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Business News of 2014-10-01
In describing the present economic conditions in the country, the government uses the word ‘challenging’.
But the opposition referred to it as a ‘crisis’. However, generally, the mass of the people believe that the country’s economy is in turmoil and that is a fact, no matter the word used to describe it.
One of the main triggers for the state of the country’s economy has is the cedi depreciation against the major foreign currencies, particularly the United States Dollar and the British Pound.
The free fall of the cedi has been attributed to the country’s heavy dependence on foreign goods. From toothpick to cooking utensils; from vehicle parts to crude oil, everything is being imported, swelling the country’s import bill out of proportion.
The currency, within the last eight months alone, dropped against the US dollar by about 40 per cent according to currency analysts. In the last couple of weeks, for instance, the US dollar was traded for between GH¢3.5 and GH¢3.8 at the interbank and ‘black’ markets, respectively.
A Bloomberg report in July quoted Moody’s Investors Service as saying that the slide in the currency is pushing the price of everything from sugar to fuel in a nation that relies on imports to feed an economy that grew by 6.7 per cent in the first quarter.
BoG directive
In its quest to help stem the tide, the Bank of Ghana issued what many described as ad hoc directives to halt the free fall.
In February, this year, it acted by directing that all local transactions should be done in the local currency to stop the Ghana Cedi from further depreciating against major currencies.
It also placed a limit on how much forex could be withdrawn at the counter, among other things.
A week before the directive was given, one dollar was bought at GH¢2.50 and sold for GH¢2.60; One pound was bought at GH¢4.50, and sold for GH¢4.60, while one Euro was bought at GH¢3.70, and sold for GH¢3.80.
However, while the directive was in force, the Ghana Cedi’s situation worsened as it fell by up to 40 per cent within the first half of the year.
The situation forced the central bank to review its directives, following strong agitation by the public, including actors in the business sector, because of the negative impact on businesses, in particular, and the economy generally.
Cedi regains strength
Days after the central bank’s review of its directives on the use of foreign exchange (forex) to save the free fall, the latest euro bond and inflows from the cocoa syndicated loan, the Ghana cedi is fast regaining its strength.
Checks by the GRAPHIC BUSINESS on inter-bank rates in Accra last week established that on the average, one dollar was bought at GH¢ 3.1, and sold for GH¢3.45; One pound was bought at GH¢5.2, and sold for GH¢5.6, while an Euro was also bought at GH¢4.1, and sold for GH¢4.4 .
On the black market, one dollar was bought at GH¢ 3.2, and sold for GH¢3.4; One pound was bought at GH¢5.0, and sold for GH¢5.1 while an Euro was also bought at GH¢3.9, and sold for GH¢3.94.
However at the forex bureaux, on the average, one dollar was bought at GH¢ 3.1, and sold for GH¢3.7; One pound was bought at GH¢5.6, and sold for GH¢ 6, while an Euro was also bought at GH¢ 3.9, and sold for GH¢4.6.
Views of a currency analyst
Explaining the phenomenon, currency analyst, Mr Kofi Ampah, told the paper in an interview that the recent floating of the country’s third Eurobond, which had brought an additional $1 billion into the system; the cocoa syndicated loan which fetched about $1.7 billion has helped to fix the supply shortage of the dollar in the system.
In the currency market, the level of demand and supply is a key factor in determining the value of a currency.
Besides the market forces, investor confidence is one of the critical factors. Following the talks with IMF by the government, investors are very hopeful of a brighter tomorrow for the economy, and that has stopped them from moving their funds from Ghana.
In the last few months, Ghana’s currency suffered a major setback with demand for the US dollar far outstripping supply because that currency was the major currency used by many importers.
According to Mr Ampah, the withdrawal of the directives was also a factor in the Ghana Cedi regaining some strength and coupled with the huge inflows of the dollar, the cedi would end the year at GH¢3.1.
Why it’s a blessing
The strengthening of the Ghana Cedi will have a positive impact on businesses and companies that heavily rely on imports.
It will also have an impact on the importation of crude oil, to the extent that should the prices of crude oil continue to fall on the international market, the prices of petroleum products in the country will be forced down.
The downstream petroleum industry regulator, the National Petroleum Authority (NPA), in gazetting its recent petroleum prices, indicated that the prices were forced up largely to recover exchange losses and not the result of price of crude oil, which is actually falling.
Traders at Abosey Okai, the hub of vehicle spare parts in Accra, were also elated about the drop in the dollar rate and expressed the hope that the trend would continue to enable more people to buy from them.
Cedi strength a curse
Ghana is import dependent and, therefore, for many decades, it has not attained a positive balance of trade position although there are signs of s decrease in imports.
For instance, according to the Monetary Policy Committee report released a couple of weeks ago, total imports for the review period fell significantly to US$9.5 billion from US$11.7 billion in 2013. Oil imports fell by 10 per cent to US$2.3 billion while non-oil imports declined by 22 per cent to US$7.2 billion. These developments resulted in a provisional trade deficit of US$495 million compared to a deficit of US$2.2 billion a year ago.
The report also revealed that for the first half of the year, the overall balance of payments recorded a deficit of US$1.5 billion compared to a deficit of US$677 million in the same period last year. The current account deficit narrowed to US$2.3 billion in the same period of 2013. This was a result of an improvement in trade deficit and net private transfers.
The Chief Executive Officer of Dalex Finance, Mr Ken Thompson, earlier this year, sparked a debate when he argued in favour of a free fall of the local currency.
Among his arguments was the need for the country to begin depending on its locally manufactured products or home grown food to reduce the heavy dependence on imports. To him, a weak cedi will discourage imports and rather encourage exports to improve the country’s balance of payment position.
From the arguments, it is clear that a strong cedi will hurt the economy in the short term because the people’s appetite for imports will begin to rise again and the country’s cedi will fall.
However, in the medium to long term, the country will be better off.
Since this is inevitable, Mr Ampah believes that there is the need to discourage imports and encourage exports to improve the country’s balance of trade.
Presently, efforts are underway to revive the poultry sector; reduce rice imports, among many other initiatives to get Ghanaians to rely on locally produced goods. The move seems to be working gradually because of the behaviour of the cedi and its impact on imported products.
There is, therefore, the fear that, once the trend reverses, the people will go back to their old taste.
Some suggestions
According to Mr Ampah, the cedi’s strength is short-term adding that by the close of the year, the inflows would have been exhausted.
“In January and February, the cedi may slide again because it will be about the time when the importers would be going for new stocks and will require a lot more dollars”, he said.
To him, it will be imperative for the central bank to float another bond during the period to have more United States Dollars in the system to meet demand to avoid another cedi free fall.
He was also of the believe the restoration of the confidence in the economy was key to attract more Foreign Direct Investments (FDIs) and could also have a positive impact on coupon price should the government move to float another Eorubond.
There is the need for the government to remain focused in ensuring that local industries are revived to produce for the local market and for exports.
The revival of the sugar and shoe factories in the country; the support for poultry, cashew and rice farmers should not be stopped while efforts to discourage imports of pirated textiles must be intensified.
According to MPC report, the growth outlook is generally positive based on expected high cocoa and oil output. In addition, the gas production which is expected to come on stream from the latter part of the year will help address some of the challenges in the energy sector.
Obviously, the road to making the strong cedi a blessing may not be smooth. What seems to make the cedi a curse should be turned into a blessing by whipping up people’s appetite for locally produced goods. Should the country be able to overturn its trade deficits, the better for all because the lessons from the recent shock should serve as a lesson to do what is right.
By: Charles Benoni Okine
Business News of 2014-10-01
In describing the present economic conditions in the country, the government uses the word ‘challenging’.
But the opposition referred to it as a ‘crisis’. However, generally, the mass of the people believe that the country’s economy is in turmoil and that is a fact, no matter the word used to describe it.
One of the main triggers for the state of the country’s economy has is the cedi depreciation against the major foreign currencies, particularly the United States Dollar and the British Pound.
The free fall of the cedi has been attributed to the country’s heavy dependence on foreign goods. From toothpick to cooking utensils; from vehicle parts to crude oil, everything is being imported, swelling the country’s import bill out of proportion.
The currency, within the last eight months alone, dropped against the US dollar by about 40 per cent according to currency analysts. In the last couple of weeks, for instance, the US dollar was traded for between GH¢3.5 and GH¢3.8 at the interbank and ‘black’ markets, respectively.
A Bloomberg report in July quoted Moody’s Investors Service as saying that the slide in the currency is pushing the price of everything from sugar to fuel in a nation that relies on imports to feed an economy that grew by 6.7 per cent in the first quarter.
BoG directive
In its quest to help stem the tide, the Bank of Ghana issued what many described as ad hoc directives to halt the free fall.
In February, this year, it acted by directing that all local transactions should be done in the local currency to stop the Ghana Cedi from further depreciating against major currencies.
It also placed a limit on how much forex could be withdrawn at the counter, among other things.
A week before the directive was given, one dollar was bought at GH¢2.50 and sold for GH¢2.60; One pound was bought at GH¢4.50, and sold for GH¢4.60, while one Euro was bought at GH¢3.70, and sold for GH¢3.80.
However, while the directive was in force, the Ghana Cedi’s situation worsened as it fell by up to 40 per cent within the first half of the year.
The situation forced the central bank to review its directives, following strong agitation by the public, including actors in the business sector, because of the negative impact on businesses, in particular, and the economy generally.
Cedi regains strength
Days after the central bank’s review of its directives on the use of foreign exchange (forex) to save the free fall, the latest euro bond and inflows from the cocoa syndicated loan, the Ghana cedi is fast regaining its strength.
Checks by the GRAPHIC BUSINESS on inter-bank rates in Accra last week established that on the average, one dollar was bought at GH¢ 3.1, and sold for GH¢3.45; One pound was bought at GH¢5.2, and sold for GH¢5.6, while an Euro was also bought at GH¢4.1, and sold for GH¢4.4 .
On the black market, one dollar was bought at GH¢ 3.2, and sold for GH¢3.4; One pound was bought at GH¢5.0, and sold for GH¢5.1 while an Euro was also bought at GH¢3.9, and sold for GH¢3.94.
However at the forex bureaux, on the average, one dollar was bought at GH¢ 3.1, and sold for GH¢3.7; One pound was bought at GH¢5.6, and sold for GH¢ 6, while an Euro was also bought at GH¢ 3.9, and sold for GH¢4.6.
Views of a currency analyst
Explaining the phenomenon, currency analyst, Mr Kofi Ampah, told the paper in an interview that the recent floating of the country’s third Eurobond, which had brought an additional $1 billion into the system; the cocoa syndicated loan which fetched about $1.7 billion has helped to fix the supply shortage of the dollar in the system.
In the currency market, the level of demand and supply is a key factor in determining the value of a currency.
Besides the market forces, investor confidence is one of the critical factors. Following the talks with IMF by the government, investors are very hopeful of a brighter tomorrow for the economy, and that has stopped them from moving their funds from Ghana.
In the last few months, Ghana’s currency suffered a major setback with demand for the US dollar far outstripping supply because that currency was the major currency used by many importers.
According to Mr Ampah, the withdrawal of the directives was also a factor in the Ghana Cedi regaining some strength and coupled with the huge inflows of the dollar, the cedi would end the year at GH¢3.1.
Why it’s a blessing
The strengthening of the Ghana Cedi will have a positive impact on businesses and companies that heavily rely on imports.
It will also have an impact on the importation of crude oil, to the extent that should the prices of crude oil continue to fall on the international market, the prices of petroleum products in the country will be forced down.
The downstream petroleum industry regulator, the National Petroleum Authority (NPA), in gazetting its recent petroleum prices, indicated that the prices were forced up largely to recover exchange losses and not the result of price of crude oil, which is actually falling.
Traders at Abosey Okai, the hub of vehicle spare parts in Accra, were also elated about the drop in the dollar rate and expressed the hope that the trend would continue to enable more people to buy from them.
Cedi strength a curse
Ghana is import dependent and, therefore, for many decades, it has not attained a positive balance of trade position although there are signs of s decrease in imports.
For instance, according to the Monetary Policy Committee report released a couple of weeks ago, total imports for the review period fell significantly to US$9.5 billion from US$11.7 billion in 2013. Oil imports fell by 10 per cent to US$2.3 billion while non-oil imports declined by 22 per cent to US$7.2 billion. These developments resulted in a provisional trade deficit of US$495 million compared to a deficit of US$2.2 billion a year ago.
The report also revealed that for the first half of the year, the overall balance of payments recorded a deficit of US$1.5 billion compared to a deficit of US$677 million in the same period last year. The current account deficit narrowed to US$2.3 billion in the same period of 2013. This was a result of an improvement in trade deficit and net private transfers.
The Chief Executive Officer of Dalex Finance, Mr Ken Thompson, earlier this year, sparked a debate when he argued in favour of a free fall of the local currency.
Among his arguments was the need for the country to begin depending on its locally manufactured products or home grown food to reduce the heavy dependence on imports. To him, a weak cedi will discourage imports and rather encourage exports to improve the country’s balance of payment position.
From the arguments, it is clear that a strong cedi will hurt the economy in the short term because the people’s appetite for imports will begin to rise again and the country’s cedi will fall.
However, in the medium to long term, the country will be better off.
Since this is inevitable, Mr Ampah believes that there is the need to discourage imports and encourage exports to improve the country’s balance of trade.
Presently, efforts are underway to revive the poultry sector; reduce rice imports, among many other initiatives to get Ghanaians to rely on locally produced goods. The move seems to be working gradually because of the behaviour of the cedi and its impact on imported products.
There is, therefore, the fear that, once the trend reverses, the people will go back to their old taste.
Some suggestions
According to Mr Ampah, the cedi’s strength is short-term adding that by the close of the year, the inflows would have been exhausted.
“In January and February, the cedi may slide again because it will be about the time when the importers would be going for new stocks and will require a lot more dollars”, he said.
To him, it will be imperative for the central bank to float another bond during the period to have more United States Dollars in the system to meet demand to avoid another cedi free fall.
He was also of the believe the restoration of the confidence in the economy was key to attract more Foreign Direct Investments (FDIs) and could also have a positive impact on coupon price should the government move to float another Eorubond.
There is the need for the government to remain focused in ensuring that local industries are revived to produce for the local market and for exports.
The revival of the sugar and shoe factories in the country; the support for poultry, cashew and rice farmers should not be stopped while efforts to discourage imports of pirated textiles must be intensified.
According to MPC report, the growth outlook is generally positive based on expected high cocoa and oil output. In addition, the gas production which is expected to come on stream from the latter part of the year will help address some of the challenges in the energy sector.
Obviously, the road to making the strong cedi a blessing may not be smooth. What seems to make the cedi a curse should be turned into a blessing by whipping up people’s appetite for locally produced goods. Should the country be able to overturn its trade deficits, the better for all because the lessons from the recent shock should serve as a lesson to do what is right.
By: Charles Benoni Okine
