Reduction of Import Duties Would Increase Importers Purchasing Power - ILAPI

Ghana Union of Trade Association (GUTA) deliberation with the President, Nana Akuffo Addo Danquah is a step to buying votes as many critiques keep espousing that view. It is an interposition to safe the Cedi from sinking and again, many others have disputed same. It certainly not a real economic reform to safe the Cedi from depreciating. However, value on imports would reduce to help augment lower cost on consumable products that could further cause the local currency require a life support unit. We say this with upmost frustration because as a country there is no clear cut plans to build and reform the sickening economy.

Ghana and Nigeria account for about 85% of the importation in the whole of West Africa. Both countries import what they don’t produce.

In recent times, the Ghana Cedi has been battling with the Dollar for value. The depreciation that hit the Ghana Cedi has been projected to increase in the future due to high imports over export and the high demand for US Dollars. This and many other reasons caused the Central Bank to inject more dollars to save the fallen local currency. The injection of dollar into the economy is not a new intervention and certainly not a sustainable way to increase the value of any country's currency.

The major root cause of Ghana’s cedi depreciation is the influx of imported goods in the country. However, little has been done to industrialize and produce what we eat as a nation. The Ghana Poverty Reduction Strategy Paper I & II describes Ghana’s economy as one that eats what it does not produce and produce what it does not eat. The problem of importation has long been identified; rather there are little of economic reforms to reduce influx of import in Ghana.

The recent hint by the President of Ghana to reduce import duties is not for economic reforms but vote buying. This is because of the following; First, the high importation on the part of GUTA members is creating the need to demand more dollars to buy imported goods. Therefore, it will seem smart that once import duties are reduced it would reduce demand for dollars since cost for importation would reduce.

The unseen dynamics is that importers are rational, though reduction in import duties will reduce cost of importation, it will also increase importers purchasing power. This will allow importers to buy more goods. Hence demand for dollars will increase or remain same. The unforeseen dynamics will deepen the woes of the Cedi’s value in comparison to the Dollar. The Cedi may seem stable but if we continue on this part we should expect depreciation of the cedi increases against the dollar in the future. Furthermore, it is important to note carefully what kinds of imported goods will enjoy the reduction.

A country that is aiming towards industrialization with One District, One Factory project by the government would need to reform the produce what they consme. It will be much reasonable to allow reduction on the importation of raw materials that are needed by the few producing industries within the country. This will further reduce production cost in the country, and making produced goods within affordable to consumers.

Given the status quo, imported goods at the current duties cost are affordable than most of the locally manufactured goods, hence making it difficult for some local industries to penetrate the market, since most consumers rationally follows the law of demand. Hence at a lower cost more will be demanded by consumers and vice versa.

The government’s move to reducing import duties must be well taught through, if not it will add up to the act of only lobbying members of Ghana Union of Trade Association in the bid to gain their votes for election 2020. Reducing import will downsize revenues and going forward, what are the measures in place to meet the revenue targets? When politics of election and power determines the policy direction, you become more vulnerable to shocks after 6 months.

Source: ILAPI