The latest data emerging from China, the world’s second largest economy with regards to its economic growth rate has been received with enthusiasm by macro-economic managers in Ghana. China is one of the country’s biggest trading partners, importing huge quantities of Ghana’s major commodity exports, while also serving as arguably the most cost competitive source of consumer goods imports. Besides this China’s strong demand for commodities from all around the world has been significantly responsible for the firming up of gold, crude oil and coca prices on global commodity markets which contributed greatly to Ghana’s consistent merchandise trade surpluses since the last quarter of 2016.
China has reported year on year economic growth of 4.9 percent for the third quarter of 2020. Although this is below the 5.2 percent widely expected it is still high enough lead a rebound of the global economy and a return to customary economic growth for Ghana itself.
During the first quarter of 2020 the Chinese economy contracted by 6.8 percent when it saw nationwide shutdowns of factories and manufacturing plants. Instructively Ghana’s own economy contracted by 3.4 percent during the second quarter of this year. Although this has been attributed almost entirely to the restrictions on socio-economic activity imposed by government between April and July in an effort to curb the spread of COVID 19, economists point out that the subdued trade volume between Ghana and China during the first half of the year also played a significant part in Ghana’s economic slump.
In 2019, prior to the advent of the coronavirus pandemic, which indeed originated from China, trade between the two countries reached US$7.46 billion. China is also currently the largest investor in Ghana as measured by the number of registered projects.
However, even as Ghana’s economic managers are now looking up to China’s economic rebound to raise the prices of Ghana’s major export commodities in international markets, and increase export volumes as well, they are keeping a close eye on the cedi’s exchange rate against the United States dollar. During the first nine months of this year the cedi depreciated by a record low 2.5 percent against the dollar even though this is an election year; usually, election years see abnormally high cedi depreciation.
However even though government’s fiscal policies and the Bank of Ghana’s monetary policies have correctly been hailed as being behind this unusual performance, trade economists also point out that the sharp reduction in Ghana – China trade, occasioned by the COVID 19 outbreak has also played a significant role. Indeed, it is instructive that immediately after Ghana closed its borders at the turn of the second quarter of 2020 the cedi appreciated sharply, as Ghanaian importers were unable to fly to China to arrange import orders. Ghana’s trade surplus has narrowed this year in the face of reductions in both imports and exports.
But with China’s economy rebounding strongly and Ghana’s economy expected to follow suit, albeit somewhat more slowly, there are worries that demand for forex with which to pay for increased imports from China will put renewed pressure on the cedi’s exchange rate again.
However government economists are hoping that the import substitution used to navigate supply chain disruptions with regards to Ghana’s imports will be permanent, this leading to a sustainable reduction in imports from China.