Business24 Newspaper (Aprll 22-2020) by Business24 Online

EDITION B24 | 33

WEDNESDAY APRIL 22, 2020

Virus’ impact threatens GETFund’s GH¢1.2bn allocation MORE ON PAGE 3

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Resumption of domestic flights delayed

BoG freezes dividend payment to banks’ shareholders

MORE ON PAGE 3

Moody’s revised outlook puts strain on financing efforts BY NII ANNERQUAYE ABBEY

The decision by credit rating agency Moody’s to revise Ghana’s outlook to negative further puts a strain on the country’s quest to seek additional external financing for its widening deficit, caused by the COVID-19 outbreak, Prof. Peter Quartey, Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, has said. While fiscal authorities in the country were left mulling over how to remedy an GH¢8.7bn revenue shortfall in the wake of the novel coronavirus outbreak, the rating agency last Friday dealt a blow to the possibility of the government securing additional external financing, on top of help received from the IMF and World Bank, to plug the hole.

Haruna Iddrisu, Minority Leader, calls for more cash to sustain Ghana’s economy postCOVID-19

Although not surprising, the change in Moody’s outlook for Ghana limits Finance Minister Ken Ofori-Atta’s external financing options as he works to salvage the economy.

US$5bn needed to revive economy post-COVID-19 —Minority Leader MORE ON PAGE 5

ECONOMIC INDICATORS *EXCHANGE RATE (INT. RATE)

USD$1 =GH¢5.6896*

EXCHANGE RATE (BANK RATE)

USD$1 =GH¢5900.*

*POLICY RATE

14.5%*

GHANA REFERENCE RATE

15.12%

OVERALL FISCAL DEFICIT

7.8%*

PROJECTED GDP GROWTH RATE PRIMARY BALANCE. AVERAGE PETROL & DIESEL PRICE:

1.5% -1.1% OF GDP GHc 5.13*

INTERNATIONAL MARKET BRENT CRUDE $/BARREL NATURAL GAS $/MILLION BTUS GOLD $/TROY OUNCE CORN $/BUSHEL COCOA $/METRIC TON

28.08 1.75 1,698.80 329.50 2,368

COFFEE $/POUND:

+5.70 ($108.30)

COPPER USD/T OZ.

220.15

SILVER $/TROY OUNCE:

16.39

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WEDNESDAY APRIL 22, 2020

NEWS/EDITORIAL

Editorial: 1,024 infections! 1

Wash your hands 2

Cover your cough 3

If you are sick, wear mask Brought to you by

LIMITED Copyright @ 2019 Business24 Limited. All Rights Reserved. Editorial Team Dominic Andoh: Editor Eugene Kwabena Davis (Head of Parliamentary Business & Commodities) Benson Afful (Head of Energy & Education) Patrick Paintsil (Head of Maritime & Banking) Nii Annerquaye Abbey (Online Editor) Marketing Alexander Lartey Agyemang (Business Development Manager) Ruth Fosua Tetteh (Dept. Business Development Manager) Gifty Mensah (Marketing Manager) Irene Mottey (Sales Manager) Edna Eyram Swatson (Special Projects Manager ) Events Evelyn Kanyoke (Snr. Events Consultant) Finance/Administration Joseph Ackon Bissue (Accountant)

The rapid spread of the coronavirus (COVID-19) in the country requires that citizens, religious bodies, and businesses follow directions given by government and health care professionals so we can contain this disease and ultimately win the fight. The increase in the number of infection from under 10 barely a month ago to 1,024 should be a cause for concern. The healthcare crisis in Italy, Spain, UK and

US should serve to as a warning for us. We don’t want to get to the point where doctors will have to decide who dies and who lives based on the available facility. In the hardest-hit European countries like Italy and Spain, citizens and businesses went about their daily routine even when the first case of COVID-19 pandemic was reported in those countries, ignoring warnings by the WHO and their home governments. Today, there is huge pressure on

public health care systems in these countries. Large spaces have had to be converted into a temporary health care facility to cater for the growing number of infections. Despite massive public education about the disease, some recalcitrant members of society are putting all of us at risk by not observing the prescribed precautions. Densely populated make-shift markets are a worrying sight. Despite the best efforts of the security agencies to enforcement the restriction on

movement in the affected parts of the country, some persons have just thrown caution to the wind. Business24 will like to entreat everybody that this is a global health threat that threatens our very existence as a people and the existence of businesses. It is imperative that we listen to what authorities have to say, obey what we are told and live to see tomorrow.

Moody’s revised outlook puts strain on financing efforts According to Prof. Quartey, the revision by Moody’s, which only in January had changed Ghana’s outlook to positive while affirming the B3 rating, did not come as a surprise, urging that fiscal authorities must work hard to restore the economy to its pre-COVID-19 state. He argued that while the change in outlook was necessitated by the pandemic, government’s response will give an indication as to how long the outlook will persist. Prof. Quartey added that one way of mitigating the tightening external financing conditions would be for government to ensure fiscal prudence and be ready to make a justification for every pesewa spent in the fight against the COVID-19 crisis. Already, Finance Minister Ken Ofori-Atta has indicated that the 5-percent-of-GDP budget deficit rule in the Fiscal Responsibility Act is likely to be suspended, with a deficit of 6.6 percent of GDP envisaged to be realised this year. Courage Martey, an economist at Databank, an investment banking firm, warned that the government could face a possible downgrade of its ratings if it is not able to manage the crisis well. “There is a possibility that the next time they review our rating, we might be downgraded. And when

that happens, external financing is likely to be harder for us than it was last year and this year,” he said. “The current situation is an extraordinary situation and the market will understand if we suspend fiscal restraints to correct the situation. But we should be looking to reinstate all these restraints as quickly as possible in order not to lose investor confidence in our commitment to fiscal sustainability,” he added. Negative outlook Moody’s last Friday affirmed Ghana’s long-term local and foreign currency issuer and foreign currency senior unsecured bond ratings at B3 and changed the outlook to negative from positive. According to Moody’s, the decision reflects the rising risks, ultimately emanating from the coronavirus outbreak, to Ghana’s funding and debt service, with financing beyond immediate official creditor emergency support looking increasingly vulnerable. The outbreak has caused an unprecedented shock across a wide range of global sectors, markets and regions. Ghana, Moody’s said, is particularly vulnerable to these shocks, due to high reliance on external financing both in local and in foreign currency, and very weak debt affordability. “However, while financing pressures are rising, they are not yet acute, and Ghana has emerging strengths that

were previously reflected in the positive outlook assigned in January this year. Should Ghana pass through the crisis with a contained weakening in debt, liquidity

and external metrics, those growing underlying strengths could be expected to dominate the profile once again,” the agency said.

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Virus’ impact threatens GETFund’s GH¢1.2bn allocation BY EUGENE DAVIS

The coronavirus crisis could present a threat to the budgetary allocation to the Ghana Education Trust Fund (GETFund), which was set at GH¢1.2bn for the current fiscal year based on the 2020 Budget. Parliament in March approved the formula for this year’s distribution of the fund, which remains an important vehicle for key investments in education, particularly the provision of educational infrastructure, in Ghana. According to the report of the Committee of the Whole on the distribution, the amount will enable the GETFund Secretariat disburse monies to designated areas of the education sector. However, the GH¢1.2bn allocation may be threatened given the current situation the country finds itself in battling the scourge of the

Dr. Matthew Opoku Prempeh, Minister for Education. Resources for the GETFund, an agency of his ministry, could be lower than initially projected due to the effect of the crisis on government revenues.

coronavirus, which has affected the government’s revenue and expenditure projections. The government expects to lose GH¢2.5bn of budgeted non-oil tax revenue, including a shortfall in GETFund levy receipts, due to the coronavirus economic shock. Only last Friday, Parliament

approved a US$1bn emergency loan from the International Monetary Fund as part of measures to mitigate the economic impact of the virus and shore up the budget. Parliament’s distribution report also bemoaned delays in releasing monies allocated to the GETFund, a situation that affects execution of

plans in the education sector. The Committee of the Whole asked government to ensure that accruals to the Fund are released timeously, as required by law. The Committee also indicated that the capping of the earmarked funds, pursuant to the Earmarked Funds Capping and Realignment Act 2017, poses a major challenge to the operations of GETFund, as the policy continues to significantly reduce monies that should conventionally accrue to the fund. The distribution of the GH¢1.2bn allocation, according to the report, comprises debt service reserve (GH¢192m), debt service account (GH¢493m), tertiary education (GH¢225m), second cycle education (GH¢106m), Ministry of Education (GH¢86m), and Members of Parliament to undertake emergency projects and

monitoring (GH¢26m). The fund’s plans for the year include completion of ongoing projects and payment of arrears, construction of new facilities across all sectors of education, construction of kindergarten facilities, and regulatory and policy reforms. The fund will also disburse monies to the Students Loan Trust Fund, provide scholarships, and procure teaching and learning materials for schools. The report said the fund’s structure of spending for the year will support and achieve the following: expansion of access to education, improvement of quality education, and closing the social and spatial gaps that tend to generate inequities in the education sector, especially at the pre-tertiary level in mostly deprived and hard-to-reach communities.

Resumption of domestic flights delayed • Port Health asks for time to implement safety protocols • Losses to exceed US$3.7m BY DOMINICK ANDOH

The planned resumption of domestic flights by domestic airlines starting Tuesday, April 21 has been delayed, as Port Health authorities race to implement safety protocols in all regional airports serviced by the operators. Africa World Airlines (AWA) and Passion Air had planned to resume operations after being grounded for weeks as part of measures to help contain the coronavirus (COVID-19) pandemic. The grounding of domestic operations, Business24 analysis show, cost the two airlines an estimated US$3.7m in lost revenue. The two airlines subsequently issued tickets in preparation for the flights

but had to cancel them following confirmation from Port Health, which is under the Health Ministry, that additional safety protocols on-ground, other than what had been agreed on at a meeting and safety advice from IATA, are now being implemented and staff have been assigned at various regional airports. Business24 sources say the additional safety protocols being implemented may involve a period of quarantine for those who travel by air between regions. Following the lifting of restrictions on movement announced by the President on Sunday as well as other safety guidance documents received from the International Air Travel Association (IATA), Africa World Airlines announced that starting Tuesday, April 21 it will operate one daily roundtrip flight each from Accra to Kumasi and Tamale, with additional destinations and frequencies to be

Any passengers with body temperature detected above 37.3C will be referred to health authorities for further examination. Wearing of nose covering for all passengers will be required during the flight. All passengers, crew and staff will be required to undergo hand sanitisation at the point of boarding the aircraft. announced in due course. “These flights will operate with the highest levels of safety protocols, which will include mandatory thermal screening and hand sanitisation for all passengers and staff. Furthermore, all passengers will be required to wear their own nose covering (either a face mask or a scarf/cloth covering) during the flight, and will be seated so that no passenger other than a child below 12 years is placed in an adjacent seat. Passengers unable to comply with these requirements will be denied travel,” Africa World said in a statement.

PassionAir, also in a statement copied to Business24, said it was happy to announce “the resumption of our flight operations effective Wednesday 22 of April, once daily to Kumasi and Tamale.” Airlines pre-planned safety protocols Domestic airlines, in preparation for resumption of flights, had instituted various safety protocols to guide their operations. All passengers, based on the protocols sighted by Business24, are expected to be subjected to thermal screening at check-in.

Additionally, all staff that interact with passengers will be required to wear surgical masks and gloves. The gloves must further be sanitised regularly when handling passenger documents. No food/beverage service will be conducted on board the aircraft to minimise contact between passengers and crew. In complying with social distancing requirements, passengers will be assigned seats so that no person is assigned a seat immediately adjacent to another passenger—with the exception of children under 12 travelling with an adult.

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WEDNESDAY APRIL 22, 2020

US$5bn needed to revive economy postCOVID-19—Minority Leader BY EUGENE DAVIS

The country will need US$5bn or more to put the economy on the road to recovery after the coronavirus pandemic, Minority Leader Haruna Iddrisu has suggested. Ghana’s legislature last week approved the US$1billion Rapid Credit Facility (RCF) from the International Monetary Fund (IMF) to support the country’s efforts to tackle the pandemic and its economic repercussions.

supporting ailing companies, arguing that companies are struggling to pay workers and may go bankrupt.

GH¢5.5bn, GH¢1bn will be used to finance the electricity subsidy announced by the President. The remainder of the cash will be employed towards expenditure outlined in the 2020 Budget.

“Per the country’s tax laws, companies are required to file their tax returns by end of April, but naturally they will not be able to do so; are we granting them tax amnesty in order to extend the duration for companies to be able to file their returns and file accordingly their tax obligations to the state?” he wondered.

According to the Minority Leader, the US$1bn RCF is not adequate to confront the country’s economic challenges.

The purpose of the IMF’s RCF is to provide rapid and concessional financial assistance to low-income countries facing an urgent balance of payments need, without ex-post conditionality.

“A billion dollars is just not going to be enough for post-COVID. For Ghana’s economy to recover, I estimate that the country will need not less than five billion United States dollars just for the management of the Ghanaian economy in terms of loss of revenue arising out of it,” he told Parliament when members approved the facility.

Out of the US$1bn loan, which is equivalent to

The government intends to use the funds to help

close the financing gap that has been created by the pandemic as a result of shortfalls in revenues and additional expenditures to fight the COVID-19 pandemic. However, Mr. Iddrisu advised the government to not narrow the utilisation of the funds to budget support,

but to consider providing some of it for balance of payments support, since this “will affect the cushioning of the cedi” given the pressures on the exchange rate arising out of the current challenges. He also government adequate

urged the to detail plans for

The coronavirus outbreak has hit Ghana’s economy hard, and even though government has lifted the partial restrictions on movement of persons, which has allowed businesses to bounce back, economic growth is still expected to fall sharply to 1.5 percent, the lowest in almost four decades.

BoG freezes dividend payment to banks’ shareholders Bank of Ghana has told banks and specialised deposit-taking institutions (SDIs) not to make any payment of dividends to shareholders, in a move to ensure banks are well placed to handle the effects of the COVID-19 pandemic. The central bank had earlier instructed banks to obtain its approval before paying dividends to shareholders, as it wanted to be satisfied that the paying banks were not relying on COVID-19 liquidity reliefs to the sector to pay shareholders. But the central bank’s latest statement released on Monday, April 20, directed banks and SDIs to suspend the declaration and payment of dividends until further notice. “To further ensure that banks and SDIs are better able to support their customers throughout the COVID-19 pandemic, [and] to absorb any potential operational losses for banks and SDIs from the pandemic, the Bank of Ghana now directs that all banks and SDIs desist from declaring or paying any dividends or distributing reserves to shareholders, and from

making any irrevocable commitments regarding the declaration or payment of dividends to shareholders, until further notice,” the central bank said. The central bank explained that “for the avoidance of doubt, shareholders in this context mean holders of Common Equity Shares (CET1) and Additional Tier I (AT1) capital instruments of banks and SDIs. All banks and SDIs are to take note of the above directive for immediate compliance.” The banking industry last year made a profit after tax of GH¢3.31 billion, representing a 37.7 percent growth compared with the 12.5 growth recorded in 2018. The higher increase in the net income in 2019 was on the back of significant increases in both net interest income and fee and commission income outstripping the growth in operating expenses. Other measures The Bank of Ghana last month, after its routine monetary policy meeting, announced a raft of measures to help banks cope with the pandemic as well as

Dr. Ernest Addison, BoG Governor, wants the banking sector to take up a dominate role in jumpstarting the economy post-COVID-19

position them to support the economic recovery. The primary reserve requirement was reduced from 10 percent to 8 percent to provide more liquidity to banks to support critical sectors of the economy. This effectively extended the previous targeted reserves for SMEs under the enterprise credit scheme to all critical sectors.

Also, the Capital Conservation Buffer (CCB) for banks of 3 percent was reduced to 1.5 percent to enable banks to provide the needed financial support to the economy. This effectively reduced the capital adequacy requirement from 13 percent to 11.5 percent. In terms of provisioning for loans in the “Other Loans Especially Mentioned” (OLEM) category, it was

reduced from 10 percent to 5 percent for all banks and SDIs as a policy response to loans that may experience difficulty in repayments due to the slowdown in economic activity. However, provisioning norms for loans in all other categories were maintained. The bank explained that this should provide capital relief to banks and SDIs in these uncertain times.

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Fairtrade certified producers in W/A support their communities to fight COVID-19 Fairtrade Certified Producer Organisations in Ghana and Côte d’Ivoire are supporting the fight against COVID-19 by providing their members with personal protective equipment and sanitary items, as well as helping to create public awareness in their communities. In Ghana, cooperatives like Asunafo North Farmers Union, West Akyem and ABOCFA cooperative have embarked on a series of sensitization efforts in their communities to help prevent the spread of the disease. In Cote d’Ivoire, cooperatives have also embarked on education campaigns partly with support from the Conseil Café Cacao. Asunafo North Farmers Union is a finalist of this year’s Fairtrade Awards, award winner of the 2019 Most Formalised Cooperative of the Year for the Ghana Cocoa Awards and a beneficiary of Fairtrade’s West Africa Cocoa Programme. The cooperative on Friday 10th April donated cash and sanitary items to the Municipal Health Directorate

of the community in the Ahafo Region of Ghana. The cooperative also donated items and a cash amount to the municipal office for the National Commission on Civic Education to be distributed to the communities around Asunafo. The cooperative did this partly with funding from Tony’s Chocoloney and Mondelez’s Cocoa Life. Tony’s sponsored the cooperative with funds that supported the purchase

of 1200 pieces of 200ml sanitizers and 1375 pieces of 500ml of liquid soap. The union itself also sponsored with 250 gallons with a tap that allows for fetch water, and 600 bottles of 500ml liquid soap both for hand washing. This soap is locally produced by the community. For their part, the cooperative provided these items with funds from their Fairtrade premium. In addition, Asunafo

cooperative donated some of the items to members of the union to be given to individual farmers for use in their homes. The cooperative has a total of 8,108 members spread across 67 communities. This gesture is a preventative measure aimed at sensitizing the farmers on the disease. The farmers were also given educational materials in the form of posters and a demonstration of handwashing to help sensitize their communities and other fellow farmers. Asunafo North Farmers Union also sponsors a local radio talk show on Success FM which started in 2018, to educate farmers on good agricultural practices and allows them to call in with questions. In recent times, due to the global pandemic, the radio show now focuses on educating farmers on preventative measures against the corona virus disease, sensitising them on measures to keep safe and helplines to contact. The radio station reaches some 25,000 listeners across the

area. Speaking on behalf of the group, Mr. Daniel Amponsah Gyinayeh, President of Asunafo Union, said: “As a farmer cooperative, we are very concerned about our members and their welfare. We are also in our own way joining forces with local health authorities to create more public awareness and education. We are grateful to all our partners and supporters who have made it possible for us to reach out to communities as part of our contribution to helping prevent the spread of the disease”. ABOCFA is a Fairtrade certified cooperative that deals with both organic and inorganic cocoa. The cooperative has also reached out to its members by donating soaps, hand sanitizers and other sanitary equipment to the members of the society. The cooperative has more than 900 members, and supports its members through various initiatives.

SMT Ghana launches the Volvo’s CareTrack Telematics System SMT Ghana has launched the Volvo CareTrackTM telematics system for remote monitoring of Volvo machines for increased productivity and business value.

reporting, activity warnings and remote diagnosis, this technology will help Volvo dealers and machine owners to identify and resolve machine problems quickly and proactively.

The new technology will help Volvo machine owners to remotely monitor machine location, fuel consumption and time for next service.

Mr. Alex Dutamby, Managing Director at SMT Ghana, also added that this innovation is timely for our customers operations in this information-driven world. This will lead to better site management, leading to cost savings and timely completion of projects. CareTrackTM will help in enhancing machine uptime through better control over equipment usage.

Mr. Leonardo Aguiar, Technical Director at SMT Ghana, said that SMT will provide CareTrackTM equipped as standard on most of its construction machines. He explained that using GPRS / GSM (mobile network) to send information, this new technology will enable users to track the location of their machines, fuel consumption, speed and hours of operation, as well as the time for the next service. The data on the machines will be available securely and instantaneously from any remote online connection. Employing fault

The major benefits of Volvo’s CareTrackTM telematics system include: Increased safety as it allows customers to ‘lock in’ the machine in a geographic area where it should operate; Control of service--customers get service reminders and service history of their machines; Higher productivity--Make informed

owners to upgrade to enjoy the full range of benefits available with remote monitoring.

decisions using CareTrack’s reports on parameters such as liters of fuel consumed per hour, percentage of machine work vs percentage of machine idling, etc. to increase fleet productivity; Data availability--easy access to machine data enables customers to effortlessly co-ordinate equipment usage processes, preventive maintenance and refueling.; and Better control when renting--customers are always aware of the location and usage of their machines. With data on

machine worked hours and fuel usage, invoicing is also greatly simplified. As a part of this initiative, SMT Ghana in partnership with Volvo will make the CareTrackTM telematics system available as standard on certain models of newly produced machines hydraulic excavators, wheel loaders, articulated haulers, and motor graders. It will be delivered to customers free of charge, with a 3-year CareTrackTM customer activation, which will enable

Established in 2010 in Belgium, SMT today provides a broad range of advanced products, services and solutions for the transport and infrastructure sectors across Europe and Africa. Reinforced by the operational agility of its dedicated sales and service network, SMT works in partnership with its customers, delivering value to improve their performance and support their growth. SMT Africa, subsidiary of SMT Holding, is present in 25 countries in Africa, with 15 local entities. Based in Accra with subsidiaries in Tarkwa, Tamale and Kumasi, SMT Ghana is the official distributor for Volvo Construction Equipment, Volvo Trucks, Volvo Penta, SDLG range of equipment and Dongfeng Trucks in Ghana.

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Tullow Oil Plc appoints Rahul Dhir as CEO Tullow Oil plc (Tullow) has announced the appointment of Rahul Dhir as Chief Executive Officer and an Executive Director of the Group. Mr. Rahul will take up his appointment from 1 July 2020 and Dorothy Thompson, currently Executive Chair of Tullow, will return to her position as Non-Executive Chair after a limited period of handover. Rahul brings extensive leadership experience in oil and gas to Tullow. He is currently CEO of Delonex Energy, an Africafocused oil and gas company that he founded in 2013. Under his leadership, Delonex has delivered low-cost drilling and seismic operations along with leading social and environmental performance in sub-Saharan Africa. In Chad, the company has achieved material exploration success and discovered substantial oil resources. Delonex has also delivered exploration campaigns in Ethiopia and Kenya where Delonex operates Block 12A with

Rahul Dhir

Tullow as a nonoperating partner. Prior to establishing Delonex, Rahul served as Managing Director and CEO of Cairn India from its IPO in 2006 until 2012. During Rahul’s tenure, Cairn India delivered operated production of over 200,000 barrels of oil per day with operating costs of less than $5 per barrel of oil. Cairn India also successfully delivered over US$5 billion

of development projects including the world’s longest heated pipeline at a finding and development cost of less than US$5 per barrel of oil. Rahul started his career as a Petroleum Engineer, before moving into investment banking where he led teams at Morgan Stanley and Merrill Lynch, advising major oil & gas companies on merger and acquisition and capital market related issues. Rahul is a UK citizen and

was educated at the Indian Institute of Technology (BTech), the University of Texas (MSc) and the Wharton School (MBA). Dorothy Thompson, Executive Chair of Tullow Oil Plc, said: “I am delighted to welcome Rahul to Tullow and am very pleased that he has accepted the position of CEO. His oil & gas, financial and African experience combined with his record of strong leadership made

him the stand-out candidate for the Board. I look forward to Rahul joining Tullow in July and working with him closely in the coming years.” Rahul Dhir, Chief Executive Officer-designate of Tullow Oil plc, also stated that: “I am very excited at the opportunity to lead Tullow and re-establish it as an iconic company in our industry. The company has high-quality assets and great people. It also has a unique position in Africa, built on a proven track record of responsible operations, strong relationships and a commitment to sustainability. I am looking forward to working with the team and the Board to re-build an exceptional business.” Tullow is a leading independent oil & gas, exploration and production group, quoted on the London, Irish and Ghanaian stock exchanges (symbol: TLW). The Group has interests in over 70 exploration and production licences across 15 countries.

Moody’s gave Ghana negative outlook: COVID-19 the Bad Boy? - Prof. John Gatsi has worsened revenue prospects of the economy, suspended the fiscal responsibility framework and demonstrated in the past few weeks that the country is resource hungry and “debt aggressive”.

BY PROF. JOHN GATSI GATSI On Friday, 17th April, 2020, while Ghanaian authorities were assessing the performance of the measures put in place to deal with COVID-19, Moody’s, a credit rating agency, released a report that maintains the rating for Ghana but revised the outlook from positive outlook to negative outlook.

We cannot blame COVID-19 for the historical economic out-turn but the pandemic has seriously affected the prospects of the economy and the negative outlook can be squarely blamed on coronavirus pandemic.

The negative outlook signals low confidence and uncertainty about repayment capability of the Ghanaian economy going forward. This is negative news. This is a negative development as the same Moody’s revised upward from stable to positive early this year. Do we blame this on COVID-19 pandemic? It depends on the appreciation of economic data. The revised and finalised economic data for Ghana showed uninspiring pre2020 economic data that reflects negative primary balance, low international reserve,low revenue compared to expenditure. Also, 2019 showed very

However, there is a regulatory principle in credit rating that rating agencies ought to measure actions being taken by economic managers in a crisis rather than rating comments, which will rather worsen the ability of economic managers of countries. high fiscal deficit and deteriorating debt to GDP ratio, general liquidity challenge and cost of tradable bonds moving up the yield curve. Above all, the fiscal deficit implied a clear abandonment of the fiscal responsibility act as the upper ceiling statutory deficit level cannot

be complied with.

uncertainty surrounds us.

The 2020 revised projections presented the economy as a fragile framework to investors and rating agencies. The appetite to grab funds everywhere and eat in the same bowl of hitherto weak economies crying for debt relief tells an ordinary observer that

The point, already known, is that rating agencies use both historical data and prospects of the economy to do their evaluation. Hence, the economy was already attracting bad rating comments before COVID-19. But can we blame COVID-19? Yes. Why? Because COVID-19

Moody’s should have focused on the efficacy of measures taken especially when the difficulties in repayment are known. This way, the rating decision will fairly accommodate the measures adopted by the economic managers.

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Ethiopian Cargo Deploys Its Advanced Pharma Wing In the Global Fight Against the COVID-19 In response to the growing demand for air cargo services following the spread of COVID19, Ethiopian has been deploying its massive cargo capacity to facilitate the flow of essential cargo such as medical supplies wherever they are needed. The state-of-the-art Pharma Wing of Ethiopian Cargo & Logistics Services, which is housed within the largest trans-shipment terminal in Africa, has been central to the airline’s effective handling and shipping of medical supplies across Africa and beyond. Equipped with temperature controlled pharma handling storage covering an area of 54,000 sq. m, the Pharma Wing is suitable for handling medical supplies in different temperature ranges through the use of active containers and real-time temperature monitoring system. Dedicated and trained staff stationed at the facility ensure that all operations are carried out in line with the rules and regulations of IATA and other regulatory bodies throughout the supply chain.

Commenting on the critical role of Ethiopian Cargo & Logistics Services and its facilities amidst the pandemic, Ethiopian Group CEO Tewolde GebreMariam said: “Ethiopian Airlines has been a key enabler in the global effort to conquer COVID-19 by facilitating the shipment of life-saving medical supplies to different

parts of the world. We feel privileged to serve the world in this difficult time deploying our state-of-theart Pharma Wing as well as our cargo and passenger fleet. Now that Addis Ababa is designated as Humanitarian Air Hub by WFP and WHO owing to our advanced facilities, vast network of 127 international destinations

and fleet, we will further bolster our efforts as the leading air cargo service provider in Africa.” Currently, Ethiopian Cargo & Logistics Services is transporting an average 1.4 million kg of temperaturesensitive healthcare products monthly including medicines, biologicals,

biotechnologies, diagnostics, vaccines and medical devices among others. It is to be recalled that different UN Agencies, donor governments and philanthropists are using Addis Ababa as a hub to distribute medical supplies across Africa as part of the global effort to contain COVID-19.

Institute of Directors supports members in COVID-19 fight The Institute of Directors, Ghana (IoD-GH) in recognition of the severe socio-economic challenges associated with the COVID-19 pandemic, has put in place measures to help its members mitigate the negative impacts of the widespread respiratory disease. The interventions include the development of an online platform to enhance the use of virtual mediums in conducting business, involvement of academia, faculty and students in research projects that seek to discuss the long-term effects of the pandemic on businesses, enterprises and organisations. The President of the Institute, Rockson K. Dogbegah, expressed a sense of satisfaction with the way most of the directors and CEOs, who constitute their membership, have handled their businesses since the first case of COVID-19 was recorded in the country.

“Organizations are in different stages of their interventions. I say a big congratulations to the directors who have so far led their businesses well in the season we find ourselves,” he said. Mr. Dogbegah added that: “Most organisations quickly changed their office set-up to adhere to social distancing practices. Many upgraded sanitary conditions as they should, and others started a shift system for their staff. What’s more impressive is how quickly some of our directors embraced and rolled out virtual working practices. Very impressive.” Mr. Dogbegah, however, acknowledged some companies are still struggling with ideas on how to mitigate the initial negative impacts and wholistic effects of COVID-19 on their businesses. This according to him is what has informed the decision by the council of the Institute to put together

an eight-part intervention programme for members and qualified individuals who are non-members as well.

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Opportunities in the midst of chaos: A Leadership Response

BY DR. DARTEY-BAAH

The COVID-19 pandemic which is still an ongoing concern has wreaked havoc across the globe. The epidemic has claimed several lives and continues to put enormous pressures on the health infrastructure and systems across the world. Various interventions such as social distancing and lockdowns, etc. geared towards stalling and ending the spread of this disease have equally affected the economic, social and political environment and has brought life to a halt. The world patiently waits for the time when this epidemic will end and the return of life to normalcy. The unfolding events of today although unfortunate presents a unique opportunity to reflect, amend and strategise, to ensure that the world does not bleed so much in the wake of another epidemic. Better still, it presents an opportunity to work towards improving lives and fostering a better future. This however, calls for a leadership response that is determined and willing to

pursue the opportunities in the midst of the chaos. The prevailing pandemic has greatly affected education, governance and businesses globally. In these circumstances, leaders across these spheres of life can glean a wealth of lessons and future course of actions towards enriching their respective fields. For academics and leaders in education, there is the need to rethink deeply the future of education and its accessibility particularly during chaotic times. Leaders in education must plan and invest in essential areas to ensure a sustainable and resilient educational ecosystem that can withstand any eventualities like the COVID-19 pandemic. The effects of the epidemic enjoin political leaders to thoroughly assess and review national priorities. Particularly, the developmental trajectories and the actions of nations must adequately recognise and be informed by the unknowns of tomorrow to ensure that future epidemics do not throw the countries off balance. Moreover, in view of the relationship between the financial performance

of businesses including Small and Medium Size Enterprises (SMEs) and the political environment within which they operate, political leaders must commit to empowering businesses by creating enabling environments for targeted investment drives (guided by real needs: todays profit vis-à-vis a sustainable future) with appropriate support systems that offer businesses viable opportunities. The new catchphrases recommended for political leaders even now and for the journey ahead having hopefully taking a cue from the sudden and the nondiscriminatory attack of the COVID-19 pandemic should be, “majoring on the majors and minoring on the minors”. This means letting the “main things be the main things”, and “fighting for the non-negotiable”. For business leaders, traditional business models and strategies for growth and sustainability require in depth assessment of their strength and robustness in the midst of the current and future storms. Business leaders are admonished to rethink their business operating models (leadership capacity); work attendant cultures (remote work) and

their business continuity readiness (information technology) in the event of a future disruption of at least similar magnitude. SMEs will also need to be thorough and uncompromising in putting in place initiatives that assure and safeguard the future of their employees whilst largely guaranteeing sustainability in the midst of storms. Clearly, making use and actively integrating information technology in business operations to actively serve business aspirations and empowering employees to offer effective services will be an essential part of any future discussion. Furthermore, business models and leadership drives must begin to explore options (for eg. insurance arrangements) that largely guarantees the welfare of employees in critical times such as this. Solving future challenges also borders on a collaboration between industry and academia. The management of the challenges associated with the epidemic by businesses leaders presents a fertile research area. These studies would provide solutions to the unprecedented challenges faced during this outbreak and would mitigate

or at least minimise future disruptions of businesses due to epidemics. Last and certainly not least, a collaboration between industry and academia could also explore ways of actively building the leadership capacity of key decision makers (both private and the public sector) to be effective and decisive at managing crises. Understanding, the link between leaders who have the capacity to effectively think through issues and with a zest and appreciation for the management of change in crises situation, will also be an area worth exploring. Those who remember history well and learn from it are never doomed to repeat them. It is therefore important that attention is given to the valuable lessons that could be gleaned from this outbreak.

Dr. Dartey-Baah is one of the leading HR experts in the country and the immediate past Head of the Department of Organisation and Human Resource Management of the University of Ghana Business School. His key research areas are leadership, corporate social responsibility and project management. He can be contacted at kdartey-baah@ug.edu.gh.

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The EU should issue perpetual bonds

BY GEORGE SOROS European Commission President Ursula von der Leyen has announced that Europe will need about €1 trillion ($1.1 trillion) to fight the COVID-19 pandemic. This money could be used to establish a European Recovery Fund. But where will the money come from? I propose that the European Union should raise the money needed for the Recovery Fund by selling “perpetual bonds,” on which the principal does not have to be repaid (although they can be repurchased or redeemed at the issuer’s discretion). Authorizing this issue should be the first priority for the forthcoming European Council summit on April 23. It would, of course, be unprecedented for the EU to issue perpetual bonds, especially in such a large amount. But other governments have relied on perpetual bonds in the past. The best-known example is Britain, which

used consolidated bonds (Consols) to finance the Napoleonic Wars and war bonds to finance World War I. These bond issues were traded in London until 2015, when both were redeemed. In the 1870s, the US Congress authorized the Treasury to issue Consols to consolidate already existing bonds, and they were issued in subsequent years. The EU is facing a oncein-a-lifetime war against a virus that is threatening not only people’s lives, but also the very survival of the Union. If member states start protecting their national borders against even their fellow EU members, this would destroy the principle of solidarity on which the Union is built. Instead, Europe needs to resort to extraordinary measures to deal with an extraordinary situation that is hitting all of the EU’s members. This can be done without fear of setting a precedent that could justify issuing common

EU debt once normalcy has been restored. Issuing bonds that carried the full faith and credit of the EU would provide a political endorsement of what the European Central Bank has already done: removed practically all the restrictions on its bond purchasing program. Perpetual bonds have three additional advantages that make them appropriate for these circumstances. For starters, because perpetual bonds never have to be repaid, they would impose a surprisingly light fiscal burden on the EU, despite the considerable financial firepower they would mobilize. The EU, moreover, would not have to refinance them when they came due, make amortization payments, or even set aside money (for example, in a sinking fund) for their eventual repayment. The EU would be obligated only to make regular interest payments on them. A €1

trillion perpetual bond with a 0.5% coupon would cost the EU budget a mere €5 billion per year. This is less than 3% of the EU’s 2020 budget. The second advantage is more technical but almost as important. The market may not be able to absorb a €1 trillion issue all at once. By issuing a perpetual bond, the EU could raise this amount in installments, without creating a new bond each time. The third advantage is that an EU-issued perpetual bond would be a very attractive asset for the ECB’s bondpurchase programs. Since the maturity of a perpetual bond is always the same, the ECB would not be required to rebalance its portfolio. The EU does not need to create any new mechanism or structure to issue the bonds, because the EU has issued bonds in the past. The proceeds should be used for investments and grants related to fighting the pandemic. The European

Commission would disperse the funds either directly or through the member states and other institutions (such as municipal governments) that are directly involved in fighting the COVID-19 pandemic. The disruption caused by the pandemic should be temporary, but only if Europe’s leaders take the extraordinary measures needed to avoid long-term damage to the EU. That is why the EU Recovery Fund is so desperately needed. Financing it with perpetual bonds is the easiest, fastest, and least costly way to establish it.

George Soros, Founder and Chair of the Open Society Foundations, is the author, most recently, of In Defense of Open Society (Public Affairs, 2019). Copyright: Project Syndicate, 2020. www.project-syndicate.org

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Africa’s energy transition must be African at heart and in practice

BY VERNER AYUKEGBA

Africa is at an energy crossroad. On one hand, the most talented, better educated, most entrepreneurial and competitive generation the continent has ever had is rising and taking on leadership positions that will propel African companies to become more competitive. After many turbulent decades, most corners of the continent have found the necessary political and economic stability to strategize for a better future making use of their natural resources and wealth. Nowhere else on planet Earth are economies and populations expected to grow faster than in the mother-continent. After such a long time dealing with the problems of the past, Africans can look to the future with the promise of a better life. After all, when it comes to natural resources such oil, gas, coal, diamonds, rare earths, woods, or agricultural potential and legacy-free technological development, there is no place like Africa. Over the last decade, most of the world’s biggest oil and gas discoveries took place on the African continent, and rapidly developing indigenous companies are ensuring these resources serve Africans and African economies more than they ever did before, resources that will power industries, light homes and create wealth. Our time to rise is finally here I have had the chance to witness this with my own eyes. From Equatorial Guinea to South Africa, from Angola to Mozambique and from Kenya to Senegal, the energy industry, the one I know best and the one closest to my heart, is revolutionizing life. Political leaders are willing to learn from the mistakes of the past to improve resource management, contract negotiations and environmental protection policies. Most of all, they have developed local content policies that potentiate the participation of Africans in these industries. Oil and gas training programmes and university degrees that cater to the industry like engineering are now more common than ever. These programs are educating and giving opportunities for numerous Africans to find work in the industry and further, to start their

own companies within the industry’s supply chain. While the drive to strengthen the integration of the energy sector and other extractive industries with the rest of the economic system is far from complete, it has certainly been fundamental in developing Nigeria’s indigenous upstream sector or in building a truly native gas industry in Equatorial Guinea. In Nigeria for example, this critical mass of local talent has been instrumental in the establishment of regional energy giants like Seplat Petroleum, Sahara Energy, Atlas Petroleum International Limited and Shoreline Natural Resources, whose influence is felt more and more beyond Nigeria’s boarders. Local content clauses in contracts are the way African leaders assure that the exploitation of the local natural resources has a trickle-down effect on the local economy, through job-creation and increasing local participation in the value chain the industry brings with it. Furthermore, most recent localization strategies for the oil and gas sector have been successful in developing truly native associated industries, particularly within the natural gas supply chain. As the Africa Energy Chamber has advocated since its establishment, we are finally seeing petrochemical plants, fertilizer plants and gasfired power plants popping up across the continent. An African natural gas economy is growing where before the plague of flaring stood unmatched.

Intra-African trade in both natural gas and Liquefied Natural Gas (LNG) is also likely to rise significantly, on the back of rapid urbanization and development across the continent which is set to increase energy consumption on the continent by more than 50% before 2040, This will speed up wealth creation and capacity building across borders. Following the oil price crash of 2014, many countries across Africa have sought to reposition themselves to attract investment into their energy sectors through the introduction of varying incentives. These incentives ranged from granting tax breaks to potential investors to reducing bureaucracy affecting the sector. On the other hand, the recent global climate change discourse which has also intentionally sought to demonize and simply hinder investments into Africa’s oil and gas sector, poses a new challenge to the growth of the sector in Africa. Worryingly, these two issues are taking attention away from the need to ensure that the African energy industry benefits Africans at large and fulfils its transformative potential to raise the continent out of poverty. The African energy transition will not be made in the West The issue of climate change has come to dominate the global debate over the energy sector. An energy transition is necessary to tackle the effects of CO2 emissions on a planetary scale. While Africa has contributed

only a miniscule part of those emissions, it stands to suffer the most from the effects of this change, and must as well prepare for a progressive shift in its energy structure. In many ways, the channelling of natural gas for power generation and the upgrading of oil and gas infrastructure and equipment to improve efficiencies and reduce the industry’s carbon footprint is already going a long way to achieve that. New renewable energy projects from Kenya to South Africa will also help balance out the continent’s energy matrix as it expands its electrification rates to reach every African in every corner of the continent. Many international and foreign institutions have already started to share their expertise and support with African governments and many foreign investors have started to develop their own projects in the mothercontinent. Wind farms, solar parks, geothermal drilling, hydropower plants, etc, are taking advantage of each region’s available resources. Here too, these renewable resources must be used for the benefit of Africans, and they must be developed with the participation of Africans and in a manner that is sustainable economically and to a scale that is capable to supporting the growth of industry that provides for good paying jobs. It is fundamental that these new technologies and sources of energy suit the communities which they are meant to serve. Climate concerns cannot side line discussions over local

content and localization strategies. They must go hand in hand, be one and the same, or else we may again find ourselves dependent on foreign knowledge to provide for our energy needs. Such dependence is unlikely to lead to the mass scale of development with the potential to lift large swaths of the population out of poverty. Education programs and employment clauses are a fundamental step of the energy transition and not a secondary aspect of it. Market-driven local content frameworks need to be designed for capacity building, employment generation and overall enforcing a value-adding multiplying effect in our economies. This debate is now more important than ever, as Africa opens up to new industries and to greater trade integration. As more and more African nations gain the expertise to explore their natural resources for the betterment of their economies and their people, we need to see further integration and cooperation between them, so that the continent can take advantage of synergies that different regions and industries can offer. Already, we see examples of gas-poor countries like South Africa investing in natural gas and LNG projects in gas rich Mozambique with the aim of reducing their growing energy deficit. As demand rises, exploration will accelerate and so will the use of the vast gas resources, including those that continue to be wasted through flaring. The African Continental Free Trade Zone is an ideal platform to promote the development of an intra-African natural gas trade that will promote widespread economic growth and access to power. Again, it is fundamental that these developments are pegged to well implemented and designed local content policies, so that Africans can truly benefit from the exploitation of their continent’s resources, and by so doing, ensure that Africa’s energy transition will be driven and made sustainable by those that will transition with it.

Verner Ayukegba is the Senior Vice President with the African Energy Chamber and Director of Operations at DMWA Resources, a pan-African energy marketing & investment firm.

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Cloud-computing solutions can help significantly to reduce banking costs in Africa

BY GENESIS ANALYTICS

More than 700 million Africans lack access to a bank or mobile money account and only 41% of Africans are financially included. This is due to the high cost of providing financial services in Africa which forces many financial services providers to remain focused on serving wealthier customers. Part of the cost problem is that financial institutions in Africa are so much smaller than elsewhere – the biggest bank in Africa (SBSA with assets of $148 billion) ranks 296th globally; most banks in Africa have assets of less than $5 billion. But African consumers are increasingly expecting these banks to provide the same range of digital services as banks in other countries. This is why consumers have been turning to mobile banking in such numbers. The telecommunications companies have been much more successful at delivering affordable financial services

than banks are, but also need to find new ways to reduce costs if they are to reach out to even poorer customers. Cloud computing creates an opportunity for providers of financial services to rethink their technology spend and significantly reduce costs. Cloud computing involves using internet technologies to provide virtual infrastructure that is scalable and delivered as a service. Fixed costs can be converted into a subscription-based approach and upfront capital investments are converted into operational costs. Cloud computing allows banks to pay less for ICT infrastructure and services and achieve higher utilisation on ICT spend. Particularly for small banks in small markets where specialised ICT skills are in short supply, cloud computing can ease a critical operational constraint. The most compelling reason to move to the cloud is undoubtedly cost savings, but there are other business reasons too. The flexibility of cloud-based operational models allows financial

institutions to experience shorter development cycles for new products, which supports a faster and more efficient response to the needs of customers. Cloud computing provides the computer power necessary to deliver analytical insights in real time, which enables financial institutions to move towards a customer-centric model where the financial needs of customers are fully understood. Financial institutions can also gain a higher level of data security, resilience, fault tolerance and disaster recovery from cloud computing. A few international and African banks have already realised the value of cloud banking. WeBank is China’s first digital bank that is based in a private cloud and uses innovative technologies, such as Artificial Intelligence and blockchain, to effect an extraordinarily high volume of transactions at a very low cost. WeBank has been able to run at 95% lower cost than that of traditional banks’ IT operations and has passed this cost saving onto their

customers in the form of low account fees. TymeBank is a new digital entrant to the South African banking sector and has made a 56% cost saving compared to other startups by using cloud services from AWS. Before financial service providers can adopt cloud banking, regulators need to support and approve the use of cloud technology within the financial sector. Some international regulators are already allowing the use of cloud banking in the financial sector. The European Union has been at the forefront of defining an enabling regulatory environment for cloud banking services, which has involved both the regulation on the use of data and privacy and protection of data. Under the regulations, financial institutions have to ensure that consumer personal data is gathered legally and under strict conditions and that consumer data is fully protected. Other developing markets like Turkey and Argentina have adopted similar legal and regulatory

environments, which has enabled the use of cloud banking in their financial sectors. Africa’s financial sector regulators’ approaches are very much work in progress. The report urges African regulators to develop clear policy positions and regulations on data privacy, risk and security; data sovereignty; cybercrime; protection of intellectual property; vendor risk; and migration complexity and operational risk to enable financial institutions to reap the benefit of cloud banking.

Genesis Analytics is a global African firm that has worked in more than 74 countries across the world, 41 of which are on the continent, and Orange Business Services is a network-native digital services company and the global enterprise division of the Orange Group, connecting, protecting and innovating for enterprises around the world. Full link to report Cloud Banking in Africa: The Regulatory Opportunity: https://bit. ly/2zj5PnD

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Empowering Africa’s Digital Entrepreneurs

BY PERSEUS MLAMBO, LYDIA CHISECHE NGOMA

transformation has produced unprecedented disruption, as well as seemingly limitless opportunities.

Not long ago, big data, the Internet of Things, and artificial intelligence seemed closer to science fiction than reality. And yet, today, these technologies underpin services, products, and solutions that shape virtually every aspect of our lives, from how we communicate and consume information to the ways we save and spend money. But access to them remains uneven, leaving some regions – especially Africa – struggling to seize the opportunities of the technologies driving the Fourth Industrial Revolution.

But those opportunities are unevenly distributed. The Fourth Industrial Revolution, like its predecessors, is not a monolith that transforms the entire world simultaneously. Some countries – especially those with higher income levels, greater access to resources, and more extensive digital penetration – are at the revolution’s frontier, while others lag far behind.

The Fourth Industrial Revolution differs from the previous three in important ways. Past industrial revolutions – defined by the rise of steam and coal power, mass production, and digital technology, respectively – had clear boundaries, each transforming a particular set of activities separately. The Fourth Industrial Revolution, by contrast, is allencompassing, and creates new linkages among various sectors – for example, health and finance, computers and agriculture, or nutrition and transport. This wideranging interdisciplinary

Until Africa catches up to its counterparts in Asia and the West, it will continue to lose out on valuable opportunities to improve efficiency, spur growth, foster inclusion, and drive development. That is why African governments must act to enable the digital revolution to gain traction, which means creating the conditions for privatesector innovation and entrepreneurship. African entrepreneurs have already proved their capacity for digital innovation, particularly in finance. Capitalizing on rapidly expanding access to mobile phones, the Kenyan mobilenetwork operator Safaricom created the mobile-payment platform M-Pesa in 2007.

Since then, M-Pesa has lifted an estimated 2% of Kenyan households (186,000 in total) out of extreme poverty and transformed the country’s economic landscape. Similarly, Zazu – of which I am founder and CEO – is building an African digitalonly bank, beginning in Zambia. One of our products, Zazu 619 – a free text-messaging platform that teaches people about their financial rights – has reached more than a million Zambians in just over a year. Such digital innovation and entrepreneurship is essential to creating enough jobs for the 11 million young Africans set to join the labor market annually over the next decade. After all, the private sector accounts for 90% of all jobs created in developing countries. But tapping the private sector’s full potential will require governments to do more to establish a supportive business environment. Policies covering a wide range of areas – including payments systems, data privacy, labor and consumer protection, and competition policy – must be designed with the explicit goal of encouraging innovation and enabling small and medium-size enterprises (SMEs) to grow. This will

require governments to take the lead, while also creating space for private actors to offer insights and advice. Furthermore, governments must foster investment in financial and digital literacy, which is essential to enable Africans to adopt new technologies, thereby ensuring that the digital revolution is as inclusive as possible. There is little use in introducing innovations, however groundbreaking, to a population that lacks the knowledge or skills to use them. If only a small elite group can benefit, economic transformation and broadbased prosperity will remain out of reach. In Zambia, private companies like Zazu and development organizations such as FSD Zambia and Asikana Network have been working to promote financial and/or digital literacy and awareness. But this will never be enough. Governments must create incentives for more companies and organizations to launch financial and digital literacy programs. Equally important, African governments must invest in digital infrastructure. The initial outlays will be substantial, but the returns will be much larger. Only with modern, national

digital infrastructure can SMEs provide fair, affordable access to digital innovations. Africa cannot continue to rely on extractive industries and lower-value-added manufacturing. The Fourth Industrial Revolution is here, and if African economies are to flourish, they must adjust accordingly. That means creating effective legal structures, ensuring reliable connectivity, and enabling equitable access to the digital innovations of today and tomorrow.

Perseus Mlambo

Perseus Mlambo is the founder and CEO of Zazu, a fintech company simplifying access to financial services in Sub-Saharan Africa. Previously, he worked in the Ethics Office of the United Nations High Commissioner for Refugees in Geneva. Lydia Chiseche Ngoma, a writer, content creator, and social activist, is Community Manager at Zazu Africa and previously worked in capacity building and community engagement at DanChurchAid in Kenya. Copyright: Project Syndicate, 2020. www.project-syndicate.org

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Monetary Finance is here BY ADAIR TURNER There is no doubt that monetary finance is technically feasible and that wise fiscal and monetary authorities could choose just the “right” amount. The crucial issue is whether politicians can be trusted to be wise. In response to the COVID-19 pandemic, the US Federal Reserve will buy unlimited quantities of Treasury bonds, the Bank of England will purchase £200 billion ($250 billion) of gilts, and the European Central Bank up to €750 billion ($815 billion) of eurozone bonds. Almost certainly, central banks will end up providing monetary finance to fund fiscal deficits. The only question is whether they should make that explicit. Monetary policy, on its own, is clearly impotent in today’s circumstances. Central banks have cut policy interest rates, and bond purchases are depressing long-term yields. But nobody thinks that lower interest rates will unleash higher consumer expenditure or business investment. Instead, depressed economic growth will be offset (as best possible) by increased government spending on health care, direct income support for laid-off workers, and a reduced tax take. This will inevitably result in unprecedented fiscal deficits. In theory, funding those deficits by selling government bonds could raise bond yields, potentially offsetting the stimulative effect. But with central banks buying bonds and depressing yields, governments can borrow all they need at rock-bottom interest rates. When the United States used that policy during World War II, the Fed’s role in facilitating debt finance was explicit: from 1942 to 1951, it committed to buying Treasury bonds in whatever quantity needed to keep bond yields flat. This time round, such explicit commitments have been avoided, but the effect is the same: central banks are making it easy to fund yawning fiscal deficits. Whether this amounts to permanent monetary finance depends on whether the bonds are ever sold back to the private sector, with central banks’ balance sheets returning to “normal” levels. In the US after WWII, such a

reversal never happened. In their book A Monetary History of the United States, Milton Friedman and Anna Schwartz later estimated that about 15% of the war effort was financed with centralbank money rather than by taxes or with debt which was ever actually repaid. In Japan, where 25 years of large fiscal deficits have been matched by equally large purchases of government bonds by the Bank of Japan, it is also obvious that the central bank’s bond holdings will never be sold: permanent monetary finance has occurred. So, monetary finance need not be explicit to be permanent. All asset purchases by central banks over the past decade – socalled quantitative easing (QE) – might in retrospect entail some monetary finance. That possibility terrifies those who believe that monetary finance must eventually lead to hyperinflation. But such fears are absurd. Friedman famously said that in a deflationary depression, we should scatter dollar bills from a helicopter for people to pick up and spend. Suppose US President Donald Trump ordered just $10 million of such helicopter money: the impact on either real activity or inflation would be miniscule. But suppose he ordered $1,000 trillion: obviously, there

would be hyperinflation. The impact of monetary finance depends on the scale. Fears about the longterm impact on centralbank balance sheets and commercial-bank profitability are also misplaced. Central banks do not directly create the money held by individuals or companies in the real economy; what they create is the monetary base held as reserve assets by banks. As a result, central banks, which pay interest rates on reserves, will face an ongoing cost if they create more such money. But central banks can create costless money by paying zero interest on some commercial-bank reserves, even while paying a positive policy rate at the margin. And while such zero-rate reserves might impose an effective tax on credit creation when economic activity revives, that could be desirable, because it would prevent the initial stimulus from being harmfully multiplied by commercial bank’s future money creation. So, on close inspection, all apparent technical objections to monetary finance dissolve. There is no doubt that monetary finance is technically feasible and that wise fiscal and monetary authorities could choose just the “right” amount. The crucial issue is whether politicians can be trusted

to be wise. Most central bankers are skeptical, and fear that monetary finance, once openly allowed, would become excessive. Indeed, for many, the knowledge that it is possible is a dangerous forbidden fruit which must remain taboo. They may be right: the best policy may be to provide monetary finance while denying the fact. Governments can run large fiscal deficits. Central banks can make these fundable at close to zero rates. And these operations might be reversed if future rates of economic growth and inflation are higher than currently anticipated. If not, they will become permanent. But nobody needs to acknowledge that possibility in advance.

5 that explicit monetary finance is “incompatible with the pursuit of an inflation target by an independent central bank.” But former Fed Chair Ben Bernanke has shown why that is not true, proposing instead that independent central banks should determine the amount of any monetary finance while governments decide how to spend the money. Independent central banks could make explicit decisions about optimal quantities of permanent monetary finance. But whether or not they do, a significant proportion of today’s QE operations will in retrospect have financed expanded fiscal deficits.

Paradoxically, the only danger with this approach is that central banks will be too credible. If individuals or companies believe policymakers’ promise never to allow monetary finance and that all QE operations will definitely be reversed, they will expect that all the new public debt must be repaid out of future taxes. And anticipation of that burden could depress consumption and investment today. The alternative approach is honesty – while offsetting the danger that honesty will lead to excess. Andrew Bailey, Governor of the Bank of England, argued on April

Adair Turner, Chair of the Energy Transitions Commission, was Chair of the UK Financial Services Authority from 2008 to 2012. His latest book is Between Debt and the Devil.

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