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Asset Securitization; a Viable Financing Option for Ghana

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The discovery and eventual production of oil in 2011 added to the plethora of natural resources that pushed Ghana into this layer of the development ladder. It was expected that oil production would significantly improve our financial situation. This is yet to happen. Fiscal deficits have reached historical highs, pushing macroeconomic instability to a limit. These have forced us to seek an IMF bailout. Even though the immediate effect of this bailout may be positive, this option is not sustainable, considering that previous bailouts and debt reliefs under HIPC have not solved our problems.Since attaining a middle-income status, Ghana has come under severe financial constraints, resulting in the alarming fiscal deficits recorded in the last couple of years. This situation can be attributed to the drying up of multilateral and bilateral development financing normally provided by development partners to support budgets of low income countries. Apart from the internal financial constraints faced by these development partners in their local economies because of the global financial meltdown, attaining a middle-income status, practically, disqualifies Ghana from accessing certain development finance, which hitherto was available to support our annual budgets.

Interestingly, Ghana is one of the most endowed nations, with resources ranging from gold, oil, bauxite, cocoa, etc. These are capable of making Ghana self-reliant. These natural resources have been leveraged very well in other countries to build super resilient rich economies in the Middle East, Europe and America. Nations have engineered innovative asset-backed financing models to transform their economies. Ghana does not need more than the abundant natural resources to embark on major securitization drives like many nations have done.

Some asset-backed securities have been issued in the past to finance major infrastructure projects in the past. The Akosombo and Bui Dams were constructed under similar arrangements. The Chinese facility for the construction of the Bui Dam was backed by cocoa export receivables.  There have been recent discussions about securitizing our road tools to raise capital to construct major roads across the country. The challenge is that these initiatives have been implemented on an ad hoc basis. What Ghana needs is a coordinated approach to position asset securitization as a major financing tool.

Securitization of debt, or asset securitization as is more often referred to, is a process by which identified pools of receivables, which are usually illiquid on their own, are transformed into marketable securities through suitable repackaging of cash flows that they generate.

We need to take stock of the abundant natural resources across the country and estimate the receivables from these resources we have been exporting for years. This stock-taking process would involve estimating the cash flows from the sale of these resources. Once the pattern, quantum and value of these cash flows or receivables are established, we can go to the capital markets to raise significant amount of money to fast track our development process. There is no reason why Ghana cannot raise US$100 billion or more from the capital markets through asset securitization to finance major infrastructure projects.

By so doing, we will succeed in changing the structure of our economy from an extractive one to an industrial one capable of withstanding global price volatilities which tend to destabilize our economy year on year.

This article was produced by C-NERGY Ghana Limited. C-NERGY Ghana Limited is a wholly-owned subsidiary of C-NERGY Global Holdings, an advisory and investment banking group incorporated in South Africa. C-NERGY represents an accumulation of deep and vast experience in the provision of advisory and investment banking services with a tradition of collaboration with leading international financial institutions and investment banks.

 

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