General

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

Let’s have a non-mathematical analysis of remittances. As usual, let’s stick to the facts. This is an opinion piece. I want to chat with you. I mean you can’t talk back but keep reading anyways. I don’t want boring statistics getting in the way of our conversation. And that’s what my column features are intended to be; conversations with you on whatever topic we decide to dissect. Today: An Independent Autopsy Of Remittances. We can leisurely describe remittances as domestic income that flows in from foreign economies resulting from locals moving to those foreign economies, whether permanently or temporarily. So, the parent in the States that send you a couple dollars for your upkeep? The shoes your friend schooling outside sent you as a birthday gift? The money that your relative abroad keeps sending to the family to build that big house that after 4 years and 400 money transfers that new house hasn’t even reached foundation level? Yup, those are all remittances. Pretty simple, right? Last year alone, Ghana bagged Three Billion United States Dollars’ worth of remittances. That’s $3,000,000,000 with nine zeros. To put that into perspective, within the whole of 2016 Ghana received foreign aid of $2.9 billion. Our non-traditional exports (NTEs) earnings in 2017 was $2.6 billion. And in 2018, the combined GDP’s of the Republic of The Gambia, the Republic of Seychelles and the Kingdom of Tonga was just about $3 billion. Yes, Tonga (officially the Kingdom of Tonga) is a real country. Let’s stick to the facts. This is an opinion piece. Very technical definitions of “Remittances” get very confusing. So, I turned to my very best friend for clarification: The International Monetary Fund (read my last article to be in on it). The IMF split remittances into two: “Compensation of employees” and “Personal transfers”. For Ghana, the “compensation of employees” would include income of migrant workers that will eventually leave, like say the Naija guy with a work permit, and locals employed by the embassies, foreign companies, international organisations etc. Basically, it’s the income of any foreigner who has a short-term job, or any Ghanaian with a job from a foreign company (IMF BPM6, 2009: page 272). “Personal transfers” (IMF BPM6, 2009: page 273) would encompass any transfers in cash or in kind made or received by Ghanaians here to or from those Ghanaians abroad. What that means is that if Uncle Borga sends down money from Germany, it’s remittance. If you pay the fees of your ward studying abroad, it’s also remittance. The not-so-obvious part of these two halves of the definition is this. If the Naija guy on a work permit in Ghana gets paid, he or she is not sending all the money overseas to family. There will be necessary living expenses and there will be chilling before something goes outside, but the FULL INCOME is counted as remittance. Also, the salaries of the Ghanaians employed by the embassies and the transnational companies are technically remittances even though those workers not foreigners nor are they transferring the monies anywhere. So technically, it should be clear that remittances might not necessarily have to be across borders; it can be within Ghana, technically. And there’s also this thing called “Social Remittances”. To explain that much easier, replace the cash or kind part of our definitions so far with all the knowledge, and values, and social and policy reforms, and innovative ideas and new technological skills that go from one end to the other. I just thought I should toss in that definition for good measure. We are still sticking to the facts. This is an opinion piece. There are about a quarter of a billion people (250,000,000) around the world living outside their home country. Immigration isn’t a fresh topic. The tales of leaving Ghana to seek greener pastures outside isn’t an unfamiliar tale. However, the scale of this at the turn of the 21st Century has been upturned. As far back as 2011 the number of Ghanaians in the diaspora was estimated to be 4 million people. Today, 8 years later I would have to copy-paste a source to confidently guess that number because things have changed. Ghanaians are more than ever moving back home and more willing to contribute to the national economy. The figures associated with our Remittances will only get bigger. In this current “Ghana Beyond Aid” era, I believe any fiscal avenue that pulls in such numbers independent of foreign involvement should warrant a closer look in addition to carefully placed structures that are curated to facilitate a boom under the proper economic climate. $3 billion is a lot of money. The millions of Ghanaians earning outside is a lot of people. Ghana’s economic targets “without aid” is one heck of a gargantuan ambition. The government has vocal on calls for the Ghanaian diaspora for get proactive in nation building. Vice-President Dr. Mahamudu Bawumia has previously said “It doesn’t matter if you’re a billionaire walking on the streets of America as a Blackman, they will see you no different from anybody walking on the streets of Africa, and so the emancipation of the people of African descent lies in the emancipation of Africa”. Aside the fact that I am pretty sure Jay Z and I would be viewed and treated and paparazzied differently on the streets of Bakersfield California, he is 100% correct in my opinion. The TRUE emancipation of the people of African descent lies in the emancipation of Africa herself. Ergo, the stock value of the Borga declines concurrently with a depreciation in stock of his homeland, which to many many whites, is just one big country called Africa. Fun Fact: August 2019 will mark the arrival of the first documented Africans from our continent to English America to be sold as indentured servants or involuntary labourers, a.k.a., slaves. We definitely are sticking to the facts. This is still 100% an opinion piece. Remittances are one of the most significant and tangible contributions of migrants to their home