There is no gain saying that the fall or rise of the Ghana cedi against the US dollar is a function of demand and supply of dollars. The Ghana cedi has been depreciating against the US dollar because the demand has been outstripping the supply.
Usually, we address the depreciation of the cedi by increasing the supply of dollars, mainly through loans and the national reserve. The demand side of the equation is often not tackled.
We need to appreciate that so long as the demand pressures exist, unaddressed head-on, even if we inject $50 billion into the economy, the stability we would achieve would be short-lived; all the amount would be gulped down the demand vault in no time, especially when we are confronted by the slightest external stock.
Consequently, I suggest the following measures to reduce the demand pressures:
• The Bank of Ghana (BoG) should prohibit and criminalise speculative purchase of hard currency. There is no need for a new criminal law on this matter, the perjury law exists and could be utilised to good effect.
We are Ghanaians, and our currency is the Ghana cedi. Our Central Bank does not own a dollar printing machine; the state obtains or procures dollars at a cost, therefore, the dollars should not be given or sold for non-international commercial transaction purposes.
Persons should not be allowed to buy dollars for the sake of it, or as they say for ‘shege’ reasons. A person should be refused the purchase of dollars if their purpose is to merely own dollars, secure money in dollars, or just to create a dollar account for the sake of it.
To properly implement or monitor the implementation of the above prohibition, the BoG should design a prescribed declaratory form for all prospective purchasers of dollars to fill under penalty of perjury. The form will oblige anyone who goes to a forex bureau or bank to purchase dollars to state his personal details and declare, with particulars, the purpose for which he wishes to purchase the dollars on pain of perjury.
The vendor, bank or forex bureau, must file the declarations weekly, via online, to the BoG for verification. Any declarant who is subsequently found to have made a false declaration must be prosecuted for perjury.
• The BoG should, by policy directive, direct all Ghanaian traders who import products to pay their suppliers through the banking system. The Bank should proscribe their traders' practice of carrying cash to other countries to purchase products. To ensure full compliance, the traders must be obliged to show evidence of compliance with the directive before they are allowed to clear their goods at the ports.
Such a policy, if well implemented, will adversely impact the dollar "black market". It will deprive that market of the lucrative patronage of its main customer block, the very oxygen for its survival.
Over time, the ‘black market’ will die as a consequence of that deprivation.
• Fiscal policies are also crucial in reducing the dollar demand. Repatriation of branch profit by external companies attract fifteen percent (15%) tax. However, the repatriation of dividend and interest does not attract any special tax beyond the usual withholding tax.
To ensure parity and reduce the demand for dollars occasioned by repatriation of returns on investment, the state should impose a currency stabilisation levy on all amounts paid to non-resident shareholders as dividend, interest or distribution at a rate that will raise the overall percentage of government receipts from that stream of income to 15 per cent.
This levy will not be a tax on the already taxed income but will aim at compensating the state for the dollars that it has to part with, given the fact that Ghana’s currency is not the US dollar.
• Payments in respect of technology and management transfer agreements also occasion dollar demand. The Ghana Investment Promotion Centre (GIPC) must scrutinise and disallow the registration of technology and management transfer agreements which do not satisfy the requirements and standard under the law.
The Centre should not pass non-compliant agreements for the purpose of increasing their own revenue through registration fees.
The Centre should view its supervisory mandate on technology transfers, in these difficult times, through the prism of currency stabilisation.
• The nation should extend the currency stabilisation levy to all payments made in respect of registered technology and management transfer agreements.
• We should cut regulation in respect of the setting up and operation of manufacturing plants in Ghana. This will make the establishment of manufacturing plants easier and efficient.
In addition, to boost manufacturing in the country, we should lower the corporate tax rate from 25 to 24 per cent for local manufacturers. A percentage drop may, on paper, appear insufficient, but the mass cumulative effect, in absolute terms, will be substantial. Coupled with the cut in regulations, the tax incentive may serve as a pull factor to attract import oriented businesses to gravitate towards manufacturing, and in effect, reduce the demand for hard currency for imports.
It is my fervent hope that should the state stringently apply the above measures, and more, the dollar demand pressure would reduce.
Until the demand pressure lowers, no amount of supply of dollars can stabilise the currency in the medium to long term.
As the Akan adage says "kulukulu kulukulu no gyae aa, keke keke no nso begyae"
The writer is a private legal practitioner.