- Equity has been around for far too long for us not to understand its benefits. If we use equity to develop our resources:
Capital is needed for development. From time immemorial Ghana has sought to borrow this capital. We have been raising bonds, taking loans and giving sovereign guarantees. All these raise our debt to income ratio. As a country, the more we borrow, the more we increase our debt to income ratio, the worse our credit rating becomes and the higher the interest rates we get when we go back to borrow more.
All these borrowings are happening against the backdrop that Ghana has abundant resources. When we want to develop these resources, for example, mine gold, we call in foreign companies to develop the raw form of the resource. After extraction, they export the raw form of the resource and give us 5 to 10% royalties. They then refine the resource for over a hundred times its value and sell it for huge profits. They even sell some of the refined gold back to us at outrageous prices.
The continuous process of borrowing to develop our infrastructure, allowing foreign companies to mine our resources and leave us pittance in royalties are part of the reasons in the abundance of our resources, most of our people are poor.
Yet, as soon as we heard of the word “EQUITY” in the Agyapa Deal, as a paradigm shift from the way we have been doing things, all hell broke loose. After several weeks of discussing Agyapa on radio, don’t be surprised to hear people making outrageous statements like, “We will be paying back the equity in perpetuity.”
Folks, equity is not like a loan or a bond to pay it back. The investor buys shares to get equity and is paid dividends. Dividends are the regular amount a company decides to pay its shareholders after declaring profits. So if Agyapa does not declare profits, it does not pay dividends. This means in the unlikely event that no royalties come after getting equity, and Agyapa cannot declare profits and its subsequent dividend payments, the shareholders don’t get their return on investment. This is what Ghanaians are failing to appreciate. And because the investors in Agyapa can lose their investment, they need to make sure the return is higher. Before we continue with why equity is a better option, let’s consider this irony.
Take any mine in Ghana today in which we are getting only 10% royalties. It means the foreign company that invested in that mine in Ghana is getting 90% right? Okay, if these foreign companies go and register a new SPV (Special Purpose Vehicle) in Jersey called LETSRIPOFFGHANA and list it on the London Stock Exchange to raise equity of 500 million USD. Then LETSRIPOFGHANA comes to buy new gold concessions in Ghana, mines it, and gives us 10% royalties, no one in Ghana will raise an eyebrow. Life will go on as usual. All the CSOs will continue their work. They won’t even turn their heads.
But as soon as the Ghana government says let’s do this same thing ourselves. Let’s raise equity as Ghana government-owned company, mine the gold ourselves, refine it, pay ourselves 51% or more Royalties, not 10%, but 51% and make huge profits in the refined gold, all of a sudden hell breaks loose. Everybody is talking. Meanwhile, that is how Botswana developed.
What I have learned from the Agyapa Deal is that most people have not thought of how we can maximize profits from our resources. We are not used to using the same instruments the multi-nationals use to take advantage of our resources. There are several instruments to raise capital for resource development. Even within bonds, the world has moved on to Green Bonds which is much cheaper and has more favorable terms. The world is raising all kinds of capital through cryptocurrency. Now back to equity which is as ancient as slavery.
Equity has been around for far too long for us not to understand its benefits. If we use equity to develop our resources:
1. One of the main advantages of equity is that it can be used to take slightly higher risks such as developing new gold mines for Ghana itself. Everyone knows that gold exploration can go sour. But if equity is used and the mines do not turn out to be profitable, then we don’t have to pay the equity back. However, if the results turn out to be great, then the shareholders, including Ghana as a shareholder, benefit greatly.
2. Equity does not increase our debt to income ratio because it is not debt
3. Ghana will own greater shares in the new mines and therefore we get far higher royalties
4. Ghana can now refine its gold and other resources for even greater profits.
As a country, if we are to develop our resources, we must even be looking beyond equity. We must be thinking of cryptocurrency. We must be looking at Green Bonds. Not only from the perspective of the government, but from the private sector as well. The government must create a strong enabling environment for the private sector to leverage a number of these financial instruments to raise capital for much-needed resource development.
To conclude, in the Agyapa Deal, the government says it intends to buy more gold concessions and develop the infrastructure to make Ghana the gold investment haven. In this highly profitable but slightly more “risky” venture, equity is the right instrument to leverage. If this is the case, then the conversation on the Agyapa Deal must move on to how we make sure the government can achieve this noble vision.
For the new African must think of far better ways of developing our resources. We cannot afford to borrow our way to self-actualization. The new Ghana beyond aid must think of innovative ways to develop. Long live, Ghana.
By ETUDUR KOBINA NYANTEH