Making the GAX attractive to startups and SMEs

T he Ghana Alternative Market (GAX) is a segment of the Ghana Stock Exchange (GSE), which serves startups and small and medium-size companies (SMEs). The GAX offers companies at early stages of development the opportunity to secure long-term capital. Access to finance is the most important constraint for SMEs in Ghana, according to the World Bank¹. Even when finance is available, banks charge exorbitant interest rates, which SMEs cannot afford. But despite the immense opportunities of the GAX, the exchange is not attracting SMEs or startups in a country where SMEs are the backbone of the economy.

Profile of GAX companies

Since the launch of the exchange on 13th May 2013, only five companies are listed on the exchange. Empirical research indicates that only 17 percent of Ghana SMEs show an interest in listing while 20 percent are opposed or reluctant to the idea. In addition, 43 percent showed some hesitation or were neutral. The reasons for this relative lack of enthusiam range from equity aversion especially from founder-owners, perceived high cost of listing, to misinformation and misgivings about the mechanics of modern capital market. Another The recurrent complaint from business owners relates to the cost of subsequent compliance requirements and disclosure after the listing.².

Nevertherless, five companies have braved these challenges.

DigiCuts

1. DigiCut listed on the GAX on 26th June, 2017. DigiCut is a subsidiary of a family-owned Groupe Nduom. According to DigiCut, this holding comprises a portfolio of independent companies, active in media, hospitality, insurance, investments, banking, and real estate. On the African continent, the group is present in Ghana, Liberia, and Togo. DigiCuts is a full service advertising and public relations consultancy.

   Deregulation of the media and an increase in the number of newspapers and broadcasting media are contributing to the growth of this segment of the service sector. DigiCut’s major competitors in Ghana are Farmhouse Productions Limited, The AdVantage Group, and outdoor advertising companies such as DDP Outdoor Limited.

Hords Limited

1. Hords Limited produces fast moving nutrition goods. The company transforms cocoa, cassava, soya, starch, and herbs into breakfast cereals and food supplements. It listed on the GAX in 2015.

   The company has 17 different brands in its portfolio of products. Emblematic brands include Coco Hyper, Col‐Fighter, Soya Custard, Tom Soya and Gari Soakings. According to the company, these products have received the authorization of the Ghana Food and Drugs Board. New products are going through the approval process.

Intravenous Infusions Limited (IIL)

1. IIL registered in 1969 and began operations in 1974 as the first pharmaceutical company producing intravenous infusions in Ghana. The company produces IV Fluids, sets, and small volume injectable (SVI).

   In Ghana, IIL supplies IV fluids to 50-60 percent of the hospitals and pharmacies. Cote d’Ivoire, Burkina Faso, and Togo buy 10 percent of its productions.

Meridian-Marshalls Holding Company Limited

1. MMH provides degree and diploma programs through its subsidiaries, Meridian Pre-University (MPU) and Marshalls College (Marshalls). The MMH College registered as a company on April 22nd 2010. The University of Cape Coast supervises its academic credentials.

   In Ghana, an average of two hundred thousand (200,000) candidates sit for the WASSCE exams every year (equivalent to the International Baccalaureate or A’Level). The national success rate of this exam is 49 percent. A third of the successful candidates continue their studies in top public universities. The remaining two third represents a market for other tertiary institutions including, polytechnics, training colleges, and private universities to service. In 2023, the total student population in the MMH was 791 (751-Ghanaians, 40-Foreign nationals).

Samba Foods

1. Samba Foods Limited is a food processing company. The company started operations in 1994. It produces condiments and dressings for the home market. Multinationals such as Nestle and Unilever dominate this market. However, despite competition from these multinational firms, Samba Foods has carved out a market share in Ghana. The company projects the condiments and seasoning market to grow by 20 percent over the next decade, spurred by the growing middle class and changing consumer habits.

Attractiveness of the GAX

Data from the Registrar-General’s Department suggest that Ghana has 136,198 companies. In 2021, the minister of finance announced that 45,109 entities are registered as corporate taxpayers. Ghana is also emerging as a vibrant technology innovation hub in West Africa with over 100 pan-African successful startups. These figures suggest the existence of a myriad of companies that fit the target of the GAX.

But, despite the obvious opportunities, the number of companies listed on the GAX has not exceeded five since its inception in 2013. Since 2022, the GAX offers access to a revolving fund for SMEs to finance the cost of raising capital and associated listing. It also offers deferment of up-front fees. Despite these facilities, business founders continue to see the cost and complexity of compliance as a major deterrent.

Companies aspiring to list on the GAX must meet strict requirements on managerial statutes. The GAX expects management to have requisite expertise in their core business. Their character and integrity is a requirement during the assessment of the listing application. At least 50 percent of the board must be non-executive directors and at least 25 percent of the total shall be independent. Executive and non-executive directors shall attend an induction program under the auspices of the GAX Committee.

Competition

The GAX itself is facing competition from other emerging actors. Over the past decade, Ghanaian startups have raised over US$1.00 billion from private equity and venture capital firms. These sources of finance offer money but also managerial and technological advice. Even better, private equity and venture capital firms continue to assist afterwards by organizing other rounds of funding as the business expands. Startups are not constrained by ‟one-size fit all” equity products. Instead, they receive customized, flexible and adjustable funding. Instruments include a combination of debt and equity, bridge loans, mezzanine finance and structured financial instruments.

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