Ghana must diversify economy to safeguard Cedi stability — Prof Asuming

Economist and University of Ghana lecturer, Patrick Asuming, has warned that Ghana cannot rely on short-term gains in the value of the cedi without implementing deeper structural reforms to diversify the economy.

Speaking on Joy FM’s Super Morning Show while discussing the recent depreciation of the cedi, Prof Asuming said Ghana had managed to stabilise some financial pressures in the short term but remained vulnerable due to its heavy dependence on gold exports.

According to him, concern should arise when the local currency begins to suffer sharp and sustained losses within a short period.

“If we begin to see so much pressure on the currency that, within a short period, we experience massive losses, then you begin to worry because that is when things get out of control,” he said.

Prof Asuming explained that recent stability in the cedi had largely been driven by fiscal and monetary measures implemented by authorities.

“We’ve done part of what we could do to make the currency stable. We’ve implemented the short-term measures,” he stated.

He noted that short-term currency movements are often influenced by financial flows, speculation, monetary policy and fiscal interventions.

“Those have been somewhat stabilised,” he added.

However, he stressed that the long-term strength of the cedi would depend on Ghana’s balance of payments, export performance and the level of diversification within the economy.

“But over the long term, movements in the currency are determined by what happens on our balance of payments account,” he explained.

“That is how much we are exporting, how much we are importing, and how diversified our export base and economy are.”

Prof Asuming argued that Ghana had not done enough to build a resilient economy capable of withstanding external shocks.

“In terms of making the economy more resilient, sustainable and diversified so that our exports become less susceptible to global shocks, I think we have not done much yet,” he said.

During the discussion, he acknowledged that rising gold prices and increased gold exports had contributed significantly to the recent appreciation of the cedi. However, he cautioned against overdependence on a commodity whose price Ghana does not control.

“Our exports have risen sharply — the highest we’ve seen in a long time,” he noted.

“But what you have to understand is that it is still heavily reliant on the price of gold, which we do not control and which is extremely volatile.”

He warned that although Ghana is currently benefiting from favourable global gold prices, the situation could change rapidly if prices decline.

“We are enjoying the upside of that volatility. But if conditions we do not control change and gold prices begin to fall, then the vulnerabilities will return,” he said.

Prof Asuming called for urgent efforts to diversify the economy and reduce dependence on raw commodity exports.

“I think that is where the importance of building a diversified economy and ensuring our foreign exchange earnings are not overly dependent on gold becomes critical,” he stressed.

He also identified value addition as one of the key solutions to Ghana’s economic vulnerability.

“It all comes down to value addition,” he said.

According to him, countries that process raw materials into finished or semi-finished products generally enjoy more stable prices on the global market.

“Statistically and historically, the prices of higher value-added products are more stable than those of primary commodities,” he explained.

Using gold as an example, Prof Asuming said Ghana could earn more foreign exchange and create more jobs by processing more of its raw materials locally rather than exporting them in their raw form.

“So even if gold prices are high today, you are still better off adding value,” he said.

“So you produce more jewellery and other finished products. In that case, you create more jobs and generate more diversified sources of income.”

He added that the same strategy should be applied to cocoa and other raw materials exported by Ghana.

“That should not apply only to gold but also to all the raw materials we export, including cocoa,” he said.

Prof Asuming maintained that building a stronger and more diversified economy remains the most effective protection against future currency instability.

“I think building a more diversified and robust economy is the surest way to protect the currency against the volatility we continue to see,” he said.

He added that value addition would not only strengthen the economy but also create employment opportunities and improve resilience against global economic shocks.

“The person who takes raw gold and adds value earns more, and the prices of those products are less susceptible to swings in the global economy,” he explained.

“At the same time, you create more jobs locally and make the economy more robust.”

المصدر: MyJoyOnline (GH)