https://www.myjoyonline.com/not-the-best-of-times-to-be-ghanaian-making-a-case-for-macroeconomic-discipline/-------https://www.myjoyonline.com/not-the-best-of-times-to-be-ghanaian-making-a-case-for-macroeconomic-discipline/

Everyone should read about the field of neuro-linguistic programming (NLP) - it is quite fascinating. NLP postulates that “logic” and “facts” have nothing to do with how a listener perceives the truism behind a piece of information; what matters is how the information is processed through five categories of filters.

One of such filters is belief system, which includes prejudices and political biases. Sometimes a listener keeps what results in positive emotional state and trashes whatever does not line up with the filtering belief system. This phenomenon is called “Partial Deletion”.

Some of the reactions to Dr Bawumia’s recent speech, “Discipline in Economic Management”, provide a textbook example. The negative retorts have centered around 2 paragraphs of text in which he refers to the ideology of the ruling NDC as “Akonfem Socialism”. Obviously, that assertion can be easily criticized depending on ones political affiliations.

Fortunately, the same cannot be said about the remaining 171 paragraphs in which he painstakingly describes varying levels of economic discipline exhibited by past governments and the marked decline in economic discipline in the post-2008 era. It was factual and logical and yet the naysayers have ignored that whole swath of information --- Partial deletion at work.

The facts should not be simply waved away. Take the Cedi as an example: its performance against all the major trading currencies has been woeful. It has lost 16 percent against the Pound within just six months!

Compare this to the Dirham and the Naira, which have lost only 2 percent and 5 percent respectively (Exhibit 1), and then to the same time period in 2008 when it actually appreciated by 13 percent. This dismal performance also applies to the Dollar and Euro. You may choose to partially delete the above information but it is what it is.

Exhibit 1:

The Cedi’s performance has been one of the worst in Africa over the past 6 months

 

 

 

 

 

 

 

 

 

 

SOURCE: www.xe.com

A 16 percent depreciation of the Cedi, so what?

Let us sidestep the distorting impact of political belief systems by looking at this issue from the perspective of a hypothetical Ghanaian entrepreneur; Kofi Adwumaye. Kofi is honest, law-abiding, and apolitical. This is what he has to say:

“My business model has not changed since 2006 when I began operations. I manufacture handkerchiefs so that folks like you can wipe sweat from your brow. To do this, I import raw materials from a British supplier who is generous with credit. On June 1, we received a supply worth £50,000 and by November 15, we had sold everything. I thought I had made GH¢15,000 profit only to realize that the exchange rate had increased from 3.0079 to 3.3194! I now have to pay the Obroni GH¢16,000 more. All my profits are gone (Exhibit 2). How is this possible when I made GH¢12,000 profit using the same business model just five years ago? If things do not change over the next 8 months I will have to shut down. It might even make business sense for me to get a Nigerian or Kenyan passport and relocate my business there. Unfortunately, with a first name like mine, I guess the chances of that happening are very slim. It is not a great time to be Ghanaian, my friend.”

Exhibit 2:

* Exchange rates are based on BOG Daily Interbank FX rates

Kofi’s situation is much worse than he thinks. He bought his machinery from the U.K. on a finance lease and has a repayment due in 5 months. Who knows what the exchange rate will be by then? 3.9225? He also forgot to include the recent increases in fuel prices (3 percent) and electricity tariffs (59 percent). I can almost imagine his jaw dropping when the accountant informs him that his loss actually stands at GH¢3,546!

An unfortunate businessman goes out of business, why should we care?

We should all care – a lot. Kofi is not going down alone. Let us assume there are 5,000 similar businesses across the country and 10% are forced to shut down. That translates into a GH¢16.6M per annum decline in tax revenues (Exhibit 3). This could have been channeled into infrastructure development and public sector salaries. It also translates into a GH¢8M per annum depression in consumption and savings. Whether you are an unpaid nurse, a market woman struggling to sell foodstuffs at Kaneshie market or a bank struggling to mobilize deposits, you ought to care about Kofi & Co.

Exhibit 3:

The fact of the matter is this: since 2008, Ghana has witnessed continual deterioration across a swath of economic indicators including sovereign ratings, government expenditure, budget deficits, and public debt. Such an untenable trend cannot continue. We need economic discipline now and before you are tempted to partially delete this, try asking Greece and Portugal about their sovereign debt crisis; the consequences of economic mismanagement are vicious and devastating.

I have outlined below a few high-level measures (Exhibit 4), which could help reintroduce stability into the Cedi. Rather than chastising Dr Bawumia, maybe we should solicit his views on additional measures that could help buck the prevailing macroeconomic trends. Afterall, he is the child who just told the Emperor about his nakedness.

Exhibit 4:

Stabilizing the Cedi requires a disciplined implementation of both tactical and strategic measures

[The author is a former finance controller at Wall Street bank, Goldman Sachs]

 

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DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.



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