US President Barack Obama
One man’s meat, they say, is another man’s poison. This saying seems to be having some semblance between what is happening in the US economy as against economies of gold-producing countries including Ghana. This is because the division being witnessed in the US Congress over the debt ceiling is bringing huge dividend to Ghana.
Though too early to conclude that the division is being turned into dividend, signals from the gold market show that the stalemate has shifted investor confidence from the US dollar to gold. This has pushed the price of an ounce of gold to a record level of 1600 dollars an ounce. Additionally, gold being the second highest foreign exchange earner, after cocoa, will definitely have a major impact on the Ghanaian economy.
A case in point is the payment of corporate income tax by Newmont Ghana on the 7 July 2011. It was the first time that the company paid corporate income tax though it has been paying other taxes including royalties and withholding taxes.
The payment of 29,000 dollars to the Domestic Revenue Tax Division of the Ghana Revenue Authority was attributed to the bullishness on the gold market and this also helped in making the revenue agency meet its target for the first half of the year.
High on the list of factors contributing to the high price being witnessed on the gold market is the switch of investors’ confidence in the greenback to the gold. To the investors, gold is better in terms of security than the US dollar for now. The dollar has, for the past couple of weeks, been reeling under pressure due to the stalemate over the debt debate.
While the Republicans are urging the Obama administration to cut expenditure, the Democrats, on the other hand want to rake in more revenue through taxation especially from the upper class. This has stalled discussions with both sides not ready to compromise.
Reports from the US treasury show that the debt stock of the country stands at 14.3 trillion dollars. This means that each second, the US is incurring a debt of 40,000 dollars and the net effect is that the debt ceiling has to be revised. If by August 2, no agreement has been reached, it will mean the US will default on its debt and the effect on the global economy will be disastrous. Some of the likely effects will be that aid for budgetary assistance will not flow as expected though Ghana will be earning more from the commodity market.
However, if the dollar continues to depreciate, the cedi will appreciate but will also affect the earnings Ghana will make from its exports— be it traditional or non-traditional. The ramifications from weaknesses in the US market can, in the short term, be described as good but in the long run, it will be bad for Ghana’s economy. This is because when two elephants fight, it is the grass that suffers. However, there are some lessons to be drawn because challenges in one economy turn to bring some dividend to the other. For instance, when the greed from the Wall Street spread to the main-street in the financial meltdown, Japan, which had also benefited from the booty of those investments, bore the brunt of it.
This, coupled with the March 11 Tsunami, led to China overtaking Japan as the second largest economy in the world.
Here, one can safely say the disaster has turned into dividend for China though the land of the dragon will also be affected in terms of export. There are several examples that can be cited to buttress the notion that the division in the US Congress is raking in more dividend for Ghana. Assuming you meet a medical practitioner complaining that life is getting difficult, he is indirectly telling you that people are not falling sick hence his complaint.
However, the patient too will be praying hard that he/she will also not fall sick because that will not lead him making expenses that will enrich the giant pharmaceutical companies in the US and the medical practitioner.
Another example is the coffin maker who was heard saying the global economic crisis is having a toll on his business. What does that mean? He is indirectly saying that people are not dying for him to fatten his purse in order to take care of his families. Now back to Ghana, which is cashing in on the division in the US Congress. She used to be called the Gold Coast. The name which was given by the Portuguese in the 18 century was due to their conviction that the land was a haven of gold. Indeed, this assertion has proved to be true with data from the Geological Survey Department showing that the gold belt stretches from Paga in the Upper East region to Apam in the Central region. The floods witnessed along the Birim River in the Eastern region of Ghana on July 23, 2011 were a result of the activities of illegal gold miners. The mention of gold brings to mind giants in the mining world like AngloGold and Newmont Ghana. However, Obuasi, which is synonymous with gold production in Ghana, is yet to reflect the glory due it compared to a city like Johannesburg in South Africa. This shows that what is accruing from the division from the US as dividend can best be described as a drop in the ocean.
Even this drop needs to be managed efficiently in order not to encourage the illegal mining (galamsey) which has led to loss of lives and properties due to the flooding of towns and villages in the eastern region. Some analysts say the best way to go is to ensure that a gold refinery is built in the country other than that an ounce of gold could go above the 2000 dollar- mark but nothing substantive can come out it. Mindful of this, Ghana needs to walk the talk of transparency and accountability which are some of the guiding principles underlying the Extractive Industries Transparency Initiative (EITI) she has ratified.
With regard to the US and Ghana relations, the US has reaped a lot of dividends from the division between policy makers and Ghanaian scientists for not been able to marshal the resources in the country to the maximum benefit of the country. Perhaps, one can say that this is the time for Ghana to make optimum use of the division in the US congress and really translate the dividend into making a major dent on poverty.
For now, most of the gold producing countries will be praying that the stalemate should linger on but it must be emphasized that a default by the US government has the potential of wiping away the dividend made out of the division in the Congress.
By Edward Nyarko