Ghana’s Foreign Exchange Market dries up before bond sale

Currency traders in Ghana are waiting for the West African nation’s second sale of Eurobonds to revive business as a scarcity of dollars halted buying after the cedi reached a record low.

“The interbank market is virtually dead,” Sadiq Abubakar, a currency trader at International Commercial Bank in Accra, the capital, said by phone yesterday. “We’re hoping to see if the Eurobond comes to fruition, then we will see some liquidity in the market.”

Finance Minister Seth Terkper said Ghana plans to sell $1 billion of international debt this month, following Rwanda and Nigeria as African nations tap investor appetite for assets from the world’s fastest growing region after developing Asia. Ghana became the first sub-Saharan African nation outside of South Africa to issue Eurobonds, selling $750 million in 2007. Foreign reserves dropped to $4.99 billion in April from $5.01 billion in March, according to the Bank of Ghana.

The central bank sells dollars to lenders at irregular intervals based on market demand, which is led by manufacturers seeking raw material, oil importers and traders, Abubakar said. Ghana’s economy, the second-biggest in West Africa, is forecast to grow 8 percent this year.

“I am able to meet less than 10 percent of client demand in a day,” Abubakar said.

Currency trading among banks ceased about two weeks ago because of the lack of dollars, said Nikoi Kotey, a trader at CAL Bank Ltd. in Accra. The cedi weakened 0.7 percent to match a record low 2.04 per dollar as of 7:01 a.m. in Accra.

Fifth Worst

“Nobody is quoting rates because everybody is seeking to buy,” Kotey said.

The cedi may strengthen with proceeds from Eurobonds, pushing the currency below the 2 per dollar level, Kotey and Abubakar said. “If the market becomes liquid, it will impact the currency,” Abubakar said. By the end of the year, the cedi may reach 1.99 per dollar, he said. The currency has declined 6.6 percent this year, the fifth-worst among 24 African currencies tracked by Bloomberg.

Ghana’s trade deficit worsened to $334.6 million in the first quarter from near zero a year earlier, as the world’s second-biggest cocoa grower and Africa’s second-largest gold producer saw exports drop 7.3 percent, the central bank said May 22. The current account, the broadest measure of trade in goods and services, widened to a deficit of $1.1 billion in the first three months from $986.6 million a year before, the Bank of Ghana said.

Yields on the nation’s debt due October 2017 fell 33 basis points, or 0.33 percentage point, to 6.41 percent as of 9:06 a.m. in London. That compares with 4.95 percent at the end of the 2012.

Adams Nyinaku, head of treasury at Bank of Ghana, wasn’t available to comment, said a woman who answered two calls made to his office yesterday and didn’t give her name.