Can a weak Cedi be good for the economy?

Friends, it has been a while since I expressed views on national matters. I'll have another time to explain my absence. For now, I've decided to add my voice to the ongoing discussions about our economy and trade.

Let me admit that the currency valuation issue is far more complex in its technical evaluation and impacts on businesses and individual livelihoods. It requires far more in-depth analysis, even a national strategic policy, than the cursory reviews in media and radio talk shows.

When anyone turns to the airways, print media, and blogosphere, one can not avoid the constant drumbeat about the impending economic apocalypse due to the weak Cedi to the Dollar.

As to why the Cedi continues to lose its luster to the Dollar and other major currencies, is beyond the scope of this engagement. My concern, though, is the one-sided aspect of the argument. The doom and gloom about the falling Cedi have forced me to rethink the issue and look at matters from a different prism. Can the weak Cedi be good for the economy? Unthinkable? Can there be an "upside" to the falling Cedi? Well, somewhere, I learned that every fall has a gain. The ledger has two sides. What is lost on one side is a gain on the other.

What can Ghana and Ghanaian businesses gain from a falling cedi? Below are a few ideas.

1. Potential increase in foreign direct investment (FDI). International businesses will find Ghana a suitable or competitive place to invest. A weak Cedi means that Ghana will have affordable labour, cheaper construction, and lower utility costs. These items are costed in Cedis. The overhead cost of doing business in Cedis will be cheaper for the investor. A weak Cedi will make the cost of doing business relatively more affordable to investors with dollars. The FDI to Ghana in 2022. was $ 0.95 billion, according to the WB report (https://data.worldbank.org/indicator/BM.TRF.PWKR.CD.DT?end=2022&locations=GH&start=1979&view=chart). We can do better. One may argue that we must assure the investor of repatriation of his profits to safeguard his investments. I do not disagree with such guarantees. More FDI will boost the Ghanaian economy. That is the goal.

2. A weak Cedi could open new horizons for the Travel and Tourism industry. The affordability of the hospitality industry, conventions, conferences, trade shows, and cultural festivals could attract a broader range of overseas visitors to Ghana's shores. A weak Cedi makes travel to Ghana affordable. Others who argue that every item is pegged to the dollar should consider that labour, utility rates, and locally manufactured items, essential factors in Travel and Tourism, are not pegged to the dollar. The accessibility of travel to Ghana, especially with the newly inaugurated international airports in Kumasi and Tamale, could make Ghana a more attractive destination for many.

3. Another potential benefit of a weak Cedi to the Dollar is increased Personal Remittances from Ghanaians and some of our West African neighbors to buy land, complete family housing construction, and undertake various projects. Personal remittances to the family for education and healthcare, among other pressing needs, will likely increase since the Dollar can "buy and do more."

In 2023, India received $125 billion in personal remittances against $54 billion to the entire Sub-Saharan region (with 38% going to Nigeria and 5.4% to Ghana). What do these two countries have in common? They have strategically devalued their currencies. Yes! $1 equals 83.43 Indian rupee and 1,336.50 Nigerian Naira, respectively, as of May 31, 2024). India is the highest recipient of personal remittances, while Nigeria is second in the Sub-Saharan region after Mozambique (48.5%), according to the World Bank Report, Dec. 2023. (https://www.worldbank.org/en/news/press-release/2023/12/18/remittance-flows-grow-2023-slower-pace-migration-development-brief.).

Thus, increasing personal remittances can be a significant source of dollars, relieve the pressure on the Cedi, and stimulate the local economy—a boost to internal trade. The government may need to make firm overtures to the diaspora community members to ease their concerns about transitions to Ghana, dual citizenship constraints, and the mounting frustrations at the ports and harbours. (Refer to Francis Osei-Bonsu vs. Attorney General, nullification of portions of the Citizenship Act, 2000, Act 581, as breaches of Article 289(2), Constitution,1992.)

4. The significant gain to the Ghanaian economy from a weak Cedi is the anticipated boost to the export segment of the economy through trade. The falling Cedi will make various exports from Ghana competitively cheaper on the world markets. Farm produce, shea butter, cashews, and other food items will be bargains on the international market. Local textiles and personal wearables will become more affordable overseas. Increased exports from the light industries, plastics, cement, roofing sheets, and paint will boost the exports. The gain in dollars will help local manufacturers to hire more local employees.

5. A rising export segment of the economy leads to a reduction in trade deficits. The boost in foreign earnings is leverage in containing interest payments on outstanding bilateral or multilateral government debt servicing.

An economy built on manufacturing for export will ultimately serve the nation better than an import-driven market based on an insatiable taste for foreign goods. Ghana imports everything: used clothing, second-hand tires, and outdated electronic gear, instead of buying domestic local textiles and building factories to make these needed items. Ghana imports chicken and cowhide, tomatoes, and other vegetables from everywhere. Every import exerts pressure on the Cedi.

I have always wondered why Ghana imports refined oil instead of refining crude oil exported from Ghana. Multinational companies that make huge profits in Cedis will repatriate their profits in dollars, further exerting pressure on and weakening the Cedi.

The above statement is not a call for protectionism or trade wars but a subtle reminder to rethink our trade objectives, tax waiver policies, and monetary and fiscal strategies to ensure stability in the Cedi-Dollar pricing equilibrium. Currency fluctuations make business planning nearly impossible, and it's antecedent misery for the fixed-income earners. Perhaps, as critics of weak currencies argue, what is essential to bolster the economy is Cedi to Dollar stabilization, NOT a free fall gyration. I do not disagree.

I must commend the government under the one district, one factory, 1D1F policy for Sentuo Oil Refinery Limited, SORL. (Refer to the parliamentary ratification of natural resources agreements under Article 268, Constitution, 1992.) Sentuo Oil Refinery Limited SORL project is intended to generate 120,000 bpd of refined oil. (www.sorlgh.com.) Conservative oil consumption needs is estimated to be 80 to 100,000 bpd. Thus, there is a need for increased refinery capacity to make the oil revenue stream a significant trade addition to GDP.

That said, we can look for the silver lining and work as hard as possible to attract foreign direct investments, increase personal remittances, and market our travel and tourism attractions. Most importantly, we must take full advantage of the current value of the Cedi to boost exports and improve trade policy.

We are doing better than we give ourselves credit, though. In January 2024, Ghana was ranked as the 4th (26.6 index) African country with the lowest cost of living, after Egypt (21.9), Libya (24.2), and Tunisia (26.5). The above reference means that Ghana is the 4th most affordable place to live in Africa. For comparison, Senegal (46.4), Ivory Coast (42.7), Ethiopia ( 42.3), Mauritius (42.2), and Zimbabwe (40.8) ranked as the top 5 countries with the highest cost of living index in Africa and least affordable. (https://venturesafrica.com/african-countries-with-the-highest-and-lowest-cost-of-living-in-2023/).

The glass is half full, but let's strategize with effective monetary policy, set the right fiscal priorities, and boost trade through export.

(pbannor2@gmail.com)