Now it is very clear that Ghana’s economy is import-driven and our Ghanaian cedi depreciation will be continual. The indicator is the announcement of a reduction in the Customs benchmark value by 50% for all imported items, except vehicles at 30%. This is very striking. The key word is all. The simple implication is that the Ghanaian cedi will keep on depreciating as more of it will be needed for importation. I have in my earlier writing recommended that “There is time for everything under the sun. A time to open up and a time to close up”.
The discussion about strengthening the cedi has been on changing the economy’s structure from been dependent on the outside world to being independent with the position to export. I would like to make it very simple for my readers to understand international finance. The only way to have a stable currency is to have a balance for both inflows and outflows of trading currencies against the Ghanaian cedi. This is mostly hard to achieve amid uncontrollable factors. Therefore, the responsibility lies in focusing on what is controllable. Planning to be an export-driven country is within our reach. We already export raw materials which we can move up to value addition. The application of policies to prevent the exportation of raw materials will improve our economy and generate more cashflow, which will stabilise the Ghanaian cedi.
Now that all imported items have been reduced, the replied effect in the short- and long-run, will be the importation of inflation which will lead to continual Ghanaian cedi depreciation because of interest parity, creation of unemployment due to collapse of manufacturing firms, and high interest rates due to devaluation of the Ghanaian cedi. This is what will happen. We need not have any prophet to come and tell us. I believe there is a plan to mitigate these shocks.
It was mentioned that the decision for the reduction was made on the principle of elasticity in demand and supply. Notably, anticipation of a reduction in the benchmark value or price will cause an increased volume, and therefore more revenue will be obtained. I believe our best bet is with time. This principle of pricing best works for an elastic demand product. In the short run, there will be a shortfall in tax revenue. This will imply that an alternative cashflow must be put in place to offset that effect. In order to generate the needed traffic and transit as in the past, some other policies must be addressed. The famous one is the axle-load limitation. If this is not tackled, Ghana will not be as before in terms of transit business.
In my thinking, a stepwise or categorical approach would have been more beneficial in the benchmark value reduction rather than the all–reduction waiver given to imported items. A sectoral analysis of imported items could have been done, and the focus of the waiver could have been on what benefits Ghana. Our neighbours have not opened up their economies for full importation, and they use the duty rate to deter importation in order to save their local industries.
The writer is a Ph.D. in Commerce Candidate (majoring in Accounting and Finance)
Adventist University of the Philippines Putting Kahoy, Silang, Cavite, Philippines