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AGI@60: A Persistent Private Sector Voice

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The AGI was established in 1958. Despite the country’s very young and unstable democracy, business leaders saw the need to have a stronger voice to represent their interest irrespective of who is in government.

As the adage goes: “Government has no business in running business”. This mean, businesses must focus on running business, creating jobs, paying taxes and sustaining economic growth. But to sustain business growth, businesses need a voice that cannot be suppressed.

Led by the iconic Dr Esther Ocloo, founder of Nkulenu Industries, the Association of Ghana Industries (AGI) was formed with only 10 local manufacturers with the initial name of Ghana Manufacturers Association. With time other manufacturers, including the multinationals, saw the essence of having a stronger production voice and within a couple of years, members soared.

In 1984, as though the membership was not enough, the association’s constitution was amended which opened to all registered companies engaged in manufacturing or the provision of services to the manufacturing sector and through associate memberships, other sectors including not-for-profit organisations have become members as well.

Such associate members include the Liquor Manufacturers’ Association of Ghana, Ghana Printers & Paper Converters’ Association, Furniture & Wood Products’ Association of Ghana, Ghana Timber Millers’ Organization, Advertising Association of Ghana, and others.

Today, the AGI now has over 1,500 members across over 20 sectors including advertising, agri-business, automotive & transportation services, beverages, business promotion & consultancy services, chemicals, construction, electricals & electronics, energy, exports, financial services, oil & gas, and food.

Others are hospitalities & tourism, information & communication technology, metals, building & construction products, pharmaceuticals & herbals, printing, stationery & packaging, rubber & plastics, toiletries & cosmetics, environmental and sanitation, garments, textiles and leather and wood processing.

With such a broad membership, the association has also increased its role in society beyond just the advocacy and advisory for policy and is now engaged in industrial sub-contracting and partnership, information gathering, analysis and dissemination, business plan preparation and development and trade promotion for members. Trade promotion, especially, has seen members, who hitherto would have struggled to enter particular markets are now operating on a global scale.

With the objective to contribute substantially to the growth and development of industries in Ghana and to create a supportive and competitive business climate, which will make Ghanaian companies internationally competitive, the AGI’s mission is to carry out proactive support services to the industrial sector with the view to contributing substantially to the growth and development of industry in Ghana.

Geographically, the AGI is physically represented all across the country with seven locations where members located in such areas report to the regional office and have their own sub groupings.

In an in-depth interview with Seth Twum-Akwaboah, Chief Executive Officer (CEO) of the AGI, issues such as relationship with government, industrial policy, local currency impact on businesses, power for operations, cost of credit, taxation, budget, trade, the AGI’s own Business Barometer and the future of the Association were extensively covered.

 

Relationship with Gov’t

Similar to any kind of relationship, Mr. Twum-Akwaboah, notes that there have been good and bad times. “The relationship with government has been good, but as every relationship it has challenges,” he says.

During the military regimes, he notes that, the AGI faced some of its most testing periods. While the AGI was pushing for and continues to push for a private sector led development, government was looking for state-led developments.

“At some point there was the tendency for the leadership of the association to be branded as anti-government. Most of the leaders of AGI were jailed or harassed by the military. Meanwhile all the AGI leaders wanted and continue to want is for the promotion of business at every point in time irrespective of who is leading the government,” he says.

Today, the AGI has become stronger for it and when it speaks through its regular statements, researches and the iconic Business Barometer, everyone listens. Since the commencement of the fourth republic, government has also recognised the significant role of the AGI in bringing in development to the country.

Significant roles played by the AGI now include making inputs in the national budget; by law and convention, the AGI is represented on several boards of public institutions, quasi government institutions and unions.

“If you want to influence policy, you do not wait till the end of year to make a statement. You need representation to influence policy at such levels. These are means of engaging. Due to our regional representatives, we engage policymakers such as regional ministers, district assemblies. There are some policies, at the local level, that have effect on businesses and industry,” he adds.

Despite the seeming strong power the AGI wields, Mr. Twum-Akwaboah, adds that not everything asked or requested of government is granted. Sometimes, he says, government blindsides the AGI with certain policies that could harm businesses especially in the areas of taxes, levies and laws.

“There are several government policies that have taken us by surprise and then we try to lobby for such policies to be reshaped to help businesses. We have such a regular working relationship with the government because it is needed to keep businesses growing,” he adds.

Budget Inputs

Touching on the AGI’s input on the annual and mid-year budget, Mr. Twum-Akwaboah, notes that the association presents inputs and afterwards holds a hearing with the finance ministry where individual AGI members speak about their views of the economy and what needs to be changed.

On the 2019 budget, the AGI presented a couple of inputs including the scrapping of the straight 5percent GETFund and NHIL on goods and services. “We thought its implementation was not the best and harmful to businesses because this is a cost happening across all levels of the value chain and has the potential to increase the cost of goods and services by as much as 20percent if the distribution chain is up to four,” he notes.

For big manufacturers with three distribution levels, he explains, the manufacturer will pass on the 5percent to the key distributor, who will now add another 5percent and move it to the wholesaler, who adds another 5percent to the retailer, who then adds 5percent to the consumer’s product.

“That is the cascading effect and will make the price of goods and services of local manufacturers very expensive,” he says, noting that for the importers, they just pay a flat rate of 3percent.

“For an agenda that seeks to promote local industries, this tax is inimical to local businesses. We engaged the minister and the tax policy unit with other stakeholders and we expected the 2019 budget to take it into consideration but it was not captured. We will continue to engage the minister,” he says.

But overall, the CEO of the AGI lauded the 2019 budget, describing it as “positive” but stressed that what matters is implementation. “A lot of the intentions are good including the making of US$1billion for industrial initiative, a stimulus package for struggling industries and industrial zones are good,” he says.

 

Industrial Policy Stutters

Government, in 2011, launched a comprehensive industrial policy to place industry at the centre of development.

The policy, which was started during President John Kufuor’s regime and completed when President Atta-Mills was in power, is a set of specific policy instruments and measures to be applied to increase access of the country’s manufacturing sector to competitive factors of production to enhance productivity, efficiency and competitiveness.

Key development objectives of the policy include expansion of productive employment in the manufacturing sector, promotion of agro-based industrial development and ensure spatial distribution of industries to achieve reduction in poverty and income inequalities. The implementation of the policy was expected to be done through an Industrial Sector Support Programme, which are time-bound interventions to speed up the rate of industrialization over a period of five-years.

The AGI, as the lead industry advocate, played a critical role in shaping the policy but since the launch of the policy nothing has come out of it and despite President Nana Akufo-Addo’s industrial agenda, led by the One District One Factory (1D1F) programme, the policy is still on the shelves.

When asked what is the current state of the policy, Mr. Twum-Akwaboah bluntly stated: “I do not think we have an industrial policy.” He notes that there was one, which was a good one, but implementation was poor and that led to the collapse of the policy.

To him, Ghana needs to incorporate the relevant aspects of the current government’s industrial agenda into the old policy and draw up a revised industrial policy and follow through. “Having a good policy and a plan is better than working on adhoc basis,” he says.

Does 1D1F fits into this policy?

He explains that what needs to be done for 1D1F to succeed is to allow the systems to work including using the 20percent of the District Assembly Common Fund, which is meant for district industrialization by law, to be used for its intended purpose.

“It was envisaged that, at the district level, you need industries to employ people and curtail rural-urban migration. That is why 20percent of the assembly’s common fund is dedicated to industrialization,” he says.

1D1F fits into the industrial policy because it envisaged the spreading of industries across the country and include locational tax incentives to push businesses into the other parts of the country and every location with specific raw materials. “That is an indication that we are encouraging industries,” he says.

But along the line, he notes, the AGI and businesses realized that such incentives were not enough due to the lack of markets, technology and infrastructure for businesses to thrive in such remote parts of the country.

1D1F requires patience

Asked about whether new members have joined the AGI as a result of 1D1F, Mr. Twum Akwaboah, advised that Ghanaians must be patient because 1D1F businesses will not just spring up overnight, especially when it is private-sector led.

Establishing an industry doesn’t happen overnight, especially sustainable private-sector led businesses. These businesses must be commercially viable, technically feasible and financially possible to get funding. To go through the process of acquiring technology, market assessment, right skills and have a proper corporate governance system does not happen overnight. The expectation that once you start, industries will spring overnight will not happen,” he says.

Secondly, he advised that one needs a very good funding arrangement to get the factories running, meanwhile, right from the beginning there was no funding for the programme.

To him, even though Finance Minister, Ken Ofori-Atta has made a pledge to mobilize US$1billion from various funding sources for small, medium and large scale enterprises to accelerate the industrial transformation agenda including the 1D1F programme, government should make a certain percentage for equity funding.

The AGI, he notes, tried to arrange funding to support the 1D1F, but he expects businesses interested in the venture to have some counterpart funding to attract investors. “We will love that the pace of the establishment of the 1D1F will be hastened so that we can all tell what is happening,” he adds.

 

The Business Barometer

One of the products of the AGI that any government is weary about is its Business Barometer. The Barometer is the true measure of business confidence in Ghana, spanning a period of over 11 years. It has consistently captured the views of 500 CEOs sampled from various sub-sectors of the Ghanaian economy.

Administered quarterly and largely through face-face interviews, the barometer touches several areas of economic activity across the 10 regions to ensure completeness of coverage. Assertions on the state of the business climate for the next quarter permit a ±5percent margin of error.

Often the Business Confidence index lies above or below the 100 base index with findings consistent with developments in the economy.

Starting as a Business Climate Survey, the survey was supported by the GIZ, a German development agency, as an annual report but when surveys were published which included key challenges faced by industry and businesses that were biting and needed quick interventions, the annual nature of it rendered it dud.

“We therefore converted it to a more frequent survey and allowed government and other stakeholders to quickly react to the needs of business,” he says, adding that it has helped a great deal in checking the policies being implemented by government in the short term.

 

The Thorny Issue of Power for Businesses

It is common knowledge that the AGI, for the best part of three decades, has been at the forefront of the campaign to not just reduce the cost of electricity or power for businesses, especially manufacturers to operate, but to overhaul the power sector to allow industries pay fairer prices which will allow them to compete especially against imports.

Earlier last year, government significantly reduced tariffs on electricity to as much as 25percent for big businesses but in the view of the AGI, the structure of the tariff regime is the problem not necessarily how much the reduction is.

Due to its squabbles with government over the cost of power, many believe the AGI is looking to run aground the power sector but Mr. Twum Akwaboah notes that that is not the case because power sector players such as the Volta River Authority (VRA), Electricity Company of Ghana (ECG) and Ghana Grid Company (GRIDCo) are all members of the association.

“How will we wish that our own members’ businesses collapse? We actually advocate for them as well. Power is a necessary input for production. What we have been asking for is simple: if you want Ghanaian industries to grow and be productive, they must have efficient power that can be given at competitive price,” he says.

The business principle of power

Apart from industry subsidizing residential users in Ghana, virtually the only country that still does this in the world, AGI’s main concern is the business principle of power being pursued by government which is killing industries.

“An instance is a company in Tema, with one metre, that pays GH¢3million in electricity bills per month. This business does not need a step down transformer because of the high volume of consumption and also does not need a lot of cables and poles to access power. To earn the same amount of GH¢3million from residential users, you need a whole community with several step down transformers, kilometres of cables and poles, hundreds of metres, and more manpower, all of which come at a cost.

That means it costs the service provider more to earn GH¢3million from residential communities than in industry for the same quantity or voltage of power. Also, the bigger the spread, the more leakages or waste occur and you are at a higher risk of illegal connections and other vices. Yet, the business, where the cost of service is cheaper, is paying more than residence where the cost of service is higher,” he says.

Ghana’s cost of producing power is too high

Another challenge the AGI has, when it comes to power, is the cost per kilowatt hour. In highly industrialised economies such as China and India, the cost per kilowatt hour hovers between 3 to 6cents but in the case of Ghana, it is near 20cents per kilowatt hour.

To Mr. Twum-Akwaboah, the Ghanaian industry cannot compete globally if it pays nearly four times the price in China and India, which are major industrial hubs. “It is important that we find ways and means to drive down the cost of electricity. We need to work hard, government and industry, because everybody is suffering when the price of electricity is high,” he adds.

‘Dumsor’

Touching briefly on the effect of the three-year power rationing, popularly called ‘dumsor’, he described its impact on industry as “devastating”.

To avert another power rationing and sustainably provide cheaper power for homes and businesses, he explains that what is needed is planning. “There is an eight-year cycle where the hydro source becomes inadequate and so you plan to get other sources in. unfortunately we did not plan in advance and that is what happened. In trying to solve it too, we signed countless Independent Power Purchasing (IPP) agreements that are not good for us.”

With the population growing, which is leading to sophisticated demands, the need for more energy is growing and so with efficient planning and regular investment in the sector, supply can stay ahead of demand so that Ghana will no longer experience the energy crisis we experienced between 2013 and 2015.

Renewables is the way forward

The AGI believes that with the advancement of technology in renewables, businesses and homes as well as government should aggressively consider the renewable option. “A few years ago it was very expensive to look into renewables but today the cost per production is getting cheaper and so government’s move in that direction is highly encouraged.”

With environmental protection in the face of climate change on the minds of the AGI, what the association wants to see is a flexible regulatory environment that will encourage a lot of private sector players into the space. “If you have a system that encourages the initial investment, then we can immensely benefit from renewables.”

 

Cost of credit, AGI’s bank and EXIM

With key macroeconomic indicators such as inflation, policy rate and Treasury Bill rate falling, AGI believes this should quickly translate into lower lending rates so that businesses can comfortably borrow and expand. “We welcome the consistent fall and we hope it continues to fall. Much as we want lending rates to fall quickly, we appreciate the gradual drops.”

The AGI, about four years ago, was pushing for the establishment of its own bank but not a word has been heard for the past year and a half. To Mr. Twum-Akwaboah, the establishment of the bank looked very good at the time it was being suggested but the economic climate and regulation makes it slightly challenging to run the bank in a manner that will be different from others.

“We wanted to create a scheme that will solve a major problem by providing medium to long term capital for industry. A lot of the banks today are not providing that, not even NIB and ADB, the development banks. With a universal banking license, you will have no choice but go by certain standards and that will make you no different from the others,” he says.

The AGI has repurposed the institution and has set up a fund, registered with the Securities and Exchange Commission (SEC) that can draw capital from government, development finance institutions and banks, and then AGI members can access this fund at much lower rates on medium to long term basis.

The ultimate aim, he explains, is to grow the fund to a level that AGI can secure a specialized license from the Bank of Ghana to operate as a specialized development bank.

Touching on the impact of recently established EXIM Bank, he notes that the AGI is very happy about its establishment but cautioned the business community to have patience for the institution since it is still early days yet.

“EXIM needs bigger capital and just the money coming from Import Levy is not enough. The whole idea of establishing an EXIM Bank is good because it can leverage its balance sheet to draw in capital from other institutions including other EXIM banks across the globe and create a bigger portfolio of funds and those moves do not happen in a day. We are monitoring and we can only be cautiously optimistic.”

 

Taxes and China’s US$2bn package

As businesses, paying taxes is unavoidable as taxes go a long way to develop economies and so with that the AGI wholeheartedly backs the government in pushing everyone to pay taxes. But AGI’s challenge is the implementation of some tax policies, especially the tax stamp, the frequent changing of the tax regime and the introduction of some new taxes.

The AGI, according to its CEO, has complained to government about some businesses that avoid taxes through under-invoicing and under-valuation and that led to the creation of a task force to monitor movements at the ports.

On the controversial tax stamp policy, which was welcomed by the AGI, the views of local manufacturers were not taken into account. The stamps, in the current format, will slow down high speed lines, especially for big beverage manufacturers such as Accra Breweries Ltd, Kasapreko, Cocacola, and Guinness Ghana Breweries Ltd.

But at the end, government and businesses have reached a compromise and now importers and local manufacturers are affixing the stamps and the Ghana Revenue Authority (GRA) is monitoring the situation aggressively. The textiles sector is the latest to start affixing the stamps, which is highly welcomed by players.

On the ECOWAS Common External Tariff, the AGI is still working on a comprehensive study to identify benefits and challenges but Mr. Twum-Akwaboah believes that being part of a common market is good for local businesses since the ECOWAS region is bigger than Ghana. “We just have to monitor how it is positively or negatively affecting our businesses.”

China’s US$2bn

The AGI truly secured a US$2billion credit facility with the China National Building Materials Company (CNBM) and so far several businesses have benefited. The whole idea, the AGI notes, is to use this to support the 1D1F.

The arrangement is such that businesses do not get direct financing but request for equipment when setting up factories and then repayment can be done till up to 10 years. The only challenges were guarantees from banks or government backing it with a sovereign guarantee but government is not prepared to do that.

So far, EXIM Bank and a few other banks have guaranteed projects for about 10 companies and construction is underway for some of the factories.

 

Future of AGI

For 60 years, AGI has become a stronger institution but the future is bigger and broader than one can imagine. Starting as a manufacturers association, it has moved beyond to encapsulate businesses. “As long as we continue to promote industry then AGI has a future but if we kill industry then there is no future for AGI. It is as simple as that.”

To Mr. Twum-Akwaboah, the current government has an eye for industry and a look at the 2019 budget leans heavily towards industry and initiatives such as 1D1F are industry focused and then there is the Ministry of Trade’s 10-point agenda. “As long as government itself has industry at heart, then AGI can only be smiling into the future and our core interest is to see members’ businesses grow.”

Therefore, the AGI will not relent in its efforts to engage with government to formulate business-friendly policies to see businesses grow. So far, the trend, he notes, is that global actions such as the ECOWAS Common Tariff and the Continental Free Trade Agreement are signs that the future looks promising for Ghana’s businesses.

“I am very positive that the future looks good but we need to advocate for the right policies and we need to have good entrepreneurs that are forward-thinking, committed and dedicated to doing businesses in a transparent manner,” he says.

 

Advice to members

To the members of AGI, over 1,500 of them including small, medium and large businesses, the association’s CEO believes that internally, implementing best corporate governance systems, good management style, recruiting the right talent, making sure efficiency is key and developing financial modules to survive during times of crisis, and prudent resource management will see businesses grow.

As the business grows, Mr. Twum-Akwaboah notes that there is the need for professional engagement. He further stresses “business leaders should not shy away from bringing in such help to develop and sustain their businesses. To go beyond generations, succession planning is key”.

For external factors such as inflation, interest rates, policies from government are not in members’ domain and so they should not be bothered about such actions. “Leave that to the association to handle.”

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Business Interview

Restoring confidence and building a resilient banking system in Ghana through … – A post banking-crisis analysis with Banking Consultant, Dr Richmond Atuahene

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The financial system remains critical for the socio-economic development of any nation. Banks in particular play a primary role in the intermediation of savings and investment as well as the servicing the economic agents with an efficient payment system. A good corporate governance framework for the banking industry is thus deemed critical for any financial system to effectively play this economic role.

The Basel Committee for Banking Supervision defines Corporate Governance from a banking perspective as the manner in which banking business and the affairs of an individual banks are governed by their Board of Directors and senior management for the benefits of both stakeholders and shareholders.

Ghana’s banking crisis witnessed in the last two years was largely blamed on the weak corporate governance structures and failure to enforce provisions in the relevant laws. 

As part of initiatives to restore confidence and build a resilient banking system, the Bank of Ghana in 2018 issued a new directive that seeks to compel banks among other financial sector players to be more responsible in their corporate governance practices.

Banking and Corporate Governance Consultant, Dr Richmond Atuahene in an interview with the Vaultz Magazine sheds light on the directive, the crucial need for it and how best it could be implemented to yield the desired results in Ghana’s banking industry.

The directive in perspective
Ghana’s banking crisis was characterised by a few banks showing financial distress as a result of challenges with solvency, liquidity and/or Non-Performing Loans. Such banks invariably could hardly raise adequate capital to maintain their businesses much less provide a cushion against any unforeseen problems. This led to a total bail out of seven (7) indigenous banks by the central bank – as a climax of the banking crisis.

Dr Atuahene believes poor corporate governance and risk management practices have been the major common underlying factor.

“Banks reportedly had one or two main shareholders exercising absolute authority and control in the financial and operational management of their institutions. Some directors also apparently lacked the requisite knowledge and experience to govern these banks and in many cases failed to appreciate their responsibilities under the law.

Some failed banks were also said to have used depositors’ funds to finance businesses of their shareholders and affiliates through loans and other facilities with little or no interest earned on such facilities. Many of such facilities were not paid back, and depositors’ funds were therefore at risk”

In a bid to address these challenges in the long term and thereby forestall a recurrence of the banking crisis, the Bank of Ghana in December 2018 released the revised corporate governance directive for Banks, Savings and Loans Companies, Finance Houses and Financial Holding Companies.

The revised corporate governance directive also captured in the Banks and Specialised Deposit-taking Institutions (BSDIs) Act 930 (2016) is meant to restore and promote investors’ confidence in the banking sector following the banking crisis. This is to be achieved by compelling all these Regulated Financial Institutions to adopt sound corporate governance principles and best practices to promote the interest of depositors and other stakeholders.

Underpinning legal requirements

There are three (3) main legal requirements considered key among the provisions in the revised directive towards achieving the ultimate objective. These include appointment and disqualification of directors, key management personnel and other employees; disclosure of interests by Directors and Key Management Personnel and the power of Bank of Ghana to intervene in the appointment of directors and other Key Management Personnel.

According to Dr Atuahene, section 58 of the BSDIs Act 930 (2016) prohibits a person from being appointed, elected or accepting an appointment or election as a Director, CEO or other Key Management Personnel under any of the following circumstances:

“If he or she is adjudged to be unsound mind or detained as a person with mental disorder under the Mental Health Act. Also, if the person is declared as insolvent, or has entered into any agreement with another person for payment of that person’s debt and has suspended payment of debt.

Again if he or she is the Director, CEO, and other Key Management Personnel associated with the management of an institution which is being wound out, has been wound up by Court of Competent jurisdiction on the account of bankruptcy or offence committed under an enactment. A person is also no Director or Key Management Personnel without prior written approval from the Bank of Ghana before appointment or election. And finally any person that has defaulted in the payment of financial exposure to any BSDIs is also not eligible” he outlined.

In respect of disclosures of interest by directors and key management personnel, under section 59 of the same Act also requires that a person to declare to the Board and Bank of Ghana their professional interest or the office that person holds as Manager, Director, Trustee or by any other designation before assuming as a Director or Key Management Personnel of the Regulated Financial Institutions.

According to the Consultant, the investment or business interest of that person in an institution as a Significant Shareholder, Director, Partner, Proprietor, Guarantor is to prevent a conflict of interest with duties or interests of that person as a Director or Key Management Personnel of Regulated Financial Institution. He adds, a Director or Key Management Personnel of Regulated Financial Institutions is also required by the Act to declare their interest to the Board and Bank of Ghana any material changes in their business interest or holding of an office.

“This includes any Director or Key Management Personnel of Regulated Financial Institutions who has an interest in a Proposed Credit Facility to be a person by the BSDIs or a transaction that is proposed to be entered into with any other person to declare the nature and the extent of that interest to the Board whether directly or indirectly and shall not be part of in these deliberations and the decision of the Board with respect to that Credit request” he explained.

He added that Bank of Ghana’s power to intervene in the appointment of directors and other Key Management Personnel in regulated financial institutions is also drawn from this same Act.

“Section 60 of the BSDIs Act requires that all Banks and Specialized Deposit Taking Institutions seek prior written approval from Bank of Ghana before appointing Directors, CEOs and all other Key Management Personnel including DMD, Board Secretary, Chief Operating Officer, Chief Finance Officer, Chief Risk Officer, Head of Compliance, Head of Internal Control, Chief Internal Auditor, Chief Legal Officer and Head of Anti-Money Laundering” he noted.

The “fit and proper” test

The Bank of Ghana issued the fit and proper persons directive in July 2018 as part of the corporate governance directive.

This new directive set out new framework for the Regulated Financial Institutions or Banks and Specialized Deposit Taking Institutions to determine whether a “Person” is fit to be significantly shareholder (i.e. 5% of the total equity); Directors or to hold a Key Management Positions.

The Fitness Test seeks to assess the Competence of Shareholders, Directors and Key Management Personnel and their capacity to fulfil the responsibilities of their positions while propriety test assesses their integrity and suitability. To determine competence, previous experience, formal qualification and proven track-record in the banking and financial business is essential.

To further assess integrity and suitability, Bank of Ghana considers Criminal records, Civil Actions against individual to pursue debts, personal financial records, impeding criminal and civil actions, refusal of admission to or expulsion from professional bodies such Chartered Institute of Bankers, sanction applied by other regulators in similar industries and previous questionable business practices. The Probity and Soundness of judgement of the person for the purposes of fulfilling the responsibilities of that person is paramount.

Dr Atuahene says this directive is significantly important in restoring confidence in the banking sector as the previous Bank of Ghana’s supervisory reports showed that major cause for the 2015-2018 banking crisis was partly due to unfit and unqualified persons that held positions as Shareholders, Directors and Key Management Personnel in some of local or indigenous banks.

“The minimum assessment criteria required for this test include practical experience and theoretical knowledge in banking business – that is sufficient knowledge skills and experience to fulfil their function. Also is experience which covers both practical and professional experience gained in previous occupation and theoretical knowledge gained through education and training.

The third is, relevant qualification in Banking and finance, accounting, economics, law, administration, information technology, financial regulation, risk management, corporate governance and financial analysis. And last but not least is exhibiting practical experience covering previous position” he outlined.

Dr Atuahene insists, the strict enforcement of this “Fit and Proper Person” directive for bank Shareholders, Directors and Key Management Personnel will promote high standards in the banking industry.

A new board regime  

Dr Atuahene identifies key provisions in the new directive which highlight more extensive constitution and dynamic role of Board of Directors of the institutions in question as critical in ultimately strengthening the banking sector.

He first cites board composition and qualification which the Act stipulates that board members shall be and remain qualified, including through training, for their positions.

“The Board should be composed of people of integrity who can bring a blend of knowledge, skills, objectivity, experience and commitment and led by a capable Chairperson who brings out the best in each director. The Board should be composed of the Executive Directors; Non-Executive Directors and Independent Directors” Dr Atuahene stated.

“The competencies and experience of Boards shall be diverse to facilitate effective oversight of Management and shall ideally cover a blend of the fields such as Banking, Law, Finance, Economics, Information Technology, Business Administration, Risk Management and Corporate Governance among other areas that the central bank deems fit”

“The Board shall also collectively have a reasonable knowledge and understanding of local, regional and where appropriate, global economic market forces as well as legal and regulatory environment in which the Regulated Financial Institution and its subsidiaries operate.

 Ghanaian nationals, ordinarily resident in Ghana, shall constitute at least thirty percent (30%) of the Board composition of a Regulated Financial Institution.  Independent Directors shall constitute at least 30% (thirty percent) of the composition of the Board of a Regulated Financial Institution. No Regulated Financial Institution shall have more than two (2) members serving on its Board that are Related Persons or Connected Persons,” he further noted.

The limited size of the board as well as the unitary or single board structure, Dr Atuahene believes is also worth highlighting as international best practice.  

“The Board shall have at least five (5) members including the Chairperson and a maximum of thirteen (13) members, the majority of which must be non-executive and ordinarily resident in Ghana. There shall be an appropriate balance of power and authority on the Board between the executive, non-executive directors and independent director such that no one individual or group shall dominate the Board’s decision-making process”

“Ghanaian banks have one-tier board structure. This means that one single board comprising executive directors, non-executive directors and independent directors. This form of board structure is predominant in the U.K., the USA and most Commonwealth countries. Board independence is also key and it’s good to know in this case where a Regulated Financial Institution is a member of a financial holding company, NOT more than two (2) Related Persons shall be allowed to serve on the Boards of the bank and the financial holding company” he noted.

Dr Atuahene also hails the establishment of specialized Board sub-committees, the number and nature of which depends on the size and complexity of the Regulated Financial Institution and its Board and risk profile.  Audit Committee and Risk Committee are compulsory for all banks while banks listed on the Ghana Stock Exchange will have the Remuneration or Compensation Committee and Nomination Committee in addition.

“At a minimum, a Regulated Financial Institution shall have two (2) Board sub-committees, namely: An Audit Committee and a Risk Committee both of which shall be chaired by independent directors.    Other Board sub-committees may be established on optional basis per size, complexity, business lines and risk profile of the Regulated Financial Institution. Such committee(s) shall be chaired by a non-executive director(s) with the requisite qualification and experience in the specific functions of the committee. 

“The Board Chairperson shall not head or chair any of the Board Sub -committees and is only permitted to serve on one (1) Board subcommittee as a member other than the risk and audit sub-committees.  The Board shall issue in writing the terms of reference for each Sub -committee which shall be contained in a charter which sets out the committee’s mandate, scope and procedures. A copy of the charter shall be submitted to the Bank of Ghana”

“Each of the two (2) sub-committees shall have at least thirty percent (30%) of its members being Ghanaians who are ordinarily resident in Ghana.  The Chief Risk Officer and the Chief Internal Auditor shall report directly to the Risk Committee and Audit Sub-Committee of the Board respectively” he said.

According to him, the Board may establish on an optional basis other committee such as the Remuneration Committee to oversee the design and operation of the compensation system and Nominations/Human Resources/Governance Committee to recommend new members of the Board or Senior Management while undertaking assessment of Board and Senior Management. Also could be Ethics/Compliance Committee to ensure that the Regulated Financial Institution has the appropriate means for promoting proper decision making and compliance with laws, regulations and internal rules. 

Performance Evaluation

The board per the revised directive is also required to carry out regular evaluation or self-assessment of its performance as a whole, including its sub-committees, and of individual Board members in order to review the effectiveness of its own governance practices and procedures including on Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) issues, to determine where improvements may be needed and make any necessary changes. (Yearly Board Internal Assessment).

The Board shall in addition to the above, undertake a formal and rigorous evaluation of its performance with external facilitation of the process every two (2) years. (Every two years by External Consultant). An in-house performance evaluation of the Board is also required to be conducted annually and a copy of the results submitted to the Bank of Ghana not later than 30th June of each year.    

A separate in-house performance evaluation of the Board on AML/CFT issues shall also be submitted to the Bank of Ghana and the Financial Intelligence Centre for June and December each year before the end of the quarter following the evaluation period a statement on the external evaluation of the Board shall be included as a separate section of the annual report of Regulated Financial Institution and a detailed copy of the report submitted to the Bank of Ghana. 

The Board Chairperson versus the CEO

Dr Atuahene also lauds the separation of the position of Board Chairperson from that of the CEO in the Bank of Ghana’s Corporate Governance Directive.

According to the Act, the Chairperson of the Board shall be an independent director and shall be ordinarily resident in Ghana unless it can be demonstrated to the Bank of Ghana that the position can be held effectively by a non-resident who is able to attune the strategic direction of the Regulated Financial Institution with the developments in Ghana. The Chairperson who shall be proposed for re-election within the maximum tenure of two (2) terms consisting of three (3) years per term shall provide leadership to the Board and encourage constructive relationship within the Board and between the Board and Management.

According to the Corporate Governance Consultant, the specified tenure of office for the MD or CEO, Non-Executive Directors and Board Chairperson will also essentially minimise the entrenchment of positions which breeds familiarities which could impair the objectivity and independent judgement of the above persons.

“The tenure of the MD or CEO of a regulated financial institution shall be in accordance with terms of engagement for a maximum period of 12 years. Such tenure may be split into 3 terms not exceeding 4 years. The tenure of a Board Chair shall be for a maximum period of 6 years split into 2 terms of 3 years. The tenure of the Non-Executive Directors including Independent Director shall be a maximum period of 9 years. Such tenure may be split into 3 terms not exceeding 3 years. Non-Executive Directors must only serve for 9 years – e.g. three, three -year terms and they are subject to annual re-election ” he said.

Annual Certification

Dr Atuahene asserts, one of the outstanding requirement that the Bank of Ghana has introduced in the directives is the annual certification by the National Banking College or any other institution approved by the Central Bank to conduct training for Directors and Key Management Personnel of Regulated Financial Institutions and a report submitted to Bank of Ghana within 90 days after the beginning of each financial year.

“The certification should indicate that, the Board has independently assessed and documented whether the corporate governance process of the Regulated Financial Institution is effective and has successfully achieved its objectives or otherwise. Also, that Directors are aware of the responsibilities to the Regulated Financial Institution as persons charged with governance and the Board shall report any material deficiencies and weaknesses that have been identified in the course of the year, along with action plans and timetables for corrective action by the Board to the Bank of Ghana.  Moreover, Directors are required to obtain certification from the National Banking College or any other institution recognised by the Bank of Ghana to the effect that they have participated in a corporate governance programme and have completed a programme on Directors’ responsibilities” he noted. 

Ethics and professionalism 

In the Act, Regulated Financial Institutions are also required to establish a code of conduct which shall be made available to all persons to whom it applies. The code shall be reviewed regularly when necessary and shall contain among others practices necessary to maintain confidence in the integrity of the Regulated Financial Institution while committing the Regulated Financial Institution, its employees, management and Board to the highest standards of professional behaviour, business conduct and sustainable business practices. It shall also establish a policy to govern trading in the shares of the Regulated Financial Institution by directors, Key Management Personnel and employees while signing off by directors and employees that they understand the Code and sanctions for breaching it.

Remedial measures and sanctions

Act 930 stipulates that remedial measures and sanctions shall apply in addition to any others and specific directives that the Bank of Ghana may require where a person is disqualified to be elected or appointed as a Director, Chief Executive Officer or employee of a Regulated Financial Institution, that person shall immediately cease to hold office and the Regulated Financial Institution shall immediately terminate the appointment of that person, otherwise the Regulated Financial Institution or that person shall be subject to fine or imprisonment as provided for in the Act. Under section 59 of Act 930, a person who contravenes the required disclosure of interest shall cease to be a director of the bank.                     Any non-compliance by a Regulated Financial Institution with the requirements under section 60 of Act 930 shall make that Regulated Financial Institution liable to a payment of a fine of One Thousand (1,000) penalty units to the Bank of Ghana. In addition, Regulated Financial Institution which fails to comply with the Bank of Ghana directives is liable to pay to the Bank of Ghana under section 92(8) of the Act, an administrative fine of not less than two thousand (2,000) penalty units and not more than ten thousand (10,000) penalty units. Under section 102(3) of the Act, the Bank of Ghana may, amongst others, suspend or remove from office the Chief Executive of that Regulated Financial Institution or restrict the powers of the Chief Executive, or recommend the removal from any or all of  the directors on the Board of the Regulated Financial Institution or restrict their powers if it is satisfied that Regulated Financial Institution has, failed to comply with a provision of the Act or rules or directives issued under the Act, or if a Regulated Financial Institution has been conducting its affairs in a manner detrimental to the interests of its depositors and creditors, or if a Regulated Financial Institution no longer possesses sufficient net own funds or is unlikely to fulfil its obligations towards its depositors and creditors.

Enforcement and Compliance

Dr Atuahene is challenging the Bank of Ghana to ensure total compliance and enforcement of the new directives if the ultimate objective of restoring confidence and building that resilient banking system is to be effectively achieved. According to him, the Bank of Ghana should sanction them appropriately for non-compliance of the directives, by the revocation of licence, prosecuting shareholders, directors and key management personnel who persistently flout the directives as done in the Nigerian jurisdiction.

“In case in point is when the former MD of Oceanic Bank in Nigeria, Mrs Cecilia Ibru was jailed for fraud for six months and assets worth nearly 1 billion Euro was retrieved by Economic and Financial Crime Commission for the financial malfeasance.

So the Bank of Ghana directive if implemented and enforced to the letter will also ensure that depositors’ funds remain safe while the financial system remains stable and resilient to contribute to overall development of the Ghanaian economy. Enforcement and robust supervision should be the biggest tools among surveillance processes because Bank of Ghana has been empowered by the Act to enforce examination recommendations” he concluded.

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