THE GHANAIAN ECONOMY; STATE OF MERGERS AND ACQUISITIONS AND ITS EFFECT ON THE ECONOMY
INTRODUCTION
Following the disruptions of the COVID-19 pandemic, Ghana is recovering with an economy steadily advancing through efforts to stabilize its currency, curb inflation, and encourage foreign direct investment (FDI). Mergers and acquisitions have become an attractive option for many businesses instead of folding with a notable increase in such activity. According to Baker McKenzie’s research of Refinitiv data, 333 M&A agreements worth USD 57.7 billion were announced in sub-Saharan Africa (SSA) in the first half of 2021 (H1 2021). This resulted in a significant 576% rise in deal value and a 14% increase in deal volume when compared to the same period last year (H1 2020). In H1 2020, 293 M&A transactions totaling USD 8.5 billion were recorded.[1]
STATE OF MERGERS AND ACQUISITIONS (M&A) IN GHANA
Driven by economic diversification, growing foreign investment, and regulatory reforms, the M&A landscape in Ghana has seen substantial growth. This expansion touches several key sectors, including banking, telecommunications, and energy, with M&A activity aiming to boost competition, expand services, and stabilize the economic climate. Ghana registered 14 deals overall for the year 2020 (FY 20), up 17% from the previous year, with 10 deals in the second half of 2020 alone (H2 20). In H2 20 and FY 20, the total deal value increased by 11607% to $818 million and 3369% to $832 million, respectively.[2]
Cross-border transactions accounted for a significant amount of Ghana’s M&A activity, with a total deal value of $793 million for both FY20 (nine agreements) and H2 2020 (seven deals).[3]
The desire for resilience has become a key motivator for businesses operating in competitive markets. Additionally, a supportive regulatory environment has played a significant role in driving the rise of M&A transactions in Ghana. Ghana is now more attractive to both domestic and foreign investors due to its advantageous West African location and participation in the African Continental Free Trade Area (AfCFTA).
Access to a vast African market has been facilitated by the AfCFTA, which was formally introduced in 2021 and established the largest free trade area in the world in terms of the number of participating nations. Because of this integration, companies in Ghana who want to grow and take advantage of economies of scale have a strong argument for mergers and acquisitions. Both Ghanaian businesses and international corporations are taking advantage of these chances, leading to calculated M&A deals meant to expand their market share both inside and outside of Ghana.
In Ghana, the banking industry is a key component of M&A, especially as a result of legislative changes. In order to improve the stability of the financial sector, the Bank of Ghana has increased capital requirements in recent years. When smaller banks find it difficult to comply with these regulations, they frequently think about combining with larger organizations. These mergers help make the banking industry stronger, which may lower risks and boost customer confidence. The financial environment has changed as a result of this wave of mergers, bringing together both domestic and foreign firms that are better able to aid Ghana’s economic expansion.
Notable M&A transactions have also occurred in the telecoms industry. Notable is the Ghanaian government’s recent takeover of AirtelTigo, which was done as a means of preserving jobs and ensuring service continuation. Telecom M&A activity helps to extend services and build infrastructure, particularly in rural areas. Companies are better equipped to invest in digital innovations, enhancing network quality and extending coverage, by pooling resources. However, this tendency may also result in fewer competitors controlling a larger portion of the market, which could impact competition and potentially drive up costs.
M&A is a logical component of the expansion of the oil and gas industry in a resource-rich nation like Ghana. Ghana is a desirable destination for foreign investment due to its oil deposits and growing energy needs. In order to grow its infrastructure and secure resources, energy corporations turn to acquisitions. In addition to creating jobs and fostering local development, this sector’s M&A activity brings up regulatory and environmental issues. To make sure that this development doesn’t jeopardize community welfare and environmental norms, a balanced strategy is required.
EFFECTS OF MERGERS AND ACQUISITIONS (M&A) ON THE ECONOMY
Mergers and acquisitions (M&A) can offer a significant boost to Ghana’s economic growth. The capital infusion that comes with these deals enables companies to scale up their operations, creating new job opportunities and contributing to economic stability. As companies grow larger through consolidation, they often have more resources at their disposal to innovate, reach broader markets, and increase their revenue streams. However, the restructuring that typically follows a merger can result in job cuts, leading to concerns about job security, particularly in industries where redundancies are most likely.
When it comes to competition and consumer impact, M&A can bring both advantages and challenges. On one hand, merging businesses can achieve economies of scale, which often leads to cost reductions. On the other hand, consolidation can reduce market competition. As a few large companies dominate, there’s a risk that they might raise prices or limit the variety of choices available to consumers. In Ghana, regulatory bodies such as the Securities and Exchange Commission (SEC) and the Bank of Ghana are vital in ensuring that M&A activities don’t undermine fair competition or harm consumer interests.
Another notable benefit of foreign mergers is the introduction of new technologies and business practices into the local market. Many multinational companies bring advanced systems and expertise, boosting productivity and fostering innovation. The telecom and fintech industries, in particular, have seen significant advancements due to these partnerships. For example, mobile banking has thrived thanks to foreign collaborations, helping to expand financial inclusion both in Ghana and across Africa.
LAWS THAT REGULATE MERGERS AND ACQUISITION (M&A) TRANSACTIONS IN GHANA
The legal and regulatory landscape in Ghana plays an essential role in M&A. Laws like the Securities and Exchange Commission’s 2008 Takeovers and Mergers Code (SEC Rules) govern a typical merger or acquisition deal. Other legislation that regulates M&A transactions is the Companies Act (Act 992) along with guidance from regulatory authorities like the Ghana Investment Promotion Centre (GIPC) and the Bank of Ghana, offers frameworks for overseeing M&A activities. A successful M&A transaction requires compliance with industry-specific regulatory consents, such as the Securities Exchange Commission Code on Takeovers and Mergers 2008 (Takeovers Code) and the Securities Industry Act, 2016 (Act 929). When engaging in M&A, the company’s constitution is equally crucial.[4]
CONCLUSION
In Ghana, M&A serves as a powerful economic driver, encouraging growth, technological advancement, and market resilience. As the Ghanaian economy continues to evolve, mergers and acquisitions will remain a critical strategy for businesses aiming to enhance their competitiveness in a dynamic market.
[1] https://africabulletin.com/massive-increase-in-ma-deal-value-in-sub-saharan-africa-in-the-first-half-of-2021/
[2] https://africaneyereport.com/ghanas-solid-performance-in-mergers-and-acquisitions-in-2020/
[3] https://africaneyereport.com/ghanas-solid-performance-in-mergers-and-acquisitions-in-2020/
[4] https://bpaghana.com/ma-current-trends-in-the-ghanaian-economy/
BY; Priscilla Mbama Yakubu
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Nartey Law Firm is a leading corporate and commercial law firm in Ghana providing legal services to individuals, domestic and international businesses. Ensuring the success of our clients’ objectives is at the core of what we do. Comprised of a dedicated team of lawyers with extensive experience in corporate, commercial and international law and litigation, we pride ourselves with the diligent execution of all client matters, whilst guaranteeing an uncompromising standard with respect to excellence in service delivery. Some of our focus areas are Real Estate, Trade and Commerce, Banking and Finance, Regulatory Advisory, Capital Markets and Mergers and Acquisitions.
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