An Economist for Global Markets at Stanbic Bank, Mr. Ayomide Mejab, has advised local businesses on the need to hedge against the volatility of the cedi.
Speaking in Accra, he said, the cedi, one of the most volatile currencies in Africa has made it difficult for importers and local businesses to predict the standing of the local currency in the foreseeable future.
He said though most businesses in Ghana are new to the concept of hedging they can adopt it as a precautionary measure which would help them significantly.
Mejab indicated that, there are different types of hedging but the easiest is the simple forward where the local business can actually buy dollars on a forward basis – it can be for 30 days, 60 days or for a year and hedged at a price linked to today’s rate.
Giving an example, he said if the cedi is trading at US$1 to GHC4.30 today and businesses predict that the rate could change to GHS4.60 in October, it would be prudent to buy the dollar now on forward basis, which would then be delivered to the business in October but at the rate of US$1 to GHS4.30 at which it was bought.
By this scenario, the business would have hedged its position which will allow it to keep its cost price stable and thus may up its selling price of the product to reflect the currency thereby earning more money or the business could keep its selling price unchanged while competitors raise theirs and with all things being equal, this would translate into an increase in the market share of the business, he stated.
Mejab said, the two main drivers of the cedi broadly have been commodity prices and oil production as well as foreign investor sentiments.
On the commodities, there are three main namely; cocoa, gold, and oil. Oil and gold prices on the world market are expected to improve against last year’s sluggish market. Oil prices last year averaged US$45 per barrel, while experts are predicting higher prices especially as the commodity is already trading at US$50 per barrel on the average.
Ghana’s export volumes are expected to increase in the light of the TEN field coming on stream to compensate for the low production figures from the Jubilee field due to the fact that it faced some technical challenges and operations are expected to shut down for up to 12 weeks this year.
Though gold and oil production figures look positive, cocoa on the other hand may not bring in the expected cash as lower production figures are expected, leading to a lower syndicated loan and ultimately less dollars flowing into the economy, Mejab stressed adding that for investors, that is a sign to smile about as this could keep the cedi stable for a while, probably for the next three months.
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