Did anyone notice the graphical line in the mouth of the tiger having a downward direction?
The credit crunch problems are wide-ranging, with a multiplier effect that goes beyond the non-availability of credit. The issue is that credit drives an economy and it has been a useful tool in economic growth and expansion. Ghana may have been spared the direct impact of the global stock market scare but it could still experience a significant economic downturn in 2009 because of the following:
Financial aid flows will be affected due to fiscal stresses. The political choice between bailing out local factories in rich countries versus sending out aid overseas will often favour the domestic constituency. Collapsing financial flows will be disastrous for emerging markets relying on foreign money and foreign direct investment, but will only indirectly affect the poorest countries. A recent visit to a Local Bank in Ghana to try and access a mortgage loan attested to the above statements hence being my first point. Although one may be qualified for a mortgage, local banks are having difficulties in raising cash for these loans. Private funds and foreign banks which have been the source of such cash have no more to give out, especially to financial institutions outside their country.
Remittances are a major channel through which the financial crisis will affect emerging countries. Barriers against both legal and illegal workers will affect labour flows and remittances. This will hurt countries which have heavily depended on remittances. A relative in the USA who used to work 5 days a week, is now on shift so her company can cut down labour costs. This means that the little dollars which were sent down and boosted my purchasing power will now be reduced if not stopped.
Less exports. A global downturn will see a fall in demand for exports from the developing world; therefore, this will lead to lower growth. Exports from developing countries like Ghana are normally in their raw state and serve as supplies for industries in the developed countries. Lack of credit facilities and cash will thus force such industries to purchase fewer supplies and with a fall in demand for our exports, the prices will thus fall. Remember that our cocoa and currently non-traditional exports like pepper and tomatoes are perishable. Ghanaian exporters must therefore sell their produce at whatever price they can get or throw it into the garbage.
An overview of the Ghanaian economy shows that the country is currently looking at multinational corporations establishing companies in Ghana, or purchasing local ones. With no cash available, its very unlikely that there will be any huge take-overs, which my make the socialists happy, because the state wont sell anymore of it’s assets. But for the corporate world, it would mean that expansions would be delayed, and prospective institutions looking at raising capital will have to wait. To be more specific, what will be the impact of this on the Ghanaian banks? Most Ghanaian banks do not meet the new required capitalization as announced by Bank of Ghana last year, hence will have to raise capital to compete in the banking sector. Where will they get the cash other than merge? For financial institutions who will be looking at raising capital on the stock exchange like Ecobank Transnational Inc., I guess the picture looks gloomy, because stock prices of bigger banks in USA are costing cheap, $2 hence it will be better buying those that yours. This contributed to ETI not being able to meet it’s intended capitalization.
Aside all these and many more economic conditions I guess the fact still remains that with the adverse effect of the Credit crunch cookie on huge companies like Gateway broadcasting Services, Citi Group, Barclays Bank, Standard Chartered bank plc, Nokia, Caterpillar and many more, the fight against rising inflation will be more difficult in coming days than ever. Most of these multinationals provide services to their Ghanaian consumer and with reduced cash leading to a reduction in production, goods available for supply will obviously be less than the ever growing demand. Will Barclays Ghana be forced to cut down expenditure by their parent company, which has laid-off some staff already? Will the competition which led to Satellite television costing cheaper be gone?
Finally, a question to friends who owned shares in mutual funds.. the last time I checked the EPA¢K, it had moved forward from -2% to -5%. Mutual funds with huge funds will be the most hit in the country because of the fall in the global markets. In their quest to minimize risk by diversifying their port folios and investing on foreign markets, the mutual funds have eaten some credit crunch cookie plus the Piccadilly they chewed. Stocks on global markets hv fallen and yet they can’t disinvest else they loose.
My only prayer now is that the new National Pensions Act, 2008 be passed so we have an increase in the internally generated funds. For a country like Ghana, our lack of developed structures may become a blessing because pension funds will now be diversified and with asset managers being made to invest majority of the funds in Ghana, we’ll surely get some cash in the system. Cash in my pocket is the motivating factor behind my long note, and the fact that my male friends will also get some cash for the coming valentine’s day, and my sisters will also get a gift of their worth. Thanx for reading...i appreciate it!!!
