Ghana’s equity and debt markets will receive as much as $400 million annually beginning this year through privately managed funds linked to a mandatory government pension scheme, boosting efficiency and liquidity in the West African nation’s capital markets, Renaissance Capital economist Yvonne Mhango said.
About 25 percent of the funds will be invested in equities, implying $1.9 million a week will enter the stock market, which has a weekly turnover of $1.8 million now, Mhango said in an e-mailed note to clients dated today. The bulk of the remaining $300 million will go into cedi-denominated debt, she said.
“The entry of new institutional investors is therefore expected to have a marked effect on the local equity market,” Mhango said. “The new fund managers are also expected to make markets more liquid, efficient and transparent, offer alternative sources of financing from local commercial banks and stimulate financial innovation.”
The change is part of a 2008 law that created a pension plan aimed at boosting savings in the world’s second-largest cocoa producer. Under the law, employees in the so-called formal sector will pay 13.5 percent of their earnings into a pool managed by the government’s Social Security and National Insurance Trust. An additional 5 percent of earnings will be automatically withheld and remitted to privately managed funds.
A third element of the law would create a privately managed retirement fund funded through voluntary contributions targeted at the more than 80 percent of Ghanaians who work in the informal sector.