Ghana, The Economy and The Cedi
6/20/2012 9:43:29 PM -
In a recent article I wrote entitled 'Why the Cedi is losing its value - The untold story', I intimated that because of the economic paradigm that those in power have decided to take, if drastic steps were not taken then it would not be too long before we see a scenario of 2 Cedis to the 1 US Dollar.
With this now a reality, the purpose of this article is to give the readers especially seeing that we are in election mode, a critical overview of the economy in Ghana, why our economy is in a precarious situation and what steps need to be taken to ensure that our economy meets the needs and aspirations of the country.
In short our economy is in a mess citing these reasons:
1. Our government does NOT dictate freely what economic, monetary and fiscal policies it sees fit. This is done primarily by the IMF/World Bank who have a major influence on government's economic policies. An example being that in order to qualify for an IMF/World Bank loan in 2009, one of the conditions Attached was the freezing of public sector recruitment for two years.
2. This is so because up to 50% of our budget is funded from loans/financial assistance from the likes of the IMF/World Bank and other donors like China and the US.
3. There is mass unemployment around 2 million, (in the country) especially youth unemployment with Accra, Kumasi and the Northern Areas of Ghana acutely affected.
4. Due to the high costs of doing business, as a result of high interest rates, business is not being competitive hence the lack REAL job opportunities
5. Our manufacturing and agricultural base which are two key facets of any economy are weak especially in the agric sector as Ghana as country is not producing enough food to feed her people hence the colossal food imports especially of rice and poultry.
6. Our currency is vulnerable to internal and external shocks because of bad monetary policy decisions.
7. Our balance of trade deficit is in the billions of US Dollars because of our over reliance on imported goods.
This has been the case post 1966, because the stewardship of this country has allowed itself to be hoodwinked into adopting economic, monetary and fiscal policies imposed by the said Bretton-Woods institution that hitherto has not been in the national interest.
A history lesson for the readership - before 1966 Ghana was on the verge of becoming a developed economy.
This was due to the sterling leadership of Dr. Kwame Nkrumah who recognized the concept of self determination was key to economically emancipating the country from the enslaved colonial one that he inherited.
With this concept he initiated economic programmes that were in the national interest that would greatly impact on the quality of life for the ordinary Ghanaian.
In 1962 he launched the work and happiness programme as part of his industrialization grand plan. This included the establishment of over 400 state industries like Ghana Airways, GIHOC (distilleries, food and pharmaceutical wings), The Sugar factory, The Ceramic tile factory, the Radio factory, GHACEM, The Bonsu Tyre factory, Tema Steel Company, The Jute Factory, The shoe factory, The Black Star Shipping Line and a chain of hotels amongst many other industries.
The setting up of these industries along with a nationalist agricultural policy made Ghana self-reliant in ALL facets of national building and development.
Such was the success of this self-reliant economic policy that Ghana was able to feed itself, was a net exporter of food, had full employment and the majority of its citizens enjoying a high quality of life.
After 1966 in the aftermath of the coup of February 24, the economic fortunes of Ghana began to decline and in some cases decline sharply. This was due to successive governments' adopting questionable economic policies from the Bretton-Woods institutions.
The most damaging of these came during the 1980's and 1990's where the IMF/World Bank insisted that Ghana adopt benign but dangerous economic policies such as the Structural Adjustment Programme (SAP) and the Economic Recovery Programme (ERP).
In short these two policies decimated Ghana's manufacturing base by selling off very cheaply to foreigners who now take their profits from these factories outside of Ghana and/or closing down the vast majority of the 400 state owned industries set up by Osagyefo Dr. Kwame Nkrumah.
It also was the genesis of the vast unemployment that we see in Ghana today, hence the blossoming but unregulated informal sector.
In addition to this our once thriving agricultural sector declined as the IMF/World Bank 'persuaded' government to stop food production and import food instead.
Again this is the reason for the barren food production in the country and the dangerous dependency on food imports especially the ill-advised cultivation and/or importation of GM foods.
Another facet of the IMF/World Bank imposed economic policy which is not well known was the devaluation of the cedi in the 1980's and its link with American dollar which has had a severe negative effect on the Ghanaian economy.
Two examples to reflect this is that in real terms the artificial devaluation of the cedi has meant the value of cedi has depreciated. For instance in 1990 10GHS could buy you a sackful of items from makola market, in 2000 the same 10GHS could buy you perhaps half of the amount in 1990.
Today 10GHS can get you very little from Makola market showing to the readership that rather the value of the cedi being the same, the reality is that the value of the cedi has declined sharply over a twenty year period when one does a qualitative and quantitative analysis.
The second example of the decline in the value of the cedi is its pegging to the US dollar. Since commodities like rice, sugar, oil, clothing, spare parts etc is priced in US dollars it has a profound effect on the cedi because importers have to buy US dollars with their cedi in order to buy the goods and services that the county needs.
And since generally the US dollar is the world currency its value has remained strong thus having a negative effect on the value of the cedi because of this artificial pegging, hence the reason for the redenomination of the cedi in 2007, in a vain attempt to make the cedi stronger or more competitive to the US Dollar - but recent events have shown that this redonimation exercise has been a massive failure.
The way forward:
What the above analysis has indicated is that the Ghanaian economy is in a very precarious position and is susceptible to internal and external shocks. It is quite obvious that the economic policies adopted over the past 20 years has failed to make Ghana a genuinely prosperous country and eradicating poverty.
What this calls for is a paradigm shift in economic decision making, policy making and implementation that is in the national interest. This can only be achieved without the whims and dictates of the IMF/World Bank, whose policies have crippled Ghana's economy.
What this new economic paradigm shift calls for is a Ghananization of the economy especially in the key sectors like retail, oil, banking, mining, manufacturing, agriculture and construction.
This policy will seek to make indigenous Ghanaians the custodians of the economy because at the present time it is foreigners who control these key sectors of the economy due to bad 'liberalization policies' and because this is the case Ghana misses out badly because these foreigners repatriate their vast profits outside Ghana back to their mother countries leaving Ghana impoverished in the midst of plenty.
A typical case in point is gold. Due to 'liberalization' policies and signing bad contracts, Ghana has allowed foreign mining companies to take up to 98% of the vast profits from Gold mining leaving Ghana with a paltry amount that cannot fund social development programmes.
If the economy became more Ghanaized one will find a situation whereby the economy would see REAL growth because the profits that would be made would stay in the country rather than going out, giving the country more revenue in direct and indirect taxation that could be used for developmental and infrastructural projects.
Secondly the domestication of the economy would create more jobs due to the fact that more money (due to increased revenue) would be circulating into the system.
The domestication of the economy importantly would mean that indigenous Ghanaians owning the economy and this would be a good thing especially where economic emancipation is concerned.
Ghana definitely cannot continue to follow the economic line that it has followed and the only way for Ghanaians to enjoy a higher quality of life and to be genuine stakeholders in the country's prosperity is the domestication of the economy.