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04.03.2019 Feature Article

The Fall Of The Cedi Shows The Economic Incompetence Of The Npp And Ndc

The Economu
The Fall Of The Cedi Shows The Economic Incompetence Of The Npp And Ndc
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There have been many debates on radio and TV as to why the Cedi has fallen sharply over the last 7 months or so.

Many of the commentators who have appeared have blamed everything under the sun from the so-called trade war between the US and China through to mis-management of the economy through to the change in government.

Both the NDC and NPP since the re-denomination of the Cedi in 2007 have FAILED to manage the economy adequately and both have been INCONPETENT in managing the economy that has led to the Cedi spiralling dangerously out of control.

Both point to low inflation and interest rates and so called foreign direct investment but these do not necessarily put food on the table of the average Ghanaian nor do they make the standard of living any better for the Ghanaian as a whole in terms of REAL wage increase and quality of life.

There are many reasons why the Cedi is experiencing such extreme difficulties and will continue to do so unless radical measures like scrapping tax exemptions and eradicating the dollarization of the economy are put in place.

From my humble perspective as someone who predicted the 5 cedi to a dollar years ago, here are some of the reasons why the Cedi is falling.

The first reason why the Cedi is falling is because of the serious balance of payments deficit that is facing the nation.

Briefly, the balance of payments is the difference between what Ghana imports and what it exports. Because of the “free market” policies that have been adopted by governments since the late 1980's Ghana is a net importer.

What this means in simple terms is that Ghana now imports everything under the sun, from toothpaste to tomato paste through to rice, luxury cars and crucially oil.

Oil is the main import expenditure that Ghana faces but before we tackle the oil issue, food for thought - Ghana used to be a rice producer but due to “free market” policies Ghana has abandoned its once thriving rice industry, in the process leaving thousands unemployed, and is now a chief importer of rice worth up to $1 billion US Dollars a year - just imagine what a fraction of that could do to the economy of Ghana if it was invested into the local rice industry.

Now oil - Ghana is supposedly an oil producing country but because of greed and corruption of the highest order (please watch if you can a very powerful documentary called BIG MEN that looks into corruption in the oil industry in Ghana) , Ghana has to import billions of dollars worth of oil annually in order to support both commercial and domestic use.

Oil is a major chunk of the importation bill and because oil is priced in US$ it puts a huge strain on the value of the local currency but the oil has become a burden rather than a blessing as the vast receipts from oil go outside the country.

Ghana's main exports i.e. what it sells to the rest of the world are Gold, Timber, Cocoa, Bauxite and some agriculture products which as the twin result of low commodity prices and low royalty payments based on biased and greedy one-sided deals by western multi-national means that Ghana receives very little in export earnings.

So since we import virtually everything that has to be paid in US dollars, it is having an enormous strain on the economy because Ghana has to buy US dollars with its Cedis to pay the importer.

Therefore unless we reduce significantly our balance of trade deficit that is currently in the tens of billions of US dollars, the cedi will ALWAYS fall.

Reducing our import bill will also help the local economy because it will create self reliance by creating jobs at home for the ordinary Ghanaian in the case of producing our own rice rather than giving other people jobs by importing rice.

Nana Akufo Addo's one district , one factory policy won't work either because most of the factories being built are going to owned by non Ghanaians who will take their profits outside of the country where if the factories were owned by Ghanaians the profits would stay in Ghana and thus boost the coffers of the Ghanaian treasury.

Perhaps the biggest reason why the cedi is falling, and this is not what a single commentator has said, is that as a country we DO NOT have any gold bars in reserves.

In economics it is common that when a country's currency is under attack, the first thing that a country does to protect its currency is to use its gold reserves.

During the financial crisis of 2008 in the UK, the UK had to bailout the banks like Royal Bank Of Scotland (RBS) to the tune of tens of Billions of pounds.

The then Prime Minster Gordon Brown used some of the UK's huge gold reserves as collateral to bail out some of the biggest British banks like Royal Bank of Scotland , Barclays and Lloyds.

If Britain under Gordon Brown had not done this the British economy would have been bankrupt and this shows you the power of having gold bars in reserve.

In actual fact, how many Ghanaians are AWARE that before this paper money system i.e. Pounds, Dollars, Euros etc, Gold was the main standard of currency and because in Europe and America, there is a lack of gold, they invented paper money to ensure they were able to control the global economic system that now prevails.

It was because of the enormous gold reserves that Libya had that made the late General Gaddafi think of setting up the African Gold Dinar and Central Reserve Bank as mechanism for African self development, self determination and economic freedom and this IS the REAL reason why Gaddafi was taken out by the White man because the African Gold Dinar and Central Reserve Bank was a big threat to the White man's survival and dominance over African countries.

In the case of Ghana, again as a result of “free market” policies adopted by the previous Rawlings, Atta-Mills and Mahama NDC governments and the NPP Kufuor administration, Ghana virtually sold off all its gold reserves to foreign multi-national gold mining companies.

As a result of this ill-advised policy Ghana virtually has NO gold reserves. This lack of Gold reserves is the chief reason why the Cedi is in free fall because gold is used to strengthen a country's currency in difficult periods such as what the Cedi is currently facing.

In the absence of gold bar reserves to prop up the Cedi, the government has taken steps such as acquiring finance from the IMF/World Bank to buy US dollars to prop up the cedi.

Another reason why the cedi is falling rapidly is that as a country we do not make anything – in the days of Ghana's first president Osagyefo Dr. Kwame Nkrumah, Ghana had over 500 factories that was producing, radio's , televisions, fridges, toothpicks, watches, floor tiles, tyres, shoes and so forth – because of the inability by Ghanaians to manage these industries properly coupled with nefarious so-called trade liberalization economic policies imposed on Ghana by the Breton-Woods institutions post 1966, Ghana is now a net importer of these very goods that it was once making.

So as a country we MUST begin the re-industrialization process and start to make things that are owned and managed by Ghanaians for export that would bring in much needed foreign exchange, keep the profits in Ghana and more importantly create much needed employment for our people and in the process significantly reduce the teeming unemployed.

Also capital flight is another issue that is affecting our currency. This capital flight is when multi-national companies take their massive profits outside of Ghana and put them in off shore accounts, thus denying the Government of Ghana urgent foreign exchange revenue.

To combat this Ghana should have a policy that restricts money going out of the country.

So this is the crisis that is facing the Ghanaian economy which is why the cedi is in free fall and this is THE REALITY both the NPP and NDC have failed to solve due to their INCOMPETENCE!!!

Unless as a nation we curve our importation of foreign goods, start to re-industrialize Ghana by producing goods and services, owned and managed by us, stop capital flight by taxing some of these multi-national companies and take active steps to acquire substantive gold reserves by getting more revenue from our gold, our currency will always be at the mercy of currency speculators in the money markets and be in terminal decline and there is nothing the Bank of Ghana can do about it.

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