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Why
are
Local
Equity
Participation
Requirements
(LEPRs)
important
in
Ghana’s
economy?
How
do
we
strike
a
strategic
balance
between
upholding
LEPRs
and
promoting
critically
required
foreign
direct
investment
(FDI)?
How
can
the
promotion
of
LEPRs
be
advanced
in
the
context
of
a
lack
of
local
capital
depth?
These
key
concerns
draw
attention
to
the
important
interactions
that
exist
between
attracting
FDI
and
promoting
the
growth
of
the
local
investment
in
our
economy.
Overcoming
these
obstacles
is
crucial
to
maximising
FDI
potential
and
promoting
inclusive,
sustainable
growth
for
all
Ghanaians.
This
article
explores
the
potential
benefits
and
implications
of
mandating
companies
with
LEPRs
in
various
sectors
to
list
on
the
Ghana
Stock
Exchange
(GSE).
This
strategy
will
ensure
broader
Ghanaian
ownership
and
participation
by
making
shares
in
critical
sectors
accessible
to
a
wide
range
of
local
investors.
Leveraging
the
GSE
can
significantly
enhance
the
effectiveness
of
LEPRs.
When
such
companies
are
required
to
list
on
the
GSE,
shares
become
available
to
indigenous
retail
investors,
pension
funds,
and
other
institutional
investors,
thereby
democratising
investment
opportunities
and
fostering
a
culture
of
local
ownership.
Additionally,
listing
on
the
GSE
increases
transparency
and
accountability,
which
can
attract
more
investors
and
boost
market
confidence.
–
Joel
Telfer
Jnr
The
proliferation
of
FDI
in
any
developing
economy
is
a
welcome
development.
The
inflow
of
capital
leads
to
job
creation,
infrastructure
development,
human
capital
development,
and
fiscal
benefits
to
help
support
essential
government
services.
However,
to
ensure
that
the
benefits
of
FDI
are
maximised
and
equitably
distributed,
many
countries
implement
localisation
policies.
Localisation
involves
ensuring
that
local
businesses,
workers,
and
resources
are
significantly
integrated
into
sectors
traditionally
dominated
by
foreign
entities.
Key
elements
of
localisation
include:
-
Local
Content
Requirements:
which
are
regulations
that
mandate
that
a
certain
percentage
of
goods,
services,
and
labour
used
in
a
particular
industry
or
project
must
come
from
local
sources;
and -
LEPRs:
which
are
policies
that
require
a
specified
portion
of
ownership
or
equity
in
businesses,
especially
in
critical
sectors
like
mining,
oil
and
gas,
and
telecommunications,
to
be
held
by
local
investors
or
the
government.
This
ensures
that
a
share
of
the
profits
and
decision-making
stays
within
the
country.
In
Ghana,
these
policies
aim
to
ensure
that
the
economic
benefits
of
key
industries
such
as
oil
and
gas,
mining,
fintech
and
telecommunications
are
shared
with
local
businesses
and
citizens,
promoting
sustainable
economic
growth
and
development.
Specific
targets
for
local
content
and
participation
are
set,
which
foreign
companies
must
meet
to
operate
within
the
country.
State
of
LEPRs
in
Ghana
Ghana
has
adopted
a
steady
trend
of
LEPRs
in
crucial
sectors
of
the
economy
where
investment
is
heavily
dominated
by
foreign
entities.
This
is
an
attempt
to
ensure
substantial
local
involvement
in
key
industries.
In
the
upstream
petroleum
sector,
entering
a
petroleum
agreement
or
obtaining
a
petroleum
licence
mandates
5%
equity
participation
by
an
indigenous
Ghanaian
company.
Additionally,
non-indigenous
companies
providing
goods
and
services
in
this
sector
must
form
joint
ventures
with
indigenous
Ghanaian
companies,
with
the
latter
holding
at
least
10%
equity
participation.
The
downstream
petroleum
sector
requires
between
50%
to
100%
equity
participation
by
Ghanaian
entities
for
various
categories
of
licences.
In
the
fintech
sector,
there
is
a
30%
Ghanaian
equity
participation
requirement
as
a
licencing
condition.
The
telecommunications
sector
mandates
equity
participation
ranging
from
30%
to
70%
for
network
operators,
service
providers,
and
frequency
holders,
depending
on
the
specific
licence
or
authorisation.
In
the
power
sector,
electricity
distribution
activities
initially
require
30%
equity
participation,
increasing
to
51%
within
10
years
of
operation,
while
electricity
sales
and
brokerage
activities
require
80%
equity
participation
by
Ghanaians,
increasing
to
100%
within
5
years.
Renewable
energy
businesses
are
required
to
have
an
initial
15%
local
equity
participation,
to
be
increased
to
51%
within
10
years
of
operations.
The
mining
sector
is
the
first
sector
to
impose
a
mandatory
listing
requirement.
A
mining
company
is
required
to
list
at
least
20%
of
its
equity
on
the
GSE
if
its
planned
expenditure
exceeds
a
determined
limit
within
5
years
of
operation.
Under
the
Draft
Guidelines
developed
by
the
Minerals
Commission
and
the
GSE,
the
listing
requirement
would
apply
to
mining
companies
that
have
been
operating
for
more
than
5
years
and
have
a
capital
expenditure
threshold
of
USD
100,000,000.
The
current
model
for
complying
with
the
above
LEPRs
requires
entities
in
the
relevant
sectors
to
demonstrate
compliance
as
a
condition
for
obtaining
the
requisite
licence
or
authorisation
from
the
regulator.
The
current
model
faces
significant
challenges
including:
-
limited
capital
and
expertise
among
local
investors
– many
Ghanaian
investors
lack
the
financial
resources
and
expertise
necessary
to
purchase
significant
equity
stakes
in
capital-intensive
industries
like
oil
and
gas
or
mining.
This
limits
meaningful
local
participation
and
ownership;
and -
creation
of
‘front’
companies –
there
is
a
risk
that
foreign
companies
may
create
‘front’
companies
that
nominally
meet
the
local
equity
criteria
but
are
beneficially
controlled
by
foreign
interests.
This
subverts
the
goals
of
LEPRs
and
undermines
the
intended
economic
benefits.
The
current
model
also
does
not
effectively
promote
accessibility
and
awareness
among
the
general
population,
restricting
broader
participation
in
the
economy
by
ordinary
Ghanaians.
To
address
this,
leveraging
the
capital
markets
through
the
GSE
presents
a
viable
option
for
consideration.
Companies
may
be
required
to
list
a
portion
of
their
equity
on
the
GSE
within
a
defined
period
for
the
purposes
of
meeting
LEPRs.
Role
of
capital
markets
and
leveraging
them
to
enhance
LEPRs
Capital
markets
play
an
important
role
in
a
country’s
economic
development
because
they
allow
for
the
mobilisation
and
allocation
of
long-term
funds.
Capital
markets
can
play
a
crucial
role
in
bridging
the
gap
between
foreign
investment
and
local
involvement
in
the
framework
of
LEPRs,
ensuring
that
the
economic
benefits
are
distributed
more
widely
throughout
the
economy.
One
way
this
may
be
achieved
is
to
mandate
companies
subject
to
LEPRs
across
various
sectors
to
list
on
the
GSE
to
fulfil
these
requirements.
For
instance,
holders
of
a
category
of
mining
licence
in
Tanzania
are
required
to
list
at
least
30%
of
their
shares
on
the
Dar
Es
Salaam
Stock
Exchange
to
enable
local
participation.
Similarly
in
Kenya,
a
holder
of
mining
licence
is
required
to
list
at
least
20%
of
its
total
shares
on
the
Nairobi
Stock
Exchange
within
3
years
after
commencement
of
production.
Ghana
can
glean
valuable
insights
from
these
examples
and
adopt
same
for
the
purposes
of
our
LEPRs.
This
strategy
ensures
broader
Ghanaian
ownership
and
participation
by
making
shares
accessible
to
a
wide
range
of
local
investors.
Regulatory
adjustments,
including
amending
the
relevant
legislations
containing
the
LEPRs
to
compel
compliance,
would
be
required
to
implement
this
strategy.
This
approach
will
not
only
enhance
compliance
with
LEPRs
but
also
promote
transparency
and
good
corporate
governance.
Alternatively,
Special
Purpose
Vehicles
(SPVs)
may
be
utilised
to
acquire
shares
from
companies
required
to
meet
LEPRs.
These
SPVs
could
be
established
across
different
sectors
to
offer
diversification
of
investment
risk
and
would
be
listed
on
the
GSE.
As
part
of
these
measures,
consideration
could
be
given
to
providing
allotment
preferences
for
Ghanaian
investors
to
ensure
that
local
investors
benefit
from
these
opportunities.
This
offers
a
structured
and
accessible
means
for
local
investors
to
own
shares
indirectly
in
companies
subject
to
LEPRs.
The
investment
guidelines
for
pension
funds
permit
up
to
20%
of
their
Assets
Under
Management
(AUM)
to
be
invested
in
listed
ordinary
shares
or
non-redeemable
preference
shares,
with
a
per
issuer
maximum
limit
of
10%
of
the
market
capitalisation
of
the
relevant
issuer.
As
of
2022,
private
pension
funds
controlled
74%
of
the
total
AUM
of
all
pension
funds,
amounting
to
GHS
34.5
billion.
Despite
this
substantial
control,
the
primary
investment
model
for
these
funds
has
been
heavily
skewed
towards
government
securities,
with
77.5%
of
their
AUM
invested
in
government
securities
in
2022.
Given
that
pension
funds
are
encouraged
to
invest
domestically
to
promote
a
favourable
investment
climate,
there
is
a
compelling
need
to
diversify
their
portfolios.
Private
pension
funds
can
help
boost
the
localisation
drive
by
investing
in
the
shares
of
companies
listed
on
the
GSE
under
the
LEPRs.
Listing
these
companies
will
provide
the
right
incentive
for
private
pension
funds
to
invest,
thereby
supporting
the
localisation
agenda.
Concluding
reflections
In
summary,
this
article
has
highlighted
the
potential
of
leveraging
the
GSE
to
meet
LEPRs.
Mandating
companies
with
LEPRs
to
list
on
the
GSE
presents
a
promising
strategy
to
ensure
broader
local
ownership
and
participation.
In
enhancing
transparency
and
democratising
investment
opportunities,
this
approach
can
strengthen
Ghana’s
economy.
Balancing
LEPRs
with
the
need
for
FDI,
while
addressing
local
capital
shortages,
is
crucial
for
sustainable
and
inclusive
growth.
Through
effective
localisation
policies,
Ghana
can
harness
the
full
potential
of
both
local
and
foreign
investments.
Author:
Joel
Telfer
Jnr