Bonding with investors is never an easy relationship building so it should never surprise you when in the course of this there are issues, some of damaging nature.
But many seem not ready to accept the problems associated with courting in finance or, perhaps, it may well be that they expect nothing other than success whenever you enter into any financial negotiations – more so when the cash has become crucial to an economy.
Be it as it may, it was still surprising to note a section of the media seemingly gloating over the country’s inability to raise more funds from the international market in the form of bonds.
Eurobonds, which has become a major source of funding for the government since it entered the capital market almost a decade ago, had become a base on which the economic managers were hoping to launch the next wave of economic growth. But now the process is dented and therefore a gear shift is expected.
And the story seems not to be one with a happy ending. After stringently following through economic policies and programmes aimed at instilling fiscal discipline and pruning public finances to eliminate waste and avoidable expenditure, the next wave of action was to bring in check, the highly volatile and negative swing of the country’s currency in international currency trading.
So at the back of this initiative was the need to increase foreign currency inflows to water down the effects of demand-push factors and that, at least in this last quarter, expected receipts from the Eurobond and syndicated loan for cocoa purchases were touted as the game changer. Of course the money would have gone into other areas too.
But something has gone amiss along the way. According to reports, investors have “ditched” the government’s bid to launch its fourth Eurobond, and that the process had “failed”.
In fact, the general feeling among local media is that the government was “forced to abandon the bond issue” because the interest from investors was rather poor, and very much below expectation.
Partly so, but generally the global economic situation, as far as emerging markets are concerned, has not been exciting either.
The expectation is that emerging markets will suffer a net outflow of capital this year for the first time since the 1980s.
The revered Institute of International Finance has indicated that it expects foreign investor flows to emerging markets to fall to just $548bn this year, which is lower than levels recorded in 2008 and 2009 when the global financial crisis was at its peak.
Now the other dark clouds hanging over emerging markets and indeed Ghana is the expected increase in US interest rate…yes US interest rate!
I am sure you may be wondering why that had something to do with Ghana. It really has an awful lot to do with Ghana so let us, first off, look at the view of a local economist, and then we will consider the wider context also.
“In all of these things [Fed interest rate] it will affect the inflows of foreign currency especially the dollar and therefore it means that given the demand of the dollar for the economy our cedi is expected to depreciate even further.
It could be even possible that we have some investors in Ghana who have and are already deciding to take away their investments to the US because the US are paying higher interest rates or even investors in the US who wanted to invest in Ghana can decide not to do so because they will decide that the US is the place to invest”, an economist and a lecturer at the University of Ghana Business School is reported to have said.
Simply put, and in the larger context, what the Americans believe is that hampering growth is the stronger dollar, which makes exports and import-competing industries less competitive, and therefore policy initiatives must aim strongly at mopping up more funds from within, hence the likely interest rate hike in December or early next year.
In fact, the influence of the US in the direction of the world economy is not lost on many.
Christine Lagarde, IMF managing director, has already warned that emerging nations were facing further economic slowdown, possibly for the fifth consecutive year and that an increase in US interest rates could all, but make the conditions worse.
“Flows to emerging markets have weakened sharply in volatile market conditions and a jump in risk aversion,” Charles Collyns, the chief economist at the Institute of International Finance has also reportedly said.
“We now project overall negative flows for the first time since the emerging markets concept was first devised in the late 1980s,” he added.
Collyns’s perspective is also influenced by the fact that “there are increasing concerns about a slowdown in emerging market growth, amplified by rising concerns about China and continuing uncertainty about Fed lift-off,” and that “the factors holding back flows will be persistent, implying a protracted drought rather than quick relief.”
What this means, back home, is that the current economic posture globally does not support a favourable issue of Eurobonds and that three successful issues over the years in no way guarantee future success. With maturity profiles of October 2017, August 2023 and January 2026, Ghana currently has three Eurobonds outstanding, as follows: US$531 million, US$1 billion and US$1 billion respectively.
Parliament in July 2015 approved a request by the government to raise an amount of US$1.5 billion and as earlier stated, it was meant to form part of the economic stabilisation efforts this quarter.
Now as the process has stalled, what next? Well, it is indeed a big worry as the government has always maintained its commitment to move away from short –term- quick- fixing loan deals and therefore the European Bond Market would have offered a better respite.
But as this deal is off, at least for now, a gear shift is what is expected and the announcement about the next line of action must be made now and not later because negative speculative interest could drive down sentiments further, which could conversely affect economic prospects.
Truth is, investors are always bargain-hunting and therefore when the prospects improve, they will come back.
By: Bernrad Otabil