Ghana EXIM Bank: To regulate or not?

Over the years, Ghana’s trade balance has been in the negative, with imports consistently surpassing exports, much to the detriment of key economic indices.

Beyond helping to erode some macroeconomic indicators, such as the foreign exchange rate and continuous current account deficit, it virtually empowers the economies of other countries while suffocating the growth of the local private sector and the economy in general.

This is visible in the collapse of certain key sub-sectors of the economy such as textiles, poultry and rice, which now accounts for about 2.2 per cent of Ghana’s import bill.

While imports of these products have picked up substantially in recent years, the fortunes of businesses producing them locally have dwindled in multiple folds, forcing most of them to either lay off thousands of people or shut down their operations.

Although the situation can be blamed on the liberal nature of the country's trade laws, the challenging business environment means that local businesses are less equipped to undertake mass production, which could help them to be more competitive.

This is where access to low-cost, stable and long-term financing comes in handy.

After years of discussions on the need for sustainable long-term financing window to support the private sector, it is heartwarming that the country is now at an advanced stage of setting up an Export-Import (EXIM) Bank to take up this challenge.

The bill to establish the bank is currently being debated in Parliament and one thing that has drawn divided opinions is whether the bank should come under Bank of Ghana’s regulation.

Although many EXIM Banks are set up outside the traditional banking environment, Ghana's Banking (Amendment) Act, 2007, Act 738, bars people from carrying out the "business of banking except by or under the authority of a licence issued in accordance of this Act."

As a result, many have argued that the EXIM Bank must be regulated by the central bank; a view others have opposed (see story on page 3).

While the GRAPHIC BUSINESS admires the non-partisan nature of the debate so far, the paper wants to state that the foundation of the bank, which is the law establishing it, should be strong, because a weak foundation will give birth to a weak institution, which could end up complicating the challenges it is expected to address.

As a result, the paper calls for thorough discussions on what is best for the country, taking into consideration local peculiarities and the history with state agencies and specialised banks, majority of which later metamorphose into commercial lenders shirking the long-term economic development objectives.

The paper is of the view that creating a strong, responsible and flexible institution should be paramount and the country could be guided by the framework of the United States’ EXIM Bank which has been in operation for more than 80 years.

“When private sector lenders are unable or unwilling to provide financing, U.S. EXIM fills in the gap for American businesses by equipping them with the financing tools necessary to compete for global sales."

"In doing so, the bank levels the playing field for U.S. goods and services, going up against foreign competition in overseas markets, so that American companies can create more good-paying American jobs," it said.

This is what Ghana's EXIM Bank should seek to do and that should inform its regulatory framework.

If achieving this and other objectives would require that the bank is regulated by BoG, let us do that but in a manner that will allow it the flexibility to step in to support businesses with lifeline funds as and when necessary.