Cocoa loan, bond unlikely to revive cedi

As the central bank pins its hopes on the cocoa syndicated loan and Eurobond issuance to break the fall of the local currency, David Brocke, Director, Risk Assurance, of PwC, believes inflows from the two loans, estimated at US$3billion, will do little to assuage the pressure on the cedi.

The cedi has depreciated by 27 percent this year as shortage of the dollar continues to dictate the price at which the greenback is traded.

After several attempts to stem the cedi’s decline yielded little results, the Bank of Ghana is now confident arrival of the syndicated loan and issuance of the Eurobond later this year will help restore some faith in the cedi.

This year’s cocoa loan, which is estimated to be US$1.8billion and the highest Cocobod has raised in two crop seasons, will be used to purchase beans during the 2014/2015 cocoa harvest.

“We anticipate that proceeds from the cocoa syndicated loan and the Eurobond issuance, estimated at almost US$3billion, will provide significant support for the [currency] market in the second half of the year,” BoG Governor Dr. Kofi Wampah said at this month’s monetary policy press briefing.

But Mr. Brocke, speaking at the 2nd edition of the Ghana Chamber of Commerce and Industry’s (GCCI) Breakfast Meeting with CEOs on the theme “Finding Lasting Solutions to the Perennial Depreciation of the Cedi -- Role of the Private Sector,” said the cedi’s historical performance against the dollar doesn’t portend a healthy outlook.

“Given the history of exchange rate movement in this country, I am not sure how much the cedi can recover from its present decline even when the proceeds from the cocoa syndicated loan and the Eurobond are received this year,” Mr. Brocke said.

The Eurobond is expected to be worth US$1billion for 10 years, but could be scaled-up to US$1.5billion if it is over-subscribed at a favourable price, according to the authorisation given by Parliament. The funds will be used for public investment and to refinance maturing debts.

The cedi in the first quarter of the year alone depreciated by 17.5 percent, making it one of the continent’s worst performing currencies against the dollar, alongside the Zambian kwacha.

The central bank quotes the cedi at an official rate to the dollar of 3.0331, while Bloomberg reported the cedi to be trading at 3.5303 on Monday.

Speaking at the forum, Ghana Chamber of Commerce and Industry CEO Seth Adjei Baah said the panacea to the cedi’s slide lies mainly in correcting the widening balance of trade deficit.

Since 2012 Ghana has had consecutive years of double-digit current-account deficits, reflecting the appetite for imports. To reverse the tide, Mr. Adjei Baah said, a conscious approach must be taken to help growth of the manufacturing sector.

“Addressing the issue of manufacturing means that we will be able to produce most of the things we use here. Most of the essential goods we use, 80-85 percent, are imported. If we are able to cure the thirst for foreign goods, the cedi will be able to stabilise.”