The stock exchange market and liquidity
Before people decide to commit their monies into any venture, they want to be assured that they can “give up” that venture and get their monies back easily and at no cost WHENEVER they need them. Economists have given this a big name – they call it LIQUIDITY.
People are reluctant to make long term commitments with their monies because they are not sure of how easy it is to forgo the investment and take their monies back (LIQUIDITY RISK).
Meanwhile, the high-return projects that a country needs for job-creation and economic growth require long term commitments of capital.
Here lies the problem: savers don’t want to part with their monies for too long because of liquidity risk while entrepreneurs need savers to relinquish their monies for a long time so they can build the industries we need to develop as a country.
The Stock Exchange Market provides an efficient mechanism through which these divergent interests can be met:Savers can give out their monies and get them back when they want AND entrepreneurs can also get the long term capital they need for investments. Everyone is happy, and the country can develop. (In my next post, I will attempt to demystify this mechanism in plain language).
This is why GHEconomy is committed to stock market education and efficient information dissemination (this is just a “tip of the Iceberg” of what we are about)
Of course, this is easier said than done but it is important for us to understand the workings of the Ghana stock Exchange as a people before we can move on to deal with the problems there. Without a well-developed financial system it would be difficult for people to get the capital they need to activate their ideas. Ghanaians have wonderful ideas, but Ghana’s own Industrial Revolution will continue to be elusive without capital market improvements.