He said: “Ghana’s economy is import driven and that makes our country susceptible to fluctuations on the international market.
“These susceptibilities include commodity price hikes on the international market such as Brent, sugar, cotton.”
In an interview with the Ghana News Agency (GNA) in Sunyani, Mr. Okonah mentioned specifically Brent commodities which has inelastic demand hence a change in price will not alter significant change in the quantity demanded.
That, Mr. Okonah, also the Chief Executive Officer of DUMAT Africa, implied that “importers would have to look for more US dollars to import the same quantity they used to import without any alteration in quantity.”
The DUMAT is a Sunyani-based economic policy think-tank that focuses on economic policy, governance and labour issues.
Mr. Okonah expressed worry the Local Content Act “gives so much room to foreign entities to source materials and other essentials necessary for production outside the country.”
“Importation of these materials which could have been sourced within also exacerbates the pressure on the cedi”, he stated.
Additionally, the Ghana Investment Promotion Council (GIPC) Act has inherent weakness relative to repatriation of profit earned by foreign entities in the country.
“The act allows for 100 percent repatriation of profit in the year of assessment and when these companies are repatriating their profits, they convert the profits earned in cedi to the dollar and this adversely affects the cedi’s performance too.”
“More importantly and quite recently, as the economy recovers from the shackles of the Covid-19, economic activities have sparked from complete shutdown or partial operation to full scale operation.”
This would mean more importation of raw materials and the consequential effect will be that the cedi will depreciate,” Mr. Okonah added.
Mr Okonah said, “exports provide an avenue to earn forex. If a country’s exports are low, its forex reserves would be negatively affected and impact on the ability of the monetary authority to intervene in the exchange rate market when it becomes necessary to do so.”
These, and several other factors, he observed had contributed significantly to the continuous depreciation of the cedi over the years, and therefore, called for drastic measures to reverse the trend and stabilize the cedi.
Mr. Okonah regretted that the Ghana cedi had witnessed monumental decline and thereby making it last on the list of top 15 performing currencies in Africa.
“It’s therefore, important to note that exchange rate in itself should not be examined as an end policy, but rather a means to an end policy”, he stated, stressing, “an effective exchange rate regime is one that responds to policy direction of government.
“In this way, the exchange rate can be used to stimulate growth and provide prosperity for the country,” he added.
Citing China as an example of countries that had directly benefited from effective exchange rate management, Mr. Okonah said that country had been able to use exchange rate policy to discourage citizens from buying from other countries by deliberately devaluing the Chinese Yuan and making other countries’ products expensive in China.
“This policy directly pushes the over 1.2 billion Chinese citizens to patronise Chinese products and promote the growth of Chinese businesses”.
“It is however sad that in our jurisdiction, exchange rate debates have been narrowed and viewed as an end policy without recourse to policy direction and this remains the base of Ghana’s problem in solving exchange rate volatilities,” Mr. Okonah stated.
