Analysts push for long-term policies to arrest cedi depreciation
It is time for government to focus on policies that will encourage the production of goods that the country is capable of while adding value to exports as a sustainable means of reducing imports and strengthening the local currency, financial and economic analysts have said.
The cedi has currently crossed GH¢5 to a dollar compared to GH¢4.42 in the same period last year and GH¢4.27 in January 2017 – a situation many fear will get worse if long-term measures are not put in place.
This essentially means that the cedi has depreciated 10.6 percent against the US$ since January 2018.
Head of Finance Department at the University of Cape Coast (UCC), Prof. John Gatsi, told the B&FT that until managers of the economy focus on long-term policies that will reduce the import of products that can be easily produced in the country, the cedi’s woes will never cease.
“The Bank of Ghana report shows that rice importation has increased to US$300million, while sugar imports also increased to US$123million. We already have policies for reducing rice importation; we already have policies toward reducing sugar import in the form of the Komenda Sugar Factory. So, it means we are not implementing policies that should limit the demand of certain commodities.
“We also know that some agriculture produce is part of the items we import into this country. So, the question is: what is our agricultural policy achieving? What is it directed toward? It should be targetted toward sustainable food production and dealing with key imports that we have the ability to produce. But it seems we are not managing the agriculture sector as part of the policies to address depreciation of the currency,” he said.
He further debunked the idea that the local currency is suffering from external shocks, particularly the strength of the US economy – saying if the country focuses more on the things it has control over, the impact of external shocks will not be felt.
“Even though we may explain this with some factors such as performance of the US dollar, the point is that most countries trade with the US dollar but their currencies are not depreciating the way the cedi is. We need to deal with the factors that we have control over; and after we have done so, then we will see that international developments have minimal effects on our economy,” he said.
His view is also shared by an economics professor at the University of Ghana, Peter Quartey, who said the currency depreciation is a result of excess demand for foreign currency over-supply, which is caused mainly by the high level of importation.
“There is excess demand over supply for forex. And what is causing this is that our imports continue to be a challenge: we tend to import quite a lot.
“A sustainable way of managing the exchange rate is to export more value-added products, not raw materials. We have to add value to all things we export – like cocoa, gold etc., before they are exported,” he said in an interview with the B&FT.
He further urged the central bank to enforce its regulation on forex trading, as he argues all efforts to address the depreciation will be in vain if forex trading is not properly regulated.
“[In Ghana] you can walk to any corner and exchange money without any identification. In most countries you cannot do that; you need a passport or some identification to do that. But in our case, people walk in from neighbouring countries and come and load the dollars into suitcases and go.
“So, if we don’t address this problem, no matter how much Bank of Ghana pumps in, it will leak. I heard the Bank of Ghana has started it, but I want to see more effort,” he said.
6 arrested by National Security over illegal gold business
Some six individuals have been arrested by National Security officers in Kumasi, Ashanti Region for allegedly engaging in the illegal gold business.
Operatives of the National Security, who had the necessary permits, made the arrests.
The suspects have been transferred to the National Security headquarters in Accra for further interrogation.
Kojo Oppong Nkrumah who is the Minister for Information confirmed the arrest at a news conference in Kumasi yesterday but did not give further details.
The Minister also talked about the security situation in the country and said the government was doing everything practicable to ensure that the country was safe.
He said the government had shown good faith by retooling the security agencies and recruiting more men and women to beef up the security of the state.
Matters of security, he said, were critical to national development and would, therefore, be tackled with all urgency.
Contractors going bankrupt; pay them – Nduom
The Chairman of Groupe Nduom, Dr Papa Kwesi Nduom, has said the delay by the government in paying local contractors, some of whom, he said, are customers or investors, has led to the lock-up of GHS2.2 billion from the Groupe’s Gold Coast Fund Management, alone.
“When we keep fighting for Ghanaian contractors to be paid, we are fighting for customers/investors to get their money. How much? GHS 2.2 billion is currently locked up in the process from Gold Coast Fund Management alone”, Dr Nduom wrote on social media Saturday, 10 August 2019.
Other Ghanaian financial institutions, he said, “Have funds locked up in infrastructure projects. The contractors are going bankrupt. The customers have it worse. They are suffering. When a contractor is not paid after three years of completing a job, the financial institution does not get paid. The customers who invested their monies with the financial institutions don’t get paid”.
“Who should fund infrastructure – roads, bridges, schools, etc. – in Ghana?”, the former presidential candidate asked, adding: “Gold Coast has been doing it for 15 years. Over 14 billion Ghana Cedis invested. Now with a portfolio of 2.2 billion Ghana Cedis”.
“It is the government that stopped giving advance payment to contractors and asked them to pre-finance projects. Gold Coast stepped in to support our indigenous Ghanaian contractors and has funded over 600 projects. This is a good thing the company has done.
“Our concern is to get the payment process going so contractors can complete projects, get them certified, get paid so they can pay back what they owe to Gold Coast so that Gold Coast can pay back money to its customers/investors.
“This is not Nduom’s money. It is not politics. It is pocket-level economics. The money is in Ghana with government agencies and in infrastructure projects”, he said.
Dr Nduom added: “This is not the only investment made by Gold Coast, which is why it paid back over 1 billion Ghana cedis in 2018 and has paid about GHS100 million this year”.
Recently, a coalition of local contractors threatened to lock all public schools and facilities they built if the government delayed further in paying them their funds.
CBOD petroleum price outlook: Refined products review and outlook
The international market prices of gasoline and gasoil averaged $648.98/mt and $584.73/mt respectively in the first pricing window of July (12th-26th July 2019), $5.70/mt lower than the previous window in the case of gasoline and $0.89/mt higher than the previous window for gasoil.
These prices (12th-26th July) were 29% and 7% higher than average prices observed in the beginning pricing window of the year. Average international market prices have been sporadic during the year, starting the first window of January at $504/mt for gasoline and $545.63/mt for gasoil.
Prices for gasoline and gasoil peaked in the first selling window of June at $749.68/mt and $639.88/mt respectively. This was 49% and 17% higher than the prices observed in the first window of January 2019.
International market prices are expected to drop between 1%-2% for both gasoline and gasoil in the second pricing window of July (27th July-11th August 2019). This is attributable to the ongoing trade war between USA and China which has slowed the growth in China’s demand.
The forward FX rate (FuFeX) used is the average of the quoted indicative forward forex rate from major oil financing banks adjusted by the covered-interest parity pricing model. The FuFex60 is computed as the average 60-day forward fx rate of selected major oil financing banks. The Fufex60 to be applied for the first selling window of August 2019 is Ghs5.60/USD.
The adoption of a FuFeX30 (30-day forward rate) instead of FuFeX60 can reduce pump prices by about 2%. It is therefore necessary that BDCs revise their trade credit tenor downwards to help reduce consumer prices at the pump.
The Ex-refinery Price Indicator (Xpi)
The Ex-ref price indicator (Xpi) is computed using the referenced international market prices as observed to be usually adopted by BDCs, factoring the CBOD economic breakeven benchmark premium for a given window and converted from USD/mt to Ghs/ltr using the FuFeX.
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