WHY IS ACCOUNTING NECESSARY FOR A SMALL BUSINESS?

WHY IS ACCOUNTING NECESSARY FOR A SMALL BUSINESS, AND HOW IS IT DONE? THE ANSWER TO THE FIRST PART OF THIS QUESTION YOU WILL SEE WHEN YOU ASK YOUR BANK FOR A LOAN. EVEN IF YOU ASK A RELATIVE FOR THE MONEY, THE PERSON WILL BE EAGER TO KNOW WHETHER HE/SHE WILL GET THE MONEY BACK.

SO, WHEN YOU ASK FOR MONEY FROM ANYWHERE – ESPECIALLY FOR A BUSINESS – PEOPLE WILL ASK YOU WHETHER YOU MAKE PROFIT. EVEN FOR YOU IT IS BETTER TO KNOW WHETHER YOUR BUSINESS IS PROFITABLE. IF NOT, YOU WILL EAT INTO YOUR CAPITAL – AND YOUR BUSINESS WILL COLLAPSE. THIS SCENARIO WILL THEN SURELY HAPPEN SOONER THAN LATER. (FOR BUSINESS STARTER, IT IS EVEN BETTER, IF YOU HAVE A SECOND SOURCE OF INCOME. AT THE BEGINNING, YOU CAN’T RELY ON YOUR BUSINESS MAKING ENOUGH PROFIT TO LIVE ON.)

SO, HOW WILL YOU DO YOUR ACCOUNTING? YOU DO NOT NEED TO MAKE IT VERY COMPLICATED. NOBODY WILL ASK YOU – AT THE BEGINNING – TO DO SOMETHING LIKE DOUBLE-ENTRY ACCOUNTING, ETC. OF COURSE, IF/WHEN YOUR BUSINESS BECOMES SUCCESSFUL, THIS WILL CHANGE IN THE FUTURE.

FOR NOW, A SIMPLE PLUS-MINUS CALCULATION WILL BE SUFFICIENT. THAT MEANS, YOU HAVE THREE COLUMNS. ONE IS FOR THE DATE,ONE FOR THE INCOME, AND ONE FOR THE EXPENSES. IN THE LEFT COLUMN, YOU WRITE THE DATE. IN THE MIDDLE COLUMN, YOU NOTE THE MONEY YOU RECEIVED, AND FOR WHAT YOU RECEIVED IT. IN THE RIGHT COLUMN, YOU WRITE HOW MUCH MONEY YOU SPENT, AND FOR WHAT YOU SPENT IT. AT THE END OF EVERY MONTH – OR PERHAPS EVERY WEEK – YOU SUM UP WHAT YOU RECEIVED AND WHAT YOU SPENT. READY IS YOU BOOKKEEPING FOR A MONTH.

NOW, FOLLOWING IS A BRIEF EXAMPLE FOR WHAT I JUST WROTE. LET US GUESS YOU SELL SECOND-HAND CLOTHES AND BAGS.:

DATE                                   INCOME                                EXPENSES
1.                                     20 (SALES OF 1 T-SHIRT)
5.                                                                                            15 (ELECTRICITY)
7.                                    50 (SALES OF 2 BAGS)
9.                                                                                           35 (RENT)
11.                                   15 (SALES OF 1 TROUSER)
15.                                  25 (SALES OF 1 BLOUSE)
23.                                 20 (SALES OF 1 T-SHIRT)
30.                                                                                         25 (SALARY)
TOTAL THIS MONTH 130                                            75
INCOME MINUS EXPENSE 130-75=55

THAT MEANS, IN THE RECORDED MONTH, YOU MADE A PROFIT OF 55.
GOOD JOB!

SO, THAT’S  WHY ACCOUNTING IS NECESSARY FOR A SMALL BUSINESS

IF YOU HAVE A FARM, CONSIDER A COOPERATIVE

A BRIEF INTRODUCTION TO AGRICILTURAL COOPERATIVES

 

IF YOU HAVE A FARM, CONSIDER A COOPERATIVE.

IN CASE YOU CONSIDER, YOU MIGHT WANT TO KNOW WHAT DEFINES A COOPERATIVE.

  1. A COOPERATIVE IS OWNED BY ITS MEMBERS. THESE MEMBERS FINANCE THE COOPERATIVE; THEY ARE ITS OWNERS AND CUSTOMERS AT THE SAME TIME.
  2.  IT IS A PRIMARILY A SERVICE PROVIDER FOR ITS MEMBERS, NOT TO SUPPLY ITS MEMBERS WITH DIVIDENDS.
  3.  A COOPERATIVE IS CONTROLLED BY ITS MEMBERS.
  4.  MEMBERS RECEIVE SHARES OF ANY PROFIT ACCORDING TO THEIR USE OF THE COOPERATIVE, NOT ACCORDING TO THEIR FINANCIAL CONTRIBUTION.
  5.  MEMBERS’ LIABILITY FOR DEBTS OF THE COOPERATIVE IS GENERALLY LIMITED TO THEIR FINANCIAL CONTRIBUTION.

THE ADVANTAGES OF AN AGRICULTURAL COOPERATIVE ARE THE FOLLOWING (AMONG OTHERS).

  1. THROUGH COOPERATIVES FARMERS MIGHT ACCELERATE THEIR COLLECTIVE INCOME ON THE MARKETS.
  2.  FARMERS CAN HAVE A BETTER ACCESS TO EQUIPMENT TO TOIL THEIR FARMS.
  3.  THEY CAN HAVE AN EASIER ACCESS TO CREDIR FACILITIES THROUGH THEIR COOPERATIVE.
  4.  THERE IS THE POSSIBILITY OF GETTING BETTER ACCESS TO THE GLOBAL MARKET PLACE BY THE COOPERATIVE USING TECHNOLOGICAL MEANS.

OF COURSE, THERE ARE ALSO DISADVANTAGES OF COOPERATIVES COMPARED WITH HANDLING YOUR OWN FARM SINGLE-HANDEDLY.

THE DISADVANTAGES MOSTLY LIE IN A MORE BUREAUCRATIC EFFORT IN DEALING WITH A COOPERATIVE, FIRST OF ALL, YOU MUST REGISTER A COOPERATIVE SIMILARLY TO A CORPORATION. FURTHERMORE, THE DECISION-MAKING PROCEDURE IS LONGER, BECAUSE THE MEMBERS MUST DECIDE COLLECTIVELY ON IMPORTANT MEASURES. THEY MUST GET AT LEAST A MAJORITY DECISION. LASTLY, THERE MIGHT OCCUR CASES IN WHICH THERE ARE DIFFERENT OPINIONS AMONG MEMBERS. THESE DIFFERENT OPINIONS MIGHT LEAD TO SEVERE PROBLEMS WITHIN THE COOPERATIVE.

BUT YOU MUST ALSO CONSIDER THAT THESE DIFFERENT OPINIONS MIGHT ALSO OCCUR WITHIN YOUR OWN FAMILY. IN CASE YOU WORK ON A FAMILY FARM, YOU COULD HAVE QUARRELS WITH YOUR PARENTS, YOUR SIBLINGS, YOUR HUSBAND OR WIFE. YOU HAVE TO SOLVE ALL THESE QUARRELS. CONSIDER THE COOPERATIVE AS YOUR FAMILY. IN THE COOPERATIVE FAMILY, YOU ALL MUST BALANCE DIFFERENT OPINIONS FOR THE SAKE OF THE OVERALL GOOD.

IF THIS ARTICLE GIVES YOU THE IDEA THAT IF YOU HAVE A FARM, YOU CONSIDER A COOPERATIVE, THEN DO THE FOLLOWING. DOWNLOAD THE BOOK AT THE BEGINNING OD THIS ARTICLE, AND READ IT. THE BOOK IS WRITTEN FOR ESTABLISHING COOPERATIVES IN THE U.S.A. BUT APART FROM THE LEGAL IMPLICATIONS, YOU CAN USE THIS BOOK FOR THE AFRICAN ENVIRONMENT, TOO.

AFTER THAT, YOU MIGHT THINK A COOPERATIVE IS THE RIGHT THING FOR YOU, BUT YOU HAVE MORE QUESTIONS. DISCUSS THE ISSUE OF AN AGRICULTURAL COOPERATIVE WITH PEOPLE WHO MIGHT HAVE THE SAME INTERESTS.

IF YOU THEN HAVE MORE QUESTIONS, YOU CAN CONTACT ME THROUGH “ENQUIRIES” ON THIS WEBSITE. YOU CAN ALSO CONTACT ME THROUGH recklingenterprises@hotmail.com OR MY WHATSAPP NUMBER 0200523362. (FOR PEOPLE OUTSIDE GHANA, IT IS +233200523362.)

BUILD MORE COOPERATIVES FOR A BETTER AGRICULTURAL BASE IN GHANA AND THE WHOLE OF AFRICA!

 

THE IMPORTANCE OF AfCFTA FOR GHANA AND AFRICA

WORLD DEVELOPMENT REPORT 2020

THE WORLD BANK HAS JUST PUBLISHED THE WORLD DEVELOPMENT REPORT 2020.(YOU CAN DOWNLOAD THE REPORT AT THE BEGINNINF OF THIS ARTICLE.) IN THIS REPORT, THE WORLD BANK DISCUSSES THE USE OF GLOBAL VALUE CHAINS (GVC), ESPECIALLY FOR DEVELOPING ECONOMIES. GLOBAL VALUE CHAINS DEMAND MORE INTERNATIONAL COOPERATION. ON THE AFRICAN CONTINENT, THIS REGIONAL INTERNATIONAL COOPERATION WAS RECENTLY INITIATED THROUGH THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA). WHAT IS THE IMPORTANCE OF AfCFTA FOR GHANA AND AFRICA? Continue reading “THE IMPORTANCE OF AfCFTA FOR GHANA AND AFRICA”

BUSINESS CONSULTANCY WITH GHANA RESEARCH

BUSINESS CONSULTANCY WITH GHANA RESEARCH

DO YOU HAVE A SMALL OR MICRO BUSINESS, AND YOU HAVE PROBLEMS MANAGING IT FINANCIALLY OR OTHERWISE?

OR YOU WANT TO ESTABLISH A SMALL OR MICRO BUSINESS, AND YOU HAVE PROBLEMS DOING THAT?

DON’T WORRY, I’M SURE I CAN HELP YOU. JUST GO TO www.ghanaresearch.org AND CLICK ON “ENQUIRIES” UNDER “PAGES”. FILL THE COMTACT FORM WHICH IS SHOWN THERE, AND CLICK ON “SUBMIT”. I WILL GET YOUR ENQUIRY THEN. BE ASSURED THAT YOU WILL HAVE AN ANSWER FROM ME WITHIN TWO (2) DAYS – EVEN WEEKENDS AND PUBLIC HOLIDAYS.

THIS ANSWER MIGHT BE A SOLUTION TO YOUR PROBLEM, OR ONE OR MORE QUESTIONS. THE LATTER MIGHT APPEAR NECESSARY IF YOUR QUESTION NEEDS MORE CLARITY OR ADDITIONAL INFORMATION.
THIS ASSISTANCE I OFFER IS COMPLETELY FREE. I KNOW THAT OWNERS OR PERSPECTIVE OWNERS OF SMALL AND MICRO BUSINESSES HARDLY HAVE ANY MONEY LEFT. ONLY IF MY INVOLVEMENT DEMANDS FURTHER NEGOTIATIONS WITH THIRD PARTIES, I WILL CHARGE YOU A SMALL FEE TO COVER MY COSTS. FOR ANY FEES AND OTHER COSTS OF THIRD PARTIES LIKE BANKS, ETC., YOU ARE RESPONSIBLE YOURSELF.

YOU CAN BE SURE THAT ALTHOUGH MY CONSULTANCY IS BASICALLY FREE, I WILL DO MY VERY BEST TO MAKE YOUR BUSINESS SUCCESSFUL. BUT YOU MUST KEEP IN MIND ONE IMPORTANT ISSUE. THE ONLY ONE WHO IS RESPONSIBLE FOR THE SUCCESS OF YOUR BUSINESS IS YOU.
ESTABLISHING A BUSINESS NEEDS DISCIPLINE AND HARD WORK. PEOPLE CAN HELP YOU DOING IT. BUT ONLY YOU ARE THE ONE WHO AT THE VERY END DECIDES SUCCESS OR FAILURE OF YOUR BUSINESS.

SO, I WILL ALWAYS BE THERE FOR YOU IF YOU NEED ME. BUT FINALLY, DO NOT BELIEVE IN ME, BELIEVE IN YOURSELF.
I AM EAGER TO HEAR FROM YOU SOON, AND I WISH YOU GOOD LUCK IN ALL YOUR ENDEAVOURS TO SEEK LONG-LASTING SUCCESS.

BUSINESS CONSULTANCY WITH GHANA RESEARCH

SEE YOU!

START SAVING A CERTAIN PERCENTAGE OF YOUR INCOME

START SAVING A CERTAIN PERCENTAGE OF YOUR INCOM

MANY PEOPLE GIVE 10% OF THEIR MONTHLY INCOME TO THE CHURCH – THE SO-CALLED TITHE. BUT APART FROM THE SPIRITUAL WELFARE, THE PHYSICAL WELFARE IS ALSO OF IMPORTANCE. THIS IS ESPECIALLY TRUE FOR SAVING FOR RETIREMENT AND/OR UNFORESEEN EXPENSES LIKE HEALTH ISSUES. SO, HOW MUCH SHOULD YOU SAVE FOR THESE SPECIAL EVENTS IN YOUR LIFE? Continue reading “START SAVING A CERTAIN PERCENTAGE OF YOUR INCOME”

ON WARREN BUFFETT’S INVESTMENT TENETS

AS THE GHANA STOCK EXCHANGE  (GSE) CONTINUED ITS WAY DOWNWARD, I’LL START MY OVERVIEW NOW HOW TO BUY STOCKS THE WAY WARREN BUFFETT DOES. FIRST OF ALL, AND THAT IS A GENERAL PRINCIPLE, BUY STOCKS IN THE WAY YOU WOULD BUY YOUR OWN BUSINESS.. FURTHERMORE, FOLLOW THE PRINCIPLES (TENETS) LISTED BELOW AND IN FUTURE ARTICLES. THERE ARE FOUR GROUPS OF TENETS: BUSINESS, MANAGEMENT, FINANCIAL, AND VALUE. I WILL  START WITH THE PRINCIPLES (TENETS) CONCERNING THE BUSINESS.

  • YOU SHOULD ONLY BUY A BUSINESS THAT IS SIMPLE AND UNDERSTANDABLE

FOR SEVERAL YEARS, WARREN BUFFETT REFUSED TO BUY INTERNET STOCKS LIKE FACEBOOK AND GOOGLE. ALSO RELATED STOCKS LIKE APPLE WERE NOT ON HIS LIST. THE REASON FOR HIS NON-COMMITMENT TO THESE STOCKS WAS, AS HE SAID, THAT HE DIDN’T UNDERSTAND ANYTHING ABOUT THESE STOCKS. THAT CHANGED IN THE LAST YEARS, AS HE BOUGHT SHARES IN GOOGLE. THIS MIGHT BE BECAUSE HE MORE AND MORE PASSED DECISION-MAKING OVER TO PEOPLE HE TRUSTS. THOSE PEOPLE MIGHT UNDERSTAND MORE ABOUT THE SO-CALLED FAANG STOCKS (FACEBOOK, APPLE, AMAZON, , NETFLIX, GOOGLE) THAN HE DOES.

BUT THE PRINCIPLE STILL STANDS, YOU SHOULD ONLY BUY STOCKS IN COMPANIES YOU UNDERSTAND. THIS UNDERSTANDING INCLUDES THE BUSINESS MODEL AS WELL AS THE ENVIRONMENT IT OPERATES. AT THE LONG RUN, THE SUCCESS OF YOUR INVESTMENT DEPENDS ON THE SUCCESS OF THE COMPANY IN THE FUTURE. TO ACHIEVE YOUR SUCCESS, YOU MUST ANALYSE THE BUSINESS VERY WELL. AND TO ANALYSE THE BUSINESS VERY WELL, YOU MUST UNDERSTAND IT. SO EASY IT IS…

  • HOW DID THE BUSINESS PERFORM (OPERATE) IN THE PAST?

IT IS ALWAYS DIFFICULT, IF NOT IMPOSSIBLE, TO PREDICT THE FUTURE PERFORMANCE OF A COMPANY. BUT AT LEAST, THE PAST PERFORMANCE WILL GIVE YOU A HINT FOR THE FUTURE. OF COURSE, IT DOESN’T HELP JUST TO LOOK AT THE LAST ANNUAL REPORT. THE FACT THAT THESE NUMBERS MIGHT BE POSITIVE SURELY DOESN’T SAY ANYTHING ABOUT THE FUTURE. YOU SHOULD BE ABLE TO DEVELOP A SUSTAINABLE TREND  IN THE PERFORMANCE OF THE COMPANY.OF MUCH IMPORTANCE IS – OF COURSE, BUT NOT ONLY – A THOROUGH ANALYSIS OF THE FIGUES PRESENTED IN THE LAST TEN YEARS.

BUT YOU SHOULD ALSO LOOK – AS I SAID BEFORE – AT THE ENVIRONMENT IT OPERATES. IT MIGHT BE THAT ECONOMICAL OR POLITICAL EVENTS IN THE PAST INFLUENCED THE COMPANY’S RESULTS POSITIVELY OR NEGATIVELY.THESE EVENTS MUST BE TAKEN INTO CONSIDERATION WHEN JUDGING THE COMPANY’S PERFORMANCE. THAT’S WHY IT IS IMPORTANT TOUNDERSTAND THE BUSINESS, AS I MENTIONED UNDER POINT 1).

  • WILL THE BUSINESS – GIVEN A THOROUGH ANALYSIS – HAVE A POSITIVE DEVELOPMENT IN FUTURE?

AS I SAID BEFORE, IT IS VERY DIFFICULT TO FORESEE THE FUTURE PERFORMANCE OF A BUSINESS. BUT IF YOU LOOK AT THE FINANCIAL STATEMENTS (BALANCE SHEET, PROFIT/LOSS STATEMENT, CASH FLOW STATEMENT, ETC.) INTENSIVELY, YOU WILL SURELY COME TO A CONCLUSION. YOU MUST, OF COURSE, PUT THE FIGURES INTO A RIGHT PERSPECTIVE.THERE ARE CERTAIN RATIOS WHICH WILL GIVW YOU THE RIGHT PERSPECTIVE. THESE ARE, FOR EXAMPLE:

  1. PRICE/EARNINGS RATIO (THE RELATION BETWEEN THE PIECE OF A SHARE AND THE EARNINGS PER SHARE);
  2. DEBT RATIOS (HOW THE COMPANY WILL BE ABLE TO DEAL WITH ITS DEBTS);

OF COURSE, THIS LIST IS NOT COMPLETE. FURTHER RATIOS AND WAYS TO FIND OUT WHETHER A COMPANY IS SECURE TO BUY, YOU’LL FIND IN GRAHAM’S “SECURITY ANALYSIS”. YOU CAN DOWNLOAD THIS BOOK ON TOP OF THIS ARTICLE.

NEXT WEEK, I’LL DISCUSS BUFFETT’S MANAGEMENT TENETS. STAY TUNED!

ON THE NECESSITY OF FINANCIAL LITERACY

I HAVE WRITTEN A LOT ON THE NECESSITY OF FINANCIAL LITERACY AND THE NECESSITY TO LIMIT THE LOSSES O INVESTMENTS. THIS AFFECTS HUNDREDS, IF NOT THOUSANDS OF PEOPLE IN GHANA.  AND IT’S NOT ONLY GHANA WHERE THESE PROBLEMS OCCUR. FURTHERMORE, IT’S NOT ONLY A PHENOMENON OF DEVELOPING  COUNTRIES, ALTHOUGH IT MIGHT  HAPPEN THERE MORE OFTEN. BUT THAT MIGHT HAVE MORE TO DO WITH THE  DIFFERENCES IN THE OVERALL LITERACY THAN WITH FINANCIAL LITERACY IN PARTICULAR.

WHEN FINANCIAL LITERACY IMPROVES, IT WILL BE MORE DIFFICULT TO LURE SAVERS AND INVESTORS INTO DUBIOUS FINANCIAL PRODUCTS. THIS IS VERY OBVIOUS IN THE SO-CALLED “MENZGOLD SAGA”, BUT NOT LIMITED TO IT. HERE, THE QUESTION WHETHER MENZGOLD WAS REGISTERED AND WHERE PLAYS A MORE OR LESS SECONDARY ROLE. THIS IS A QUESTION FOR THE REGULATOR(S). THE PRIMARY CONCERN FOR INVESTOR SHOULD BE TO DIFFERENTIATE BETWEEN HONEST AND DISHONEST INVESTMENT OFFERS.

I OFTEN REFER TO THE OLD SAYING “IF IT SEEMS TO BE TOO GOOD, IT PROBABLY IS TOO GOOD TO BE TRUE”. IF SOMEBODY OFFERS YOU AN INTEREST RATE OF AROUND 40% PER YEAR, IT IS SURELY NOT SUSTAINABLE. SOONER OR LATER, THIS OFFER WILL COLLAPSE. CONSEQUENTLY, TRY TO AVOID SUCH SEEMINGLY “ATTRACTIVE OPPORTUNITIES”.

YOU SHOULD PREFER TO INVEST ANY SURPLUS AMOUNT IN YOUR LOCAL RURAL OR COMMUNITY BANK. THESE ONES OFFER A REALISTIC INTEREST RATE WHICH IS NORMALLY EVEN OVER THE INFLATION RATE. FURTHERMORE, YOU EVEN CONTRIBUTE TO THE DEVELOPMENT OF YOUR DISTRICT. THIS IS BECAUSE  THE BANKS USE YOUR INVESTED MONEY TO DISTRIBUTE LOANS FOR MICRO AND SMALL BUSINESSES. APART FROM THAT, RURAL AND COMMUNITY BANKS USUALLY USE PART OF THEIR PROFIT TO SUPPORT LOCAL INSTITUTIONS.THEY DO THAT IN PURSUING THEIR CORPORATE SOCIAL RESPONSIBILITY.

RECKLING ENTERPRISES THROUGH GHANA RESEARCH WANTS TO CONTRIBUTE ITS PART TO IMPROVE FINANCIAL LITERACY IN THE COUNTRY.

  • FROM BEGINNING OF NEXT YEAR ON, THERE WILL BE BASIC COURSES IN FINANCE AMD INVESTMENT ON ghanaresearch.org  .(THESE COURSES WILL BE COMPLETELY FREE OF CHARGE.)
  • BY END OF NEXT WEEK, I WILL PUBLISH A QUESTIONNAIRE ON THE WEBSITE AND ON SOCIAL MEDIA. IN THIS QUESTIONNAIRE, IN THIS QUESTIONNAIRE, YOU CAN ANSWER SOME SIMPLE QUESTIONS. ACCORDING TO THESE ANSWERS, I WILL TELL YOU WHICH TYPE OF INVESTOR YOU ARE. FROM THAT YOU WILL BE ABLE TO DERIVE HOW TO INVEST YOUR MONEY BEST.

 

I HOPE YOU WILL PARTICIPATE!

SEPTEMBER MEETING BANK OF GHANA MPC – PART 3

MPC-Press-Conf-Release_Sept_20_2019

Summary_of_Economic_Financial_Data_September-2019

IN THE THIRD AND LAST PART OF MY ARTICLE SERIES ABOUT  THE SEPTEMBER MEETING OF THE MONETARY POLICY COMMITTEE OF THE BANK OF GHANA, I WILL DISCUSS FOUR ISSUES.

— GOVERNMENT FISCAL OPERATIONS;

— MONETARY INDICATORS;

— BANKING SECTOR INDICATORS; AND

— STOCK MARKET PERFORMANCE.

FINALLY, THERE WILL BE A CONCLUSION AND  OUTLOOK.

  • GOVERNMENT FISCAL OPERATIONS

HERE WE GET JUST INTO THE CENTER OF ECONOMIC PROBLEMS. THE FISCAL OPERATIONS OF THE GOVERNMENT DIDN’T REACH THE TARGETS AT ALL LEVELS. DESPITE THE DOMESTIC REVENUE AND THE TAX REVENUE INCREASING MARGINALLY, THE OVERALL BALANCE WENT FURTHER INTO MINUS. THAT WAS BECAUSE THE EXPENDITURE INCREASED MORE THAN THE REVENUE. MORE MUST BE DONE TO GENERATE MORE REVENUE. THERE ARE PROBLEMS WITH COLLECTING THE PROPERTY TAX AS WELL AS FUNERAL FEES, E.G. THERE ARE ALSO PROBLEMS WITH TAXING THE INFORMAL SECTOR.

I AM AWARE THAT THE GOVERNMENT HAS IN PLAN MEASURES TO BETTER THE REVENUE COLLECTION. LET’S SEE WHAT COMES OUT OF THAT UNTIL THE END OF THE YEAR.

IN THE NEXT STEP IN THE GOVERNMENT’S FISCAL OPERATIONS IS THE PUBLIC DEBT. THE DEBT/GDP RATIO ROSE TO NEARLY 60%. THIS LEVEL IS USUALLY CONSIDERED THE UPPER LIMIT OF THE RATIO FOR A COUNTRY LIKE GHANA. ANYTHING HIGHER THAN THE 60%, AND THE SITUATION GETS DANGEROUS. WE CANNOT  AFFORD DEBT/GDP RATIOS OF 100% OR MORE LIKE SOME DEVELOPED COUNTRIES HAVE.

THERE IS ONLY ONE “POSITIVE” ASPECT WHEN LOOKING AT PUBLIC DEBT.THAT IS THAT THE DOMESTIC DEBT HAS INCREASED IN DOLLAR TERMS AS WELL AS IN CEDI TERMS. ON THE OTHER HAND.,EXTERNAL DEBT DECREASED MARGINALLY, ALSO IN DOLLAR TERMS AS WELL AS IN CEDI TERMS.

NOT A COMPLETELY ROSY PERSPCTIVE…

  • MONETARY INDICATORS

THE POSITIVE ASPEDT INTHOSE MONETARY INDICATORS IS THAT THE RESERVE MONEY HAS INCREASED TO 15% ANNUAL GROWTH RATE. ALL THE OTHER MONETARY INDICATORS (M1 AND M2) SHOW A SLOWDOWN OF THE INCREASE RATE. THIS IS PROBABLY THE RESULT OF A TIGHTENING OF THE MONETARY POLICY BY THE BANK OF GHANA.

THE PRIVATE SECTOR CREDIT (PSC) HAS RISEN IN NOMINAL AS WELL AS IN REAL TERMS. THIS SEEMS TO BE A GOOD SIGN. THAT MEANS TWO THINGS – THAT CONSUMERS WANT TO BUY MORE, AND THAT COMPANIES INTEND TO INVEST MORE. THE LATTER CORRESPONDS WITH THE BUSINESS CONFIDENCE RISING. WE MUST WATCH HOW THE CREDIT DEMAND AND SUPPLY DEVELOPS IN THE NEXT MONTHS. THIS IS ESPECIALLY NECESSARY AS SOME BANKS HAVE ALREADY MADE THEIR INTENTION CLEAR TO TIGHTEN THE CREDIT SUPPLY.

  • BANKING SECTOR INDICATORS

THE FINANCIAL SECTOR – OF WHICH THE BANKING SECTOR IS A PART – IS VERY IMPORTANT FOR THE DEVELOPMENT OF AN ECONOMY. AFTER THE CLEAN-UP OF THE BANKING SECTOR, IT SEEMS THAT THE SECTOR HAS STABILISED. THIS COMES TO LIGHT WHEN LOOKING AT THE AGGREGATE BALANCE SHEET. ALL  SUB-INDICATORS – TOTAL ASSETS, TOTAL DEPOSITS, AND TOTAL ADVANCES – HAVE INCREASED. THIS IS SURELY THE RESULT OF THE CLEAN-UP OF THE SECTOR AND THE FOLLOWING STABILISATION.WE CAN SEE THAT FROM THE FACT THAT THE AGGREHATE BALANCE SHEET BALANCE SHEET OF FEWER BANKS IS ACTUALLY BETTER THAN THE AGGREGATE BALANCE SHEET OF MORE BANKS VEFORE THE CLEAN-UP.

THE CAPITAL ADEQUACY RATIO HAS GONE DOWN MARGINALLY. BUT IT IS STILL HIGH ENOUGH NOT TO SHOW ANY PROBLEMS.

THE ASSET QUALITY HAS ALSO INCREASED, AS  THE PERCENTAGE OF NON-PERFORMING LOANS (NPL) DECREASED. THIS IS ESPECIALLY TRUE FOR LOW-CATEGORY NPL WHICH IS ANOTHER INDICATOR FOR THE STABILISATION OF THE ECONOMY.

MANAGEMRNT EFFICIENCY IS EFFECTIVELY FLAT, WHILE RETURN ON ASSETS AND RETURN ON EQUITY BOTH INCREASED.WITH THIS, BOTH INDICATORS WENT BACK ON A POSITIVE PATH, AFTER THEY DECREASED CONSIDERABLY IN THE MONTH BEFORE.

CONSEQUENTLY, THE BANKING SECTOR APPEARS TO BE ON HARD GROUND AGAIN. STAKEHOLDERS IN THE BANKING INDUSTRY SHOULD ONLY BE CAREFUL THAT THEY DON’T  OVERDO THE CAUTION IN CREDIT SUPPLY.

THE BANKING LIQUIDITY IS THE ONLY NEGATIVE SHOWING IN THE BANKING SECTOR INDICATORS.BOTH COMPONENTS WENT DOWN, THE CORE L;IQUID ASSETS TO SHORT-TERM LIABILITIES EVEN CONSIDERABLY.

  • STOCK MARKET PERFORMANCE

ANOTHER PART OF THE FINANCIAL SECTOR IS THE STOCK MARKET. UNFORTUNATELY, I CANNOT SAY MUCH POSITIVE ABOUT THE PERFORMANCE OF THE STOCK MARKET. BOTH INDEXES – THE COMPOSITE AND THE FINANCIAL – WENT SOUTHWARDS. THAT ONE THEY DID FOR THE LAST THREE MONTHS UNDER REVIEW. FURTHERMORE, THE TREND WENT ON IN THE LAST WEEKS. THEREFORE, BOTH INDEXES ARE ON THEIR LOWEST POINTS SINCE YEARS. AS THE MARKET CAPITALISATION SHOWS THE SAME TREND, WE CAN ONLY HOPE FOR BETTER TIMES.

  • CONCLUSION AND OUTLOOK

AS WE COULD EXPECT, THE FAILURE TO REACH THE REVENUE TARGETS IS THE MAIN PROBLEM. TOO MANY OTHER COMPONENTS DEPEND ON THE SUCCESS OF REACHING THE TARGETS. IF THAT COULD BE THE CASE, THE DEBT/GDP  RATIO WOULD SURELY BE IN A BETTER STATE, ALSO, MANY OTHER INDICATORS NOW IN THE NEGATIVE TERRITORY COULD GO UPWARDS. AS I ALREADY MENTIONED, THE GOVERNMENT WILL PUT IN PLACE MEASURES TO IMPROVE REVENUE MOBILISATION. ESPECIALLY THE TAX REVENUE  COULD IMPROVE SIGNIFICANTLY THROUGH THESE MEASURES.

WE MUST WAIT WHETHER THESE MEASURES CAN BE IMPLEMENTED SUCCESSFULLY. BUT IF THAT IS THE CASE, THE GHANA ECONOMY WILL SURELY TAKE A MAJOR STEP FORWARD.

SEPTEMBER MEETING BANK OF GHANA MPC – PART 2

MPC-Press-Conf-Release_Sept_20_2019

Summary_of_Economic_Financial_Data_September-2019

]IN THIS SEPTEMBER MEETING BANK OF GHANA MPC – PART 2 OF MY ARTICLE SERIES I WILL DISCUSS FOREIGN EXCHANGE RATES, COMMODITY PRICES, AND EXTERNAL SECTOR DEVELOPMENTS.

1) FOREIGN EXCHANGE RATES
ACCORDING TO THE PRESS RELEASE OF THE MPC, THE FOREIGN EXCHANGE MARKET “REMAINED RELATIVELY CALM”. (MPC PRESS RELEASE, NO. 10) I DON’T KNOW WHAT THE MPC UNDERSTANDS BY “RELATIVELY CALM”. I STILL SEE ONLY DOWNWARD TRENDS. THE CEDI LOST, LOST, AND LOST AGAINST THE US-DOLLAR, THE EURO, AND THE POUND STERLING. THIS IS ESPECIALLY DISAPPOINTING AS THE POUND AND THE EURO ARE WEAK THEMSELVES. AND UNFORTUNATELY, THIS TREND CONTINUED IN THE LAST DAYS. THE CEDI IS NOW MORE THAN 5.31 AGAINST THE US-DOLLAR. AS THE GHANAIAN ECONOMY DEPENDS TO A LARGE EXTEND ON IMPORTS, THE WEAK CURRENCY IS SURELY NOT ENCOURAGING.

THERE ARE SEVERAL WAYS THE CENTRAL BANK CAN INFLUENCE THE FOREIGN EXCHANGE RATE. WE CAN SUMMARISE ALL OF THEM UNDER “FOREIGN EXCHANGE CONTROL’. TO GO INTO DETAILS HERE IS PROBABLY A LITTLE BIT FAR-FETCHED.

THE PROBLEMS WITH THE CURRENCY IN GHANA ARE LESS A PROBLEM OF THE CENTRAL BANK AND THE MONETARY POLICY. THEY ARE MORE A PROBLEM OF FISCAL POLICY. IF THE GOVERNMENT SUCCEEDS TO INCREASE THE REVENUE – ESPECIALLY THE TAX COLLECTION – IT WILL HAVE A POSITIVE EFFECT ON THE CURRENCY.

ACCORDING TO THE BANK OF GHANA, THE GOVERNMENT IS ALREADY IN SIGHT OF SOME MEASURES TO BETTER TAX COLLECTION. LET’S HOPE THAT THESE MEASURES WILL HAVE A POSITIVE EFFECT. GHANA CANNOT AFFORD A MUCH WEAKER CURRENCY.

2) COMMODITY PRICES
FORTUNATELY FOR GHANA, THE RELEVANT COMMODITY PRICES DEVELOPED FAVOURABLY FOR THE COUNTRY.
ONLY THE COCOA PRICE IS A LITTLE BIT ON THE DOWNSIDE. BUT AT LEAST THE REALISED PRICE IS STILL ON THE UPSIDE YEAR-TO-DATE.
GOLD IS ON A LONG-TIME PEAK, REFLECTING A NEGATIVE SENTIMENT ABOUT THE GLOBAL ECONOMY. IF INVESTORS ARE DOUBTFUL ABOUT THE DEVELOPMENT, THEY USE TO FLEE INTO SAFE HAVENS. GOLD IS ONE OF THEM. THE TRADE WAR BETWEEN THE USA AND CHINA AND THE WEAKNESS IN EUROPE ARE REASONS ENOUGH TO GO INTO GOLD.

THE RECENT TENSIONS BETWEEN THE USA AND IRAN ALSO MADE THE OIL PRICE GO UP. USUALLY GOLD GOES UP WHEN OIL PRICE GOES DOWN. THAT IS BECAUSE DEMAND FOR OIL PLUNGES IN THE PROSPECT OF WEAKER ECONOMIC DATA. PEOPLE WON’T BUY CARS, AND USE LESS PETROL. DUE TO THE CRISIS INVOLVING SAUDI ARABIA AND IRAN, THE PROBLEM WAS LESS ON THE DEMAND SIDE. IT WAS THE FEAR OF LESS SUPPLY THAT PUSHED THE PRICE UP.

GENERALLY, GHANA CANNOT RELY ON COMMODITY PRICES REMAINING HIGH. ESPECIALLY THE OIL PRICE IS EXTREMELY VOLATILE. BY ALL MEANS, GHANA MUST INTRODUCE MEASURES TO ADD VALUE TO THE CRUDE OIL. ONLY THROUGH THAT CAN THE RELIANCE ON COMMODITY PRICES A LITTLE BIT LESSENED. ADDING VALUE IS PRINCIPALLY A GOOD MEANS TO INCREASE EXPORT POSSIBILITIES.

3) EXTERNAL SECTOR DEVELOPMENTS
ESPECIALLY THE THREE COMMODITIES MENTIONED ABOVE GAVE GHANA A REASONABLE TRADE SURPLUS OF 2.6 BILLI ON US-DOLLARS OR 3.9% OF GDP.

STRANGE IS THAT CURRENT AND CAPITAL ACCOUNT OBVIOUSLY DON’T BALANCE – WHAT THEY SHOULD USUALLY DO. (CURRENT ACCOUNT=CAPITAL ACCOUNT+FINANCIAL ACCOUNT)

THE GROSS AS WELL AS THE NET INTERNATIONAL RESERVES INCREASED MARGINALLY. THIS IS A GOOD SIGN, ESPECIALLY AS THE IMPORT COVER ALSO INCREASED MARGINALLY TO 4.1 MONTHS.

IN THE LAST PART OF MY ARTICLE SERIES I WILL DISCUSS GOVERNMENT FISCAL OPERATION, MONETARY INDICATORS, BANKING SECTOR INDICATORS, AND STOCK MARKET PERFORMANCE. APART FROM THAT, THERE WILL BE A CONCLUSION AND FINAL ASSESSMENT.

STAY TUNED!