By Ernest ASIMENU (Dr.) & Kweku ADAMS (Dr.)
In a renowned treatise on investments, Warren Buffet posited that triumphant investing over a lifetime does not hinge on a lofty intellectual quotient (IQ), exceptional business insights, intricate financial calculations, investment models, or even exclusive insider knowledge. Rather, it hinges on a robust intellectual framework for sound decision-making and an exceptional investment compass for consistency and effective navigation. However, in the realm of investing, economic downturns can usher in shifts in market dynamics. Hence, the ability to shield one’s investment framework from emotional corrosion is paramount.
Detaching emotions from reality empowers investors to discern the trajectory of forthcoming industry disruptions and technologies that will catalyse future demand. Even industries deemed futuristic are not immune to the reverberations of economic downturns. A Chinese proverb, “Fu bu guo san dai,” translates to ‘wealth never survives three generations,’ underlining the transitory nature of prosperity.
This discourse undertakes the task of delineating how those identified in the Ghanaian banking sector as high-net-worth customers (HNWC) can both acquire and retain their wealth during economic downturns. The ensuing discussion appraises the specific hazards confronting HNWC in the Ghanaian landscape while also revealing the latent prospects that may materialise.
Economic downturns are an inescapable facet of the economic cycle, impacting nations globally—Ghana is not excepted. The traditional Keynesian economic perspective argues that economic contraction is a consequence of downturns, accompanied by unique challenges and opportunities in each context. The contextual fabric of society is significant because economic predicaments are intricately interwoven with the economic policies of states; even slight alterations at the regional level can swiftly morph into uncharted investment trajectories.
To provide a measure of lucidity to the intended audience, it is imperative to clarify that ‘wealth management’ is akin to defining ‘beauty,’ subjective and elusive. Hence, the criteria for designating a high-net-worth individual can diverge across countries and even within the financial institutions of the same nation. Though some entities designate individuals with assets or accounts ranging from US$10,000 to US$1million as high net worth, these thresholds remain malleable, contingent on the country and context. Furthermore, while quantifying HNWC in Ghanaian terms is challenging, the impact on their wealth during economic fluctuations remains consistent.
Foremost, the primary hazard confronting HNWC in Ghana emanates from unpredictable fluctuations in commodity prices. Many African economies, including Ghana’s, pivot on commodity exports—crude oil, minerals and agricultural products. Skilful comprehension and foresight are requisite when economic downturns culminate in precipitous global commodity price drops; these shocks profoundly echo through businesses and investments anchored in these commodities. Notably, Ghana’s position as a prominent gold producer heightens the susceptibility of its economy to gold price oscillations. The ensuing consequences cascade across Ghana’s export revenue and foreign exchange earnings. Correspondingly, essential exports like cocoa and timber are prone to price shifts, amplifying timber, and cocoa revenue volatility.
Interpreting the intricate interplay of price fluctuations between commodities demands some degree of astuteness. A guiding insight resonates from the Ghanaian adage: ‘When you perceive someone’s beard aflame, ready yourself to avert a similar fate.’ In parallel, alterations in global oil prices hold direct sway over Ghana’s fiscal budget, trade equilibrium and broader economic stability. Although seemingly disparate, volatility in non-traditional exports, such as fruits, vegetables and processed foods, also bears an influence on the nation’s earnings, and on businesses.
African currencies encounter the brunt of economic downturns. Currency depreciation erodes the value of future investments and the ambit of operations, subsequently curtailing the purchasing power of those with assets denominated in local currencies. Drivers behind this depreciation encompass shifts in global economic conditions, trade imbalances, fluctuations in commodity prices, and external shocks. Thus, exchange rate fluctuations and depreciation must be factored into current anticipatory strategies and tactics aimed at bolstering internal financial control systems. Clinging to foreign currency may not be judicious either; instead, meticulous scenario planning and strategic foresight emerge as prerequisites.
Moreover, while Ghana relishes relative political stability, neighbouring West African nations grapple with political tumult and evolving regulations, amplifying the impacts of economic downturns. Consequently, HNWC must recognise that proximate political instabilities necessitate a re-evaluation of future investment strategies. The article by Adams et al (2014) posits that macroeconomic and socio-cultural effects in other African countries can significantly impact investments in Ghana. Hence, HNWC with investments in the African region confronts elevated uncertainties and potential disruptions caused by uncertainties emanating from other countries in the African region. Even within Ghana, shifts in governmental policies and leadership wield considerable influence over businesses. Issues of corruption and bribery continue to linger as inimical factors for HNWC. Across the spectrum of political and regulatory landscapes, factors such as infrastructural development, land disputes, regulatory adherence, and labour dynamics proffer persisting investment risks.
Finally, juxtaposed against developed markets, African financial markets extend fewer investment avenues amid economic downturns. This context necessitates meticulous deliberation of diversification strategies—both within the region and beyond—to adeptly mitigate risks. In this realm, the sage counsel of Thomas Edison reverberates: ‘Sometimes opportunities manifest as toil garbed in overalls.’ Within this paradigm, although formidable risks loom, a multitude of opportunities abound. Subsequently, the ensuing segment of this discourse expounds upon a select few.
Firstly, despite economic downturn-induced challenges, Ghana’s substantial agricultural potential remains untarnished. HNWC stand to unlock lucrative prospects in agribusiness, fanning the flames of sustainable development, nurturing food security, and potentially engendering favourable returns.
Secondly, African governments espouse infrastructure development as a means to stoke economic growth amid downturns. Here, finding the impetus to capitalise on infrastructure investment prospects spanning roads, energy initiatives and telecommunications ventures could be divine. Such investments redound not only to the continent’s advancement, but also augur potential long-term yields. Pertinently, those exploring investments in these domains or government-backed initiatives must traverse official channels and adhere to requisite protocols to avert potential pitfalls and the entanglements of bribery-related scandals that could imperil their wealth.
Thirdly, economic downturns often kindle an augmented focus on impact investing—a sphere where HNWC can channel capital toward projects generating both favourable social and environmental outcomes alongside financial returns. The burgeoning environmental and social governance (ESG) framework traverses 21st-century corporate boardrooms, demanding that HNWC acquaint themselves with its pivotal significance in shaping the trajectory of goods and services production and consumption across Africa.
The prominence of gender diversity in the boardroom progressively gains ascendancy, as studies indicate that women in influential positions infuse decisions with a sense of equilibrium. This paradigm resonates with recent business management research which underscores how the neurocognitive disposition and inherent nurturance of women endorse future-oriented initiatives on technological and social innovation. The discourse emphasises that embracing ideological diversity could empower HNWC to proactively steer sustainable development in Ghana and Africa at large, furthering socially acclaimed brands.
Fourthly, the entrepreneurial tapestry of Africa attests to its resilience, even amid economic downturns. Hence, HNWC should stake their claim as patrons of budding start-ups and small and medium-sized enterprises (SMEs), thereby sowing seeds of job creation and underpinning overall regional economic growth. This engagement enhances the ‘ethical consciousness’ of HNWC, laying the cornerstone upon which indelible brands may be erected in the hearts and minds of the populace.
In summation, economic downturns, whether witnessed in Ghana or elsewhere, beckon a unique dance of risks and opportunities for HNWC. Formidable challenges encompass currency depreciation, commodity price volatility and political vicissitudes. Nonetheless, by circumspectly charting investments in pivotal sectors like agriculture, infrastructure, impact-driven ventures, start-ups and SMEs, HNWC can forge a path toward the sustainable expansion of the region while concurrently reaping potentially attractive returns. Moreover, the embrace of philanthropy and community support has the potential to bequeath a legacy of impact transcending the confines of financial gains. When navigating the labyrinthine contours of economic downturns in Ghana, the guidance of seasoned local financial advisors becomes invaluable, assuring that well-informed decisions are made, and opportunities optimally leveraged.
To safeguard and augment one’s wealth, sometimes, what one ‘knows’ assumes greater significance than what one ‘possesses.’ To this end, a selection of additional resources is proffered, serving as reference points for making judicious decisions during economic downturns in Ghana and beyond.
Sources/Further Reading
Adams, K., Attah-Boakye, R., Yu, H., Johansson, J., & Njoya, E. T. (2023). Female board representation and coupled open innovation: Evidence from emerging market multinational enterprises. Technovation, 124, 102749.
Adams, K., Debrah, Y. A., Williams, K., & Mmieh, F. (2014). Causes of financial FDI inflows into sub‐Saharan Africa (SSA): Evidence from Ghana. Thunderbird International Business Review, 56(5), 439-459.
Attah-Boakye, R., Adams, K., Kimani, D., & Ullah, S. (2020). The impact of board gender diversity and national culture on corporate innovation: A multi-country analysis of multinational corporations operating in emerging economies. Technological Forecasting and Social Change, 161, 120247.
Chamberlain M. (2018). ‘What Is Wealth Management? A Definition That Works For Everyone. Forbes; retrieved from link. August 1, 2023
Graham, B. (1984). The Intelligent Investor: The definitive book on value investing. Harper Business Essentials, New York.
Kwakwa, V. & Uche O. A. (2023) Economic Recovery and Growth; Tackling Multiple Headwinds; Brookings Institute: Retrieved from https://www.brookings.edu/articles/economic-recovery-and-growth-tackling-multiple-headwinds/ August 24, 2023.
Maritz, J. (2018). How we made it in Africa: learn from the stories of 25 entrepreneurs who’ve built thriving businesses. (GSB, University of Cape Town).
Starr, M. (Ed.). (2016). Consequences of economic downturn: Beyond the usual economics. Springer.
Dr. Asimenu is the Head of Business Development, International, Wealth and Investment, Stanbic Bank.
Dr. Adams is an Associate Professor in International Business & Management at the Bradford School of Management, UK.
