Connect with us

Strictly Personal

An Alternative To Devaluation

The vicious cycle of depreciation of the Ghana Cedis has urged many people in business and others concerned with the development of the state to call for a devaluation of the Ghanaian currency

Published

on

The vicious cycle of depreciation of the Ghana Cedis has urged many people in business and others concerned with the development of the state to call for a devaluation of the Ghanaian currency. Devaluation is concerned with the decrease in a currency’s value with respect to other currencies. A currency is devalued when it loses value relative to other currencies in the foreign exchange market. It is a monetary policy activity that is undertaken by a government and its central bank to correct its exchange rates problems.

Such a call is not out of place as the value of the currency keeps depreciating frequently. There has been media debates by the major political parties about who manages the currency better. This fight will not earn the state the needed answers it seeks to address its exchange rate problems.

Read Also: Rwanda’s partnership with Arsenal is already a win

Many individuals with knowledge in Economics and Finance had offered their opinions as to how to resolve this economic impasse. The arguments advanced in favour of a devaluation are plausible as they seem to make a short term solution. It is believed that devaluation reduces the price of a country’s domestic output. This is because inputs in the production process will be less expensive as the devalued currency will assume a competitive value. This is beneficial to the export volumes of the state because the exports of the state will increase forcefully. Exports become more competitive in the global market and increasing the national income of the state.

In the short term, devaluation seems the better option to managing a county’s currency in exchange rate crisis. The lag of time for most economic policies to practically take effect is a problem to deal with. The long term effect is that, the country’s cost of imports will increase such that domestic consumers are less likely to buy them and strengthening domestic businesses. Depreciation of a currency is not only a consequent of poor management of it, it also occurs as a result of the pursuit of expansionary monetary policies. The supply of more currencies in the economy will help expand businesses which will increase imports and ultimately affect the exchange rate.

The benefits of devaluation only seem to be short term solutions as an import dependent economy like Ghana with huge taste for foreign goods will suffer the price hikes of imports due to devaluation of its currency. Devaluation will only be beneficial in both the short and long terms if a country is export dependent as it seeks to strengthen the value of the currency and export commodities become relatively competitive.

Countries that often experience balance of payments deficits as a result of excessive imports and demand for foreign goods may not have to embark on devaluation as the terminal solution to solving their exchange rate crisis.
An alternative to devaluation for Ghana is altering the imports of the state. Import substitution industrialisation needs to be embarked on through the establishment of factories for the agricultural and manufacturing sectors.

The imports of rice, fish, meat, chicken, wheat and other commodities that can be produced locally need to be halved or prohibited. There is the need to change the import components of our trade and begin a serious internal production of some of the foreign produce with export-led growth strategies. There is the need for the state to support home-grown agricultural produce that are usually imported. The setting up of more state farms to produce rice, wheat, tomatoes etc to begin a more vigorous manufacturing activities is desirable. The import volumes of the state have great impact on the exchange rate determination.

There is a huge surplus of labour in the agricultural sector. There are also arable lands existing in many parts of the country which can be used for this purpose. More market-oriented growth strategies need to be pursued and relegate the traditional forms of dealing with the international world market.

While changing the import components of the state for a favourable terms of trade, there is also the requirement to expand the export commodities of the state that will lead to an increase in foreign exchange. Export-led growth strategies that will attract transnational corporations to partake in the development agenda of the state for it to gain access to the global market are to be rolled out. These strategies seem to offer long lasting solutions to the ever worsening rate of exchange of the state that cause political debates in the media.

An import-dependent economy like Ghana will in no time experience a reverse of the exchange rate situation after devaluation. The reason is that the long term effect of devaluation will be felt from the import of foreign goods. The depreciation of the currency must to be tackled more cautiously and devaluation does not appear a better alternative. Let’s change the import components of our trade by substituting it with local produce and increase export to earn more.

Commentator….Emmanuel Kwabena Wucharey

Strictly Personal

Air Peace, capitalism and national interest, By Dakuku Peterside

Published

on

Nigerian corporate influence and that of the West continue to collide. The rationale is straightforward: whereas corporate activity in Europe and America is part of their larger local and foreign policy engagement, privately owned enterprises in Nigeria or commercial interests are not part of Nigeria’s foreign policy ecosystem, neither is there a strong culture of government support for privately owned enterprises’ expansion locally and internationally.

The relationship between Nigerian businesses and foreign policy is important to the national interest. When backing domestic Nigerian companies to compete on a worldwide scale, the government should see it as a lever to drive foreign policy, and national strategic interest, promote trade, enhance national security considerations, and minimize distortion in the domestic market as the foreign airlines were doing, boost GDP, create employment opportunities, and optimize corporate returns for the firms.

Admitted nations do not always interfere directly in their companies’ business and commercial dealings, and there are always exceptions. I can cite two areas of exception: military sales by companies because of their strategic implications and are, therefore, part of foreign and diplomatic policy and processes. The second is where the products or routes of a company have implications for foreign policy. Air Peace falls into the second category in the Lagos – London route.

Two events demonstrate an emerging trend that, if not checked, will disincentivize Nigerian firms from competing in the global marketplace. There are other notable examples, but I am using these two examples because they are very recent and ongoing, and they are typological representations of the need for Nigerian government backing and support for local companies that are playing in a very competitive international market dominated by big foreign companies whose governments are using all forms of foreign policies and diplomacy to support and sustain.

The first is Air Peace. It is the only Nigerian-owned aviation company playing globally and checkmating the dominance of foreign airlines. The most recent advance is the commencement of flights on the Lagos – London route. In Nigeria, foreign airlines are well-established and accustomed to a lack of rivalry, yet a free-market economy depends on the existence of competition. Nigeria has significantly larger airline profits per passenger than other comparable African nations. Insufficient competition has resulted in high ticket costs and poor service quality. It is precisely this jinx that Air Peace is attempting to break.

On March 30, 2024, Air Peace reciprocated the lopsided Bilateral Air Service Agreement, BASA, between Nigeria and the United Kingdom when the local airline began direct flight operations from Lagos to Gatwick Airport in London. This elicited several reactions from foreign airlines backed by their various sovereigns because of their strategic interest. A critical response is the commencement of a price war. Before the Air Peace entry, the price of international flight tickets on the Lagos-London route had soared to as much as N3.5 million for the  economy ticket. However, after Air Peace introduced a return economy class ticket priced at N1.2 million, foreign carriers like British Airways, Virgin Atlantic, and Qatar Airways reduced their fares significantly to remain competitive.

In a price war, there is little the government can do. In an open-market competitive situation such as this, our government must not act in a manner that suggests it is antagonistic to foreign players and competitors. There must be an appearance of a level playing field. However, government owes Air Peace protection against foreign competitors backed by their home governments. This is in the overall interest of the Nigerian consumer of goods and services. Competition history in the airspace works where the Consumer Protection Authority in the host country is active. This is almost absent in Nigeria and it is a reason why foreign airlines have been arbitrary in pricing their tickets. Nigerian consumers are often at the mercy of these foreign firms who lack any vista of patriotism and are more inclined to protect the national interest of their governments and countries.

It would not be too much to expect Nigerian companies playing globally to benefit from the protection of the Nigerian government to limit influence peddling by foreign-owned companies. The success of Air Peace should enable a more competitive and sustainable market, allowing domestic players to grow their network and propel Nigeria to the forefront of international aviation.

The second is Proforce, a Nigerian-owned military hardware manufacturing firm active in Rwanda, Chad, Mali, Ghana, Niger, Burkina Faso, and South Sudan. Despite the growing capacity of Proforce in military hardware manufacturing, Nigeria entered two lopsided arrangements with two UAE firms to supply military equipment worth billions of dollars , respectively. Both deals are backed by the UAE government but executed by UAE firms.

These deals on a more extensive web are not unconnected with UAE’s national strategic interest. In pursuit of its strategic national interest, India is pushing Indian firms to supply military equipment to Nigeria. The Nigerian defence equipment market has seen weaker indigenous competitors driven out due to the combination of local manufacturers’ lack of competitive capacity and government patronage of Asian, European, and US firms in the defence equipment manufacturing sector. This is a misnomer and needs to be corrected.

Not only should our government be the primary customer of this firm if its products meet international standards, but it should also support and protect it from the harsh competitive realities of a challenging but strategic market directly linked to our national military procurement ecosystem. The ability to produce military hardware locally is significant to our defence strategy.

This firm and similar companies playing in this strategic defence area must be considered strategic and have a considerable place in Nigeria’s foreign policy calculations. Protecting Nigeria’s interests is the primary reason for our engagement in global diplomacy. The government must deliberately balance national interest with capacity and competence in military hardware purchases. It will not be too much to ask these foreign firms to partner with local companies so we can embed the technology transfer advantages.

Our government must create an environment that enables our local companies to compete globally and ply their trades in various countries. It should be part of the government’s overall economic, strategic growth agenda to identify areas or sectors in which Nigerian companies have a competitive advantage, especially in the sub-region and across Africa and support the companies in these sectors to advance and grow to dominate in  the African region with a view to competing globally. Government support in the form of incentives such as competitive grants ,tax credit for consumers ,low-interest capital, patronage, G2G business, operational support, and diplomatic lobbying, amongst others, will alter the competitive landscape. Governments  and key government agencies in the west retain the services of lobbying firms in pursuit of its strategic interest.

Nigerian firms’ competitiveness on a global scale can only be enhanced by the support of the Nigerian government. Foreign policy interests should be a key driver of Nigerian trade agreements. How does the Nigerian government support private companies to grow and compete globally? Is it intentionally mapping out growth areas and creating opportunities for Nigerian firms to maximize their potential? Is the government at the domestic level removing bottlenecks and impediments to private company growth, allowing a level playing field for these companies to compete with international companies?

Why is the government patronising foreign firms against local firms if their products are of similar value? Why are Nigerian consumers left to the hands of international companies in some sectors without the government actively supporting the growth of local firms to compete in those sectors? These questions merit honest answers. Nigerian national interest must be the driving factor for our foreign policies, which must cover the private sector, just as is the case with most developed countries. The new global capitalism is not a product of accident or chance; the government has choreographed and shaped it by using foreign policies to support and protect local firms competing globally. Nigeria must learn to do the same to build a strong economy with more jobs.

Continue Reading

Strictly Personal

This is chaos, not governance, and we must stop it, By Tee Ngugi

Published

on

The following are stories that have dominated mainstream media in recent times. Fake fertiliser and attempts by powerful politicians to kill the story. A nation of bribes, government ministries and corporations where the vice is so routine that it has the semblance of policy. Irregular spending of billions in Nairobi County.

 

Billions are spent in all countries on domestic and foreign travel. Grabbing of land belonging to state corporations, was a scam reminiscent of the Kanu era when even public toilets would be grabbed. Crisis in the health and education sectors.

 

Tribalism in hiring for state jobs. Return of construction in riparian lands and natural waterways. Relocation of major businesses because of high cost of power and heavy taxation. A tax regime that is so punitive, it squeezes life out of small businesses. Etc, ad nauseam.

 

To be fair, these stories of thievery, mismanagement, negligence, incompetence and greed have been present in all administrations since independence.

 

However, instead of the cynically-named “mama mboga” government reversing this gradual slide towards state failure, it is fuelling it.

 

Alternately, it’s campaigning for 2027 or gallivanting all over the world, evoking the legend of Emperor Nero playing the violin as Rome burned.

 

A government is run based on strict adherence to policies and laws. It appoints the most competent personnel, irrespective of tribe, to run efficient departments which have clear-cut goals.

 

It aligns education to its national vision. Its strategies to achieve food security should be driven by the best brains and guided by innovative policies. It enacts policies that attract investment and incentivize building of businesses. It treats any kind of thievery or negligence as sabotage.

 

Government is not a political party. Government officials should have nothing to do with political party matters. They should be so engaged in their government duties that they literally would not have time for party issues. Government jobs should not be used to reward girlfriends and cronies.

 

Government is exhausting work undertaken because of a passion to transform lives, not for the trappings of power. Government is not endless campaigning to win the next election. To his credit, Mwai Kibaki left party matters alone until he had to run for re-election.

 

We have corrupted the meaning of government. We have parliamentarians beholden to their tribes, not to ideas.

 

We have incompetent and corrupt judges. We have a civil service where you bribe to be served. Police take bribes to allow death traps on our roads. We have urban planners who plan nothing except how to line their pockets. We have regulatory agencies that regulate nothing, including the intake of their fat stomachs.

 

We have advisers who advise on which tenders should go to whom. There is no central organising ethos at the heart of government. There is no sense of national purpose. We have flurries of national activities, policies, legislation, appointments which don’t lead to meaningful growth. We just run on the same spot.

 

Tee Ngugi is a Nairobi-based political commentator

Continue Reading

EDITOR’S PICK

Tech7 hours ago

Kenya’s agri-tech startup Pula raises $20m funding for farmers’ insurance

Kenyan agri-tech and insurance startup, Pula, has announced raising $20 million Series B funding round which will be used to...

Sports8 hours ago

Kenya’s Peres Jepchirchir fulfils promise of breaking world record at London Marathon

Kenyan Olympic champion, Peres Jepchirchir, on Sunday, lived up to her promise of breaking compatriot Mary Keitany’s women’s-only world record...

Culture11 hours ago

Ghana’s Elmina Fishing Harbour welcomes first-ever cruise liner SH Vega

The Ghanaian tourism industry got a big boost when the legendary Elmina Fishing Harbour welcomed its first ever cruise liner,...

Metro11 hours ago

Zambian agency issues flood alert around Lake Tanganyika areas, advises relocation

The Zambian Water Resources Management Authority (WARMA) has issued a flood alert on areas surrounding Lake Tanganyika in Northern Province,...

Metro14 hours ago

Yoruba secessionist group seeks exit from Nigeria, writes open letter to Tinubu

A secessionist group known as the Yoruba Self-Determination Movement (YSDM) has written an open letter to Nigeria’s President Bola Tinubu...

VenturesNow1 day ago

Binance in talks with Nigerian govt over executive’s detention

Following the arrest of Binance’s head of financial crime compliance by Nigerian authorities last month, the company’s CEO said Thursday...

Metro2 days ago

South African police arrest 8 Nigerians following attacks on officers

The South African Police Service (SAPS) have confirmed the arrest of eight Nigerians for allegedly attacking police officers in Kimberley,...

Tech2 days ago

Africa’s largest tech hub AfriLabs welcomes 16 new additions

The largest network technology hub in Africa, AfriLabs, has announced the admission of 16 new hubs into its fold, thereby...

Culture2 days ago

Wife of Zambian music star Yo Maps sues businessman over alleged cyberbullying

The wife of Zambian music sensation, Elton Mulenga, popularly known as Yo Maps, Kidist Kifle, has sued a Lusaka-based businessman...

Metro2 days ago

IMF gives reasons why it advised Nigeria to remove fuel subsidy

The International Monetary Fund (IMF) has given reasons why it advised Nigeria to end the fuel subsidy regime which it...

Trending