Graphic Business News

Coronavirus dampens gains from cedi stability

By: Maxwell Akalaare Adombila

IMPORTERS are cautiously excited that the local currency has been holding its own against the world’s major trading currencies but fear that gains from the heroic appreciation of the cedi could be weakened by the global spread of the novel Coronavirus from China.

With China being a major destination for imports to Ghana, the President of the Ghana Union Traders Association (GUTA), Dr Joseph Obeng, said a persistence of the viral disease would slowdown trading activities between the two countries and “significantly” reduce imports from the world’s second largest economy into the country.

Should this happen, Dr Obeng told the GRAPHIC BUSINESS on February 27 that it would “surely” make it difficult for importers to profit fully from the strengthening of the cedi against the US dollar, the British pound, the euro and the Chinese yuan, among others since the beginning of this year. 

Already, he said import orders from that country had slowed down due, largely, to the extension of the Chinese Lunar Vacation period in 2020 and the weakening of tat country’s manufacturing subsector by the viral disease.

Historic appreciation

A stronger currency relative to other currencies makes imports cheaper and strengthens the purchasing power of importers.

After losing about 13 per cent of its value to the US dollar in 2019, the cedi started this year on a bullish note – registering impressive performances against the US currency and other major world currencies – a position it has since sustained.

On February 27, the cedi had appreciated by 4.75 per cent to the US dollar, 6.73 per cent to the British pound and 8.26 per cent to the euro, according to IGS Financial Services Limited, an investment advisory and a pension fund manager.

The cedi traded at GH¢5.29 to a dollar, according to the firm which tracks the performance of the currency on weekly basis.

In a separate interview, an Economist with the fiscal policy think tank, the Institute for Fiscal Studies (IFS), Dr Said Boakye, traced the cedi’s historic strength to strong reserves, the nCoV and a weaker demand for foreign exchange relative to what happens in every first quarter.

Threat to gains

Dr Obeng, whose association comprises traders and importers, explained that while the nCoV was a “major contributor” to the recent stability of the local currency, it was also the biggest threat to the gains that the appreciation of the cedi portends for GUTA members and the importing community in general.

He said for the gains to be reaped, trading activities would have to continue as it often does but with China – Ghana’s biggest importer country, reeling under the nCoV, the fruits of the currency’s appreciation could be dampened.

China was ranked Ghana’s largest importer country in 2018, accounting for about 19.13 per cent of the country’s total imports, according to data from the International Trade Center (ITS) and the World Integrated Trade Solution (WITS), an initiative of the World Bank and the United Nations Conference on Trade and Development (UNCTAD).

The GUTA President said Ghana’s strong reliance on China for imports meant that “anything that affects operations in China will definitely have a ripple effect here.”

“I can confidently say that if the virus continues to spread in China, it will reduce trading activities between them and us,” he said.

Cedi on respite

Boakye, who is also a Senior Researcher at the IFS, said while it was true that the Bank of Ghana had built up more reserves relative to past periods, demand for FX had reduced, giving the cedi respite.

A source in the Treasury Department of one of the foreign banks said his outfit had noticed a decline in demand for US dollars in this quarter relative to previous quarters.

It explained that the nCoV outbreak had combined with the recent issuance of the $3 billion to “ease pressure on US dollar demands.”

“The virus has sort of shutdown things in China and to the extent that Ghanaian importers cannot import goods from China, their demand for US dollars will be lower than what it would normally have been and that is what we are seeing,” the source, the source, who was not authorised to speak, said.

China’s manufacturing sector

A drop in imports from China to Ghana will not be surprising as the Chinese economy is already showing signs of cracks resulting from the virus.

Ravaged by the viral infection, China’s manufacturing sector, which supplies the chuck of Ghana’s imports from the Asian country, has been struggling to cope with the deadly virus, with many firms reportedly closed down and the few in production operating below capacities.

Data from the Chinese National Bureau of Statistics showed that factory activities in the country had hit record lows in February. New orders for February had also tumbled by almost half relative to the month before, according to the data released on February 29.