Ghana cracks down on foreign exchange to support the cedi

Concerns about Ghana’s currency came to a head in February when the governor of the Bank of Ghana, Henry Kofi Wampah, took the move to implement foreign exchange reforms in a bid to restrict the country’s dollar transactions. In the last six months the cedi has gone from Ghc2.17 to the dollar at the end of September to Ghc2.55 in February. In the same period compared to the pound sterling it went from Ghc3.51 to Ghc4.27. President John Dramani Mahama and minister of finance Seth Terkper have promised that Ghana was not alone in this phenomenon and that other emerging markets including South Africa, India and Argentina are also suffering as a result of the US Federal Reserve’s recovery on tapering.hideDENYING THE DOLLAR It is not uncommon in Ghana for house rentals, hotel rooms and car prices to be quoted in dollars and President Mahama said this practice needs to come to an end. But Accra-based risk manager Akwasi Anane said that the transition will not be easy. “The short-term [effect could] lend itself to more of an opening for the black market,” Mr Anane told Commercial Risk Africa. “It might be counterproductive.” Mr Anane points out that there is no effective monitoring system to ensure these regulations are adhered to. Under the new reforms transactions by financial institutions have been limited. Though deposits can be made in a foreign currency withdrawals will only been in cedis. Foreign currency chequebooks have also been banned and restrictions have been placed on foreign exchange operators. A maximum of $10,000 or its equivalent can be exchanged in any given transaction. The move, Mr Anane says, could see fewer people deposit money and create a lack of trust in the financial system. As to whether or not the reforms were the best option for the current climate Mr Anane said: “we might have just put a band-aid on a big sore”. Ghanaian consumers’ fondness for foreign goods is a large contributor to the fall in the value of the cedi. Last year US$17bn was spent on imports, $1.4bn of which were for consumable goods that are produced locally. Government spending remained high in 2013 with the fiscal deficit 10.9% compared to the 9% target for the year. The ministry of finance hopes to get it down to 8.5% this year. When it comes to interest from foreign investors Mr Anane suspects that some investors will keep away, but pointed out that investors have a number of considerations when looking to invest in any given market. Political stability, ease of doing business and currency are just three of the many factors that contribute to investors’ decision making. While Ghana operates in a stable political environment its ease of doing business is less favourable. The country slid five places in the World Bank’s Doing Business ranking from 62 in 2013 to 67 this year. Growth too has slowed, standing at 5.5% in 2013 with an IMF projection of 4.8% this year. In February in its annual credit rating analysis, Moody’s said that the country’s B1 bond rating has a negative outlook. However despite its susceptibility to external financial shocks Ghana still has enhanced creditworthiness. And Mr Anane too is confident that the current economic instability is just a temporary blip in the road for the country. “Ghana is still a good place to invest,” he concluded.

Ghana cracks down on foreign exchange to support the cedi

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