With the existing financing gap for infrastructure in the country, the Deputy Managing Director of the Ghana Stock Exchange (GSE), Abena Amoah, has recommended that the Ghana Infrastructure Investment Fund (GIIF) issues an infrastructure bond on the fixed income market to close the gap.
According to the World Bank, Ghana’s infrastructure challenges will require raising annual expenditures to US$2.3billion. The country already spends about US$1.2billion per year on infrastructure, equivalent to about 7.5 percent of GDP. A further US$1.1billion is lost each year to inefficiencies – notably, under-pricing of power. However, the Ghana Infrastructure Investment Fund (GIIF), which has a primary aim of raising funds to close the existing infrastructure gap, has assets of about US$330million.
It is against this background that, speaking at the Ghana Economic Forum organised by the B&FT, the Deputy Managing of the Exchange said the Ghana Infrastructure Investment Fund can come onto the domestic debt market to issue debt securities toward the construction of specific infrastructure projects, such as roads, in the country.
“The Ghana Fixed Income Market (GFIM) is there to facilitate the raising of long-term debt capital. On this market, government and corporate institutions have issued securities up to 20-year bonds, which can serve as a pricing guide for the Ghana Infrastructure Fund to come onto the market to issue bonds toward the construction of infrastructure such as roads.
“So, let’s take the potential proceeds from the infrastructure which will come over the long life-span of that project – say 20 or 30-years – and issue an infrastructure bond today that comes with a moratorium, whereby there’s no repayment principal or interest for say 2 to 3 years, and then build the roads. It is from operation of the roads that repayment will be made.
“Unlike the ESLA and Daakye bonds which are used to repay creditors, the Ghana infrastructure bond will be to specific infrastructure that goes to finance specifically identified infrastructure. These are readily and commonly available bonds in matured or maturing markets,” Ms. Amoah said.
Her call comes at a time when government is charting new territory by creating an integrated framework for sustainable financing that creates enablement to issue instruments in either a use-of-proceeds format or sustainability-linked format.
The excess liquidity of the fixed income market coupled with investors’ demand for securities continue to drive the stellar run on the Ghana Fixed Income Market (GFIM). The GFIM market cumulative volumes traded from January to August 2021 was almost double compared to the same period last year, closing at a total volume traded at 140.96 billion, valued at GH¢146.62billion from a trade value of GH¢66.56billion in the previous period.
Trades during August 2021 saw a remarkable run – closing at 13.90 billion in volumes, which is valued at GH¢14.42billion.
According to McKinsey, closing the infrastructure gap in Africa requires raising infrastructure investment as a share of GDP from 3.5 percent to 4.5 percent, or doubling the absolute level of investment between 2015 and 2025.