Falling cedi should be resurrected by prudent leadership

BY: Abraham Ofori Gyebi
 Dr Ernest Addison — Governor Bank of Ghana
Dr Ernest Addison — Governor Bank of Ghana

Over the past few months, several attempts have been made by the government to stem  the depreciation of the cedi.

But the phenomenon has persisted unbated.

The effect of this is, telling on the business community, importers exchange more of the hard-earned cedi for the foreign currencies when buying goods from outside, prices of goods and services quoted in foreign currencies shoot up in Ghana
cedis, export earnings in foreign currencies lose their value when translated into the local currency, and to make up for the losses, business owners increase prices for which the Ghanaian consumer ultimately pays for.

I commend the efforts of the central bank to stabilise the local currency in recent times  with the periodic supply of sufficient amount of foreign currencies to boost supply against demand.

This seems to help in the short run but it does not, in the long run, as the root cause still remains which is that there is a high demand in Ghana's economy for the foreign papers, especially the American dollar.

Currencies are a medium of exchange for goods and services and so the demand for a particular currency depends on the number and amount of commodities that are traded using that currency.

Foreign tastes

Ghanaians have a very high taste for foreign products over locally made ones.

“We basically import everything”, these are the words of Dr Priscilla Twumasi-Baffour, senior economist at the University of Ghana during the cedi forum organised by Joy FM in September last month.
Visit our supermarkets and shops and you will realise that about 60 per cent of the products for sale are foreign made.

Kwame Nkrumah envisaged an industrial Ghana that could produce basic goods to satisfy the demands of its people, a Ghana that could add value to its raw produce to make them competitive on the international market.

We do not see that now despite efforts by current and previous administrations.

Industrialisation key

Statistics from the Ghana Shippers Authority's maritime trade review for the half year of 2018 indicate a total import of 7,155,724 metric tonnes as against an export value of 4,026,816 mt.
Figures for the same period 2017 show an import of 6,755,843 mt against an export of 3,015,690 mt of goods.

Clearly, we seem to bring in more than we send to the outside world, exports may have improved significantly, but we have a herculean task ahead to bring down the amount of imports or better still improve exports to increase our foreign reserves.

I curiously visited a plush hotel in Accra with a friend to find out the hotel rates and I was greeted with a price list quoted in dollars, properties are not left out, business people quote in dollars in a country that has the cedi as its official currency.

A cursory scan of the dailies and our media space affirm this assertion.

Some businesses accept foreign currencies as legal tender in Ghana; I believe no country in Africa and the rest of the world quote the prices of goods and services in the Ghanaian cedi.

The basic laws of demand and supply asserts that where demand for any commodity exceeds supply, price increases as all factors remain the same.

Ghanaian importers need foreign currencies, especially the dollar to bring in the goods we need locally, businesses quote prices in foreign currencies and accept them during payments.

On the other hand, exports that are supposed to rake in more of the foreign currencies are less;  such that we find local demand outstripping supply of foreign currencies.

This forms a huge part of the reason why our cedi remains unstable against the major trading currencies.

The Bank of Ghana has supplied a little over 200 million dollars into the economy from the inception of September to increase the availability of the dollar.

This might prove good in the short run, but the root cause of excessive imports still remains.

I believe our leaders can do us a great service if the depreciation of the cedi is not politicised.

We need to tackle the root cause of the problem, industrialise Ghana and make our products competitive on the international market.

The containers that visit our ports should leave filled with Ghanaian products to be sold in other countries.

Textiles, poultry products, stationery, home items, medical equipment, cereals, other petty items including toothpicks that can be produced on our soils are imported.

Local industries are struggling to compete with foreign goods which come at cheaper prices.

To single out, poultry farmers in Ghana complain bitterly about the importation of poultry and its products, some of which arrive unwholesome for consumption.

We must bear in mind that anytime we buy a foreign item over a locally produced one, we keep their producers in business while suffocating the Ghanaian producer.

I must state conversely that variety is the spice of life; there are some goods and services which are better priced when imported because of absolute and comparative cost advantages to other nations.

However, these advantages can be eroded if we invest in technology and research to produce same items at lower cost on our soils.

Reduce imports

Ghana has the land and favourable weather conditions to produce majority, if not all of the food and animal products we require for consumption locally, unfortunately, we still import agricultural produce into our country.

If we want to reduce the free fall of the cedi, there has to be medium to long term efforts by our leaders to reduce the importation of goods.

In the short to medium term, however, the state should protect local players to save them from foreign competition.

We have not utilised agriculture to our absolute advantage.

Players in the industry should be supported to add more value to our raw products for exports.

The One district, One factory and the Planting for Food and Jobs are brilliant initiatives which will help reduce imports when executed properly.

The agricultural sector has a huge potential, if more attention is given to it.

The country earned $70.2 million dollars in sheanut export in 2017, and I wish to also commend the EXIM bank for its Shea Empowerment Initiative through which GH¢9.2 million had been approved for processing sheanut into cosmetic products and for the much needed exports.

I urge my fellow Ghanaians to patronise our locally made products to help our own businesses to survive otherwise if we buy foreign products, importers will demand more dollars and then the pressure remains on our good old cedi.

— The writers is the Branch Support Officer,  Tamale branch
uniCredit Ghana Limited