Desperate times call for desperate measures. Just like we, Ghana is currently facing the twin problems of serious shortages of dollars and precipitously depreciating currency.
And like we, some Smart Alec within the administration of President Nana Akufo Addo stumbled on a solution not too dissimilar to our idea of buying oil from the Gulf in shillings-namely, the famous oil for credit deal.
In Ghana, they have come up with what is known as ‘gold for oil’. The government has hammered out a deal where Ghana will use its gold, instead of dollars to import oil.
I have seen a clip showing vice president Ghana, Dr Mohamudu Bawumia, lauding the new idea and saying that - implemented as envisioned- gold for oil policies will fundamentally change the country’s balance of payments and significantly reduce persistent depreciation of its currency with the associated increases in fuel, electricity, transport and food prices.
“This is because the exchange rate (sport or forward) will no longer directly enter the formula for determination of fuel. Electricity and food prices.”
I will be following the situation in Ghana keenly to see whether ‘gold for oil’ will succeed unlike in Kenya ‘oil for shillings’ has not stemmed the depreciation of the local currency against the dollar.
Bereft of new ideas, African leaders are groping all over the place with madcaps and untested notions. Lately, they have all joined the ditch-the-dollar campaign by calling on African governments to sign up with Afrieximbank’s so-called Pan African Payments and Settlement System (PAPPS).
The questions we should be asking are as follows: Is it feasible to graft a currency onto disparate groups of countries with wildly different economic and balance of payments conditions?
How many AU member States still impose capital controls and how many have fully convertible currencies? How much of Africa’s trade happens with other African countries?
Have we forgotten the fact that the ditch-the-dollar issue is basically about the settlement of trade surpluses? How do you settle what doesn’t exist?
Here in Kenya I still don’t understand the fascination with the idea of floating a ‘Sukkuk’. Admittedly, we have been priced out from the conventional and mainstream financial markets.
It makes sense to try borrowing from the Gulf and target loads of dollars sitting with rich sovereign wealth funds in places such as Saudi Arabia, UAE and Iraq.
I gather that the government has moved with alacrity and convened a committee, which is being coordinated by the Capital Markets Authority to work on modalities of floating a Sukkuk.
Yet we all know Sukkuk investors unlike bondholders under a Eurobond framework only lend you money against property and physical assets, which you must surrender to own through the period of the tenure of the loans.
Which is why I ask, which public assets are we planning to surrender to these Arabs?
Then there is the issue of the legal framework for the disposal of public assets. I gather that the Sukkuk committee is not able to progress because they have realised that they are yet to see a path of dealing with the properties and public assets to mortgage without risk breaching both the Privatisation Act and the Public Procurement and Disposal Act.
From what I gather, the matter has now been referred to the Attorney General. I read somewhere that it took South Africa more than three years to issue its first sukkuk.
Whether the Sukkuk committee will deliver within this financial year remains to be seen. The government has very big dollar bills to pay.
In a sense, the fact that we are chasing these Sukkuk deals with so much alacrity is a sign of an emerging trend.
When you look at our external debt registry, you will be struck by the sheer number and preponderance of second-tier European banks- that appears today on the creditor’s ledger.
These are the types falling in the category of what one might describe as belonging to the periphery of the global capital markets.
It seems to me that we will be borrowing more and more from these types. And it seems to me that regional banks- the likes of Trade Development Bank (TDB) and Afreximbank will be major players.
It used to be the case that these regional banks’ main mandate was to facilitate regional trade among private sector entities within their shareholders and member states.
As you examine our external debt register you will notice that these regional lenders are jumping onto the syndicated loan bandwagon, cutting big deals that allow them to earn fat fees from sovereigns who are also their shareholders. Isn’t this a case of mission creep?
The writer is a former managing director of The East African.
