Why The Cedi Rises & Falls


A group of Ghanaian Economic Intelligence officers, have revealed the causes and effects of the Ghana’s currency; the Cedi against its major trading currencies, especially the United States dollar, the Euro and the Pound Sterling of the United Kingdom (UK). They talked about the ineptitude on the part of Bank of Ghana (BoG) to monitor huge foreign currencies abroad.

According to them, “the drain on the country’s foreign exchange appears to us to be the main cause of the depreciation in the Cedi. This problem has been occasioned by the following: GIPC – Technical, Management Services and Technology Transfer Fees, Foreign Direct Investment (FDI), Mining Companies & Retention of Export Proceeds and Timber Companies Migrating into the Free Zone”.

For instance” …whilst the Scancom actual transfers amounted to $146 million, the BoG figures showed a paltry $24,920,562.76 below. Grave problems exist in the management of Public Records even in this 21st Century of massive Technological changes.”

These officers, The Herald gathered have advised Governments including that of Jerry John Rawlings, John Agyekum Kufuor, John Evans Atta Mills and presently the John Mahama administration on the challenges facing the Cedi and what could be done to block its freefall that leads to the increases in prices of goods and services, especially fuel prices.

In their opinion, “If there is such a serious liquidity crunch, then the drain of foreign currency could NOT be laid at the door of the selfsame importers with bulging warehouses. The reason therefore for the currency depreciation lies somewhere else – mainly we believe of massive unchecked and unregulated drain of the country’s foreign currency unmatched by any visible production or of financial inflows which could be traced to the vast amounts of foreign currency payments made abroad”.



The currency of any nation is evaluated for strength or weakness vis a vis other international currencies. The appreciation or depreciation of that currency is the relationship between the local currency and the designated foreign currency available to the economy. The more local currency in the system backed by less foreign currency the higher the exchange rate is versus the local currency.

In the present situation in Ghana (1st Quarter 2014) it would appear therefore that there is more local currency within and outside the Ghanaian banking system in relation to the supply of foreign currency.

The truth is that importers, merchandisers, contractors and many others face extremely grave cash flow problems due to the simple fact that customers are buying less and less every day, due largely to a general shortage of cash (or liquidity) within the system. This is as a result of Government’s inability to meet its payment obligation to many third party contractors and suppliers of goods and services. If there is such a serious liquidity crunch, then the drain of foreign currency could NOT be laid at the door of the selfsame importers with bulging warehouses. The reason therefore for the currency depreciation lies somewhere else – mainly we believe of massive unchecked and unregulated drain of the country’s foreign currency unmatched by any visible production or of financial inflows which could be traced to the vast amounts of foreign currency payments made abroad.

The drain on the country’s foreign exchange appears to us to be the main cause of the depreciation in the Cedi. This problem has been occasioned by the following:

– Technical, Management Services and Technology Transfer Fees
– Foreign Direct Investment (FDI)

❷ Mining Companies & Retention of Export Proceeds

❸ Timber Companies Migrating into the Freezone

In the past few days, however, the Governor of the Bank of Ghana has announced a number of measures to halt the free fall of the Cedi. This has generated a number of reactions both for and against. They include, among others, the following:

● A number of new regulations to control the operations of the Forex Bureaus

● Cash withdrawals over the counter from foreign exchange and foreign currency accounts to be permitted only for travel purposes and not more than US$10,000 or its equivalent per person per travel

● Abolishing of cheques or cheque books in foreign exchange accounts and foreign currency accounts
● Commercial Banks not to contract or guarantee offshore loans for their customers

● MDAs banned from quoting and pricing items in foreign currencies

● Release of $20 million to meet the pressing demands of some sectors of the economy.

The existence of the situation which the new measures now seek to reverse have been there for a long time without the cedi seeing the massive depreciation it is currently going through. The reasons lie somewhere else. The following come readily to mind.


There has been a systematic abuse of this practice over the years. GIPC has approved vast Transfers of monies for companies ranging from large Telecom Companies, through Banks, Supermarkets and even IZWE Loans. All these monies, once approved, are transferred directly by the Dealer Banks without recourse to any oversight by the Bank of Ghana. A number of the Agreements which approved the transfers have been studied and found to be short of the standards to be met in line with LI 1547. Some of the conditions precedent include that

:- Where a technology transfer agreement contains any of the clauses specified in this paragraph or contains a clause the effect of which is the same as or similar to any of the said clauses, that clause shall be inapplicable and unenforceable –
(a) clauses transferring technology which is freely and easily available in Ghana;

There are three key components of these Agreements:
● Technical Services,
● Management Services,
● Technology Transfers (which may or may not include the use of approved patents.
Gross abuse exists in ALL these three areas. Put to the strictest proof many companies, either in their formulation or description of the services they intend to obtain overseas usually as parent company support for cannot pass the test yet many obtain approvals and vast sums are computed and amounts approved and regularly transferred. In some cases the period allowed for the operation of these Agreements have lapsed, yet some transfers continue to be made.

There is a further dimension to the Technology Transfer and Technical/management Service Fees being the tax implication in this arrangement. Many companies have flocked to set up one Technical and Management Services Agreement or the other because they use it largely as a Tax Avoidance scheme to lower their corporation taxes by about 10%. Furthermore it reduces dividends distributable to local shareholders and there is a consequential loss of Dividend Taxes payable to GoG.

To illustrate the extent to which a combination of Management/Technical Services and Technology Transfer Fees transferred can look, the table below can be typical.
Management, Technical and Technology Transfer Fees charged by Scancom between 1997 and 2005
Year Description Amount Avg. Exch. USD % inc
1997 Mgmt Fee 495,840,000.00 2,050.28 241,840.14
1998 Mgmt Fee 1,502,167,000. 00 2,314.15 649,122.57 268%
1999 Mgmt Fee 3,339,406,000.00 2,674.03 1,248,828.92 192%
2000 Mgmt Fee 6,192,045,000. 00 5,321.68 1,163,550.80 93%
2001 Mgmt Fee 11,851,434,000. 00 7,321.94 1,618,619.38 139%
2002 Mgmt Fee 24,490,182,000. 00 8,438.82 2,902,086.07 179%
2003 Mgmt Fee 78,691,009,000. 00 8,852.32 8,889,309.13 306%
2004 Mgmt Fee/TTA 281,355,235,750.00 9,051.26 31,084,648.52 350%
2005 Mgmt Fee/TTA 901,979,117,151.26 9,130.82 98,784,021.28 318%
1,309,896,435,901.26 8,936.27 146,582,026.81

The above foreign exchange transfers (for which we believe) need not have been made is not unique to Scancom’s operation alone. Other Telecom Operators and several Transnational corporations and many foreign owned companies are similarly transferring vast sums out of the country for little or no reasons benefitting Ghana whatsoever, except that GIPC had wrongly interpreted the Laws in allowing such transfers and the Bank of Ghana had failed to effectively monitor the operations of the Dealer Banks in respect of these transfers.

Observe also that whilst the Scancom actual transfers amounted to $146 million, the Bank of Ghana figures showed a paltry $24,920,562.76 below. Grave problems exist in the management of Public Records even in this 21st Century of massive Technological changes.

The amounts transferred by some of the companies as captured from official sources, include the following:
GB Pounds US Dollar Euro
ii Standard Chartered Bank LTD 685,733.56 2,200,000.00
iii Barclays Bank Ghana Ltd 16,814,330.42
iv Scancom Ltd 24,920,562.38
v Golden Tulip Hotel 35,258.40
vi Unilever Ghana Ltd 3,173,297.08 400,000.00
vii Mobil Ghana Ltd 849,052.76
viii Milicom Ghana Ltd 1`587500
ix Orica Ghana Ltd 27,229.29
x G.C. Net 1,829,238.59
xi Swiss Lumber Company Ltd 48,496.20
xii Nestle Products 440,882.50
xiii TOTAL 17,500,064.98 33,475,521.00 448,496.20

Indeed massive transfers take place each year through approvals from GIPC and Minerals Commission with little value for money obtained by Ghana. Surprisingly, these transfers which are allowed in the GIPC agreements with the companies, for example, are stated in percentage of sales terms without any audit of the transfers either by GIPC, Minerals Commission or Bank of Ghana. For the period in question, there was no cooperation or coordination between the GIPC and Bank of Ghana, for example, on these agreements and transfers.

Actually, there is a valid and genuine case for charging fees for use of patented inventions, which knowledge base will be transferred to businesses and individuals in the country, and for which Ghana as the ultimate beneficiary allows the user to pay for and transfer in foreign currency to the owner of the patent and charge their books as allowable expenses for tax purposes. But the recipients are required to pay only 15% withholding tax. The same also goes for Management Service Fees.

The admission for the need to do this is provided for under LI 1547 Section 15(b) of Act 592 (as amended) but this has unfortunately created a situation where with either the connivance or out of the ignorance of the relevant staff of Ghana Investment Promotion Centre, the country loses massive sums in transfers out of the country and lost corporate taxes and consequential dividend taxes than should have been the case.

Between 2003 and 2006, eleven companies transferred $35.0 million, Euro 0.54 million and Pound Sterling 17.5 million in respect of Technology Transfer and Technical and Management Service Fees granted by GIPC. Among these eleven companies, three companies transferred during the same four year period some $24.9 million, $3.4million and 16.8 million Pound Sterling on account of Technology Transfer and Management and Technical Service Fees.

Interestingly, very few of these agreements, if any, appear to involve any real transfer of some form of technology to Ghana to be passed on to Ghanaians for future use. A close examination of the services for which Ghanaian subsidiaries of foreign companies were so charged such huge sums of money appear clearly to be, for many of them, the world-wide application of corporate practices and business methods, locally applied to their various endeavours in Ghana. So why do we have to pay for those companies using their own corporate practices to manage their own business?

In the year 2010, GIPC had 35 separate Management and Technical Service and Technology Transfer agreements with about 24 companies with terms ranging from two(2) to generally ten(10) year periods. The companies range from Banks, Breweries, Foreign Chartered Accounting Firms to Shops. Some of them include the following:

Banks/Financial Ecobank Ghana Ltd
Institutions ProCredit Savings and Loans Co. Ltd
Societe General (Gh) Ltd
Metropolitan and Allied Bank (Gh) Ltd
Guarantee Trust Bank (Ghana) Ltd
Metropolitan Life Insurance (Gh) Ltd

Breweries Guinness Ghana Breweries Ltd

Accounting Firms Pricewaterhouse Coopers Ghana Ltd

Shops Shoprite Ghana (Pty) Ltd

Telecom Vodafone Group Services Ltd
Companies Ghana Telecommunications Co. Ltd

Others Fan Milk Ltd Ghana
Ghacem Ltd
Crocodile Matchets Gh. Ltd
Tex Styles Gh. Ltd
Akosombo Textiles Ltd
British American Tobacco Gh. Ltd
Shell Ghana Ltd
International SOS (Ghana)
Ghana Rubber Estates Ltd
Ghana Oil Palm Development Company (GOPDC)

For the period in question, no records of transfers by the above companies could be officially traced but records available on GOPDC, for example, has shown that the company transferred over $10.7 million in Technical and Management Fees from 1995-2009 while Scancom between 1997 and 2005 has charged $146,582,026.80 Management, Technical and Technology Transfer fees.

Records and information available at GIPC show that such Management and Technical Service Fees charged by Scancom as below, included such services as Legal, (which has almost 100% of local content), routine basic computer skills such as the introduction to Staff of Spreadsheet and Presentation application.

Under the guise of introducing trademarks and patents which are technology-based, GIPC approved for Scancom Trade Mark “Areeba”, the use of which attracted and was charged an additional 3½ of Total Revenue. Observe the effect of this “ruse” on amounts transferred by Scancom for the years 2004 and 2005. On account of non-availability of data from 2006 onwards, one can only imagine the amounts the company transferred in respect of Technology Transfers and Trademarks.

The LI 1547 refers to TRANSFER OF TECHNOLOGY and not the application of a commonly used technology in one’s processes and business operations. For example, the use of telephony is different from setting up of a factory to manufacture patented telephony equipment which technology can be passed on to Ghanaians to apply or the invention and use of a special process which gives the transferee a special advantage. Therefore, when no patented technological invention or know-how is transferred or duplicated in its application, no technology transfer is presumed to have taken place.

Oftentimes we hear from Newspapers of Ghana being such a safe and suitable place to invest such that many foreign based companies continually flock in to do business here, If indeed these purported Foreign Direct Investments were actually remitted into Ghana, things could have been different. What pertains at present is that the companies show evidence of the statutory $50,000 minimum capital to qualify for GIPC Certification, and proceed to raise the needed capital for the project from local banks in both local and foreign currency which they use to realize the project without having to repatriate into Ghana the much touted Foreign Direct Investment inflows into the country.

Under the GIPC Act, the capital of the investor is 100% repatriable, so also are Dividends, Technical and Management Service as well as Technology Transfer Fees (if any). If for bringing in hardly any foreign currency a company can be sold to a new investor for foreign currency and all the proceeds repatriated, it comes as no surprise that our foreign exchange situation which backs the local currency will be dire indeed, assisting with the upward surge in the depreciation of the Cedi.

Mining company operations in terms of their requirements to qualify to operate is almost like the other companies, except that in their case, they also have the backing of the Law to keep a certain percentage of the their proceeds of sale outside the country. Sectioin 30 of the Minerals and Mining Act, 2006 (Act 723) says,

30. (1) A holder of a mining lease who earns foreign exchange from mining operations may be permitted by the Bank of Ghana to retain in an external account a portion of his foreign exchange eared, for use in acquiring spare parts and other inputs required for the mining operations which would otherwise not be readily available without the use of the earnings.

(2) The Minister for Finance, in consultation with the Minister acting on the advice of the Commission may, where the net earnings of a holder of a mining lease from the holder of a mining lease are in foreign exchange, permit the holder of the lease to open and retain in an account, an amount not less than 25% of the foreign exchange for
the acquisition of spare parts, raw materials, and machinery and equipment,
debt servicing and dividend payment
remittance in respect of quotas for expatriate personnel, and
the transfer of capital in the event of a sale or liquidation of the mining operations

(3) An account opened and operated under subsection (2) shall, with the consent of the Bank of Ghana, be held in trust by a trustee appointed by the holder of the lease.
(4) Subject to this Act, a holder of a mining lease shall be guaranteed free transferability of convertible currency
through the Bank of Ghana , or
on the case of net foreign exchange holder, through the account opened under subsection (2)
The retention is always something in the neighborhood of 70 to 80% of the proceeds. The companies then proceed to borrow from local banks to support their operational requirements.

Such flight of capital perpetrated by the mining companies also existed in Zambia which has since the past two years, been cancelled on seeing the negative impact on that country’s economy as a result of their mining company operations.

Ghana does need to take a leaf from Zambia’s book and proceed to rein in the capital flight associated with the country’s mining operations.

Suggested Way forward:
In our effort to arrest the fall of the Cedi, Government should seriously look at all existing Agreements. It is suggested that all Technology Transfer Agreements (TTAs) and Technical and Management Agreements (TMAs) should be temporarily suspended to enable Government set up a Committee to review their contents to ensure compliance with existing laws. Also, TTAs and TMAs, whenever applicable, should be stated in amounts but not in percentage terms of net sales or whatever. To eliminate the incidence of illegal transfer of fees by the local company, the transfer of fees should not be done between the local company and its bankers but must be approved by the licensing authority and verified by Bank of Ghana with a possible re-introduction of the A2 Forms.

The Role of Dealer Banks
From April 2007, the Bank of Ghana, under the Foreign Exchange Act 2006 (Act 723) transferred its responsibility of processing transfers of foreign exchange to selected Dealer Banks on behalf of their customers. By Bank of Ghana’s guidelines, these Dealer Banks are to submit monthly returns to Bank of Ghana on transfers made on behalf of customers and for what. There is evidence to show that some of these Dealer Banks do not comply with this directives. Some of these Dealer Banks are themselves beneficiaries of TTAs and TMAs and they transfer, without any oversight verification, what the agreement with GIPC/Minerals Commission has stipulated as percentage of net sales.

It is obvious that without any oversight supervision, especially under a situation where the filling of the former Form A2 has been abolished, any amount of money could be transferred by these Banks on the blind side of the Central Bank and the approving authorities – GIPC and Minerals Commission.

Most of the large Accounting Firms who stand in to protect the shareholder, do not regularly verify Technology Transfer amounts shown in the clients books, as well as correctness of the figures related to Technical and Management Services in line with the relevant provisions under the LI1547 because, we suspect, they themselves are beneficiaries of spurious TMAs.

The Minerals Commission has over the years applied the minerals act by allowing mining companies to retain a large proportion of their foreign export proceeds (about 80% or thereabouts) in foreign accounts. Despite this, the mining companies use the 20% cedi local retention to buy goods from abroad by buying foreign exchange from the Forex Bureaus. This surely defeats the purpose for allowing the mining companies to retain the greater part of their export proceeds abroad. It is very clear that no one checks this practice which is heavily draining our scarce foreign exchange .

Other companies in non-mining sector regularly flout the inward remittance rule. In the case of GOPDC Report we have sighted, the Consultants confirmed that for the period of their Operations of GOPDC, SIAT sa did not, in contravention to the Exchange Control Act remit their sales proceeds inwards; and also that in respect of all their remittances the BoG had no record of how much they had repatriated in fees and other charges.

The Bank advised that due to the liberalized financial regime occasioned by the introduction of the Foreign Exchange Act 2006 (Act 723), the requirement in the past to utilize the Form A2 has been dispensed with. This effectively removes the ability of the BoG and indeed the Government of Ghana to monitor capital flight which can lead to pressure on the country’s foreign exchange position and also to a deterioration in the exchange rate of the cedi to the US dollar and other major international currencies.

Yet another incidence of the drain of the country’s foreign exchange, has been the disturbing practice of the few large timber operators migrating their companies into the Free Zone.

These companies are all operating in Ghana’s forest concessions, holding some 75 to 80 per cent of the country’s productive timber concessions. Observe that all the companies are owned by Ghanaian-born Lebanese operators, who in the 60s obtained fresh loans from the local banks to establish their timber processing companies to work the concessions, were also assisted in the 80’s with massive Ghana Government-negotiated IMF Loan facilities and UK’s Export Credit Guarantee Fund to revamp their operations, and indeed the Timber Industry under the Economic Recovery Programme (ERP).
Previously proceeds from all timber exports were expected to be repatriated in whole in line with the relevant provisions under the Exchange Control Act (2006), Act 723.

The Freezones Act is silent on remitability of Proceeds into Ghana, but is specific on what is repatriable from Ghana such as section 30 of the Free Zones Act quoted below:
30. Subject to this section any enterprise in a free zone shall be guaranteed unconditional transfer through any authorised dealer/ bank in free convertible currency of:
A. dividends or net profits attributable to the investment;
B. payments in respect of loans servicing where a foreign loan has been obtained;
C. fees and charges in respect of any technology transfer agreement; and the remittance of proceeds (net of all taxes and other obligations) in the event of sale or liquidation of the enterprise or any interest attributable to the investment.
Observe that the Act guarantees the operator of remmitability proceeds attributable to the Investment which essentially is the processing of the Forest Resources of Ghana. This is absurd.
Observe again that LI 1834 the Freezones (Exclusions and concessions ) Regulations forbids the granting of timber firms to operate as FreeZone Enterprises thus:
Non-eligibility of some enterprises for grant of free zone license
The Board shall not issue a licence under section 16(1) of the Free Zone Act 1995 (Act 504) to an entity specified in the First Schedule.


timber firms,
Plastic manufacturing enterprises and enterprises engaged in the exploration of extraction of precious metals, gas and crude oil.
Observe finally that all these Free Zone Enterprises whilst not required by law to remit in their proceeds are on the market to purchase foreign currency through their dealer banks for operational and other needs.

It is very sad to state that for lack of coordination and serious monitoring by our state institutions, most timber companies, some of which have been operating in Ghana since the 1960s, have moved into the FREE ZONES. Most of these companies – AG Timbers, Naja David, Logs and Lumber, Ghana Primewood Takoradi, and others have moved into the FREE ZONES with Ghanaian timber concessions as sources of raw materials to feed their factories for export. While this practice is totally at variance with the purpose of the FREE ZONES, these companies produce timber products for export without bringing any proceeds back to Ghana and yet they obtain foreign exchange facilities from local banks to import needed equipment and spare parts.

It is obvious from the above that the cumulative effect of the foreign exchange outflows under the areas described above, most of which need not have been so, can easily cause the shortage of foreign exchange within any country. The combined effect of export proceeds not repatriated, and locally generated funds being remitted outwards (in foreign exchange) for companies ranging from IZWE Loans to MTN and Vodafones of this world can only be imagined . Trading activities being the cause of cedi depreciation is an untenable argument. In reality business is slow and its not even half as brisk to generate such a shortage of foreign currency. The real reason lies somewhere as explained above.

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