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Ghana: The model colony; What happened?

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A t independence, Ghana was one of the countries that was regarded to as a “Model Colony”. After sixty years, does that statement still holds water? After being a sovereign nation for 60years, the everyday Ghanaian expects to have a portable and constant flow of water; constant electricity supply, available healthcare centre etc., which constitute the basic amenities needed for everyday living.

This should not become a political campaign message as we experience in this modern age politics neither should governments’ be priding themselves in the asphalting of residential roads. But that is the reality Ghana faces after six decades of self-rule.

Unfortunately, national campaign messages that take leaders to the Flagstaff House– the seat of government– are drawn along lines that should be reserved for district assembly elections where assemblymen and, in the future, district chief executives are elected.

The building of schools, hospitals and feeder roads should be campaign promises reserved for the local level but in Ghana, such promises are the regulars at national rallies.

While other countries prioritize the overall economic transformation of the nation; in Ghana, we prefer to talk about building boreholes and mini irrigation dams for farming communities in remote areas of the country.

Meanwhile, for the everyday hopeful Ghanaian; noting, there are millions of hopefuls including me, you and the next person; all that is craved is a well functioning economic, social, cultural, religious and civil system.

A system where every citizen has equal access to basic amenities including clean water, uninterrupted supply of electricity, good roads and transportation system and above all a cheaper cost of living that guarantees a good standard of living irrespective of where the person is located, social status, or financial strength. The basics must be covered.

The above are necessities taken for granted in the developed economies in Europe, North America, and parts of Asia, but in this part of the world, Ghana, West Africa and Africa, in general, they have become luxury to the everyday man.

In the cities of Accra, Tema, Kumasi, Takoradi, and Tamale, one is very lucky to drive on a completely tarred road from work to home or to school or church on Sundays.

You thank the electricity provider if one has uninterrupted electricity in a month, same applies to the supply of water. If you go to the market or shopping mall, you automatically expect prices to inch up, even if marginally.

The model colony

But how did we get here? When Ghana achieved independence in 1957, the nation was described as the model colony: it was a colony that was left with a substantial foreign exchange reserve, about £200million at that time, equivalent to about three years of import cover, according to some “economic historians”.

That was not all: it had a well functioning system where gold, cocoa and timber were raking in the best of foreign exchange, quality human capital to take over from the colonial masters and a civil service structure that was comparable to none in sub Saharan Africa, apart from apartheid South Africa. Topping all the gold and cocoa was a visionary leader, Dr. Kwame Nkrumah whose vision was not just to develop Ghana but see Africa grow in tandem.

He made no secret of seeing a united Africa that needed to attain its independence just like Ghana and develop alongside.

The radical change and its repercussions

A few years after independence, historians and economic analysts noted that Dr. Kwame Nkrumah, despite his grandiose ideas of developing the nation, followed the cautious approach of the colonial government by relying on export of raw materials whiles waiting for the rest of the continent to attain freedom but by 1961, he put into action his plan for aggressive industrialisation.

He established factories all over the country to take advantage of the raw materials we produce in immeasurable quantities and export in that raw form.

His vision was to build these factories to empower the Ghanaian that what he enjoys everyday from the West can easily be made here. There were factories for cocoa, sugar, coffee, jute, tomatoes production. His vision was to place the factories right where the raw materials were.

That is why we had sugar processing plants in, for example, Asutuare in the Eastern Region, because of the high production of sugarcane in that region. Despite his good intentions, most of these institutions did not survive due to several factors.

Some included mismanagement, lack of quality human capital to manage them, over-capitalisation, and excessive political interference which forced those who had the expertise to move away. Today, remnants of these decayed factories can be seen in parts of the country including the warehouses built to store the products.

Even though successive governments, including the military governments, tried to revive some of them, they still failed.

Some historians and economic analysts accused Nkrumah and his colleagues of rent-seeking and thievery which led to the collapse of these factories and institutions and played a key part in the collapse of the economy.

Dr. Kwesi Botchwey’s views

But Dr. Kwesi Botchwey, the longest serving finance minister Ghana has ever had, delivering an address as the guest speaker at the launch of the Economic Club of Ghana (ECoG), noted that despite the aggressive change in plan by Dr. Nkrumah, it was not for purposes of rent-seeking or thievery, as noted by some historians.

He explained that Nkrumah’s idea was to change the future of the country from an over-reliance on export of raw materials to an industrialised one with manufacturing at its core which will create the jobs that matter, and produce goods locally.

He explained that the reasons the factories and companies that were established from 1961 to 1965 couldn’t survive were due to a lack of proper human capital simply because the ruling party, the Convention People’s Party (CPP) was a nationalist independence party and “hadn’t quite yet re-engineered itself into a party of cadres capable of leading that kind of revolution,” he revealed.

Despite criticising the lack of human resource and mismanagement of these institutions, about 55 in total, Dr. Botchwey noted that the remnants of those revolutionary ideas are still found dotted around the country today with some of them still as relevant as they were in the 1960s especially in the financial services industry with GCB Bank and SIC Insurance Company, being two of the biggest financial service players.

After Dr. Kwame Nkrumah’s overthrow, the economy saw major upheavals. When many thought Nkrumah’s removal was the riddance of a bad leadership, they couldn’t believe what came next.

Though the second republic brought in some reforms which liberalised the economy and empowered the private sector; that was short-lived.

Then came the worse anyone can think of. Ghana fell into a state of sustained economic decline. In the 70s and 80s, there was a sharp drop in national output, real output growth over this long protracted period of national decline came to a standstill and then turned negative, meaning that virtually every year Ghana was retrogressing.

“By 1983, when I had the misfortune of being called to minister into finance, inflation had soared to 142percent– these days we fret when inflation hit 25percent– output growth turned negative, and per capita income collapsed.

There were such widespread shortages. We travelled to Lome to buy basic things such as milk or sugar. We were not surprised when almost 10percent of the country’s population, over a 1million people, at the time, fled to neighbouring countries and beyond in search of greener pastures.

The nation was just on the brink of total disintegration and collapse but we managed to dig ourselves out of this hole,” Dr. Botchwey pointed out.

The return to normalcy

Dr. Botchwey, in his address, explained that once the government did away with control prices, it quickly realigned relative prices, especially foreign exchange prices, to restore incentives for production, savings and investment.

This saw a slow devaluation of the currency but was called “the re-pricing of the cedi” to assuage the fears of Ghanaians who felt devaluation would make the currency worthless. Gradually, through economic mechanisms, he noted, brought the value of the local currency to where it should be– almost the level of the black market.

Then came the forex bureaux, which businessmen and women thought was a means to arrest black market operators.

“But after sometime, when market operators realised there were no arrest made it saw a boom and monies easily changed hands and these bureaux accounted for a substantial amount of forex changing hands,” he said.

The structural adjustment programme, according to Dr. Botchwey, was successful in restoring financial stability, bringing down inflation to 20percent, external reserve position improved tremendously, cocoa production improved because the farmers were now being paid production prices that covered more than the cost of production and all that set a tone for economic recovery.

“The pathways to self destruction are many and easy to find but those for corrective action are few and painful. As a nation, when we decide to live beyond our means, borrow, print more money and render our currency worthless, or set in motion a bout of fiscal instability, that is easy and might even win you an election but then the chicken will come home to roost and then another painful correction will start.

Fast forward: Ghana has enjoyed relative stability over the past two to three decades which culminated in the oil boom of 2010 which saw growth peak at 14.4percent in 2011.

But with the following year seeing an election, the gains chalked were eroded with a huge deficit, which was as high as 12percent of GDP and that deficit, coupled with a drop in commodity prices on the world market, and energy production challenges domestically signalled a three year economic meltdown which saw the economy growth shrink and led it to the International Monetary Fund.

“The government decided that it needed the IMF. So the extended credit facility made some sense to me. Sometimes we need that external institution when our home grown policies consistently fail us. Currently, there are hopeful signs that a recovery is underway,” Dr. Botchwey noted.

Lessons

Dr. Botchwey, in his delivery, worried if, as a nation, Ghana ever learns its lessons. As the longest serving finance minister and a very active academic and politician, he has witnessed all election from 1992 where a budget surplus, equivalent to 0.2percent of GDP in 1991, metamorphosed into a deficit, equivalent to 5percent of GDP.

“If you look at our economic history, you will find that in every election year, there is a problem. All of them; there have been problems. Slippages mount then we sweat and struggle to get back on track. Sometimes I wonder if we learn lessons.

We are going through a period of continuous fiscal consolidation to correct all the problems that we have had. One of the fundamental problems we have is that all these problems of instability and discontinuity in policy is simply the problem of fiscal discipline and that must be addressed immediately.

When we do not manage our fiscal balances well and the deficit soar and we finance it with massive bank borrowing, the results are always clear: you reap a depreciated currency, soaring inflation, rising prices, etc,” he noted.

What should be done?

In his assessment, what should be done to put Ghana on a sustained path of growth for decades like Singapore, South Korea, Japan, Malaysia and other European countries did is “to be disciplined in expenditure while increasing revenue drastically”.

To him, the practice of quoting ambitious and unachievable revenue targets and consistently missing them should stop alongside the over-reliance on aid and grants, loans, domestic and foreign, to build infrastructure and even pay for goods and services, should become a thing of the past.

He bemoaned that after six decades of independence, the nation’s budget is still significantly supported by donor funds. “Our revenue base as a nation is not growing fast enough to catch up with expenditure.

Our tax effort, what we collect as a measure of what we can collect, is not just disturbing but abysmal. When you take your wages, interest on domestic and foreign debt, and transfer to statutory funds, there is nothing left.

Happily we have passed a law to cap the transfer of funds to these statutory funds but there are vulnerabilities in the state owned enterprises, the financial sectors and those vulnerabilities must be controlled. The energy production companies including the Volta River Authority (VRA), Ghana Grid Company (GRIDCo), and the Electricity Company of Ghana (ECG) need their revenue systems restructured for efficiency.

A robust and resilient financial system is crucial for sustained economic development,” he noted.

How the club can shape the discourse in the country.

In his summary, he noted that The Economic Club of Ghana has the potential to become hugely important to help shape public discourse in the country but a great deal will depend on the expertise and professionalism the club itself will be able to mobilise.

He urged the club to stay above the partisan politician system and lead the conversation on issues that promote economic and national development.

That, to him, is the only way the club can stay relevant and attractive to members while inspiring the millions of Ghanaians to achieve more through other economic means other than politics.

“Only by doing this successfully and demonstrating the capacity for some analysis, can you lead the way while crowding in the expertise in academia and other stakeholders and make our country as great as we want it.”

Dr. Bawumia sees beyond macroeconomic stability.

Vice President, Dr Mahamudu Bawumia, who was the special guest of honour at the launch of the club, in his address, noted that macroeconomic stability alone, though difficult to practice in the country by successive governments, is not enough to change the course of this country.

“There is an understanding that every government tries to achieve macroeconomic stability but some have been more successful than others. Since 2006 every forecast for the budget deficit has been missed and this is because of very high revenue forecast that are not realistic or sometimes high expenditures.

We also should understand that while macroeconomic stability is necessary, it is not sufficient. There has to be more to transform an economy than macroeconomic stability.

What we really require is a structural transformation of the economy where you need stability that allows you to pursue policies that can structurally transform the economy from a commodity dependent one to more value addition to our natural resources and industrialisation,” he averred.

Explaining that, for the most part, leadership always live with and talk problems, but do not have definitive solutions, he noted that the agenda of this government is to get into the mould of solution oriented politics where “we can tell that in three years’ time we have 100percent electricity coverage.

That is the sort of thinking we are bringing in solving economic problem. For far too long our nation has been faced with myriads of challenges, some of them unique to our challenges and some of them not so unique to us.

For those not so unique to us, we can learn from others but for those unique we have to find our own solutions to them,” he added.

Consistent engagement with the experts

Dr. Bawumia noted that with consistent engagement in dialogue and discussion among relevant stakeholders the key to opening Ghana to a new structural transformation is here.

“As a government, we do not assume the know-it-all-philosophy but rather believe that a great rich set of ideas are inherent in people like you who have come to form The Economic Club of Ghana and we are ready to tap into this body of knowledge and expertise.

Looking at the economic history of Ghana, there have been great thinkers and stalwarts who have been part of the management of the economy. It is not really being a lack of economists that is part of the problem or it is not that we have not had good thinkers but we have had some fantastic thinkers who have preferred a lot of solutions.

What we have not really being able to do on a consistent basis is applying a lot of those solutions over the long term. You tend to have a few good years and a lot of bad years and that type of inconsistency has bedevilled us as a country,” he noted.

Gov’t ready to support the Economic Club of Ghana

He strongly believes the time has come to marshal Ghana’s intellectual capacity to work together to find solutions to the problems so that the common man or woman on the street will see the club not as an economic club but a club to enhance the public good and promote collective socio-economic goals in society.

“The timing of this launch couldn’t have been any better. Our objective as a country has been to pull Ghanaians together, build a resilient and stable economy on the strength of our own human and natural resource guided by well thought out policies and strategies,” he indicated.

In launching the club, Dr. Bawumia noted that in developed economies, cities have their own economic clubs and these clubs, some as old as 150 years, have contributed to the development of their respective cities and countries.

“They regularly invite presidents, global business leaders, scientists, and distinguished academicians to address members. And I want to see the Economic Club of Ghana host such iconic individuals, both local, continental and global.

The Club indeed comes in at an appropriate time, and I can assure you of the support and commitment of the government. We shall be open to ideas, recommendations, and suggestions in relation to the formulation and implementation of economic and social policies, to the extent that they support both the short and long term development agenda of Ghana.

I urge you to be firm and unwavering in your analyses and discourses. There should be no fear whatsoever in the presentations of your views, critical or not because that is what makes democracy, and our kind of democracy beautiful and allows for economic development to be carried out in a free and fair society,” he advised.

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Business Interview

Recapitalization– The panacea to the woes of Ghana’s insurance market? – Mr. Justice Yaw Ofori -Commissioner of Insurance, Ghana

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In a bid to ensure a robust Ghanaian insurance industry, the National Insurance Commission, NIC, has initiated moves towards recapitalization. The initiative, yet to be officially announced, involves a planned increase in the Minimum Capital Requirement (MCR) for insurance and re-insurance companies by over three (3) fold. The industry regulator has engaged stakeholders to ensure smooth implementation of the exercise which has seen financial analysts draw a parallel with that witnessed in the banking industry last year.

This has prompted questions- some comparative analysis with the banking one as well as questions about its economic significance. The Insurance Commissioner, Justice Yaw Ofori, in an interview with the Vaultz Magazine, gave a detailed explanation of the exercise.

 

State of the Ghanaian insurance sector

Ghana’s insurance industry has in recent years witnessed a significant growth especially in terms of the number of new entrants recorded. The industry however continues to record low insurance penetration which still hovers around 3%.

The Insurance Commissioner believes this among other issues highlight the need for the industry recapitalization.

I would say Ghana’s insurance industry is strong despite the challenges with respect to recapitalization. The market is still virgin and there are a lot of areas which are untapped and that is why we see foreign companies coming into Ghana to do business. The oil sector is booming and so is agriculture as well as inclusive insurance and all we need to do is to make sure companies are well capitalized so far as they want to operate in Ghana” Mr. Ofori stated.

According to the NIC’s annual report, Return on Equity (ROE) for insurance companies has consistently been less than the corresponding year’s prevailing treasury-bill rate with the overall picture worsening year on year especially for life insurance companies. Mr. Ofori attributes this to the tendency for investors to choose high-yielding financial instruments over insurance which is a relatively long-term investment option.

MR. JUSTICE YAW OFORI -Commissioner of Insurance

“I think it’s all because people get more returns when they invest their monies in T-Bills and other non-banking financial instruments.  For instance, there was a time people were promised 25% to 35% on their investment which was more attractive so they didn’t see why they should invest in other assets like insurance. So some insurance companies were consequently recording underwriting losses” he explained.

The insurance industry has been contributing significantly to Ghana’s economic growth– albeit constantly at less than 2% of GDP through the provision of long-term investment finance to the economy whilst influencing production and consumption, internal and international trade among others.

“Insurance is a vital pillar of every economy. In Ghana for instance, it contributes about GH¢ 5billion in terms of business generated annually. About 12, 500 people earn a living directly from the industry and many more indirectly such as lawyers, doctors, carpenters, masons, and mechanics. Without insurance you can’t get bank loans because they need some kind of guarantee that they can recoup their money in the event of default”.

 

Insurance recapitalization– the facts and figures

Following its engagement with stakeholders including brokers and shareholders alike, the NIC has proposed an increase in the Minimum Capital Requirement (MCR) for life and non-life insurance companies from the current GH¢ 15million (approximately US$ 3million) to GH¢ 50million approximately US$ 10million).

Re-insurance companies will also see their MCR reviewed upwards from GH¢ 40million (approximately US$ 8million) to GH¢ 125million (approximately US$ 25 million) while that of brokers will be increased from GH¢ 300,000 (approximately US$ 60,000) to GH¢ 500,000 (approximately US$ 100,000).

“We came about these figures by taking into consideration how much a company would need to break even and stay profitable. We realized it will take 4 to 6 years for a newly established insurance company to break even with GH¢ 50 to GH¢ 60 million capital” the Commissioner noted.

The last time the market underwent recapitalisation was in 2015 and this was pegged against the dollar with an initial plan of an annual increment which after a considered review, was implemented differently.

“On an annual basis, the minimum capital was supposed to be adjusted to reflect inflation but it has not been done for about 4 or 5 years. But even if we had those increments, the current minimum capital would have been around GH¢ 25million which is about half what we are proposing now because Ghana’s economy is not like it was about 10-15 years ago; it’s bigger now” he stated.

In 2017, about three (3) companies reportedly had challenges meeting the then minimum capital requirement of GH¢ 15million. Mr. Ofori confirmed this as a normal industry development.

“It’s always been so in every insurance industry. There are times that companies will have challenges meeting the minimum capital but that does not mean that it’s time to shut them down. We, as regulators, try as much as possible to encourage the shareholders to recapitalize because shutting down an insurance company is not an easy thing and it is the last thing a regulator wants to go through,” he disclosed.

 

The ultimate goal

The Insurance Commissioner reiterated that the purpose of the recapitalisation was to ultimately grow the industry to the benefit of the economy by protecting the interest of the policy holder.

“Following our stakeholder engagements, we’ve done our concept paper which has been reviewed by the board. We’ve explained to stakeholders, the rationale behind the calculation and of course not everybody is going to like it but at the end of the day, we want the best for the industry. The Commission is not interested in closing any entity but rather building a strong market that takes care of the interest of the policy holder,” Mr. Ofori stated.

“Our economy has also grown. The GH¢ 15million was implemented some years ago. Now we have the oil boom and the country is losing so much revenue, we are actually sending money out because our companies are not financially strong to take much of the risks,” he added.

“Over 90% of our risks have to be insured on the international market and these are some of the reasons our cedi is always affected by the dollar. There is more demand for the dollar than the cedi and this actually arises because we are sending these risks out which demands paying insurance premium in dollars. So, what we are trying to do is, we want everyone to increase their intake. The more absorption they can take, the less flight of insurance premium,” the Commissioner asserted.

He also defended the proposed 300% increase in the capital requirement as crucial in stimulating the desired growth.

 

Correlation with the banking crisis and recapitalisation

The NIC has already indicated the banking crisis and recapitalisation somewhat delayed its planned exercise in the insurance sector. This, according to the Commission is because banks were already looking for capital from the same market the insurance companies will be considering to recapitalize.

A recapitalisation directive in the insurance sector would have thus led to competition between banks and insurers in raising capital– making it a lot more difficult for both entities.

With the bank recapitalisation now over, analysts believe the way has now been paved for a similar exercise in the insurance sector. The Insurance Commissioner confirmed this assertion citing the banking crisis as a major factor affecting insurance recapitalisation efforts in 2017 which almost led to the collapse of about three (3) companies.

 “When we assess an insurance company, we don’t look at only the minimum capital but the totality of the risk that it carries. So GH¢ 15million is the minimum but we have companies worth over GH¢ 200million. So if you are worth over GH¢ 200million and you have risk of let’s say GH¢ 600million and you cannot pay your claims on time, it is a challenge despite meeting the minimum requirement. And most of the challenges some of our companies are facing are linked to the banking crisis because they have monies with these banks and they cannot access these monies,” he added.

The Insurance Commissioner also dismissed assertions that the insurance recapitalisation is a mere replication of that witnessed in the banking sector and states that the two exercises are mutually exclusive.

 

“No it’s not a replication for the fun of it. Everything is interconnected. Even some individuals have lost their monies because some of these banks have been consolidated. When such entities go under, it affects everybody. When insurance companies make their monies, these monies are kept in the bank for investment in the economy. Insurance companies go for those monies when there are claims or a need for it. Now we have an insurance company going to the bank and the bank has no money. Although on paper they have monies, once it’s inaccessible, it cannot be considered– affecting their Capital Adequacy Ratio,” he revealed.

This, according to the Commissioner, only makes a stronger case for the recapitalisation.

Meanwhile, banking and insurance operations are distinctly different with diverse inherent risks. Some analysts thus insist recapitalization may not necessarily be the way forward for addressing the woes of the insurance industry. Mr. Ofori however asserts, insurance companies even need more capital than banks.

 

Risk-Based Capital requirement

The NIC’s current regulatory approach is geared towards the global trend of Risk-Based Supervision framework and the Commission is still pursuing this approach by way of a Risk-Based Capital (RBC) requirement.

 

“The minimum capital requirement is also part of the risk-based framework because, that means, so much assets to absorb more risks. Risk-based means we’re looking at the totality of your portfolio to see the inherent risks and how we can manage them. It is a complex thing. Even though we asking for minimum capital, risk-based provisions will also come from it. When you suffer from malaria you don’t take only chloroquine. You add multivitamins and some pain killers to make you survive,” he illustrated.

 

Recapitalisation has always been used as a regulatory tool to check the financial soundness of the industry.  There is, however, an emerging school of thought that this is not as crucial as the regulator focusing on ensuring effective management of the capital of the companies by ensuring they maintain capital levels commensurate with their respective risks.

 

Mr. Ofori says all these complement each other in strengthening an industry.

“Even new companies entering the market are not allowed to start up with the GH¢ 15million which was the minimum but at least GH¢ 25million. We couldn’t ask for the GH¢ 50million and even with that, they are investing more.”

 

Local versus International standards

Internationally, capital is not necessarily used as the basis for assessing the strength of an insurance company as opposed to the company’s net worth– an assertion Mr. Ofori confirmed.

“In advanced countries, their capital requirement could be like that of Ghana or even less.      That doesn’t mean that the companies that applied for the license to operate insurance don’t have the capital backing. These companies know that insurance business is risky. So if the minimum capital required is US$ 3million, that company comes into the business with US$ 500million by way of net-worth.

When we say minimum like the GH¢ 50million, that money is not going to sit down doing nothing. It could be your businesses, assets and other investments. Insurance monies have to be working. So if you have an insurance company that owns apartments, it’s part of their total worth. When we assess your worth, we look at both your liquid cash and assets because an insurance company can have a chain of hotels which means it can take as much risks and when there is a problem, it can fall on them. The Aon’s, Allianz and CGI’s have big investments all over the world and when they have challenges, they know where to draw money from. So when we say minimum capital requirement, it is not only liquid cash but also investments in T-Bills and so on,” he further explained.

The MCR in the Pan-European Solvency RBC regime is only € 3.2million (approximately GH¢ 19million) for life and reinsurance companies and € 2.3million (approximately GH¢ 14million) for non-life insurance companies. Some analysts have in this light predicted Ghana may only end up being one of the over-capitalised industries in the world by end of the recapitalisation.

But Mr. Ofori is challenging such views insisting that the local insurance industry which is still a burgeoning one cannot be placed on a level pegging with such developed regimes when it comes to capital requirement.

The dollar equivalent of GH¢ 50million is about $ 10million or less depending on the exchange rate and other factors. Don’t forget the financial strength of those companies operating in those markets. One company is even worth more than all companies put together in Ghana. When we make reference to other places, Ghana is different. When you come to Ghana, the way people respond to work is different. Minimum capital has nothing to do with international best practices,” he emphasized.

Ghana is not the country with the highest minimum capital requirement in the world. There are African countries such as Kenya whose was higher than Ghana. We’ve done a lot of research. Kenya is about US$ 8million or so and in Ghana the GH¢ 50million which was supposed to be $10 million will probably come low depending on exchange rate and other things. Insurance is international and transnational and each company must be worth its weight in gold on the international risk market otherwise businesses coming from outside Ghana will not consider Ghanaians,” he elaborated.

 

Expected Outcomes

The Insurance Commissioner is confident the industry will respond positively to the exercise – citing special provisions to facilitate the process.

“If we should introduce the minimum capital, almost 50% of companies will meet it per our analysis. Looking at their portfolio, some of them qualify already, some with a little push will be there and a few may have challenges. But we will encourage them; that’s why we have transitional provisions.”

According to Mr. Ofori, the recapitalization is ultimately expected to reposition the insurance industry and the economy as whole on a stronger footing by addressing issues like low insurance penetration and undercutting.

“If you have a lot of companies on the market that are not financially strong, you will definitely have problems like undercutting because some of them are ready to sell for cheap. They take low premiums and when there is a loss, they are unable to pay. Strong companies have bad days but their account is so big and they are able to pay claims. So I think we’ll have a much disciplined market because minimum capital is not going to be easy. Recapitalisation will help eliminate undercutting because the more you undercut, the more it affects your minimum capital. So you’re going to do prudent underwriting”

In terms of the bigger picture by way of economic impact, he stated “I believe all in all, the industry can also retain much of their underwriting income and probably create more jobs. The more money we can create, more employment can be created, less monies leaving the country, our cedi might be more stable and the economic benefits are numerous”.

He also revealed a new bill is currently under consideration to complement the recapitalisation in addressing the longstanding challenge of low insurance penetration in Ghana.

“We’re working on a bill to make sure we can have more compulsory insurances. We are trying to make sure that these compulsory insurances will help boost the interest in insurance. We’re also increasing market conduct supervision to enable companies pay their claims on time. We’re providing a lot of insurance education to the industry and the general public. This year for example the Commission out of its own budget, through the Ghana Insurance College will train 10,000 Ghanaian youth as insurance agents nationwide for free so that there will be a pool of agents from which the industry can always fall on to recruit. We’re also doing much with respect to the compulsory fire insurance; creating awareness that it is compulsory to have these kinds of insurances. So we’re doing all we can.”

Even though the recapitalisation in the banking industry led to consolidation of several banks and lay-offs, Mr. Ofori believes the final narrative in the insurance sector may not necessarily be the same– allaying such concerns of concomitant job losses as a result of companies failing to meet the capital requirement.

With the banking recapitalisation, some banks were affected. We don’t want to have those challenges. We don’t want the companies to go under. Much as we want the minimum capital to go up, we want to do it in such a way that we move along with everybody,” he concluded.

 

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