The Club 100; Ghana’s FSTE 100

By Francis Kwaku Egu

Introduction

One of the greatest achievements of the Ghana Investment Promotion Council (GIPC) is the introduction of Ghana Club 100 (GC 100) in 1998. The GC 100 is made up of the top 100 high performing companies in Ghana from both public and private sectors. According to GIPC reports the idea behind the creation is to provide a world-class forum for top ranking businesses to interact and share techniques for the overall benefit of the economy. The listing, grading and awarding is carried out annually. During the events new companies could be upgraded and old ones eliminated from the list. This is very noble idea and I will like to commend the initiators of such fine idea. According to GIPC reports at its inception in 1998 the total turnover of GC 100 members was 6.5 trillion cedis and a total net asset was 9.7 trillion cedis with 1.03 trillion cedis in pre-tax profits. In the maiden edition of GC 100 Ashanti Goldfields Company Limited took the top spot as a leading performer in the mining sector. Volta River Authority (VRA) was adjudged the highest net asset- based company and top performer in the energy sector. Social Security and National Insurance Trust (SSNIT) was the highest profit making company in the financial sector. (www.gipc.org.gh/gc100/index.asp)

Evaluation GC100 members

In 1998 when GC 100 was introduced GIPC evaluated companies on the basis of their net asset size, profit before tax, number of employees, return on equity and growth trends. This evaluation gave state owned companies advantage over the private companies, so state owned companies like Ghana Telecom, SSNIT, Ghana Oil, VRA, and State Insurance dominated the programme. Taking a close look the criteria, its evident very few private owned companies could compete with the state owned ones for the top spots. For instance the use of net assets size, employee numbers and growth trend will put, companies like SSNIT, VRA and Ghana Telecom way ahead of other competitors. Very few private companies in Ghana could employ more staff than the above named companies. Besides only few private companies could declare more profit or have more net asset size than any of them. The criteria were flawed on the onset and drew a lot of criticism from the Ghanaian business community. Some critics argued the criteria resulted in loss making companies appearing on the list thus defeating the purpose for which it was introduced.

Talking about loss making companies I believe the critics were right. Some few years down the line some of these highflying companies, which were top on the list, either went into administration or were acquired by other companies. A typical example is VALCO an aluminium smelting company, which was owned by the Kaiser Aluminium Corp of the USA. It folded its operations in Ghana and sold its holding to the Ghana Government. Another example is Ghana Telecom. It went into administration and was put up for sale. Vodafone, a very reputable company, later acquired it. (www.gipc.org.gh/gc100/index.asp)

New Changes

Amidst the criticism and call for changes GIPC reviewed the criteria for selecting members of the Ghana Club 100, citing implementation problems. In the course of the review some very important changes were made. For instance companies with 100 per cent government holdings were disqualified from participating in the programme. Only limited liability companies with less than 50 per cent government shareholdings were allowed to take part. Besides qualifying companies must post positive cumulative net profit three years running prior to the competition. Apart from turnover companies were also judged on the following profitability, turnover, and growth rate in turnover and net assets. The review made it possible for small businesses to participate in the programme. The GC 100 also became more competitive and attracted more members. The initial registration fee of 500,000 cedis was also dropped and companies were allowed to register free. (GNA 2003 -04-09).

Further changes were introduced in the 2005 edition of GC 100. For the first time in all the edition of the GC100 a company’s corporate social responsibility was recognized. The GIPC considered what it described as six core areas under this element. These were health, education, poverty alleviation, environment, and social care.

Result of the changes

The changes resulted in new and smaller businesses becoming GC 100 members. It also resulted in Rural Banks taking top spots in the GC100 membership. In fact a particular trend emerged in the Ghanaian corporate community as a result of these changes. There was what I will refer to as ‘fairly new business’ taking up centre stage and out muscling the more traditional companies. These ‘‘fairly new business’ are businesses which are new entrants in the corporate scene in Ghana compare to the more traditional ones which has been in existence for decades. One such fairly new business’ is Scancom Ghana Ltd. This company provides a telecom services in Ghana. Its service brand the ‘Areeba’ is a leading brand in Ghanaian mobile telecommunication services market and has a very high market positioning in the Ghanaian telecom market with about 2,300,000 subscribers on the Areeba network. Spacefon offers both post and pre-paid services to its customers and its a market leader in the increasingly competitive mobile communications market with an impressive 60% market share. For four years running Scancom has topped the list for the GC100 as the most fast growing, most profit making and most employerable company in Ghana. (Spacefon website)

The trend which I referred was revealed more in 2005 edition of the GC 100. On this list the fairly new businesses (which entered the Ghana business sector with a storm) out performed the hitherto well established companies like Unilever, Nestle Ghana Ltd etc. Unilever was 39th on the list. Out of the ten best performing companies of the 2005 GC100 seven (7) of them belong to theses fairly new businesses. This should be a big challenge to the Unilevers, Guineas Ghana ltd etc.

The Rural Banks

The rural banks were some small businesses that benefited from the review. They burst onto the scene with very wonderful results. Their number increased from 12 in the 2003 edition to 14 in the following year and then to 20 in the 2005 edition. Rural banks in Ghana were set up with the primary aim of providing banking services in the rural communities. Most of them began as small businesses but today they are rated as high performing businesses. Out of about 120 rural banks in Ghana 20 of them feature on 2005 edition of the GC100 with one of them Atwima Kwawuman Rural Bank ranking among the top 10 GC 100 members. This edition saw the hitherto bigger banks trailing behind smaller rural banks. Barclays Bank Ghana Ltd, which is a big name in Ghana, was 14th on the list while Standard Chartered Bank Ghana Ltd was 22nd. Stanbic Bank Ghana was 24th. The last two big trailed behind Kakum Rural Bank, which is 16th on the list. On the whole seven (7) rural banks were among the first 50 GC 100 ranked companies as most effective and efficient businesses in the country. This is no mean achievement and the managers of these rural banks must be given pats on the back

The name Club 100

The name Ghana Club 100 sounds more casual to me. I have no qualm with the name but just that it sounds more like a social club, football club, Disco Club etc. Let me say a social club of the first top 100 companies in corporate Ghan. I believe the name Ghana Investment Promotion Council (GIPC 100) will be more appropriate. This will give it a corperate touch and make it more businesslike. Apart from the name the GC100 itself should be organise in a way that it could be linked to the share index of Ghana Stock Exchange (GSE). One criterion which could be introduced to make this possible is all GC 100 members must be listed on the Ghana Stock Exchange.

Imagine all these high performing 100 companies listing on the stock exchange? It will not only expand the stock exchange but also serve as a bed rock for the future creation of the first most 100 capitalised companies in the country. Currently a look at the GSE website revealed that out of GC100 members only nine (9) members were listed and engaged in trading of ordinary shares on the market. Out of the first 10 members only Guinness Ghana Limited was listed. Guinness Ghana Limited was third on the list of GC100. Surprisingly Spacefon which has taken the top spot for four consecutive times was not among 34 companies listed on the stock exchange. (GSE have year report 2008)

Listing of GC100 members on stock exchange

The listing of all GC 100 members on the stock exchange will not only expand the stock market but will also increase their pool of investors. The companies will also raise additional equity capital by selling their stocks, bonds or other securities to obtain long term finance for expansion in sales or increase in their working capital. It is obvious that most of these companies are new and therefore will not have internally generated funds like retain earnings and non- cash charges against profit (e.g. depreciation). Secondly equity finance unlike debts is irredeemable with no obligation to pay. It will also pave the way for new entrants to the GC 100 to go on the market with their initial public offerings (IPO’s).

The good thing is that the Ghanaian public is gradually becoming keen on investing in shares. Most people are now aware that holding shares (ordinary) in a business not only yields dividend but also gives additional benefits of ownership of the business. This is because GSE is doing a wonderful job in educating the public. Aside of that other financial institutions like the Credit Union Ghana (CU) are also playing major role in enlightening the public. The Credit Union is mobilising savings from its members and investing them into shares on behalf of its members. Members therefore receive some interest on their savings in the form of dividend. They CU which originally deals with members at workplaces, is now targeting the self employed. They are also working in collaboration with some churches in Ghana and getting the members of these churches on board as members of the Credit Union. Dividend payment is therefore very pivotal in the development of the stock market in Ghana and this must be taken seriously. Therefore businesses need to come with very good dividend policy that will entice the public into investing into shares.

Share Trading

A report from GSE indicates trading on the exchange for the first half quarter of 2008 was quite encouraging. There was high demand for shares and there were also gains in some share prices. According to the report nine (9) out of the thirty- four (34) companies listed had gains of over 20% in their share prices with the highest gain of 58% going to Cal Bank. Besides the GSE All-share Index moved up from 6,718.88 points at the beginning of January 2008 to 0,346.30 in June 2008 representing a half year gain of 56.77% compared with a gain of 5.76% for the same period in 2007. Total market capitalization of the Exchange as at June 30, 2007 was GH¢11.47 million (US$12.34 million). Between January and June 2007, 135.85 million shares were traded. (GSE 2nd quarter report 2008).

These results are quite amazing compared to the fall in share indexes in the world markets. For instance the FTSE-100 index of leading shares in the UK fell 7.65 points, or 0.2%, at 4052.23. The Germany's DAX index fell 1% to 4219.42 points and the Paris CAC shed 1.2% to 2869.62. The Dow Jones Industrial Average fell by 105.30 points, or 1.28%, to 8122.80. (The Herald, 27/01/09)

Share prices in the world major stock markets are not faring any better. In the UK apart from the banking sector making some gains the story doesn’t look good in some companies. There were gains in the shares prices of Royal Bank of Scotland from 14.5p to 16p an increase of 10.34 per cent and Lloyds Banking Group from 65p, to 68.6p an increase of per cent or 3.6p. The gain in the share prices in the banking sector was attributed to recent initiatives by the UK and USA government to shore up lending. This imitative is believe to be having some positive effect in the US and UK (The Independence 27/01/09)

Ghana’s FTSE 100

One can argued that the GIPC modelled GC 100 along the line of the FTSE 100 of the London Stock Exchange or the Hang Seng of Hong Kong. The FTSE 100 is a share index of the 100 most highly capitalised UK companies listed on the London Stock exchange. The index began in 1984 with just 1000 companies but this increased to 6950.6 companies in 1999. The index is maintained by the FTSE Group, which is owned by the Financial Times and the London Stock Exchange. FTSE 100 companies represent about 80% of the market capitalisation of the whole London Stock Exchange.

As of 2006, the threshold for inclusion in FSTE 100 was about £2.9 billion and component companies must meet a number of requirements set out by the FTSE Group. For instance they must have full listing on the London Stock Exchange with Sterling or Euro dominated price on SET. In December 29 2006 the 6 largest constituents of the index were BP, Royal Dutch Shell, HSBC Holdings, the Vodafone Group, the Royal Bank of Scotland Group and GlaxoSmithKline, which were each valued at more than £60 billion. (Source Wikipedia encyclopedia)

The Hang Seng Index

Apart from the FTSE 100 the GC100 also have certain things in common with the Hang Seng except that the Hand Seng is weighted stock market index. The Hang Seng Index (HIS) is a freefloat-adjusted market capitalization – weighted stock market index in Hong Kong. This is made up of 45 companies which represent about 67% of capitalization of the Hong Kong Stock Exchange. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. Hang Seng members companies are selected based on their market capitalisation, turnover rankings and financial performance. (Wikipedia encyclopedia)

GIPC uses similar criteria in ranking the GC100 members in its editions: company size, profitability, growth, and net profit assets.A close look at the 2005 editions of the GC 100 reveals a slight deviation from the original performance indicators used in earlier editions. The introduction of the corporate social responsibility as one of the indicators is quite good but it will be better if GIPC keeps to its original indicators. These indicators could pave the way for GC 100 following in the path of FSTE 100 or the Hang Seng.

Conclusion

GC 100 is an excellent performance assessment mechanism in institutions in corporate Ghana. It has really gained international recognition and any foreign investors will definitely like to invest in the top performing companies in the rank. However GIPC should consider changing the name Club 100 to GIPC 100 or any other name and Club 100 members must be listed on the stock exchange. Finally GIPC should try to link GC 100 to the GSE share index so that Ghana could also have its own FSTE 100 or Hang Seng in the near future.

. Francis Kwaku Egu -MBA (Finance) UK

PhD Finance Student, London- UK [email protected]