Ghana’s Insolvency framework emerged the weakest among some 17 markets surveyed by Barclays Africa in its recent Financial Markets Index.
The report says despite adhering to international standard master agreements, with the exception of Global Master Securities Lending Agreement (GMSLA), and enforcing netting and collateral positions, Ghana failed adequately to resolve insolvency without incurring high recovery costs for creditors.
On average the payment recovery rate is 23 cents on the dollar, 12 cents below that of South Africa.
The strength of insolvency frameworks, a World Bank measure within the annual Ease of Doing Business report, analyses the time, cost and outcome of insolvency proceedings for domestic companies and also the strength of their legal framework for liquidation and re-organising proceedings.
South Africa and Rwanda score the highest in this indicator due to the ability of creditors to recover large parts of their investment in the case of insolvency.
They also have rules to discourage lenders from issuing high-risk loans and managers and shareholders from taking imprudent loans or otherwise pursuing harmful financial practices.
Most countries need to improve their adherence to international standards of financial agreements.
The managing director of a global bank with operations across Africa explains, ‘With regulations, keep it simple: just follow the international norm.’
While some countries fare well on this measure, the underdevelopment of other African countries holds back the region’s ability to expand markets through establishing regional bourses or encouraging cross-border investment.
Inconsistent regulations and uneven enforcement are a major handicap for growth. If investors lack confidence in a country’s regulatory and legal framework, they will not deploy capital in the market.
By Samuel Boadi