We have consistently and unapologetically characterized the country’s economy as import dependent since the Guggisberg times. Sixty- five years of independence is also long enough to have changed the structure of the economy if we cared enough about the true meaning of political and economic independence, rather than sloganeering.
From what little I have read, I have come across a Canadian born, British Governor Guggisberg who, in spite of being a foreigner, was passionate about developing present day Ghana within eight years (1919-1927), constructing the Korle Bu hospital to take care of our health needs, Achimota School to spearhead the educational agenda, the Takoradi port to boost international trade, and an efficient triangular railway system to prop the economy.
If a foreigner could be imbued with such strong commitment to develop an African nation, what more excuse do we have for our sluggish rate of development, sixty- five years after independence?
The idea that the country has been an import dependent economy for so long is not enough for us to continue on that trajectory, without evaluating the sources of sustainable forex supply and creating avenues to absorb the teeming unemployed youth.
Rather worryingly, successive governments have shied away from implementing fundamental policies that will change the structure of this economy from its import dependent nature to a vibrant productive one capable of producing increased, competitively priced export commodities. Successive Development plans have not produced the desired impacts in view of changes in government and an incredible reluctance to continue projects initiated by previous governments and which have already consumed enormous local and forex resources.
With under- utilized poultry farms dotted around the country, we could start from making agriculture the pivot of self- sustainable growth. This will reduce the over $400 million spent importing tomatoes and the $ 600million on rice imports annually. Re-prioritising our import requirements and boldly re-assessing our tax exemption policy will be huge steps in restructuring this ailing economy.
Instead, successive governments choose only cosmetic arrangements aligned with their intent to win the next elections, preferring only to lament about perceived incompetence of their political opponents in managing forex rates, as if they are oblivious of the determinants of both the demand for, and the supply of foreign exchange.
What business do we have to continually blame neo-colonialism for our abysmal failure in restructuring this economy that was ostensibly built to harness resources for the benefit of our colonial masters?
My fear of over- confident illiterates and false alarms
Everybody in a regular society has a role to play in different forms; whether one is literate or illiterate. In whichever sphere one finds oneself, we must recognize that once placed in an influential position by virtue of wealth, official, traditional, or parental power, the moral obligation to contribute to the sanity of society is paramount and must be upheld by the individual influencer or group.
It goes without saying that ignorance is a disease that kills recklessly. Ideally, one should, as a solemn, social responsibility, refrain from confidently speaking about subjects or issues one is not completely competent in or lacks evidence about. This is required for the sake of preventing disruption in the social order, like shouting “thief” in a public space where anybody seen to be running could be a victim of mob justice.
Technology and modernity have enabled the airwaves to be filled with frightening commentary about economics, social, religious and other governance issues. It behoves on every citizen to be utterly responsible when given the opportunity to control some communication equipment in a radio or television station.
May be, I am dreaming from the comfortable, friendly, clean and less noisy environment of Kwamo where I am on an official assignment, enjoying the luxury of dreaming without sleeping.
My stress level has remarkably “depreciated” from the levels experienced while in Accra.
How I wish the cedi could enjoy the same respite from the “devastating and humiliating” depreciation and the rather pedestrian arguments I have been forced to listen to on the airwaves in Kumasi.
I cringed behind my steering wheel when a caller to a radio station, in an angry tone forcefully recommended to the president to just decree that effective from that day, the cedi to the dollar exchange rate should be five cedis, and presto, everybody will comply and save us from the astronomical daily price increases. I expected the radio presenter to have clarified the fallacy in the caller’s statement but he left it to hang, rather unprofessionally.
Some say ignorance is bliss. Contextually, this could be right given the circumstances. But when this caller’s ignorant but highly confident vituperation finds support among a large section of traders and others witnessing continuous falls in their purchasing power, social tensions could be unnecessarily aroused.
I can easily imagine the horde of ignorant people who could be made to believe that the dollar can easily be printed to solve the economic malaise we find ourselves in. Why a cruel government refuses to do this to stop the inflationary trends could be a fertile motivation for chaos.
The brake and the accelerator analogy
Economics as a subject is made so interesting and easy to understand when you apply the cliché of “ceteris paribus” or “other things being equal”. Thus, one can proffer alternative solutions to the same problems and lend credence to the alternative suggestions by simply hiding under the caveat mentioned.
The attempts to deal with our spiraling inflation has been seen from various angles. The predominant view (perhaps endorsed by the central bank, given its penchant to employ demand dousing initiatives through monetary policy measures) is that the current inflation is demand driven.
From a risk management perspective, we learn about the event- cause- effect relationships. The cedi depreciation and the high cost of living, the anger and desperation constitute the event. The cause is the imbalance between the demand and supply which produces the effect of high prices induced by imported inflation and low local production, coupled with high production costs due to inefficiencies.
Addressing the effect therefore, requires a variety of measures that take a deep dive into the determinants of the demand and the supply of forex simultaneously. Not that we do not know these already. We have simply played ostrich for too long- seeking to appease importers instead of exporters, and lazily counting on import duties as a major source of public revenue.
We have laboured under the assumption that we can borrow ourselves out of poverty, always finding high sounding reasons for the increased borrowing for which we have little to account for.
In one vein, we are busy attempting to contain inflation through crunching monetary measures by way of increasing interest rates and high bank reserving requirements (pressing the brakes on demand to stop inflation).
Then in another vein, we allow the government to increase the budget deficit from expenditures that hardly contribute to real growth (pressing on the accelerator in the fiscal space). Ultimately, the widening deficit is plugged by even more borrowing, leading to the now contentious GDP to Debt Ratio (some say of 104 %), a very unstable precipice to undertake further borrowing negotiations.
Which automotive vehicle can move smoothly by simultaneously pressing on the brakes and the accelerator? We have used this method without significant success in tweaking the inflation quagmire.
Is it not the appropriate time to ask our government what significant contribution it is making towards fighting the galloping inflation, apart from the inconsequential drop of 30% in executive salaries? Why is the government still playing ostrich over the FSHS policy when it is crystal clear that this line item is a major contributor to the yawning budget deficit?
Why are we pumping so much resources into the agricultural sector for less-than-optimal returns, with some saboteurs re-exporting subsidized fertilizer in the full presence of security and allied institutions?
What happened to the attempt to review the criminal justice system to introduce non-custodial sentences? Can we not get first offenders and convicts in less heinous crimes to assist in the sanitation drive in the cities at less cost? Or that will diminish somebody’s returns from humongous sanitation contract sums? How about the prisons producing at least, 50 % of their food needs themselves?
The FAO and Food Prediction.
The FAO has predicted food shortages in 2023. Seeing how much we already expend on food imports; can we not begin mobilizing and effectively targeting resources to produce enough food for domestic consumption and exports with the massive comparative advantages we have over other trading partners?
Or is it the case that, like the galamsey conundrum, success in clamping down on the menace will diminish revenues for party operatives? Are we to believe that importers of food items are usually party bigwigs whose businesses would collapse if we succeed in reducing food imports?
With our traditional donors grappling with phenomenal exchange rate depreciation in the UK and unprecedented inflation in the US, support for our domestic budget will come under strain in the next few months. It is time for real home- grown strategies for sustainable growth, particularly in food production.
Taming reckless public spending
A key measure to arrest inflation has been increasing the prime rate and by extension, all interest rates across board. The objective in this approach is to limit demand, ostensibly caused by too much money chasing too few goods.
Interestingly, one of the biggest, if not the biggest individual purchaser/unit in this economy happens to be the government (not the current one alone) whose legendary recklessness has led to the present ballooning debt. The government’s ability to access credit is given sway by the ease with which the increases in interest rates permit it to borrow more at the expense of the private sector.
Higher interest rates have a tendency to make the public lend to the government (through bills and bonds). The same measure instead leads to a deprivation of the private sector of the ability to access funds or at best obtaining these only at much higher prices/interest.
Others refer to this effect as the ‘’crowding out phenomenon”, where rational investors would rather lend to the government in these “risk free instruments”, rather than investing in stocks to buoy up the capital needs of the private sector operators.
The resultant effect is increased costs of production and uncompetitive pricing relative to imported goods and services. The resort to more imports creates even higher demand for foreign exchange, exacerbating the depreciation of the cedi.
Foreign exchange is like any tradable commodity where demand and supply determine the price at any given time. In the present circumstances, speculation has played a key role in the cedi depreciation, worsened by an inability to increase output substantially in the short term.
This writer finds it amusing that many commentators tend to ignore the supply side of the equation, perhaps believing ignorantly that Bank of Ghana is capable of conjuring the forex to stabilize the exchange rates from some inexhaustible stock of reserves.
Perhaps it will be in everybody’s interest to appreciate, not only the demand side of the forex equation, which includes, principally, indisciplined public expenditures and less than essential imports of the government machinery itself, plus our taste for everything imported, even where local substitutes are cheaper and of high quality.
The public needs to understand the supply side of the forex phenomenon and why we should step up efforts to export more to earn more foreign exchange.
Perhaps the Trade Ministry can take up public education on the meaning and structure and impact of the Balance of Payments?
It appears to this writer that importers have been allowed to flex their muscles with intimidation of the government without reflecting on import substitution which is a key factor in stabilizing the forex market. A trip to shops along the Spintex Road, Osu and Labone and the foreign inputs in our real estate sector should convince everybody that business as usual cannot save the country in the long term.
With less incentives for real producers/exporters who generate the forex, and the enabling environment reflecting in roads and rail infrastructure, utilities and targeted subsidies to the export sector, how can we look up to external borrowing to stabilize the ailing cedi? Meanwhile, cocoa production is under siege from galamsey and expensive inputs. Degraded forests are producing less timber for exports. We are still joking with salt as a major export commodity. As for gold exports, only God can tell us about the gap between real production and export revenues.
Are the vociferous importers aware that the cedi depreciation benefits exporters who have little foreign inputs in the production chain? What stops them from toning down their agitations and rather diversifying or supporting local production, particularly of cereals, to create employment and stabilizing forex rates in the long term?
The writer is a Fellow of the Chartered Institute of Bankers, an adjunct Lecturer at the National Banking College and the Chartered Institute of Bankers, a farmer and the author of “Risk Management in Banking” textbook.
Email; [email protected] Tel. 0244 324181