Ghana’s economy is strong and promises generous future growth and the need for a much more comprehensive social security system is understood to be of great importance. In 2004, the government started a journey to reform the social security/ pension system and these reforms created an opportunity for the participation of the private sector in pension delivery. This proposed business plans seeks to establish a trustee company, which will provide pension related products to the formal and informal sectors of the Ghanaian economy who have traditionally been excluded from the national pension system.
The private pension industry is a new and virtually untapped industry offering an opportunity to serve a large proportion of Ghana’s workforce, as this section of the working class is key in the success of developing a comprehensive pension system. This industry is estimated to be valued at GHS and will insist of 2nd tier and voluntary 3rd Tier pension system. The national pension scheme has seen an average annual increase in contribution of 10%.
The target market for the proposed business is a young adult between the ages of 16 and 45 years. The target market will consist of young professionals, self-employed individuals and those who traditionally do not have access to the national pension scheme namely hairdressers, mechanics, etc. With the growing appreciation of securing one’s future, the target group demand quick and efficient services, products that meet their existing and future needs and an industry that responds quickly to their needs.
Currently, there is no existing service provider in the private pension industry however the life insurance industry is expected to lead the way and be the dominant players in the provision of these services. The proposed business plan seeks to be consumer focus providing excellent customer services, constant customer feedback and innovative and simple product design and use. The competitive advantage of the proposed business include accessibility through the use of a comprehensive distribution network, excellent customer service and product design based on need.
The proposed business is a private pension provider rendering trusteeship, custodian and fund management services. The company is a limited liability company with a proposed stated capital of GHS3, 000,000.00. Each of the business owners will raise GHS90, 000.00 each and the difference will be funded using bank credit lines, private investors and asset financing.
Undertaking the proposed business plan provides the following findings:
Ghana’s economy remains positive and stable providing generous growth now and in the future
New pension reforms and creation of new industry provides both threats and opportunity
Vast untapped informal market available to the new industry
Current shortfalls in the national pension will be catered for by private providers
Proposed business provides opportunity for development of local capacity in pension design and management
With robust regulatory system and effective strategic planning this propose business has a fair chance of succeeding and growing into a very successful business and being part of the development of the private pension industry in Ghana.
1.0 The Introduction Research Background and Motives Over the years concern had been raised about the current state of the Ghanaian social security system which has been characterized by inadequate benefits which is extremely difficult to live on if not mere impossible. As pointed out by the International Social security Association (2003), Social security systems in Africa are characteristically too exclusive and inadequate of which Ghana is not exception. Like other social security systems in Africa, Ghana’s social security system covers only the formal workforce, which constitutes a small fraction, usually no more than 20% of the total labor force.
This inherent characteristic of the social security system makes social security exclusive, as those outside the formal sectors do not have access to social security or a national pension. Furthermore due to the relatively small number of contributors to the national social security scheme, benefits under the social security scheme is inadequate. Ghana like many other African countries has institutions, laws and government structures that were adopted from their colonial masters without much modifications and thought. The institutional structures were most often designed to meet the goals and objectives of the colonial masters who at that time were the elite. One may wonder why social security systems that are meant to provide protection for all in society tends to cover only a small fraction of society.
The international social security association points out that, most social security systems like many other things were adopted from the colonial masters. These social security systems were really intended to cover a small body of employees who were at the time working in the colonial administration and mine workers. This meant that all others outside this scope fell outside the social security system. This inherently remained, as most countries even after independence were unable to devise social protection programs that were tailored to the needs and circumstances of the people.
Based on the background above, I am motivated through this business proposal to highlight the importance of the development of a much-needed private pensions scheme to augment the existing national social security system and also to provide those who are outside the national social security system an avenue to secure their futures and have enough to live on when they retire.
1.2 The Motives The motive for undertaking this business proposal is to bridge the gap created by the current social security structure, which excludes those within the informal sector of the Ghanaian economy. Secondly, private pension plans will also provide extra revenue to those who have retired as the current benefits under the national plan is woefully inadequate.
At the end of this start up business proposal I hope to be able to:
Understand current economic and business environment in Ghana
Understand the structure of Ghana’s social security system
To analyze current regulatory framework in place and its likely impact on the operations of the start up
To analyze the development of the chosen market and industry
To determine the essential inputs for the start-up and future development plans
To analyze any academic theory on successful business start-ups
1.3 The Objective The main objective of this business plan dissertation is to:
Identify if any, opportunities and challenges for a private pensions company in Ghana
With the opportunities I have identified and challenges write a start up business plan for a private pension company in Ghana
Provide information on procedure to follow when setting up a company in Ghana
In this write up the main focus will be on the company operating in one specific area of pensions which is the tier three of the pensions act. Long-term strategies may see the company evolve to extend other pensions/ savings products.
1.4 Research Methodology The aim of this write up is to put together a business plan for a start up private pension company in Ghana based on sound research on the subject matter of private pensions in the chosen market and academic theory on the principles entrepreneurship and business management.
The research therefore will mainly be based on secondary data from credible governmental resources and non-governmental agencies. I will also make use of academic articles, journals and industry reports.
1.5 Structure The write up will be split into five (5) chapters with details of each chapter as follows:
Chapter 1: The first chapter will have the introduction, which contains the background, the motives and objective, brief research methodology, structure of the write up and a comparative analysis of social security systems in the developed and underdeveloped worlds.
Chapter 2: Economic Overview of chosen market, history and importance of social security in chosen market, overview of the social security system now and then, social security structure, and challenges facing the national social security system
Chapter 3: Description of the business idea, marketing plan/strategy, pricing, mission and vision, Human Resources.
Chapter 4: Chapter four will be the financial plan. In this section will include financial assumptions and financial projections for the next five years.
Chapter 5: The conclusion, this section will contain exit strategies and also discuss any immediate or future impact of the proposed business on the Ghanaian economy. This section will also summarize key success factors of the proposed business.
Chapter 2 Introduction Under this chapter I will look at the economic overview, economic performance and outlook of the chosen market for the proposed business, I will then go further to look at the development of social security/ pensions in Ghana, and then look at the overview of the social security system of the chosen market, Ghana.
As earlier stated under my aims for this project, I seek to provide some insight as to what it takes to start a business in Ghana, therefore under this section I will also provide information or insight in relation to what procedures needed to follow when setting up a business in Ghana.
2.0. Economic Overview of Ghana The Republic of Ghana is a West African country with land area of 92,100 square miles, which is boarded by Cote D’Ivoire, Burkina Faso, Togo and Gulf of Guinea.
Ghana has always been known as a country of great natural resources, hence the nickname, “The Gold Coast”. Ghana is rich in gold, timber, diamond and cocoa and has an economy that is heavily dependent on agriculture. Ghana remains one of the leading producers of Gold and Cocoa in the world. Agriculture in Ghana accounts for 37% of GDP and employs an estimated 55% of the national workforce. It must however be noted that agriculture is still largely small scale, non- commercial and not mechanized.
Ghana’s economy is one of the most stable and fast growing economies in Africa and has achieved impressive growth as a result of the discovery of oil and natural gases. With such impressive growth and relative stability in the macro-economic indicators, Ghana attained a lower middle-income economy status according to the World Bank, however youth unemployment and poverty continues to be a major issue. 25% of Ghana’s youth are unemployed and 37% of the population currently lives on less than $1.25 a day.
Despite a 14.4 % growth in Ghana’s economy in 2001 according to the World Bank, Ghana’s external debt over the last 3 years has increased by 125% from $8 billion in 2008 to $18 billion in 2011.
In terms of investment, Ghana has Africa’s 3rd largest stock exchange with South Africa and Nigeria ahead of Ghana respectively.
2.1 Economic Performance and Outlook Ghana’s economic performance over the last decade has been impressive. GDP average annual growth rate was 6% between 2005 and 2007, increased to 7.3% in 2008 but however declined to 3.9% in 2009 on the back of the global financial and economic crisis.
Inflation increased by 41.7% from 12.7% in 2007 to 18.1% in 2008 however due to effective economic policies and austerity measures inflation for the last 3 years has steadily falling to its current rate of 9% as at 2011 for the last 9 months since. Increase in non-oil imports and income outflows widened Ghana’s current account deficit by some 38% at the end of 2011.
Despite these challenges, Ghana’s economy has outgrown the global economy for the past 4 years. Whilst the global economy grew at an annual average rate of 3%, Ghana’s annual average growth rate has been 6.5%.
The adoption of austerity measures to cut public spending and the stability of macroeconomic indicators have helped Ghana survive probably the worst part of the global economic meltdown and it remains one of the most promising economies in Africa. Based on the indicators above on the economic health of the country, Ghana’s medium-term growth remains positive, largely driven by investments in the mining industries, public infrastructure and commercial agriculture according to the World Bank.
2.2 Development of Pensions Scheme in Ghana Pension systems in Ghana date as far back as the colonial era. The first kind of pension system was introduced in Ghana in 1946. The pension system was a non-contributory pensions scheme and its aim was to cater to the retirement benefits of those who worked within the colonial administration and also included mine workers. Kpessa (2010) noted that Ghana’s social security system at the time was designed, as a means of encouraging loyalty and efficiency within the colonial service as a result was quite exclusive. Like most programs introduced during this era, old age income protection policies were limited to urban dwellers especially Europeans and a few Africans working in the colonial bureaucracy.
It was not until 1950, the Pension Ordinance No.42 (Cap 30) and Superannuation schemes was established in an effort to have a social security system in place that covered a greater portion of Ghanaian workers. It was established as a pension scheme for public servants in the Gold Coast. These schemes covered certified teachers, University lecturers and all government workers however a vast majority of Ghanaians were unable to benefit from this scheme (Adjei, 2000).
In 1965, the Social Security Act (No. 279) was passed to cover all private and public sector workers who were not covered under the Pensions Ordinance No.42. The scheme initially started as a provident fund, providing benefit for old age, invalidity and survivor benefit. This Act was repealed and the social security and national insurance act (SSNIT) was established under NRCD 127. The trust was established to administer the new social security scheme.
The scheme was later converted to a social security pensions scheme and in 1991 turned into a defined benefit scheme following the enactment of the Social Security Act 1991 bringing some level of adequacy into workers pensions.
For a worker to qualify for old age benefit, the worker must have worked for a minimum of 240 months and be at least 60 years of age. Workers in the extractive industries such as mining however have a mandatory retirement age of 58 years under which they qualify for old age benefits.
For workers who have been injured at work, they may qualify for payment under the invalidity benefit section of the social security system. Benefit is payable over a period of 12 months.
If a retiree dies before reaching the retirement age his or her benefit is calculated as the present value of all contributions and paid to the surviving spouse or dependents.
The Social Security and National Insurance Trust (SSNIT) has four major functions:
Collection of contributions
Record keeping – keeping up to date records of all contributing members
Processing and payment of benefits
Pensions fund management
2.3 Overview of Social Security/ Pensions in Ghana A universal social security/ pensions scheme in Ghana has not been in existence for so long having been established in the 1990’s; earlier forms of social security were exclusive. The Social Security Pensions Scheme (SSPS) was established in 1991 under the Social Security Law PNDCL 247 and under the trusteeship of the social security and national insurance trust (SSNIT).
Twenty-five years prior to this, Ghana run a provident scheme established under the social security act of 1965 (Act 279).
Under the 1991 scheme, the Social Security and National Insurance Trust collected the contributions of the Ghanaian worker. The Act provided for compulsory coverage for workers in establishments that employ at least five workers. An establishment with less than five employees had the option to join the scheme, but there was no compulsion (Kumado
A ratio analysis comparison of Rolls Royce and GE
Rolls Royce and GE are two of the most renowned names in the global engineering sector. The GE is based in the US while the Rolls Royce has its origins in Europe. Due to the difference of the regions, the companies follow different accounting principles in reporting their performances. The GE uses the US GAAP and the Rolls Royce uses the IFRS. The difference in the formation of the reports is difficult for the interested parties to understand and it provides difficulty in the evaluation of the companies. In this case the ratio analysis is the best means for the evaluation of the companies. Due to the difference of the accounting principles of the companies, the accounting boards of IFRS and the US GAAP are working towards a convergence of the standards. This will solve the difficulty of the different companies operating round the world.
Introduction The name of Rolls Royce brings to mind the image of a sophisticated high-class car. The company was set up to manufacture the high-class car in the first place. However, as the group grew the company was split and the license for the manufacturing of the cars was granted to BMW. In the present day, BMW manufactures the coveted car. The coveted trademarks are used by the parent group in the name of the Rolls Royce Plc. The group has been one of the renowned names in the engineering industry and operates in the aerospace and the marine sector. The clients of the company are the defense organizations of most of the countries. The brand has been synonymous with the quality of the products and its rich heritage has been drawing customers from all over the world. It is headquartered in London and follows the accounting principles of the country in publishing its reports. (History of the brand, n.d.)
GE or the General Electric has been the frontrunner in the global electronics industry. Like that of the Rolls Royce the main focus of the company has been the energy sector. The company has a rich heritage dating back to the days of Thomas Edison. From the days of Edison, the company has been involved in innovation of different techniques in the electronics sector. In its modern stature, the company has carried on its past heritage and created a global name for it. The global brand has been instrumental in the success of the company. The innovation in the company has been carried on from the days of Edison. The company has its main office in USA. In its financial reports the company uses the American GAAP principles. (Our history, n.d.)
The paper will divulge in the financial reports of the company and report the performance of the companies in a similar manner with the help of the ratio analysis. The difference in the reporting principles of the company will be emphasized upon.
The companies The rationale behind choosing the companies is relevant in the case. Both the companies are similar because they operate in the same kind of industry. Both are renowned names in the industry and have distinctive brand values. The companies have been operating in the industry sector. The companies are based on different geographical locations and they follow different sets of principles in the case of the financial reporting. The stature of the companies fulfills the requirements of the report.
Financial strengths and weakness This section will deal with the strengths and the weakness of the companies as reported in the financial reports of the companies. As the structure of the financial reports is different in the case of the two companies the help of the ratio analysis will be taken. The ratio analysis helps in maintaining uniformity in the reporting of the companies.
Rolls Royce In the case of Rolls Royce, the financial evaluation will take place from the period of 2006 to 2009. The ratio analysis will help in the case of the evaluation. As the company has been based in England, Pounds has been the currency used in the report. All the figures in the analysis will be in millions of pounds except the earnings per share of the company.
Profitability analysis ratio Return on Equity (ROE)
Net Income/ Shareholder’s Equity
The company has been performing fine in accordance with the money of the shareholders with the exception of 2008. In 2008, the company invested heavily on the R