A case for offshore banking in Ghana

Opinions on Monday, October 12, 2020

Columnist: Baafuo Osei

2020-10-12

In 2005, the Kufuor government initiated plans to establish Ghana as an offshore International Financial Services Center (IFSC) with a view to attracting foreign direct investment, earning income from license fees payable in foreign currency, creating employment, upgrading skills and local knowledge, and strengthen the financial sector by expanding the use of investment banking instruments.

Although the first offshore banking license was issued to Barclays Bank Ghana in 2007, the Mills government revoked the license in 2011.

However, the events that followed the recent parliamentary approval of the Agyapa accord and the ensuing debate on the country’s development needs require a reversal of offshore banking policy.

According to figures from the Bank of Mauritius, global corporate banking total deposits at the end of June 2018 represented 14.4% of total deposits, or $ 15.7 billion. Therefore, there is a case for a policy change allowing the BOG to issue offshore banking licenses so that Ghana can take full advantage of the Banking (Amendment) Act 2007 (Act 738).

Now, to help in the task of acquiring funds for development, on Friday, August 14, 2020, the Parliament of the Republic of Ghana, in the middle of the matrix of a work of center-left minorities, approved five agreements aimed at raising cash through online capital financing Law of the Mineral Income Investment Fund (MIIF), 2018 (Law 978).

Equity financing is a method of raising capital by selling company shares to the public, institutional investors, or financial institutions. Entities that buy shares are called shareholders because they have received ownership interest in the company.

Agreements approved by Ghana’s parliament should facilitate the establishment of a special purpose vehicle (SPV), Agyapa Royalties Limited, designed to discharge a maximum of forty-nine per cent of the shares via the London Stock Exchange ( LSE) and the Ghana Stock Exchange (GSE). .

Furthermore, the assignment agreement between Ghana, MIIF, ARG Royalties Ghana Limited (an entity created by MIIF and assigned rights) and Agyapa Royalties Limited (Agyapa) will guarantee the capitilization of Agyapa with an annual cash injection of approximately $ 200 million, which which represents 75.6%. total annual mineral royalties from selected mines in Ghana.

In the short term, by selling 49% of Agyapa’s share capital in the LSE and GSE, the state expects to reap at least half a billion dollars in cash, which will be used to finance special projects in Ghana. In the long term, the plan is to position Agyapa as a truly giant African royalty company, investing in potentially successful mines and associated value chain infrastructure while rewarding shareholders through dividends.

However, the events before, during and after the approval of the Agyapa agreement have generated conspiracy theories about the true intentions of the current PNP government. Critics are baffled that a deal that took the consultants about two years to prepare; involving volumes of paperwork, it was presented to the parliamentary finance committee on August 12, 2020 only so that the minority had just four hours to study the documents. Thereafter, the deal was debated once in parliament and approved on August 14, 2020. Clearly, the minority had no choice but to organize a march.

The minority claim they were aware of only two years of historical and current cash flow. No projected cash flow beyond 2020 was provided to them to determine Agyapa’s net present value to improve decision making.

Furthermore, critics do not know why the parliament approved the listing of Agyapa as a private company rather than a sovereignly owned company, which would have assured Ghana of control of decision-making on Agyapa’s board, considering the fact. that the LSE is open to sovereign actions. controlled companies with a minimum sovereign equity of 30%.

Critics also wonder why the NPP government and the NPP-controlled parliament would want to relinquish sovereign control of Agyapa despite the fact that the state will retain a 51% stake in the entity and provide an annual capitalization of 200 million euros. Dollars. These problems have led to accusations of corruption by civil society organizations and the opposition.

In response, the special prosecutor’s office in Ghana initiated a corruption risk assessment of the Agyapa agreement. Subsequently, the Ministry of Finance suspended the planned launch of an Initial Public Offering (IPO) of Agyapa Mineral Royalties Limited until the results of the corruption risk assessment are disclosed.

It is evident from the ongoing discourse between political parties in the run-up to the 2020 elections that the government needs additional revenue to provide educational, medical, agricultural, rural and urban road infrastructure, airports, human capital development, etc.

Since traditional means of revenue collection are comprehensive, it may be prudent to remove policy restrictions that prevent the BOG from issuing offshore banking licenses so that Ghana, like Mauritius, can take full advantage of offshore banking.

Offshore banks generally provide privacy, less restrictive legal regulations, minimal taxes, easy access to deposits, and most importantly, protection against local financial or political instability to depositors who do not necessarily reside in the country. Therefore, to kick-start the offshore banking process, the Kufuor government signed a memorandum of understanding with Barclays Bank Ghana in June 2005 to help develop an offshore haven called IFSC.

In 2006, the Government of Ghana and Barclays Bank Ghana worked together to design the operational, legal, regulatory and organizational framework for the (IFSC). This included an investigation by global consulting firm Grant Thornton Mauritius (Mauritius office of an international accounting firm) on the feasibility of such a center in Ghana, based on the experience of Mauritius.
Furthermore, in 2006, the Bank of Ghana published a working paper: “Developing an offshore financial services center in Ghana: issues and implications”.

Then, in 2007, the Ghanaian parliament passed an amendment to the Banking Law of 2004 (Law 673) to facilitate the establishment of an IFSC. The Banking Act (Amended) 2007 (Act 738) received Presidential approval on June 18, 2007 and in September 2007 the Bank of Ghana granted Barclays Ghana the first offshore banking license.

However, it is unclear whether the Mills government’s actions to revoke the offshore license granted to Barclays Ghana stemmed from fears that a financial haven in Ghana would fuel corruption and crime in West Africa. Whatever the reason, it may seem like the centerpiece of the NDC’s left-wing political leadership, with Amissah Arthur as governor of the Bank of Ghana she may have let Ghana down.

Twelve years after the enactment of Law 738, Ghana has yet to reap the full benefits of the law despite the fact that Ghana needs billions for development. This situation cannot continue. Therefore, political parties must work to ensure that offshore banking can take off smoothly, so that foreign direct investment, the availability of jobs and the expansion of financial services boost the Ghanaian economy.