Central bank spin
Michael Dynes
Fifteen months away from making its debut as Africa's newest oil producer, the West Africa state of Ghana, which has been struggling to contain roaring budget and trade deficits - and a collapsing currency, begins a new era this month when Kwesi Amissah-Arthur takes the helm as governor of the Bank of Ghana
As one of the architects of Ghana's 1980s economic revival, and a deputy
finance minister under former strongman President Jerry Rawlings,
Amissah-Arthur, 58, is no stranger to economic challenges - although his
experience in monetary policy matters is a little thin on the ground.
Amissah-Arthur takes up the role of central bank governor at a time when
Paul Acquah, his predecessor, largely succeeded in containing an inflationary
spike set in motion by the twin food and fuel spikes unleashed in 2008, and
subsequently augmented by the global economic downturn, during which the local
cedi currency lost 38 percent of its value.
Inflation peaked at 20.5 percent in June, one of the highest rates in Africa, but
fell to 19.65 percent in August, and is now likely to continue falling to around 18 percent by
the end of the year. This is some way off the central bank target of 12.5 percent for
2009. But for businesses, large and small, struggling to cope with base rates at
18.5 percent, expectations are that rates will start to decline during 2010.
How Amissah-Arthur tackles the inflation genie will be watched closely by
the markets. But he must also move to reassure those same markets that the
knock-on impact of Nigeria's banking crisis will not have adverse impact on its
smaller neighbour.
The decision in August by Lamido Sanusi, governor of the Nigerian central
bank, to declare five of Nigeria's 24 banks technically insolvent or in danger
of becoming so, had immediate reverberations in Ghana. Six of the country's 27
banks are Nigerian, and two of those, Intercontinental and Oceanic banks, were
on Sanusi's danger list. A seventh, Access Bank, had the misfortune of
inaugurating its presence in Accra on the very day that Sanusi sacked the CEOs
of Nigeria's five "failing banks".
Fortunately for Acquah - and his successor, no one panicked. The Nigerian
banks in Ghana are subsidiaries, not branches, and they are subject to
significantly more stringent regulation by the Ghanaian financial authorities
than has been the case with the banks in Nigeria. There has been no run on the
Nigerian banks in Ghana or even any noticeable increase in withdrawals -
including from Intercontinental and Oceanic.
Nevertheless, the Nigerian crisis was a wake-up call for Ghanaian financial
regulators. Like Nigeria in 2005, Ghana is currently undergoing a bank
recapitalisation exercise. All banks will now be required to hold reserves of at
least 60 million cedis ($40m) by December 2009 for foreign banks, and
December 2010 for domestic banks.
But this is only the beginning. Ghana has 27 banks, compared to Nigeria's
24. Ghana has a population of 23 million, compared to Nigeria's 140 million.
Ghana has too many banks, and Amissah-Arthur must find a way to reduce their
number, and before the revenue from the fledgling oil sector begins to arrive at
the end of 2010.
