10
MenuWallOpinions
Articles

Cedi Devaluation Is An Official Government Policy

Thu, 7 Aug 2014 Source: Baidoo, Philip Kobina

About two years ago, I had a conversation with my cousin, who was then an undergraduate student at the University of Science and Technology. It was by chance that we were discussing the verbal incontinence of our politicians, and Fiifi Kwetey’s name cropped up. My young cousin, just a twenty year old at the time, told me he is the worst Ghanaian politician ever. I was surprised by her blanket statement. I, therefore, became curious and queried why. She did not mince her words; she told me it’s the way he talks, which is a drab description of his ethos and beliefs. Though, she did not give me any specifics she rather offered a brutal comparison that said it all. She said, ‘I will not even speak like the way he does’. The import of what she said is that he is educated, matured and in a position of authority, and should be measured in his choice of words.

Of all the noise I make on a few Ghanaian websites, regarding the state of the nation’s economy and the probable way forward, it only strikes a chord with some of my readers. In other words whatever I write here does not carry that much weight. The fact is, I am not in a position to influence policies. All that I have is my keyboard. But a person like Fifi Kwetey, with all the ignorance he flaunts around like a precocious sophomore, breathes close to the pulse of the presidency, and better placed to influence policy. I was, therefore, worried when I read that he claimed in an interview with Citifmonline that the depreciation of the cedi can be good for the economy. Though, it is a valid point if you look at it from the kaleidoscope of export, however, it is the understanding of an amateur economist who looks at problems from only one angle.

There is case study in America where the government decided to help families with under academic performing children. They theorised that by giving those families extra income it will help them to improve their text scores. However, some other families also decided they can do with the extra income so they told their children to perform badly in order to qualify for the extra income. The policy makers who thought about the scheme did not look at the implications from all angles and ended up achieving nothing.

In every academic discipline, you will learn the theories and the practical aspects of the subject, but what you learn needs to be applied. Theory and application are two different ball games. Though, a depreciating currency is good for exports the question that Fiavi has to answer is whether this is applicable to the Ghanaian economy. The theory can be applied based on the structure and composition of an entire economy. Our major exports are not manufactured goods that we can take advantage of overnight. Let’s take the example of our major export – cocoa. The minimum maturing period, even with improved seed is three years. So how can such an industry take advantage of a depreciating currency? It is absolutely impossible. An economy like China with a bigger manufacturing sector in relation to the rest of their economy can embark on such a course when their economy is faltering on that line. And even that you cannot allow the market forces to determine it. They are mainly done by the central bank by pegging the exchange rate.

When you look at it from this angle it is absolute madness for anybody to advocate for such defeatist policy. I can’t think of any reason why a member of the ruling government will think that a devaluing currency should be seen in a positive light. The depreciation of the national currency breeds total chaos. Ghanaians are being bled dry as a result of the cedi free fall. What they should be thinking about is how to eliminate it, but not how to take advantage of it.

The economy is not all about export. To think that depreciation of the cedi is a legitimate path to boost exports is childish and absolute lack of understanding of the Ghanaian economy. We have a huge housing deficit, which means building more houses. The main raw material is cement; though some is produced in Ghana it is produced from imported clinker. We import most of our drugs. Our transport system is almost 100% import based from new to second hand cars, buses, trucks and articulated truck to its spares. We literally import all essentials, and I refuse to catalogue the ridiculous ones. But the big daddy of them all is finished petroleum products, which reconfigure every area of the economy when their prices go up due to the cedi depreciation.

For anybody to assume that something beneficial can be gleaned out of the depreciating currency is tantamount to Ghanaians being sold into slavery. The average citizen is being roasted on a rack as this unprecedented trend persists. If the trend should continue within two years the new cedi would have lost 100% of its original value. The depreciation of the cedi is one of the main hindrances to lasting development in the country. This economic malaise is what broke the back of a state enterprise like Tema Development Corporation. The reality is, most of their properties that were bought in the early 70s on hire purchase were paid off with worthless currency in the early 80s. They couldn’t, therefore, build new houses. However, if they had priced their properties in dollars they could have shielded themselves against the depreciating national currency. The same situation applied to STC a government run transport business, which cannot charge realistic prices to meet their operational needs, besides allocating adequate funds aside for depreciation of their capital investments. And the situation applies to many ex-state own enterprises which could still carry on despite the appalling mismanagement and corruption. These are some of the reasons that make people keep their liquid assets in dollars or pounds sterling to protect their businesses against the toxic national currency.

I am certain that Fiifi Kwetey is not that ignorant not to know this. On the other hand, what reigns supreme on their psychic is how to get rid of the huge domestic debt they have run on their watch if they win the next election. Though, there is not much they can do about the $12 billion external debt, for the domestic debt the signs are ominous. Fiifi’s position is the clearest inadvertent admission of official complicity to what is a frightening decline of the national currency. Their main plan is to dilute salaries. The cedi has depreciated by 40%. The workers are agitating for pay increases, and there is no way they are going to offer them more than 20% wage increment. At the same time tax revenues at the ports are going to shoot up by 40% due to the increment in the cedi value of freight and all taxable revenue, which will increase around the same margin. In effect, your treasury bill, government bonds etc. will be paid back with worthless currency. For example, if you bought GHc100 worth of a year treasury bill, you will receive back GHc100, which can only buy GHc60 worth of goods and services. They would have taxed away silently GHc40 in real terms, which you will still be poorer even when you add your interest compensation.

When they read the above they will say that I am a liar; and I don’t know what I am talking about. They will muddy the waters that it is the excessive importation of consumer products that is causing the depreciation. On that score I won’t disagree with them. However, for the cedi to depreciate by 40% within a year can’t be just that. The seed for this mess was planted last year February when fuel production at TOR was brought to a halt. Though, the cedi depreciation is perennial, it is gradual in the region of 10% per annum. But for it to lose 40% within a year is a shock that the rest of the economy cannot contain. Last year we spent $1.2 billion, which should have been sitting in the reserves of Bank of Ghana, to import finish petroleum products. If they don’t know that the immediate cause of the current problem is TOR, then they do not have any business being in government. The distress the cedi is going through can be halted with less than that amount. But those selfish partisan politicians of ours cannot agree on what should be done with TOR. Instead of them to sit on a round table and come to a consensus on this issue of national importance, they are playing party politics while the economy suffers. We have certainly become the laughing stock of the rest of the world especially when they read the ridiculous statement by Nkrumah that, the black man is capable of managing his own affairs.

Philip Kobina Baidoo Jnr London baidoo_philip@yahoo.co.uk

Columnist: Baidoo, Philip Kobina