Published On: Fri, Nov 27th, 2015

EXCLUSIVE BUSINESS: Falling Cedi drags Ghana exchange down

Ghana cediACCRA, (CAJ News) – THE Ghana Stock Exchange (GSE) is bearing the brunt of the weakening Cedi, which over the months has been losing value against major currencies.

The currency’s value has taken a tumble against foreign tenders as the United States Dollar and the British Pound, much to the detriment of profitability at one of West Africa’s leading stock exchanges, with a cap of US$ 20,17 billion.

GSE, one of the continent’s “younger” bourses which started trading in 1990, is struggling for competitiveness against other African bourses.

As of the time of going to press, the Cedi traded at 3,77 against the US currency.

This year, it has depreciated 26 percent in value against the Dollar.

On a year-to-date basis, the Ghana currency has depreciated by 15,5 percent as of October 2015, compared with 31,2 percent in the corresponding period of 2014, according to the Bank of Ghana (BoG).

Moreover, some foreign currency bureau operators in the capital Accra attributed the sharp decline of the dollar and other major trading currencies to speculation in the market, while others are also blaming the BoG for failing to do nothing to arrest the situation.

In an interview, Accra-based stock analyst, John Opoku, called on the government to support the Ghanaian manufacturing companies by reducing the high tariffs on imports and exports.

“If one changes $100 000 and buys a company listed, in the next six months what is the return one is looking at?” he asked rhetorically.

“The price might not have changed or one would have experience some loses which is the exchange loses which is largely due to the depreciation of the cedi, fund managers representing firms outside Ghana are not buying which means we are not able to see some growth and see any appreciation of
the price that affect the all share index,” said Opoku.

He pointed out that depreciation of the Cedi was an outcome of the performance of the economy.

The International Monetary Fund projected the country’s economic growth would fall to as low as 3,5 percent this year.

In addition, the Ghana Statistical Service’s recent GDP report indicated the economy dropped from $48,6 billion in 2013 to $38,3 billion last year at market exchange rates.

Opoku said the manufacturing sector was currently the worst performing sector on the stock market due to the several taxes government charges.

Manufacturing companies dominate the listings in the 38-company stock exchange.

Therefore, if something can be done to ease the pressure which affect them to reduce their cost of operation ,which is one of the thing the foreign investors are looking at, then their stocks will perform better,” he said.

Opoku noted although the Cedi’s negative rating against major currencies was weighing down manufacturing companies listed on the GSE, its downslide was a blessing in disguise to banks listed on the bourse.

The financial institutions, which are a minority in the bourse, are benefitting immensely.

“The companies we see performing well on the exchange are the banks. This is because whether the economy is good or bad, the banks will always churn out profit depending on what product and what management they have in place. In 2015, at half year, the banks had made profits they accrued in
the whole of 2014,” the analyst noted.

BOG meanwhile absolved itself from the underperformance of the Cedi.

The central bank blamed the prevailing situation on the huge consumption of foreign goods, currency expectations and the structure of the country’s economy.

Ghana currently consumes more foreign goods than local products.

According to data from the Ministry of Trade and Industry, in 2013 alone, the country spent a whopping $1,5 billion in foreign currency on the import of rice, sugar, wheat, tomato products, frozen fish, poultry and vegetable cooking oils, most of which can be produced locally.

– CAJ News

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