As we watch but don't learn, toothpick anyone?

E. Ablorh-Odjidja, Ghanadot

February 11, 2014

How interesting the times are.  With the current foreign currency control in place in Ghana, we can't help but reference to earlier times in the 60s.

As Third World nations attained independence in the 50s and 60s, they became vulnerable to a common problem: weak currencies generated by disproportionate demand for imported goods.

At independence, we produced raw material that we sold at prices that we did not control and bought goods at prices that were set for us from overseas. 

How to control the currency flow within the national economy was the dilemma.  And the power to do so at that time in the 60s resided mostly outside our borders.

Those aware of the times of the 60s and their woes would note that certain measures were taken to take charge of the situation and avert the foreign currency woes.

Nkrumah took the lead, among leaders of the then Third World, to link the lack of foreign currency to influences of neo-colonialism. 

Currency controls were put into effect in Ghana.  But in 1965, the lynchpin of our economy, which was the price of our precious cocoa, the biggest foreign currency earner, had a precipitous fall.  Some say the fall was engineered by imperialist forces.

Ghana was the leading producer of cocoa at that time.  However, along our borders were the Ivory Coast and Togo, countries that produced less cocoa than we did yet foreign firms in these countries offered producers higher and better prices for the cocoa. 

The high price offered on our borders caused a rash of smuggling, which also resulted as a drain on our economy.  It was estimated that 20% of revenue that should have come to Ghana from cocoa went to these countries during this period.

The truth was that cocoa price was low in Ghana because the state needed the differential to finance our overall, vital development plans. 

Higher prices from the border countries meant that our developmental aspirations were being hammered from all sides.

Whether the hammering was planned or not, is not the issue here.  But conspiracy theories aside, the lesson was to show how fragile our post-colonial economy was and would continue to be for all times after independence

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The post-independent government of Nkrumah had responded with policies to blunt unnecessary demands on our foreign currency reserves, under the "import substitution" policy in our development plans.

They were for Ghana to produce more and import less.  It resulted in cries of  "lack of essential commodities" like milk and sardine.

 The lack of "essential commodities" was one of the main reasons cited for the removal of the Nkrumah regime. 

Nkrumah was to respond later, in a radio broadcast from exile, that if he knew that "all we wanted were milk and sardines" he could have flooded the whole country with those items.

Many coups and changes of government later and we are still struggling to strengthen our overall currency situation.

Several efforts were made, through devaluations in the past, to strengthen the cedi.  The most significant and probably one that could have been sustainable, with the inflow of the new oil revenue and the extraordinary rises in gold prices, was the one made under President Kufuor in 2007.  

It came at a great cost. But at least, we attained with that act the reality and later, the perception of a strong cedi.   Now, this feat is slowly unraveling.

A currency falls because of several reasons.  Key among these are confidence in the country's economy growth and perceptions about its central bank policies.  Still towering above these two reasons is the one about trade imbalance between countries.

Fact is we still import far more than we export.  Even items like toothpick are imported from China.

Produce more and export less and you could strengthen the cedi.  Add value to your raw material before export. Manufacture the toothpicks, door locks, hinges and other small industrial items rather than import them from China and the cedi will be worth more.

Attempts were made along the lines above to create import substitution industries in Ghana in the 60s.

In the book "Political Independence and Economic Decolonization, the case of Ghana under Nkrumah" John D. Esseks of Northern Illinois University, said state sponsored industries were created, which "amounted to essentially a strategy of competitive co-existence" with aliens firms in the country.

Esseks stated that these state enterprises competed with foreign firms in "banking, shipping, insurance, timber extraction, construction and manufacturing."

And that  "actual nationalization occurred in only two, relatively minor fields: the internal marketing of cocoa and the foreign sale of timber."

These policies were essentially efforts to preserve and strengthen the cedi.  But by the 80s, many of these state enterprises had been wiped out.  The Black Star Lines sank and Ghana Airways went belly-up about a decade later.  State farms and canneries had by then also been sold or closed.

These were industries that were meant to put the brakes on the foreign currency drain.  They became defunct, not because the concept behind them was flawed, but because of clueless management of the underlying principle and the shortsightedness of our ensuing politicians.

Elsewhere, other countries had a better understanding of the neo-colonial plight.

South Korea went through similar exercises in the 60s.  It instated policies in the 70s that saved foreign currency for export promotion and saw rapid expansions in exports of its manufactured goods.

  As Ghana was struggling with the same ideas in 1970,  South Korea's exports "grew 40% times as large as they were in the 50s.", said Jongho Yoo of KDI School of Public Management.

This is not to say that because South Korea did it, Ghana could have done it also.  But it is necessary to point out now that the awareness, the attitude and the ingredient ideas to make it happen were in Ghana in the 60s.  Except, we dropped the ball!

What Ghana lacked was the steadfastness to pursue the idea to its fruition.  In many instances of befuddlement, the penchant for policy interruptions and reversals stopped us from attaining that goal. And now, we are back to another foreign currency control actions, which may or may not work. 

Patriotic reasons must prompt us to accept the idea of foreign currency control.  But the wonder is whether it may not be too late. 

Some fifty years later, the culture for import consumption has set in.  Appetite for the ridiculous importation of non-essential items is now the norm. 

However, more serious is this question:  At the level of rampant corruption besetting the country currently, what chance do we have for success with any new policy?

We ask but suspect that as soon as the new policy bites, internal agencies affected will find new routes to drain our reserves, just like we found the means to compromise our sovereignty in 1966.

E. Ablorh-Odjidja,Publisher www.ghanadot.com, Washington, DC, February 11, 2014.

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