Lately, the most popular phrase in mainstream and social media has been ‘the depreciation of the Ghana Cedi’. This is because it is worrying to have a country’s currency tumble down considering the negative effect it has on the socio-economic development of the nation.
From July 1965 when the first President Dr. Kwame Nkrumah introduced the first Cedi to 1967 when The National Liberation Council introduced the second Cedi, and in 2007 when President J. A. Kuffuor introduced the third Cedi and up till now 2019, the cedi has continually depreciated against the US dollar. .
As at August 1994, Ȼ1000 or GHȻ0.10 (10 Ghana pesewas) was equivalent to US$1.00. Today, in May 2019, Ȼ52,000 or GHȻ5.20 is equivalent to US$1.00. This shows that the Ghana Cedi (GHȻ) has depreciated drastically within the past 24 years.
Past and present governments have done their best to contain the situation but, in all situations the result has always been the same. When the economic fundamentals are good, the Cedi falls, and when they are weak, the Cedi continues to fall unabated. I think there are more factors apart from economic fundamentals which are undercurrent and effecting Cedi’s strength but it seem our economic managers have not noticed.
In his presentation, I will try to highlight some tools which could certainly do the trick if our economic managers would apply them in their quest to halt the depreciation of the Cedi.
Before I proceed, let us remind ourselves about the basic economic principle that determines the price of every commodity. The price of every commodity is basically determined by interaction of the forces of demand and supply. If demand is more than supply, the price will rise and vice versa. Let us agree, and it is true, that in Ghana, the supply of the dollar is less because we do not export more to earn more foreign exchange. It is also true that in this country, the demand for the dollar is more than the supply because we import almost everything; hence the price of the dollar continues to rise.
If our economic managers are able to manage, to reduce and restrict the use of the dollar in our daily economic activities, it could lead to less demand for it and hence its price would automatically fall. It is only then that the depreciation of the Cedi will stop.
The factors I am going to discuss below could in all sincerity reduce the demand for the dollar and together with sound economic fundamentals could halt the depreciation of the cedi.
If we want our Cedi to be strong, we must have well established specifications or standards for every item in the country. Standardization is the process of establishing standards for all products so that only superior quality and long lasting products are in the market, leading to customer satisfaction and safety.
One of the major reasons why Ghanaians demand the US dollar is for the importation of goods. Everything imported into the country must conform to standards to be set by the Ghana Standards Authority (GSA). If quality items are imported, they will last long and the frequency to import the same items will reduce. On the other hand, if inferior items are imported, as it is the case in Ghana, then all the time, we will demand more dollars to import the same item into the country and then the price of the dollar will rise while the cedi depreciates.
The Ministry of Trade and Industry and GSA could be resourced to take up this challenge and establish standards for every item in the country. They must impartially see to it that importers and manufacturers comply with the established standards and every item imported conforms to the established standards, and all imported goods can only be cleared at the ports if the importer has Certificate of Conformity covering the goods issued by GSA.
Re-export means export of foreign goods which has already been imported into the country from a foreign country. This is a double killer and a very big reason why there is continuous depreciation of the cedi.
This is because the importer changes cedis into dollars to import goods into the country and then re-export such goods to another country without even paying customs duty and taxes on such goods.
It means that the importer uses Ghana’s foreign exchange to finance the import bill of the country where he re-exports the goods to. The increase in demand for such re-exported goods in the country of destination means the Ghanaian exporter will change more cedis into dollars in Ghana to import again and again only to re-export hence more demand for the dollar to finance such imports.
The more dollars demanded for such business activities increases the dollar price and causes the cedi to depreciate. Let us imagine there is an Iron and Steel importer in Ghana who re-exports millions of dollars’ worth of goods, where does he get dollars to finance his imports? His trading activities put undue pressure on the cedi to fall for no positive economic benefit to the nation.
You may understand me if you check the petroleum sector where petroleum products imported into the country are prohibited from being re-exported to other countries. We should prohibit re-export of every item imported into the country with foreign currency from being re-exported if we want our cedi to be strong and stop depreciating.
Re-export is not bad all the time to a nation. If a country’s currency is hard or convertible like US Dollar, UK Pound, European Euro or the Francophone CFA which is hard-pegged to the Euro, then re-export is good. However, if countries like Ghana whose currency is not hard engage in re-export, their currency will depreciate due to cross conversion of the currencies.
If one goes to London to shop made in China goods at Oxford Street and makes payment in British Pound, the British importer doing re-export will not have any challenge paying his Chinese supplier.
He goes to his bank and transfers Pounds Sterling to settle his import bills. On the other hand, if one comes to Accra to shop made in China goods, the Ghanaian importer doing the re-export will have big challenge of changing the cedis to dollars before he could transfer to pay his Chinese supplier. If we allow $100million worth of goods to be re-exported, it means we have sent $100million changed in Ghana out of the country. The more we re-export, the more the cedi depreciates. Only made in Ghana goods must be exported and any goods going out of the country must be covered by Certificate of Origin issued by Ghana Chamber of Commerce.
- Import substitution
Ghanaians have a penchant for imported goods and so almost everything in the market is imported. Therefore, there is a very high demand for dollar to finance importation of goods. The advent of shopping malls has worsened the situation. These shopping malls import even agro products which abound locally. The government must introduce import prohibition policy on selected goods.
Products which we have factories producing them in Ghana or can be produced with the least support must be prohibited from being imported into the country. The resultant effect will be less demand for the dollar and subsequent fall in its price. Comparable products which can be used as substitute to one another can be considered. Candles and lanterns are both used to illuminate their surroundings in the night. Candles burn fast and they do not last long whiles lanterns last for years.
To import candles means, burning dollars off, so to limit the demand for dollars to import candles, the government must ban importation of candles. Without candles, lanterns can do the same job and even better. Economic managers must encourage entrepreneurs to manufacture candles locally.
Another example among many others is mosquito net and mosquito coils. They are both used to repel mosquitoes in the night. $100 million worth of imported mosquito coil burn off in a short time, while $100 million worth of mosquito nets last for a very long time. To reduce demand for dollars, importation of mosquito coils must be banned, especially when we have factories producing mosquito coils in Ghana.
- Foreign currency account
Any activity that puts excessive pressure on the demand for the dollar must be avoided. I don’t know why in Ghana anybody can walk into any bank and demand to open dollar account. The banks don’t even find out how and where the prospective dollar account holder will get dollars to operate the account. I must say, with little exception all such account holders change cedis into dollars at forex bureau and black markets to operate such bank accounts because such account holders in Ghana don’t earn remuneration in dollars.
With full cedi bank account products; deposit accounts, fixed deposit accounts, current accounts, etc in our banks, changing cedi into dollars to operate dollar account may be superfluous and such activities increase the demand for the dollar thereby increasing its price.
Dollar bank accounts must be reserved for Ghanaians working abroad, those receiving remuneration in dollars, and exporters.
- Transaction of business in dollars
The dollar must be used only as reference for government businesses and activities between banks. For the general public, our legal tender is the cedi. It must be forbidden for any transactions whether donation or payment to be quoted in dollars. If people don’t use and transact business in dollars, its prominence will become very insignificant over time.
- The role of importers and travellers
Importers are the main contributors to the depreciation of the cedi but unfortunately they are the same people who mostly complain about the free fall of the cedi. I don’t blame anyone because Ghana imports almost all the items she needs.
The situation where any amount can be hand-carried across the land borders and the airport must be discouraged. There must be ceiling on the amount of cash anyone can travel with outside the country. Instruments like travelers’ cheque and credit cards must be encouraged.
Importers must be made to make payments to their supplier through the banks. When all transactions are done through the banks, speculation which starts at the forex bureau and black market will be minimized. Bank transaction certificate issued by banks for the payment of goods imported must be a requisite document for clearing goods from the port. This will reduce activity of money speculators in the market hence may curtail the free fall of the cedi.
- Made in Ghana products
Industrialization is the way forward. The more we produce most of the things we need, the less demand there will be for the dollar to import. The One District One Factory (1D1F) program is in the right direction.
But to achieve maximum impact on the economy, all 1D1F projects must be nursed and nurtured to grow to become mega companies and their produce should be protected from undue and unfair competition.
Nigeria has prohibited the importation of more than 40 items and this is helping her to move forward her industrialization policy. Ghana can do the same and create more jobs her citizens, and improve her balance of payment position.
The importation of fruit juice and mosquito coils, for example, could be banned. About 99% of the composition of mosquito coil is sawdust and cassava starch. One may ask why we use our hard earned foreign currency to import sawdust especially when we have mosquito coil factories in Ghana.
If the people of Ghana change the status quo, which are: over reliance on imported foreign goods, importation of inferior goods, payment for imported goods outside the banking system and re-exportation, the tumbling down in shocking fashion of the Ghana Cedi could stop.
The writer of this article is an industrialist and chairman of Beatex Enterprises Limited, manufacturer of Lord and Old Soldier Jumbo mosquito coils. He can be reached on: firstname.lastname@example.org