MoneyMatters : Cedi swing moves us all
The currency holds sway to the problems facing the economy, says Bernard Otabil
At the height of the financial crisis in 2007, an analyst working for the FT newspaper in London commented that: “Indeed, this is the first time Wall Street problems have moved to the Main Street”.
This statement was in direct reference to the homes that had been lost due to foreclosures as the property market crumbled and banks were forced to slow down on credit advance following various write-offs as sub-prime loans went bad.
As people lost their homes, the level of despair that had hit Wall Street, where many believed the problems had started from, was also felt in the homes.
People’s savings in long-term investment funds towards their pensions were lost, and so devastating were the problems that many rich Governments in the West had to respond with various economic stimulus packages to bailout ailing industries.
Indeed, if in 2007 l had become fascinated by the brilliance of the writer in linking Wall Street to the Main Street, then you can imagine, today, my fascination as l try to link the Main Street to the problems of the Ghanaian economy.
I must say at this point that the fine words of 2007 came ringing this week when on Tuesday (July 15) l had the privilege to join a team of CEOs and other captains of industry at a Breakfast Meeting at the Movenpick Ambassador Hotel, here in Accra.
The event, organised by the Graphic Business newspaper in conjunction with Fidelity Bank, brought together important personalities of our time.
Speaker upon speaker, there was no hiding for the Ghanaian economy: systemic, structural deficiencies and bottlenecks were highlighted, and as the theme of the event was based on strategies to enhance the export sector of the economy, all the speakers stayed on point, and directed their arguments that way.
But significantly, you could tell that the effects of the free-falling cedi have had serious consequences on the Ghanaian economy. But admittedly, as the speakers gave their figures and analysis based on dollar trade value, they did not dwell much on the issue.
Since the real economics is what is played out on the street and not just what the textbooks say, contributors to the discussions found a way to link the problems the currency was having on the Ghanaian economy to the problems of the export sector.
Some went to town with their contributions, visibly angered by the state of the economy. One even had to question whether we were “serious” as a nation!
Although it may be true that the intervention by government could get us close to achieving our goals, but be that as it may, we still have problems that must be solved.
Just the previous day, July 14, Ghanaians woke up to the twin problem of transport fare increases of 15 per cent and petroleum price increases that averaged 23 per cent.
That certainly affected the mood of Ghanaians. The mood swing was obvious, as monitored reports by media houses showed that on the streets, people were not happy.
Significantly, among the reasons offered by the National Petroleum Authority, the agency responsible for regulating the pricing of the product, in consultation with industry stakeholders, was the depreciating value of the cedi against the major currencies.
The cedi’s free fall in recent months has assumed alarming proportions. There is no single day, apart from a lull some few weeks back, that we haven’t experienced a fall in the currency. With the strong appetite for imported goods by Ghanaians, it appears that it will take a long time before the problems would be over.
According to data available from the Ghana Statistical Service (GSS), for the month of June, consumer preference for imported goods accounted for a rise in the inflation rate for imported items from 18.9 per cent in May to 19.1 per cent by the end of June. In fact, if you compare that to the inflation rate for locally produced items, which was 13.5 per cent, then clearly, you can make your own mind up! And, even Bank of Ghana (BoG) is not hopeful about the future direction of inflation, saying: “the persisting fiscal and exchange rate pressures have provided additional impetus to the worsening inflation outlook”.
Now, when the Wall Street problems moved to the Main Street or the City Brokers of London, the response by the British Government in particular was to control inflation while keeping interest rates low enough to encourage economic rebound. The opposite however seems to be the case here: rising inflation and rising interest rates, as BoG has just announced an increase in its policy rate!
Clearly, the main problem facing the economy is the falling cedi as it is now swinging us all over the place: Addressing the cedi’s fall will go a long way in curing most of the economic ills.
The problems may be multi-dimensional but some dimensions may have more weight than others so with an eye on preventing the cedi’s slide, we could end up increasing exports, reducing imports and improving real incomes too!
