‘Dutch disease’ evident in Ghana, cedi to lose 13% value in 2012 – CEPA

A yet to be released report by the Centre for Policy Analysis (CEPA) has revealed signs of the Dutch disease in Ghana’s economy.

The Dutch disease is normally found in oil-rich countries where there is the increase in exploitation of natural resources and a decline in the manufacturing sector.

CEPA’s report, Ghana Economic Review and Outlook 2013 and the Dawn of the Dutch Disease, says the so-called Dutch disease is in “evidence” in Ghana’s economy.

“This shows itself in the increasing loss of international competitiveness of exporting and import-competing activities in the non-oil sector; and loss of factors of production into oil-related subsectors of the services sector; and the consequent slowdown in the tempo of activity or growth rates and threat of rising unemployment,” the policy think tank said.

Ghana started producing oil in 2010, and the commodity has become the nation’s lead driver of the economy.

In the short- to medium-term, the remedy against the unfolding Dutch Disease is to focus on reducing the costs of doing business and increasing productivity in Ghana, CEPA advised.

The report, which will be launched October 25, 2012 in Accra, also made some important findings.

It observed that the currency crisis has been brought under control.

“Over the first half of this year, the cedi lost about 20% of its value against the US dollar in the foreign exchange markets. It stabilized somewhat between July and August, reaching a peak of GH¢1.9565 per US dollar in late-August, and thereafter gradually gained in value to the current GH¢1.8938 by mid-October,” the report stated.

Barring any adverse developments, CEPA has projected an end-year rate of GH¢1.85 per US dollar.
For the year as a whole this would mean a cumulative loss in the value of the cedi by about 13%, it added.

CEPA attributed the weakening of the cedi in the first half of the year to largely “political business cycle, a characteristic of democracies around the world which is also observed in the Fourth Republic of Ghana.”

It largely manifests itself in election years, resulting in loss of macroeconomic stability continued loss in the value of the cedi and rising inflation, CEPA argues.

By Ekow Quandzie

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