Banking and Finance analyst, Dr. Richmond Atuahene has cast doubt over the Vice President’s plan to stabilize the local currency with gold if elected president describing it as unsustainable.
Vice President and flagbearer of the NPP, Dr. Bawumia as part of his plans to permanently address the persistent depreciation of the cedi is proposing an initiative that will anchor the value of the Cedi to gold.
According to Dr. Bawumia’s framework, all significant demand for foreign exchange would be channeled through the Bank of Ghana’s gold purchase programme. This would allow the central bank to use its gold reserves to meet the demand for foreign currency, thereby stabilizing the exchange rate.
But Dr. Atuahene’s pessimism about this gold-backed forex stems from the current agreement the country has with multinational companies where Ghana only earns an average of 13.5% to 15% of total mineral earnings.
Speaking at the third edition of the Graphic Business/Stanbic Bank Breakfast Meeting on August 20th, the banking consultant described the current arrangement as a “colonial agreement” adding that 13.5% to 15% of total earnings from the overall minerals’ earnings cannot provide sufficient gold to permanently address the cedi’s free fall.
Citing Zimbabwean’s case to justify his argument, he revealed that the gold-backed forex in Zimbabwe has been successful mainly because the country is retaining about 50% of all its mineral returns.
“I heard the Vice President saying that he is going to do gold regime currency like Zimbabwe. But if you only have a return on average of 15%, it is not sustainable. Zimbabwe is creating companies to mine it so averagely they are getting about 50%. That is why Zimbabwe’s currency is doing well. Yours is 15%. It cannot be sustainable,” Dr. Atuahene explained.
But there seems to be a glimmer of hope as the banking consultant indicated that what he describes as “bad contracts” can be renegotiated as in the case of Botswana. He revealed that Botswana some years back was in the same situation as Ghana where they were earning very little on its export of diamonds.
However, the leadership of the country rose and demanded a fair share which led to an increase to 30% returns which is expected to further increase to 40% in 2024.
“We have signed a colonial agreement where Ghana is earning an average between 13.5% to 15% compared to Botswana. Botswana used to be in Ghana’s state. For those of you who know Botswana, it’s about diamonds. The biggest diamond in Africa. They were facing the same challenges like Ghana, 13%, 15%,” he narrated.
He continued that, “as I speak to you, in 2023 they moved to 30% and they are going to move to 40% next year. So for every US$ 1 million, US$ 400,000 will be staying in Botswana. We have signed a bad contract and I quote Her Ladyship, former chief justice, Sophia Akufo. It is not a circumstance that we cannot negotiate. We can renegotiate.”
Meanwhile, Dr. Daniel Amateye Anim, the Chief Economist at Policy Initiatives for Economic Development (PIED Africa), is calling for an alignment of the “gold for forex” policy with other economic policies since this policy alone cannot stabilize the cedi. According to Dr. Anim, while the “gold for forex” policy is a crucial step towards stabilizing the country’s exchange rates, its effectiveness will be significantly enhanced if it is complemented by other growth-driven policies.
