The local bond markets where companies can borrow money from investors at a relatively cheaper rate to fund a variety of projects would become active by the end of the year. Government says it had already put in place measures to develop this market with the aim of making it as an alternative source of funding to bank loans. Some of the measures include re-organization of the primary dealer system, strengthening of trade and settlement infrastructure and introduction of incentives to encourage companies to issue more bonds on the Ghana Stock Exchange (GSE). The Deputy Managing Director of the GSE, Ekow Afidzie, who disclosed this at a seminar on bond market, organized by Access Bank Ghana Limited in Accra, mentioned the setting up of a bond trading system and training of professionals on how to trade and price bonds as the other measures taken by the government to develop the local bond market. Currently, the cost of borrowing in Ghana is so high. Ever since the prime rate started falling in recent times, commercial banks have shown no sign of cutting their lending rates to borrowers, making it very difficult for companies to go for loans to expand their operations and create more jobs for the masses. The latest Annual Percentage Rates and Average Interest Rates (AI) conducted by the Government Statistician’s outfit for June this year reveals that banks are still offering lending rates to businesses at an average of 33 percent, even though the Monetary Policy Committee of the Bank of Ghana has for the 12th consecutive month reduced the prime rate - the rate at which it lends to commercial banks - to 13.5 per cent. At the bond market, the issuer which can be either a company or government, sells debt to investors for a certain number of years and later pays interest to the buyer (investor) for the duration of the bond’s life. This paper learnt the fixed interest rate that a company will have to pay for borrowing money from the bond market is about 15 per cent, compared to the average of 33 per cent charged by the commercial banks. Financial experts at the seminar believe that the move by the government to make the bond market active will therefore see more private companies turning their attention to this market to access long-term capital for infrastructure development and project financing at a cheaper rate. “It is not every time that we have to run to banks for loans. We must seek an alternative which is the bond market,” the Managing Director of Access Bank Ghana, Yomi Akapo, advised. The analysts further stated that when the local bond market becomes effective, banks would be forced to reduce their interest rates as more companies may not be interested in taking loans. Also, borrowers may choose to go to the bond (debt) market instead of banks because the amount of money they need to borrow is higher than what any single bank is willing or able to lend, they added. The Governor of the Bank of Ghana, Kwesi Bekoe Amissah-Arthur, said the inability to develop the local bond market over the past years was due to the country’s unstable economic environment. “The bond market in Ghana can only develop within the context of macroeconomic stability and we are happy the country saw a complete turnaround in macroeconomic trends,” he stated. Inflation, which peaked at 20.74 percent in June 2009, has been reduced to 9.52 percent; the monitory policy rate has eased from 18.5 percent in February 2009 to 13.5 percent; there is stability in the exchange rate of the Cedi, while gross international reserves have increased from 1.7 months of imports cover in mid 2009 to three months of imports cover. He said the favourable economic trends have induced lower yield rates in the money markets, reducing the costs of government borrowing and gradually shifting investor preference for short-dated instruments to long-term instruments. Information gathered by BUSINESS GUIDE indicates that the bond listed on the GSE currently include 78 two-year bonds, 4 three-year bonds, and 3 five-year bonds at the total value of $1.9 billion. The Deputy Managing Director of GSE, Ekow Afidzie said this year alone, GH¢306 million worth of Ghana bonds have been traded by three banks, namely Stanchart, Barclays and Stanbic, at the exchange. The Access Bank’s seminar held last week sought to share the experiences of regulators and investors familiar with active bonds trading in other jurisdictions and to recommend practical ways to resolve identified challenges for increased investor participation. Story by Felix Dela Klutse/Business Guide/Ghana