'Depreciating Cedi is Worrying' - Economic Operators
'Depreciating Cedi is Worrying' - Economic Operators
Accra (Greater Accra), 15th November 99
Bankers, stockbrokers and investment advisers have described the continuing slide of the cedi against other currencies as "very worrying", saying it threatens to throw other major economic indices out of gear.
The dire situation is also scaring away the much-needed foreign investors from the local stock exchange and in other cash investment holdings.
They have, therefore, suggested a drastic diversification of the country's export base and the development of a concerted approach to encourage donors to make good their commitments.
The experts also called for an increase in the export of non-traditional items, especially tourism and horticultural products, as well as the development of local manufacturing industry to raise adequate capital for development.
Mr. Yoofi Grant, an Investment Banker and Stockbroker with Databank Brokerage Services, attributed the slide of the cedi to low foreign reserves, diminishing export receipts as a result of declining prices of cocoa and gold and high cost of crude oil on the international market.
Foreign aid money has also not been flowing in as expected, thus resulting in a low dollar reserve base that is affecting the ability of the country to balance its finances.
The cedi has fallen about 17.9 per cent against the dollar since the beginning of the year. It is presently selling at 3,738 cedis to the dollar and about 5,200 cedis to the pound sterling. It began the year at about 2,250 cedis to the dollar and 4,000 cedis to the pound.
Analysts fear that the dollar will soon hit the 4,000 mark.
The economic downturn that sparked off the rapid fall began sometime between June and August at the beginning of the falling gold prices amidst threats and counter-threats of European Central Banks to sell several millions of ounces of gold coupled with less than expected export returns.
Economic analysts and industrialists also quote the inability of local industry to support financial indices as one other major factor accounting for the slide of the cedi.
Explaining the situation further, Mr. Grant said on a larger front, Ghana is not a major exporting country since it basically relies on just her major export products, notably cocoa and gold.
This, he said, does not augur well for the country considering the unfavourable situations that might arise on the international market.
The Ministry of Finance and other economic think tanks have in recent weeks confirmed the weakness of the economy and indicated that government will be introducing some extra tax measures aimed at raising more funds.
Mr. Moses Asaga, a Deputy Minister of Finance, could not tell how soon the situation might improve but indicated that it might spill into the first quarter of next year.
"Things are not going to be easy in the last quarter of this year and possibly into the first quarter of next year."
Mr. Asaga said there will be a further reduction in domestic capital expenditure, heightened enforcement of revenue collection procedures and continued negotiation with financiers and donors to earn an enhanced support mechanism".
Sources at the Bank of Ghana (BOG) say the status of the cedi is a true reflection of the real value of the currency since things are being determined by market forces and not human interventions.
Previously, the Central Bank under such circumstances was induced to intervene to bring the situation under control.
But indications from the Central Bank are that nothing of the sort will be done this time. Rather, the cedi will, more probably, be left to readjust by the same market forces when the micro-economic situation improves.
Mr. S. B. Tweneboah, General Manager of the Ghana Stock Exchange (GSE), said foreign investors receive lower dividends any time the cedi depreciates and becomes a disincentive.
"This has made foreign investors to worry about the amount of returns they stand to make on our market since what he can get today or in the future cannot be guaranteed.
The uncertain nature of the market has made investment of any kind very vulnerable, Mr. Tweneboah said, adding: "no investor will want to put his money in any kind of venture without guaranteeing the possibility of a fair return".
"They are not attracted and there is no incentive. Their earnings keep depreciating and their hard-earned currency keeps dwindling. This is keeping most of them away from the market".
He said a good observer would notice that prices have been falling at the GSE in recent times because foreign investors, who dominate the market, are not so keen like they used to be.
"This is seen in the index, which this year has lost minus 12 per cent as against plus 70 per cent last year".
He mentioned the problem of the third world contagion as one of the other factors plaguing the market, saying the tagging of the East Asian countries as emerging markets, coupled with the crisis that affected them, does not make the market in Accra, which is also tagged emerging market, attractive.
"The Exchange is instituting measures to make it more attractive. We are intensifying promotion, education and introducing the entire trading system on the floor of the Exchange.
"The human resource base of the market is also being upgraded as well as getting government to make investments in bonds and shares more attractive," Mr. Tweneboah added.
Returns on bills are tax-free but shares on the capital market are taxable at 10 per cent.
Mr. Tweneboah said the nation needed to create a strong national and not only foreign investor base.
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Stock market at a standstill
Accra (Greater Accra), 15th November 99
The Accra bourse recorded no change in the All-Share Index on Friday despite significant gains in the volumes traded.
The All-Share Index remained at 757.06 points after two successive declines of 0.18 and 2.32 points on Monday and Wednesday as result of heavy losses by major equities.
Officials on the bourse have attributed the lack of active trading in recent times on the Ghana Stock Exchange (GSE), which was adjudged the best performing exchange on the continent in 1998, to withdrawal of foreign investors onto the revived Asian markets.
The change in the year to date stood at negative 12.82 per cent.
Total shares traded closed the week significantly higher from Wednesday's 27,000 shares to 297,300 shares with bids also finishing up at 348,500 shares from 115,200.
Shares posted on the bourse fixed at 1.4 million compared to the previous 1,095,780 shares.
Market capitalisation declined by a small margin from 3,238.40 billion cedis to 3,238.39 billion cedis.
In the broader market, two equities registered price changes.
SSB Bank (SSB) gained five cedis to close the week at 1,980 cedis while Metaloplastica Ghana Limited (MGL) lost 20 cedis at 200 cedis.
Meanwhile, an additional 9,132,049 shares issued by British American Tobacco, Ghana, to former holders of Meridian Tobacco Company Limited shares, in connection with a merger of the two companies have been listed on the exchange.
The following are the last prices of listed equities in cedis:
ABL 420
AGC 18,700
ALW 2,490
BAT 475
CFAO 40
EIC 1,880
FML 900
GBL 1,500
GCB 840
GGL 950
HFC 750
MGL 200 -20
MLC 160
MOGL 15,700
PAF 291
PZ 800
SCB 19,700
SPPC 180
SSB 1,980 +5
UNIL 1,870
UTC-E 125
CMLT 420
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