The Chief Operating Officer of Dalex Finance, Joe Jackson, has said recent gains in the value of the cedi against the country’s major trading currencies is not exactly great news.
He says an artificially strong cedi means businesses can buy more dollars with which they can import more foreign goods and services.
In the end, this will only entrench Ghanaian thirst for imports which kills local production and manufacturing, he argued on Joy FM’s Super Morning Show Tuesday.
His position is in stark contrast to the sigh of relief in the business community following the cedi’s strong recovery against the dollar.
A dollar was going for an estimated 4.2 cedis in January 2017. But by the first week in March, it cost 4.8 cedis, raising a hue and cry about the rate of depreciation.
But in the past weeks, the value of a dollar has shrunk back to 4.3 cedis. Analysts feared that the rate of depreciation could have gone as high as 10% by March 2017. But following some interventions by government, the cedi has depreciated by 5% since the beginning of the year.
Ghana is an import-dependent economy hence an expensive dollar increases the cost of living while a declining dollar puts a smile on the faces of businesses.
But Joe Jackson, not averse to controversial views, has said he is not happy about the cedi’s stability.
According to him, the cedi is over-valued. This is why government regularly has to introduce measures to stabilise it. The Bank of Ghana had to auction $120 million as part of measure to flood the system with dollars to keep the cedi relatively stable.
In effect the true value of the cedi is not known, he suggested.
Mr. Jackson, a big advocate of devaluation argued that government must devalue the cedi because it is the best way to break a Ghanaian addiction to imports which cost dollars.
At one Ghana Cedi to three dollars, a Ghanaian mango exporter will sell a crate of mangoes at 300 cedis which will be bought by a US business partner at $100.
In a hypothetical devalued situation, if GHC9 is now needed to buy $1 (that’s is a devaluation by 200%), it means the US partner will buy the same crate at $33.3.
The Ghanaian farmer will now be selling the crate of mangoes at GHC900 in the local market but $33.3 on international market.
This means for the US buyer, a crate of mangoes has become cheap and he can now buy more. Buying more means Ghana will export more and make more money.
On the other side, because the Ghana cedi is nine to one dollar, importing goods or services to Ghana becomes expensive. Foreign goods become more expensive for locals, so imports go down.