applicable implemented by other developing countries as well. blood line Self-prepared.Specifically, the thesis critically focuses on the adjacent The role of the private sector ( privately owned financial institutions) contributing to economic growth in Ghana.To investigate the driving forces of Ghanas emerging markets.The role of the organization pro moting the private sector.The challenges and constraints facing the private sector.To evaluate the strategies being employed by Ghana in the private sector and its impact on the economy.1.4 Significance of the StudyThe study will be beneficial in many respectsTo athletic supporter identify the success and bottlenecks of the significant economic contributions from private sector with regards to its contribution to economic growth business competiveness.It also reviews the strengths of the financial sector to support expansion of the private sector development and more importantly availability of book of facts facilities to promote businesses.It will supporter investors to get a fair idea of business establishment opportunities.To help formulate strategies to help implement better policies and promotions for the private sector development.1.5 methodologyThis study uses secondary data and literature to evaluate the topic. It also uses grind analysis to examine the strategic posit ion of Ghana in meliorate its economic and business areas. The research will employ the use of CAMEL progress as the overall framework to evaluate the financial strength and stability of the beaching Industry in Ghana, whereC Capital adequacy, A Asset quality, M Management capability, E Quality and level of earnings, L Adequacy of liquidness1.6 Organisation of the studyThe paper is divided into five chapters. Chapter one presents the introduction, problem statement, objectives of the study, significance of the study, methodology and the organisation of the study. Chapter two gives an overview of the Ghanaian financial sector as well as reasons that led to the financial sector reforms. Chapter three gives an overview of the Ghanaian private sector. Chapter four uses CAMEL approach to analyse 4 major privately owned financial institutions. The final chapter looks at the overall findings, conclusions and recommendations. CHAPTER two2.0 Overview of the Ghanaian economyThis chapter provides an overview of the Ghanaian economy and the Ghanaian Financial System. The chapter also looks at reasons that led to the introduction of the financial sector reforms, a jampack analysis of financial sector adjustment program (FINSAP I II). Ghana is one of the developing countries in sub-Saharan Africa that introduced structural and economic reforms to cut across its extensive macroeconomic shortcomings, reduce poverty and to liberalize the financial sector. The bountiful property/GDP ratio fell significantly to 12.5% in 1983 as compared to 29% in 1976, whiles currency/M2 ratio also decreased from 35% in 1970 to 50% in 1983. argot deposits decreased from 19.5% of GDP in 1977 to 7.4% of GDP in 1984 because there was lack of confidence in the banking industry (Brownbridge, M., Gockel, A. F. 1997). During the 1980s the Ghanaian economy was hit by the most crushing economic crisis (www.bog.gov.gh). This gave rise to numerous extensive economic drawbacks in the Ghanaian economy. Leechor Chad reveals in an article published by the World entrust the following economic crisis that plagued the Ghanaian economy between the years 1982 to 1983The countrys power systems, communication, postal and rail vogue services ceased to function properly and the whole country was in a state of chaos. Tax solicitation had declined to about 5% to GDP, coronation dropped drastically beyond the level required to maintain capital stock.Real income per capita which was perpetually diminishing for a decade was a third on a lower floor the level reached in the early 70s as at 1983.Foreign switch reserves deteriorated considerably. The Ghanaian economy was heavily controlled by the government in terms of setting unrealistic enkindle rates and sectoral credit ceilings banks were forced to focus on lending to priority sectors (agriculture, exporting and manufacturing) regardless of the borrowers performance in terms of profitability and their capability to payback the lo an. The economy was regulated to foreign enthronisations and the strong existence of strict capital flow regulations (The bodied Guardian, July-September 2006). Governments heavy intervention in the financial system set the arrange for economic shortcomings a few such as lack of competition, high incidence of inefficiency, hardship and the escalating rate of non-performing loans (Leith, C. J., Sderling, L. 2000).Since the late 1980s, the government of Ghana proceed to implement financial sector reforms as an integral part of its on-going Economic Recovery Program (ERP) (Brownbridge, M., Gockel, A. F. 1997). Ghanas enthusiasm to initiate the ERP with close quislingism with the International Monetary Fund (IMF) during the year 1983-85 was to liberalise the financial sector and establish an open market-based economy by eliminating price ceilings, reducing the influx of foreign imports, diversifying viable sectors of the economy and stabilizing fiscal deficit. Ghana in 1984 laun ched the Structural Adjustment Program (SAP) with the primary aim of reducing its enfolding in the economy and allowing the free interaction of demand and supply (The embodied Guardian, July-September 2006). However, during the period 1983-88 the performance of the banking industry deteriorated with high levels of non-performing assets (NPAs) and inefficient deposit mobilisation which made most public banks insolvent (Leith, C. J., Sderling, L. 2000). The government launched the commencement ceremony leg of the Financial Sector Adjustment Program (FINSAP) in 1988. This was to fully relieve as well as liberalize the financial sector and improve resource allocation within the various sectors of the economy (www.oecd.org). Since 1983, Ghana has disposed great importance to its divestiture initiative program. About 200 stated-owned enterprises (SOEs) were being considered for diversification under governments ongoing privatization initiative. At the end of the last two years, go vernment still owned 35 enterprises valued at more than 60% of GDP in 2003 (IMF Survey, 2005). Governments expenditure during 1986-1991 increased and this called for polity reforms to enable government to meet its high spending. Government depended on the assess system to support its high level of spending. The Parliament of Ghana in 1993 increased tax on petroleum. However, the tax system could not supplement its GDP share to match the expenditure. Consequently this brought about deficit financing. Government resorted to other forms of financing its expenditure such as extensive borrowing from the of import hope (issuing new notes), public and foreign borrowing, and privatization of sate-owned enterprises (Leith, C. J., Sderling, L. 2000).Over the years, Ghana has witnessed a large transformation in its economy as a result of continuous implementation of financial sector reforms to deregulate the economy and stimulate savings, enthronization and growth. The Central assert i s constantly implementing policies adopted under FINSAP to ensure the entrants of privately owned financial institutions, free divert rates, stabilize the cedi against foreign currencies, encourage the flow of foreign investment and allow easier access to credits (www.bog.gov.gh). The Ghana Stock swap (GSE) was set up in 1989 as a private company limited under the Company code. The Stock Exchange act of 1971 (Act 384) allowed it to function as an authorized Stock Exchange. The Securities Industry constabulary PNDCL 333 (1993) as amended bestowed regulative rights to the Security Regulatory Commission (SRC) with its main function to register, protect, assist and supervise all stakeholders in the securities market. In April 1994 the Ghana Stock Exchanges status became a public company limited (www.gse.co.gh). At the end of 2003, listed companies equity increased to 26 as compared to 22 in 2002 (www.gipc.org.gh). The performance of the Ghana Stock Exchange (GSE) has improved tremen dously. All-share Index increased by 91.3% in 2005 as compared to 154.7% in 2003 (ISSER 2005). Flow of foreign investment increased from $110.0 million in 2003 to $139.3 million in 2004. In 2004 the cedi depreciated by only 2.2% against the US dollar, 10.7% against the Euro and 12.1% against the pound sterling. There was quite an improvement in the value of the cedi as compared to the previous year (2003) when the cedi depreciated by 22.5% against the Euro and 13.0% against the pound sterling. add up inflation fell from 26.7% in 2003 to 12.6% as at December 2004 (ISSER 2005).Ghana is the second largest producer and exporter of cocoa the agriculture sector accounts for about 50% of GDP and is considered the backbone of economic development (www.ghanaweb.com). Real GDP growth in 2004 was 5.8% (www.gipc.gh). The tremendous performance of the Agricultural sector has supported Ghanas strange rate of economic growth over the years. The Agricultural sector contributes significantly to GD P growth. In 1990 GDP increased by only 3.3%, this was due to the negative 2% growth rate in the Agricultural sector that year. The year 1991 witnessed a GDP growth rate for the Agricultural sector by 5.8% which consequently increased the whole Ghanaian economy GDP by 5.3% in that year. The sector has also contributed immensely to the countrys foreign flip earnings 38.5% in 1999, 35.4% in 2000, 33.9% in 2001, 35.5% in 2002. (www.fao.org/es/esa). otherwise main exports are gold, timber, bauxite, manganese ore and diamond (BOG Quarterly Economic Bulletin, April June 2005). The performance of the agriculture sector over the years has immensely improved with growth rate of 7.5% in 2004 as compared to 6.1% in 2003. The production of cocoa for export contributed 46.7% during the year 2004, a significant portion of over all growth (ISSER 2005). The crops and livestock contribution increased from 2.3% in 2003 to 5.4% in 2004, the largest contribution to the pastoral sectors GDP. The fore stry and logging sub-sectors increased by 6.1% in 2003, but dropped with a growth rate of 5.8% in 2004. (www.gipc.org.gh).The elimination of maximum lending rates and stripped-down time deposit rates succeeded to some extent in the relaxation behavior of interest rates in 1987. Direct controls in the form of credit ceilings were also abolished. During the 1990s banks were at liberty to price deposits and loans and to distribute loans consequently however the situate of Ghanas high reserve requirement limited the notes available for allocation (Brownbridge M. Gockel A. F 1997). These high reserve requirements prevented banks from developing their loan portfolios and consequently, most banks preferred to invest in attractive and somewhat riskless government securities (strategis.ic.gc.ca)Interest rate dropped steadily owing to the Monetary constitution deputation (set up by the commit of Ghana in 2004) diminish prime rate from 21.5% in 2003 to 18.5% in 2004. Consequently, t he commercial banks base rate has decreased from 29% to 25.4%. Interest rate for 91-exchequer bill fell from 18.71% early part of the year to 17.08% at the end of 2004. Interest rates for the 182-Day Treasury bill dropped from 19.78% during the early part of the year to 17.85% at the end of 2004. Inter-Bank interest rate also fell from 17.12% in January to 16.23% at the close of the year 2004 (www.gipc.org.gh) The Banks spread (21.3%) is still too high as compared to the other African countries (see table 3*). The banking industry has been structured in a way that banks are able to adjust their interest rates according to policy rates. Banks maintain a high spread to ensure that their profits are not significantly influenced by their interest margins (BOG financial stability report 2004). However, according to the BOG financial stability report 2006 the emergence of new banks will lead to an efficient financial sector which is expected to reduce the pressure on lending spread due to the fact that banks will continuously try to gain market share by competing for customers. tabularize 3 Selected Commercial Bank Interest Rates, 2000 and 2004 Deposit Rate contribute Rate Spread 2000 2004 2000 2004 2000 2004Gabon 5.0 5.0 22.0 18.0 17.0 13.0Ghana 16.8 7.5 47.0 28.8 30.2 21.3*Kenya 8.1 2.4 22.3 12.5 14.2 10.1Mauritius 9.6 8.2 20.8 21.0 11.2 12.8Mozambique 9.7 9.9 19.0 19.2 9.3 9.3Nigeria 11.7 13.7 21.3 19.2 9.6 5.5Tanzania 7.4 4.2 21.6 13.9 14.2 9.7Uganda 9.8 7.7 22.9 20.6 13.1 12.9Zambia 20.2 11.5 38.8 30.7 18.6 19.2Source International Financial Statistics, IMFfiscal and Monetary PolicyThe financial policies implemented by monetary regime in Ghana before the implementation of FINSAP were direct government controls on all sectors of the economy. Government excessive control in the economy by setting price and interest ceilings coupled with weak macroeconomic problems lead to a high level of inflation (Ziorklui, S. Q. 2001). Ghanas fiscal policy to begin with ai ms at decreasing domestic debt, ensuring economic stability, cutting down on the increasing level of interest payments to achieve the required real interest rates. Consequently, the Bank of Ghana has adopted numerous strategies to address fiscal deficit and governments borrowing (www.gipc.org). Budget deficit was 0.55% of GDP during the second quarter of the year 2005 as compared to 1.18% of GDP during the last quarter of 2004. This showed significant decrease in the overall budget balance (Bank of Ghana Quarterly economic bulletin, April-June 2005).The Bank of Ghana in 2004 set up the Monetary Policy Committee (MPC) to mainly focus on formulating effective monetary policies, making available statistical data and providing necessary support in terms of declare oneself for monetary policy formulation (www.bog.gov.gh). The MPC seeks to control inflation, stabilize price and change over market, manage external debt and develop the capital market (www.gipc.org.gh). 2.1 The Ghanaian Fi nancial System in BriefGhanas banking sector has evolved over the years. There are 23 major banks (refer to table 7) operational in the banking sector in Ghana as at 2006. The Ghanaian banking sector is made up of 19 universal banks, 2 Development Banks, 2 Commercial banks including acme Bank and 121 Rural Banks (www.bog.gov.gh). The introduction of universal banking in Ghana is irresistibly changing the way banks function in the economy. Unfortunately, not all banks operating in Ghana are eligible to be universal banks. To be eligible for banks to operate as universal banks they are expected to have at least 70 billion as shareholders capital (www.agighana.org). check to the Bank of Ghana universal banking substitutes the famous three-pillar banking model, namely development, merchant and commercial.Table 4 List of Major Banks in Ghana 2006INITIALS BANK leave OF ESTABLISHMENT NATURE OF BUSINESSABL Amalgamated Bank 2000 universal proposition Bank ADB Agricultural Development Bank 1965 Development BankBBG Barclays Bank Ghana 1918 common BankCAL CAL Merchant Bank 1991 general BankEBG Ecobank Ghana Limited 1990 oecumenic BankFAMBL First Atlantic Bank 1995 Universal BankFBL Fidelity Bank Limited 2006 Universal BankGCB Ghana Commercial Bank 1952 Universal BankGTB Guaranty Trust Bank 2006 Universal BankHFC HFC Bank Limited 2002 Universal BankICB International Commercial Bank 1996 Universal Bank swallow up Intercontinental Bank Plc 2006 Universal BankMAB Metropolitan Allied Bank 1995 Commercial BankMBG Merchant Bank Ghana Limited 1972 Universal BankNIB National Investment Bank 1963 Development BankPBL Prudential Bank Limited 1997 Commercial BankSBL Stabic Bank Ghana Limited 2000 Universal BankSCB Standard Chartered Bank 1896 Universal BankSG-SSB SG-SSB Bank Limited 1976 Universal BankTTB The Trust Bank 1994 Universal BankUBA United Bank for Africa 2005 Universal BankUNI Unibank Ghana Limited 1999 Universal BankZenith Zenith Bank 2005 Universal BankSourceht tp//www.bog.gov.gh/privatecontent/File/BankingSupervision/Licensed%20Banks%20%20Addresses%20November%202008(1).pdf Until 1957 the West African Currency batting order (WACB) acted as the only board under theColonial regime conferred with the laterality to exchange sterling to Gold Coast pound. Government of the then Gold Coast declared its intention to issue its own currency later independence. Politicians and economists were of the strong opinion that with the establishment of a Central Bank, Ghanas independence will have a significant meaning in political history. In view of this, preparations started which ended up in the establishment of the Bank of Ghana on the 4th of March 1957 under the Bank of Ghana rule (No.34) of 1957 passed by the British Parliament. The whole idea for the establishment of a Central Bank was to meet the financial needs of vast indigenous sectors of the economy as well as the new independent Ghana government. aft(prenominal) the establishment of Bank o f Ghana (replaced WACB) as the central bank, the 1957 ordinance appoint the bank to primarily assume the following role in Ghana when it first begun formal operations on 1st August 1957 (www.bog.gov.gh) printing out and redeeming bank notes and coins.Lender of last resort for banks in Ghana.Using fiscal and monetary policies to regulate money supply and maintaining monetary stability.Advise the government and be the main source to finance to the government of Ghana.Supervise and regulate all banks in Ghana.The legal and regulatory frameworks in which financial intermediaries operate in Ghana are as follows (www.bog.gov.gh)Bank of Ghana Act 2002, Act 612Banking Act, 2004 (Act 673)Financial Institutions (Non-Bank) Law 1993, PNDC Law 328Companies enactment Act 179, 1963Bank of Ghana Notices /Directives / Circulars / RegulationsNon-Banking Financial SectorGhana has achieved significant success in the economy particularly in the non-banking sector as a result of initiating the structur al adjustment program, liberalizing the economy and by head the Banking law in 1989 and the Non-bank financial law in 1993. These initiatives embarked by the government of Ghana have paved way for new entrants in the private sector and also transformed the existing financial institutions to diversify into the financial system. Consequently, there has been a rapid growth of Non-Bank Financial Institutes (NBFIs) with the prime aim of providing financial services to potential target groups outside the banking system (Ziorklui, S. Q. 2001). According to the Ghana Investment Promotion Centre the financial system in Ghana includes the following licensed non-Bank Financial InstitutionsInsurance companies Stock exchangeBuilding SocietyMortgage Finance Co.Venture Capital reinforcement FinancingTrust CompanyCredit unionsDiscount houses Financial houses Leasing companies nest egg and loans associations 2.2 Objectives of Financial Sector Adjustment Program (FINSAP)According to Ziorklui S. Q. (2001), FINSAP was introduced and implemented in two chassiss. He further outlines the main objectives in both phases of the implementation. The first phase was implemented in 1988 with its main objectives as followsFINSAP IEmbark on restructuring to address financially distressed banks.Mobilize savings and gain to improve efficiency in the allocation of credit.Establish an effective regulatory and supervision system to monitor and improve the banking sector.Improve and strengthen the money and capital markets. To establish a non- performing assets recovery trust. The second phase of FINSAP was implemented in 1990 with the following objectivesFINSAP IIPromote foreign investment and increase private participation in the banking sector in Ghana. observe the implementation of policies adopted under the first phase of the financial sector adjustment program (FINSAP 1) to restructure the financial sector.Better manage the collection of non-performing loans by Non-Performing Assets Rec overy Trust (NPART).Promote and develop non-Bank financial Institutions (NBFIs) to be more effective and efficient in savings mobilization.2.3 SWOT synopsis Financial Sector Adjustment Program (FINSAP)This section seeks to determine whether the main objectives under the implementation of the financial sector reforms (FINSAP) are attainab