UK’s exit, a silver-lining for Ghana’s economy?
Britain's vote to exit the European Union has sent global markets on a wild descent. As a result of the exit, there has been a turn around on the market where investors gape at this major refashioning of the global landscape and decide it looks extremely dangerous that they prefer to pull their money from riskier corners like stock markets.
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Although markets tumbled across major commercial capitals around the world due to the surprise result of the UK polls, it was also laden with a silver lining for some investors, especially those whose large earnings come from overseas. It has also become beneficial to companies with large overseas earnings.
The pound falls
After Britain’s vote of exit from the EU the pound sterling reversed gains to leave it down by more than 10 per cent at $1.33 to a pound, compared with $1.50, which is recorded as the lowest since 1985.
As the pound sterling falls against the dollar and euro, exporters find their goods are cheaper for overseas customers to purchase, which could increase their sales and profits.
The fall in the value of the pound sterling, which many investors in the UK consider a loss, turns out to be a gain for some other countries. Gold, which has maintained a wobbly value in the global market for more than 18 months, shot up remarkably, just hours after the UK secured the vote to leave the Union it has been part of since its formative years.
Ghana like many African countries found itself in this wind of fortune. Its major commodity, gold, suddenly found its lustre again, after falling to a three-year low to around $1,100 an ounce since the beginning of 2015.
The precious metal sparkled on the global commodities market, as funds have been moved to other assets like gold, moving its value to above US$1,300/oz within the first day of the Brexit decision.
Energy and agricultural commodity prices, however, experienced quick losses as concerns over global economic recovery were prompted with market prospect of transformed flaw in global demand.
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A chartered economist, Mr Daniel Anim-Prempeh Amateye, told the GRAPHIC BUSINESS in an interview that the pound sterling dropped alongside various stock markets because investors were skeptical about the outcome of the exit.
“It is well known that, within the capital market, once they announced the exit it created some form of panic which is rationale for the various stocks dropping as well as the value of the pound,” he said.
He, however, described the phenomenon as short term, which would not have any immediate effect on the local economy. In the long term, Ghana and other West African countries can take advantage of their orphan status.
“Britain has established itself as a solid economy and its relationship with Ghana or any West African country will still hold. Because now that they are not part of the EU, they are going to ensure that they consolidate and solidify their relationship with the Commonwealth member states which include Ghana and other West Africa countries,” he explained.
The impact on the primary commodity, exporters such as Ghana will equally be a mixed one as gains for gold can make up for losses in crude oil and cocoa receipts.
The UK–Ghana trade stands at £1.3 billion and Ghana’s trade deficit with the UK can increase as a result of the loss in value of the pound.
The balance of payment effect of the commodity and export markets instability can intensify danger to the cedi’s strength against the US dollar in the short term.
Mr Amateye said that it was very important for Ghana to enhance its relationship with Britain, because now that they were out of the EU they would be looking for new trade partners in order to strengthen the existing trading relationship between them.
“This is something Ghana can take advantage of in terms of the financial transactions. The trade relationship between Ghana and Britain is one of the best, being one of their major trading partners. Therefore, within the medium term Britain would still enhance and maintain this relationship,” he said.
Advantage for mining companies
In the long term, the EU and Britain are expected to compete for space in African and West African economies in terms of trade and partnering for developments.
This is where Ghana should position itself to take advantage, Mr Amateye stated. For instance, if the EU is ready to give Ghana better trade deals as against UK, then Ghana will accept the EU’s offer which will compel UK to reconsider its position. This bargaining chip can be beneficial to Ghana and other West African countries.
“The country should look at this from a positive perspective but within the long term the implication depends on how well we position our self as an economy,” he stressed.
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The attention on gold is also a chance for mining companies to take advantage and increase their production. But they should approach their production in a way as not to flood the market.
“So companies in the country will have to focus on the sensitivity and trend analysis and then control outputs in a way to also take advantage of the prevailing price in order to increase their profits,” the chartered economist stated.
Hedging
Mr Amateye, who is also the Chief Executive Officer of the Institute of Certified Economists, Ghana, explained that hedging, which is primarily a strategic measure of mitigating losses, should be approached carefully after the companies had conducted sensitivity and trend analysis to help them project into the future.
“If in the near future, prices of gold and the likes are going to fall then it would be appropriate to hedge. But if after analysis and calculations it turns out that in the near future prices of gold and the like will increase then there will be no need to hedge.”
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He stressed the need for companies considering the hedge options to study the market conditions very well and predict into the future.