Arresting A Racing Cedi – Headache For Mahama Administration

THE JOHN Mahama administration has been smarting under a potent exchange rate challenge as the local currency – the Ghana Cedi – tumbles out of hand against all the major international currencies the country trades in.

In January alone, the cedi’s strength against major currencies dropped by 3 percent and 17 percent against the US dollar from about GH¢2.40 to GH¢2.60 to one dollar. Economic analysts expect the constant decline to continue until some radical measures are deployed by the John Mahama administration.

Businesses in import and export are the hardest hit in this rampaging depreciating local currency. They always have to endure seeing the decline of their profit margins anytime the cedi dips.

Seth Terkper, Finance Minister
The situation has evoked such distress in the business community and the ruling National Democratic Congress (NDC) administration that a preacher- Archbishop Nicholas Duncan-Williams, the Presiding Bishop of the Christian

Action Faith Ministry, was compelled to conduct an exorcism of the forces causing the cedi’s free fall. ‘…I hold up the cedi with prayer and I command the cedi to recover and I declare the cedi will not fall; it will not fall any further. I command the cedi to climb. I command the resurrection of the cedi. I command and release a miracle for the economy,’ he prayed during a recent sermon in his Church in Accra.

Critics have described this strategy as ‘preposterous’, ‘ridiculous’ and a ‘comic relief’ because for them, no prayer can correct the fundamental economics affecting the rapid devaluation of the local currency.

From 2012 to date, the cedi has depreciated incredibly by 77 percent against its main trading currency, the US dollars. In 2012, one US dollar fetched a mere GH¢1.64, but by 2014 this amount has shot up to GH¢2.60 to one US dollars.

Dr. Henry Kofi Wampah, BoG Boss
This is historically one of the highest jumps the cedi has experienced within that short time span, forcing the John Mahama Administration to last week, pump into the economy, a US$20million to even out the cedi-dollar imbalances by shoring up the country’s foreign reserves. But analysts estimate that this amount can do just so much, as its effects will certainly wane in less than four weeks.

The Governor of the Bank of Ghana (BoG), Dr. Henry Kofi Wampah appears

not to be particularly perturbed by the situation, saying the devaluation for the local currency was not peculiar to Ghana alone and that it was also pervasive in many parts of the world. He described the depreciation as slight as he announced the Central Bank’s new

measures to restrain the runaway cedi.
‘We are aware of the slight depreciation of the cedi, and in addition to the measures we have just announced, new guidelines will be considered at the next

MPC sitting,’ he said.
On Tuesday February 4, 2014, the BOG announced its measures. In a statement signed by BoG Secretary, Caroline Otoo, a series of regulations that the central bank believes would ‘arrest’ the free falling cedis was announced.

Archbishop Duncan-Williams
Essentially, the BoG slapped serious restrictions on holders of Foreign Exchange Accounts (FEA) and Foreign Currency Accounts (FCA). The new regulations put a ban on all cheque books issued in FEA or FCA.

Also, cash withdrawals over the counter for foreign accounts can only be

permitted for ‘purposes outside Ghana’ and it shall not exceed US$10,000.

Transfers from one foreign account to
another have been disallowed and anybody seeking to transfer foreign currency outside Ghana would have to be run through the bureaucracy. To top it up, all offshore foreign exchange deals by individuals and companies have been banned.

For the exporters, the regulations are equally drastic. According to the central bank, anytime they receive their export proceeds, the central bank would convert it into local currency. Thus, to recapitalize for their next export, they would need to buy foreign currencies with the fast declining local currency.

These measures have attracted anger from the business community as they describe it as ‘unfortunate’ and ‘discriminatory’.

It is expected to spark a wave of people withdrawing their hard currencies from their bank accounts and stashing them at home. ‘This situation would only cause businessmen to be an easy target for armed robber,’ noted an

unhappy businessman at the Accra Central Business District.

George Aboagye, the President of Ghana Union of Traders Association (GUTA) said the measure was a hindrance to local businesses because it would not adversely affect foreign companies operation in the country, particularly the mining companies who repatriate over 90 percent of their profits in hard currencies to their home countries.

According to Mr. Aboagye, the US$10,000 cap is discriminatory against local businesses that retain their foreign currency proceeds in the country and rather helpful to foreign companies that conduct local operations to earn multimillion foreign exchange, yet repatriate the profits out of the country: ‘The irony of the situation is that those foreign

business interests repatriate their profits to their countries.’

‘They talk about importing, importing, importing, thinking that is the bane of the economy. But importation has been with us over the years, yet the cedi and indeed, the economy performed creditably in the past,’ he complained.

Reacting to the central bank’s measure on Accra-based Joy FM, Samson Asarki Awingobit, President of the

Importers and Exporters Association of Ghana (IEAG) fumed, “It is not going to work; it’s not just a workable solution… we are not going to take this kindly”.

Mr. Awingobit also confirmed that the new directives will only benefit multinational companies operating in Ghana but not the local importers and

“Most of the Ghanaian importers do not shop from one shop…so such directives that they [Bank of Ghana] have given is going to help the giant companies… but not the Ghanaian importer who brings 40-footer containers with everything in it.

“It is the expatriates who are in this country…who repatriate all their profits but the Ghanaian [importer] brings the money back to their country and that is why we pay so much huge taxes.”

In the new regulations, importers and exporters would have to revert to the central bank on transactions outside Ghana involving foreign currency. The Association’s president has sneered at this directive as unrealistic: “Someone who is bringing in a used machinery like car engine, fan belt and whatever;

he has to go and buy from different shops and therefore if you are talking about bringing the bill for you [Bank of Ghana] to go and pay, you cannot pay,” Mr. Asarki stated.

For him, a more reasonable measure would be to create a special dispensation for local business people involved in import and export to enable them to carry more than the $10,000 for their transactions.

Former Finance Minister, Yaw Osafo Marfo attributes the free falling local currency to a diminishing confidence in the Ghanaian economy. ‘Loss of confidence in a country’s economy can have adverse effects on the exchange rate,’ he stated in a recent lecture to analyze the currency situation in Ghana. He attributed the loss of confidence to the current government’s ‘mismanagement’ and spending policies.

According to Mr. Osafo Marfo, when such confidence is lost, ‘non-residents react by not bringing their investments into Ghana for fear of not receiving fair justice, while residents react by moving

their assets out into foreign assets. The cumulative effect is a decrease in the supply of foreign currencies and hence a depreciation of the local currency. This is because people would not want to hold their wealth in cedis whose future value they are not sure of.

‘The quality of economic management is the biggest factor for the cedi depreciation.

In five years the cedi has depreciated more than 100 percent,’ Nana Akomea, a former Minister and the Director of Communications for the opposition NPP’s 2012 campaign conceded.

Counter-Productive An economic consultant, Kwamena Essilfie Adjaye has dismissed the central bank’s regulations as counter-productive as all it will do is to constrain the supply and circulation of foreign currency in the country.

For Mr. Adjaye, a lead consultant on foreign exchange rules in Ghana in 1996, Ghana in the past has initiated several foreign exchange controls that have not worked.

‘Let’s not do anything that will constrain the supply of foreign exchange,’ he warned. ‘Any measure to frustrate or constrain the inflow of foreign exchange accounts is likely to worsen the situation.’

In Mr. Adjaye’s estimation, encouraging free flow of foreign remittances and capital inflows can effectively give the galloping cedi a free rein.

‘We should encourage non-resident
Ghanaians to open foreign exchange accounts in our local banks,’ he advised, but is not likely the government would heed this advice as its economic planners are convinced that the best way to restrain the cedi from depreciating further is to have it centrally controlled by the BoG.

At a press Conference addressed by the Minister of Finance and Economic Planning, Seth Terkper, he tried to douse the concerns raised by experts and angry businessmen, saying “It is not the wish of government to impose any hardship on businesses…Sometimes we have to take these measures as and when they become necessary.”

The government’s measure has been described as a ‘knee-jerk’ reaction to a complex situation. Dr. Kwesi Djaba, president of the Forex Bureaux Association of Ghana explained that the measures announced by the central bank are not enough to solve the challenges facing the sector.

“The problem we are facing is [that] demand has outstripped supply and automation of our operation does not bring in any supply into the system so it is not what will change the situation now,” Dr. Djaba said.

“We sit in our bureaux and they buy and we sell; we cannot influence supply

in the system…What I know is that if the fundamentals are right we will get dollars in the system…What I know is that I don’t get sufficient dollars to buy and if I don’t get dollars to buy I cannot sell to anybody.”

Black Market
Meanwhile, Mr. Adjaye has warned that the clamp on foreign exchange will only encourage black market operations.

Last year when subtle measure were introduced to control Forex transactions, the ripples were quickly felt in the Forex market as they started complaining of losing the market to street currency dealers (the black-market) where people can easily assess foreign cash without the prying eyes of regulators.

This multi-million black market is a cross-border informal trade conducted by both locals and foreigners. The casual set-up of these operations makes it almost impossible for regulators to track them.

On the black market, individuals and businesses can access as much foreign currency as they wish. Because the black market is mostly unregulated, it is difficult to ascertain the quantum of foreign cash circulating in the system. Analysts have estimated it as a multi-billion dollar business that cuts across vibrant economies across Africa.

BY Raphael Ofori-Adeniran

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