...Stop the Financial Hemorrhage of the Nation

The reasons for establishing the Ghana Commercial Bank (GCB) had a lot of merit and had served Ghana very well. GCB was an excellent idea at the dawn of the re-birth of the new Ghanaian nation. GCB is here to stay to pursue its business objectives while it creates a wave of residual social benefits. Among them, the exposure of banking utilization to many communities, which today, Barclays and the Standard (Old Banks) are reluctant to offer their services. Even though the “Old Banks” claim to be good corporate citizens, the goals of the “Old Banks” are profits and not social engineering. Therefore, their planned strategies are guidance to their destiny.

TAKE SOCIALISM OUT OF BANKING

When Ghana became a republic and ushered in the practices of economic centralism, her legitimacy for the establishment and the operation of state-owned banks faulted. As the indigenous banks evolved over the years, no serious “fire-walls” were put in place to check the Tri-Money Making Machine (3M). The 3M, consisting of Ministry of Finance (the overseer of financials), The Bank of Ghana (the manager of foreign exchange and supervisor of banks) and the Ghana Commercial Bank (financing government through Bonds and Treasury Bills) had no impenetrable “fire walls” between them. The successive governments have disrespected, over influenced and blurred the independence of the 3M institutions. Such nonchalant attitudes led to abuses, as the legendary green ink of General Acheampong and other numerous questionable financial transactions through the years destroyed the assurance of independence among the 3M and increased the risk levels that drove away the global investors from Ghana.

Dr. Kwasi Botchwey of the P/NDC fame, the socialist of economic centralism order, became enlightened on the wisdom of “Free Market” economics so much so that he was the original signature of the document to the World Bank, which committed Ghana’s divestiture program. More importantly, the compiling reason why the decision to divest GCB from the government’s portfolio is valid in that nobody stays in a profit making business venture to loss money - except the Ghana Government. From a financial point of view, the equity to income ratio of the Government’s investment Cedis, for most of the time, had been in the red (negative). When the government finally divests, there will be more money for the private sector to access.

For the best use of Ghana Government Cedis, GCB is NOT the place in the new millennium. Here is a good financial reason:

For every 100 Cedis of taxable income made by the GCB, the government gets

• Listed Corporate tax of 30% 30 Cedis That leaves 70 Cedis for all shareholders
• Government’s dividend on 46% of GCB stock holding 32.20 Cedis That leaves 37.80 Cedis for private investors
• Dividend tax of 10% 3.80 Cedis
• Total Take of Government 66 Cedis on 100 Cedis

Present arrangements leave only 34.00 Cedis for the private investor. What an incentive!

After divestiture of GCB, for every 100 Cedis taxable income made by the GCB, Government revenue will be as follows (understanding that the National Reconstruction Levy carries lesser tax rate):

• Listed Corporate tax of 30% 30.00 Cedis
• That leaves 70 Cedis for private investors
• Dividend tax of 10% 7.00 Cedis
• Total Take of Government 37 Cedis on 100 Cedis

After divestiture, the private investors will have 63.00 Cedis to plough into “the engine of the economic growth.” That is 85% more!

However,

GCB gross dividend paid-out in the year 2002 was 82,500M Cedis.

Government share of 46% of the dividend 37,950M Cedis Assuming exchange rate of $1.00 to 8,700 Cedis:

Government dividend income, year 2002 $4.4 Million

Value of Government 46% Shares $60 Million (est.)

Equity to income ratio 7.3% The Government’s estimated $60 Million investment in GCB yields 7.3% while the government borrows money at 31% from the same GCB. It does not take a rocket scientist to figure out which way out at the soonest? Besides, how can GCB operate successfully within the 3M institutions when her biggest customer (50% of her assets holding is Government issues) and that same Government owns 46% of the GCB?

Makola Market Logic: Since the GCB holds 50% of her assets in the government issues, then the Government is self generating half of her 7.3% of the dividend income from her investment holdings in the GCB. This is a very good example of “dead-capital”.

The longer the government vacillates on the decision date to divest from GCB, the more damage is inflected on the economy and the welfare of Ghanaians. This vacillation of emotional public debates has no sound business or financial underpins. If they do, then the debaters’ concern would be shifted to what is happening to the Ashanti Goldfields Corporation (AGC) takeover battle. AGC is more important to Ghana and is a greater source of generation of capital for Ghana, instead of GCB, which is utility that facilitates the multiple generation of capital.

The private sector, especially the GCB, will do well without micro management by government. While we are at it, please let us stop using the team strategic investor. Because any sensible investors will have a business plan that has set strategies to accomplish their goals. The Ghana Stock Exchange, the market place of business, will ultimately determine who will be shareholders of the GCB, of course, those with money - SIKA.

Frank Q. Antwi-Barfi
Financial Planner
Chicago, IL June 2003

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.