Author name: Dr Maxwell Ampong

I smiled, on the outside, and proceeded to courteously steer the conversation elsewhere. On the inside, my jaw dropped, because his call for me to be “careful” is exactly what I have been before our semi-formal meeting, crossing my t’s and dotting my i’s. A few years ago, and he would have been thanking me for bringing him an opportunity to collaborate like this. The serial businessman had turned chicken to his textbook business opportunity that’s taken me many months to craft to his unique palate. That rattled me, a bit, for this had started to be a pattern with a significant number of others. Are they seeing something I am not seeing? Is there another shocking wave coming to the financial and business sector? Maybe people are just holding out on me. Maybe he was doing some lucrative, capital-intensive business I don’t know about. It couldn’t solely be the case. Besides, he happened to mention he had a lot of money just coming out of a fixed deposit. So, what was the problem? What IS the problem? That’s the thing; I don’t think there is a problem. There is no problem with him or his actions. Financial vigilance and conservatism should be a good thing. It is now a viral bug that has even the average Ghanaian clenching every cedi note as tightly as he can. The general public suddenly is very smart with better economic management because hope of easy money dwindled with the most recent upheaval of the finance and banking sectors. The shutting down of Menzgold and the other financial institutions was a wakeup call for the general populace and now everybody is just heavily hesitant and distrustful. It is not easy getting a 120% ROI on your money while toeing the lines of the law with minimum to no effort in the current financial climate. To not fully discredit Menzgold, NAM1 did deliver on dividend payments up until his shutdown, but this is not about Menzgold. I wouldn’t be that unsympathetic to kick him while he’s down. I actually happen to think if he escapes his legal shackles, he shall rise and capitalise on the very apparent equity of his massive public goodwill. He’s been once bitten, and I imagine he is 18 times shy now. I expect he will be bigger and better (and smarter) whenever his next attempt might be. But this is not about NAM1 or his business. This is an opinion piece. Let’s stick to the facts as usual. All facts on the ground may point to a good macroeconomic structure, validated by the international community as I so many times remember to add. Yet if people are afraid to dip their hands into their pockets, market growth becomes slow and stunted. More importantly, when the people lose hope, and their faith in the markets and economic sectors drops, it can be very disrupting. So, while many complained about how they are not “feeling” the good economy, from celebrities to political pundits, I personally had to experience a number of situations before making my own assumptions on it, my very, non-specialist, opinion-based assumptions. My conclusion: This is about Hope. This is about hope, and the very lucrative sale of hope that shoddy financial institutions sold to the unsuspecting public, against the repeated warnings of institutions like BoG. But that hope kept the public smiling. That hope kept the public spending, believing that whatever money that leaves will be replenished. The moment BoG and SEC and EOCO started finger waging, after countless warnings, a resounding ripple effect of uh-oh’s commenced, followed by a full-blown, literally hands-on-heads “ewurade medi nkwasiasem!” by both the institutions and their clientele. While institution heads face an array of punitive measures that may even include legal prosecution, the people of Ghana still want their money, and it hurt me, and I am sure you as well to bear witness to or partake in their lamentations. We all saw the news and the accounts of many people with monies stuck at many places. Livelihoods are at stake. If you’d like to fully comprehend the haunting reality of the situation, conduct the simple exercise of just imagining you losing a lot of your money, or all of your money. We are still at that phase, post the financial sector “cleanup” by the guys at the top. That’s why the air is still stuffy and unclear. That’s why the average Joe doesn’t like what’s happening in the financial sector. Because ignorance was bliss. Faith in what was not fully understood but warmly embraced brought restful slumber, for money was always on its way in dreamland. But seeing, and in many cases, feeling the effects of fiscal thoughtlessness will wake you up and make you a believer in facts, not emotions. It will shake you up. It will open your eyes to what’s real and what might not be. And at present not many like what they see or feel. Have you not noticed that virtually nobody wants to spend? Somehow everyone is suddenly so protective of every cedi. Personally, I get it. Nonetheless, though the financial surgeons of the motherland cauterise the wound for our supposed good, I feel it would only be practical to expect the accompanying ouch or adjei or however you say yours. Ɛyɛ ya. So, to the supporters of the overhaul in the financial sector, the cries of the public shouldn’t be dismissed. It is he who feels the pain that feels the pain. Now that’s a horrible pseudo-proverb but it’s true. Offence is taken by the receiver; who are you to tell an offended man he is not offended (imagine that). Also, to those that feel the pain, I say, there was a wound, it needed to be treated, and though it hurts, many argue that it was necessary to avert a much bigger crisis. Many people were unable to retrieve their monies from institutions, which was evidence of the proverbial wound that had riddled

When a company, a syndicate, a government, or any entity needs to borrow money to, let’s say, keep the business running,  to embark on new projects, to pay back old loans, for aggressive expansion, or for whatever reason, they may issue out what is called “bonds” to interested parties. Quite simply, a Bond successfully issued is a Loan accepted. The borrower is the issuer of the bond and the bond will contain the terms of the loan e.g. the interest rate (or coupon rate), how the interest payments (or coupons) will be made, the time at which the full amount has to be paid to the investor (maturity date), etc. That is a bond. What is a Eurobond? The EURObond only means the issuer isn’t in the same country or trading in the local currency of the investor/lender. A Eurobond doesn’t have to be about Europe or the Euro. It just points to the international aspect of the bond and the involvement of foreign currency. As Ghanaians, the Eurobond means the loan will be in a foreign currency, specifically, dollars. This should explain the government’s recent confidence that the arrest of the fall of the Ghana Cedi against the US Dollar was on its way. The Eurobond they were issuing meant dollars was coming into the system, thereby reducing the scarcity and the accompanying demand for the dollar. The Eurobond, also known as external bonds, is issued in one country and sold in a different one. Bonds are grouped by the currency in which they are denominated. For example, bonds issued in US dollars is known as Eurodollars. How Eurobonds Work. Anyone in need of foreign-denominated borrowings for a specified time can offer Eurobonds at fixed interest rates. Private organizations, international syndicates, and the government can offer them. The buyers or investors of these Eurobonds are generally large companies, banks or financial institutions. The interest is calculated annually, and the principal amounts paid at the maturity date. Ghana offered her first Eurobond in 2007 to the tune of $750 million, asking investors to lend that amount with the promise of paying it back in 10 years with interest. Bonds were issued through the Bank of Ghana, while the government received the cash amount in the form of a loan. The general popularity of Eurobonds is because of its ability to be a financing tool. They offer a high degree of flexibility. For governments, it’s usually an immediate, long-term finance option. An investor considers several factors when looking at which country to target for Eurobonds, e.g. favourable interest rates, a stable market, local regulations, or the presence of likely investors. These can all play a role in the decision. Ghana’s Eurobonds, present and past. I’m sure you’ve already read or heard that Ghana issued a $3 billion Eurobond. It just means we accepted a $3billion loan from outside. The Finance Minister, Ken Ofori-Atta, indicated in the 2019 Budget Statement that the government had the intention to do this. What is worthy of mention is that when we asked for $3 billion, we got offered an impressive $21 billion and we still only accepted $3 billion. The extra offers made room for lower rates and better terms of engagement, as will any bargaining scenario when the demand for what you offer is high. Also note that we issued not one but three bonds with three different maturity periods (payback times). So, we’re going to pay back the $3billion in installments, with each installment having it’s own terms and conditions. The maturity period for the first installment payment is 7years at a rate of 7.875%, the second is 12years at a rate of 8.125%, and the third is 31years at a rate of 8.950% which will be repaid in the year 2050. Ghana has never issued a 31year bond. We have issued Eurobonds seven times in our past; 2007/$750million/10year, 2012/$1billion/12-year, 2014/$1billion/12-year, 2015/$1billion/15-year, 2016/$750 million/5-year, 2018/$1billion/10-year, and again last year 2018/$1billion/30-year. The benefits of all of these depend on how the government invests the proceeds of these bonds. Eurobonds are issued in dollars. They are therefore exposed to foreign exchange risks, which can dramatically and quickly affect returns. For example, if the cedi depreciates against the dollar, the government will have to collect more taxes to translate into dollars or even borrow some more to pay our foreign creditors. Mismanagement and misallocation of funds will only harm the economy even more. And the IMF Cautions Us. Though we’ve broken up with the IMF, they seem to still slide in our DM’s with a message or two every now and then. A bond issued is a loan. The IMF cautions that, with all these monies coming in, we have to pay back sometime so if we don’t invest it well to generate growth and repayment capacity, then there will be a debt crisis on our hands later on. I have always stated that mismanagement is the biggest issue our nation ever faces. Of late the World watches Ghana. The macroeconomic data validated by the international community now points to a promising future. While the global bond markets secretly scrutinised Ghana, we left the IMF and planned for $3billion in Eurobonds but got offered seven times that ($21million). That’s like leaving your spouse and suddenly getting 21 messages from other suitors the next day after announcing the breakup, but you expected about just 3 IM’s. That means you’re hot! Ghana is looking very hot right now and the IMF is saying we face a debt vulnerability risk if the proceeds of these bonds are not managed properly. The IMF is absolutely right. Nonetheless, this increased scrutiny and attention by the international community and foreign investors have the power to strengthen macroeconomic discipline and move transparency and structural reforms forward. Because the people in whose praise we are now basking are watching us keenly. If we intend to court them further, then Ghana must manage her affairs properly. We must do away with corruption as much

Entrepreneurs and market institutions rely on accurately forecasting future correlations between the Ghana Cedi and the United States Dollar to an alarming extent. We do this in order to better structure pricing, for optimal asset allocation, risk management, to secure better return on investments, etc. A volatile exchange rate becomes a major obstacle to peak economic growth and performance. Nobody likes that. Many a time have many of us chickened out of potentially lucrative deals because we feared or were almost assured the Cedi would take an unexpected beating at some point in the timeline. Nobody likes that too. On a macroeconomic level, it signals a red flag for foreign investment and international trade. The relationship between two countries can be largely influenced by the union of their currencies on the forex market. And like in any typical real-life union, one has more power than the other. The dominating currency – and everyone knows which of the two that is – establishes the value of the weaker one. But neither can exist alone because the demand for the stronger one is what gives it its value. And so, a bond of co-dependence is born. At a time when Ghana is weaning off of international aid, delicately inching more and more towards international collaboration and partnerships, it needs to establish a robust economic atmosphere. It is important to study the past and recent behaviour of the Cedi with the US Dollar for the betterment of the future of Ghana. Correcting the exchange rate system could solve some problems like trade imbalances and slow growth. Inappropriate exchange rate policies in the past have negatively affected imports, exports, investments, technology transfer, and ultimately economic growth. See that paragraph you just read? Sounds like I have some major key that could connect the dots and patch the cracks in our forex policies huh? At present in this feature article I do not. I find it essential to keep reminding readers that this is an opinion piece. I am giving to my best ability a very unbiased, independent statement of what is, or how common-sense dictates things should be. I only state facts, with very little theory. And the FACT today is that our present and incoming exchange rate policies are essential to the success of the implementation of the macroeconomic overhaul strategies of the current government. Fun Fact: The name Cedi is the Akan translation for “cowry shell”.  These shells in itself were not native to Ghana but were brought to Ghana by Arab slave traders and merchants, with origins in the Indian Ocean. And the cowry isn’t only associated to Ghana, not at all. The Chinese even used cowry shells or copies of the shells as currency for over 3000 years. OK now let’s go back, way back. Ghana at the time of independence Kwame Nkrumah was a widely popular figure pre-independence and when he led the nation out of colonial rule in 1957, the nation Ghana created its own currency through the new monetary authority, the Bank of Ghana. She called it the “Ghana Pound”. It followed the same methodology as the British denomination, keeping to units such as pound, shillings, and pence. From 1957-66, the Ghana Pound was fixed to the British Pound, which the Bretton Woods System approved. It was pegged at ¢2=£1, with adjustments being made only to settle any fundamental balance of payments disequilibria. So, keeping to a fixed exchange regime at that time was consistent with the thinking of the colonial era. Ghana had no control over the foreign exchange markets, which back then was in the hands of a few commercial banks. It was back in 1965, with a desire to conform to most of the world, that Ghana opted to leave the British colonial monetary system and adopted the widely accepted decimal system. And that was when a new currency was born, the currency we know now: THE CEDI. Nkrumah’s days in power were short-lived. His government was ousted in 1967, and so was his newly introduced currency. The name stayed, but because Nkrumah’s portrait was printed on those notes, a new cedi was introduced, literally. New times called for a new currency, or so they thought at the time. The New Cedi (N¢), as it was called, replaced the previous one at a rate of ¢1.20=N¢1.00. The post-Nkrumah era Ghana faced numerous leaders over the coming next decades. The country’s terms of trade worsened during the 1960s and the value of the cedi continued to fall. From 1967-72, my very best friend the IMF (read my last article to be in on this pun, then read the article before that article to be in on that pun) experimented with a flexible exchange rate. Successive governments ended up raising the cost of imports and consumer prices. By the 1970s the cedi was in big trouble. Its low value meant that any foreign currency could then be exchanged for plenty cedis at any time, much like the black market for dollars in recent times when the cedi’s value takes a dive. So, Ghanaians, especially those at the border, would smuggle minerals and produce like cocoa and others across the border to Togo, Burkina Faso and Côte d’Ivoire. They would trade and come back with CFA Francs (let’s call it Cefa as my mum still calls it). This cefa would be exchanged on the black market for the “plenty cedis” I just spoke of and they’d make huge profits. Illegal cedi operations through smuggling and other means became so widespread as the cedi continued to be weak. It got so bad that that by 1981, on the black market, you could get almost ten times the official rate value of the cedi. The era of Living Presidents I don’t think it would be appropriate to iterate the cedi’s performance under any living president. For one, that information would be easily attainable. Also, it has become such that the facts of our currency within these periods cannot