“When the fundamentals are weak, the exchange rate will expose you,” remarked Dr. Mahamudu Bawumia, the then Running Mate of the New Patriotic Party (NPP). The truth in this statement was however never explained by the NPP’s purported economic wizkid.
While the statement highlights the vulnerabilities of an economy, the implications remain underexplored, especially when it comes to understanding the dynamics of Ghana’s cedi depreciation.
I’m not an economist but I do know that one of the key economic fundamentals is the ownership of the economy by the citizens. This probable explains why Gross National Product (GNP) is a better measure of a country’s economic health for the citizens than Gross Domestic Product (GDP).
The ongoing struggles of the cedi must be examined through the lens of economic ownership and profit flight, shedding light on the need for citizen empowerment in the importation market.
Ghana’s economic fundamentals are indeed weak, but one of the most pressing issues is the lack of ownership of the economy by its citizens. This lack of local control is crucial because it creates a scenario where wealth generated within the country doesn’t circulate back into the local economy, leading to an unhealthy dependence on foreign entities.
Gross National Product (GNP) often provides a more accurate representation of economic health in this context, as it considers overall income earned by residents, regardless of where economic activity occurs. GNP reveals the stark reality that while GDP might portray growth, it doesn’t reflect who benefits from that growth.
The issue of profit flight exacerbates the already precarious state of the cedi. Essential goods such as rice, sugar, cooking oil, iron rods, agro-chemicals, ethanol, and tricycles are often imported by non-citizens; at best dual nationals.
This means that profits generated from selling these goods don’t remain in Ghana; instead, they are whisked away to the owners’ home countries. As a result, these profits must be converted from cedis to dollars for repatriation, amplifying the demand for foreign currency. This action creates undue pressure on the already limited dollar supply in Ghana, resulting in significant depreciation of the cedi against the dollar.
While it is acknowledged that capital flight is inevitable in the importation of much needed essential commodities until we have the capacity to produce them locally, there is no need for profits to be allowed to fly away.
In order to ensure that profit flight is curbed, the government should provide the enabling environment for Ghanaian citizens to dominate the commodity import market.
Encouraging local entrepreneurs can lead to a more sustainable economic prospect, where profits remain within the country and contribute to local development, job creation, and infrastructure improvement.
Furthermore, multi-national corporations operating in Ghana, such as telecommunications companies, must be incentivised to allow local ownership of shares. When Ghanaians have a stake in these businesses, a portion of the profits will be reinvested into the local economy, creating a cycle of growth and sustainability.
By tackling the rampant profit flight and nurturing an economy that values local ownership, Ghana can take significant steps toward stabilising the cedi and strengthening its financial foundations.
Not only is it essential for the cedi’s stability, but fostering citizen ownership in the economy will empower Ghanaians, ensuring that the benefits of economic activity are enjoyed by those indigenes who live and work in the country.
In closing, understanding the core issues behind the cedi’s depreciation demands attention to ownership and profit flows in the economy. The future of Ghana’s economic stability lies in concerted efforts to reclaim economic sovereignty—fundamentally securing the wealth generated in Ghana for the betterment of its citizens.
