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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

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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.

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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

All eyes in Africa are on Kenya’s bid for a reset, By Joachim Buwembo

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Whoever impregnated Angela Rayner and caused her to drop out of school at the tender age of 16 with no qualifications might be disappointed that we aren’t asking who her baba mtoto (child’s father) is; whether he became a president, king or a vagabond somewhere, since the girl ‘whose leg he broke’ is now UK’s second most powerful person, 28 years since he ‘stole her goat’.

Angela’s rise to such heights after the adversity should be a lesson to countries which, six decades after independence, still have millions of citizens wallowing in poverty and denied basic human dignity, while the elite shamelessly flaunt obscene luxury on their hungry, twisted faces.

After independence, African countries also suffered their adolescent setbacks in the form of military coups. Uganda’s military rule lasted eight years, Kenya’s about eight hours on August 1, 1982, while Tanzania’s didn’t materialise and its first defence chief became an ambassador somewhere.

What we learn from Angela Rayner is that when you’re derailed, it doesn’t matter who derailed you, because nobody wants to know. What matters is that you pick yourself up, not just to march on, but to stand up and shine.To incessantly blame our colonial and slave-trading ‘derailers’ while we treat our fellow citizens worse than the colonialists did only invites the world to laugh. Have you ever read of a colonial officer demanding a bribe from a local before providing the service due?

African countries today need to press ‘reset’. A state operates by written policies, plans, strategies and prescribed penalties with gazetted prisons for those who break the rules.  This is far more power than teenage Angela had, so a reset state should take less time to become prosperous than the 28 years it took her to get to the top after derailing.

So it’s realistic for countries to operate on five-year planning and electoral cycles, so a state that fails to implement a programme in five years has something wrong with it. It needs a reset.

A basic reset course for African leaders and economists should include:

1. Mindset change: Albert Einstein teaches us that no problem can be solved from the same level of consciousness that created it. For example, if you are in debt, seeking or accepting more debt is using the same level of thinking that put you there. If you don’t like Einstein’s genius, you can even try an animal in the bush that falls into a hole and stops digging. Our economists are certainly better than a beast in the bush.

2. Stealing is wrong: African leaders and civil servants need to revisit their catechism or madarasa – stealing public resources is as immoral as rape.

3. Justifying wrong doesn’t make it right: Using legalese and putting sinful benefits in the budget is immoral and can incite the deprived to destroy everything.

4. Take inventory of your resources and plan to use them: If Kenya, for example, has a railway line running from Mombasa to Nairobi, is it prudent to borrow $3.6 billion to build a highway parallel to it before paying off and electrifying the railway?

If Uganda is groaning under a $2 billion annual petrol import bill, does it make sense to beg Kenya for access to import more fuel, when Kampala is already manufacturing and marketing electric buses, while failing to use hundreds of megawatts it generates, yet the country has to pay for the unused power?

If Tanzania… okay, TZ has entered the 21st Century with its electric trains soon to be operating between Dar es Salaam and Morogoro. Ethiopia, too, has connected Addis Ababa to the port of Djibouti with a 753-kilometre electric railway,  and moves hundreds of thousands of passengers in Addis every day by electric train.

5. Protect the environment: We don’t own it, we borrowed it from our parents to preserve it for our children. Who doesn’t know that the future of the planet is at stake?

6. Do monitoring and evaluation: Otherwise you may keep doing the same thing that does not work and hope for better results, as a sage defined lunacy.

7. Don’t blame the victims of your incompetence: This is basic fairness.

We could go on, but how boring! Who doesn’t know these mundane points? We are not holding our breath for Angela’s performance, because if she fails, she will be easily replaced. Africa’s eyes should now be on Kenya to see how they manage an abrupt change without the mass bloodshed that often accompanies revolutions.

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Strictly Personal

The post-budget crisis in Kenya might be good for Africa, after all, By Joachim Buwembo

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The surging crisis that is being witnessed in Kenya could end up being a good thing for Africa if the regional leaders could step back and examine the situation clinically with cool-headed interest. Maybe there is a hand of God in the whole affair. For, how do explain the flare not having started in harder-pressed countries such as Zambia, Mozambique and Ghana?

As fate would have it, it happened in East Africa, the region that is supposed to provide the next leadership of the African Union Commission, in a process that is about to start. And, what is the most serious crisis looming on Africa’s horizon? It is Debt of course.

Even the UN has warned the entire world that Africa’s debt situation is now a crisis. As at now, three or four countries are not facing debt trouble — and that is only for now.

There is one country, though, that is virtually debt-free, having just been freed from debt due to circumstances: Somalia. And it is the newest member of the East African Community. Somalia has recently had virtually all its foreign debt written off in recognition of the challenges it has been facing in nearly four decades.

Why is this important? Because debt is the choicest weapon of neocolonialists. There is no sweeter way to steal wealth than to have its owners deliver it to you, begging you, on all fours, to take it away from them, as you quietly thank the devil, who has impaired their judgement to think that you are their saviour.

So?

So, the economic integration Africa has embarked on will, over the next five or so years, go through are a make-or-break stage, and it must be led by a member that is debt-free. For, there is no surer weapon to subjugate and control a society than through debt.

A government or a country’s political leadership can talk tough and big until their creditor whispers something then the lion suddenly becomes a sheep. Positions agreed on earlier with comrades are sheepishly abandoned. Scheduled official trips get inexplicably cancelled.

Debt is that bad. In African capitals, presidents have received calls from Washington, Paris or London to cancel trips and they did, so because of debt vulnerability.

In our villages, men have lost wives to guys they hate most because of debt. At the state level, governments have lost command over their own institutions because of debt. The management of Africa’s economic transition, as may be agreed upon jointly by the continental leaders, needs to be implemented by a member without crippling foreign debt so they do not get instructions from elsewhere.

The other related threat to African states is armed conflict, often internal and not interstate. Somalia has been going through this for decades and it is to the credit of African intervention that statehood was restored to the country.

This is the biggest prize Africa has won since it defeated colonialism in (mostly) the 1960s decade. The product is the new Somalia and, to restore all other countries’ hope, the newly restored state should play a lead role in spreading stability and confidence across Africa.

One day, South Sudan, too, should qualify to play a lead role on the continent.

What has been happening in Kenya can happen in any other African country. And it can be worse. We have seen once promising countries with strong economies and armies, such as Libya, being ravaged into near-Stone Age in a very short time. Angry, youthful energy can be destructive, and opportunistic neocolonialists can make it inadvertently facilitate their intentions.

Containing prolonged or repetitive civil uprisings can be economically draining, both directly in deploying security forces and also by paralysing economic activity.

African countries also need to become one another’s economic insurance. By jointly managing trade routes with their transport infrastructure, energy sources and electricity distribution grids, and generally pursuing coordinated industrialisation strategies in observance of regional and national comparative advantages, they will sooner than later reduce insecurity, even as the borders remain porous.

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