Ghana wants mining firms to boost local savings

Ghana wants mining firms to boost local savings
Written by Kwasi Kpodo

ACCRA (Reuters) - Ghana is appealing to mining companies operating in the country to increase their savings with local banks to help shore up the national currency, Finance Minister Kwabena Duffuor said on Monday.

At the moment, mining companies in Africa's second biggest gold producer say they plough back about 50 percent of their earnings into the Ghanaian economy through local purchases for their operations in the West African country.

Ghana would like the companies to hold more of their earnings from operations with local commercial banks, rather than bringing money into the country through the central bank as needed.

Duffuor, who met the mining companies last week, stressed that he only appealed to them, and did not make any demands.

"I sat with them and encouraged them to keep their savings at the local banks. It's an appeal, a moral situation, and nothing is binding," Duffuor told Reuters on Monday.

"The meeting ended on a positive note and we are waiting to hear favourably from them," he said.

AngloGold Ashanti and Newmont Mining Corp both said it was too early to say what their responses would be.

Ghana's cedi, which was redenominated in July 2007, has steadily depreciated against the dollar. One dollar bought 1.425 cedis on Monday, up from 1.19 at the end of 2008 and 0.92 in mid-2007.

The cedi has been hit by widening current account and budget deficits that have worried investors. Government spending soared last year while the country's import bill surged on oil and food prices -- leaving the new administration facing a cash crunch.

Ratings agencies Standard & Poor's and Fitch both cut their outlooks for the West African country last month to negative on the back of the deteriorating macroeconomic environment, blaming external shocks and loose budget management.

John Owusu, corporate affairs manager of AngloGold Ashanti, told Reuters the company received the appeal in good faith, but a final decision rested with management in South Africa.

"It is possible we'll respond positively to this appeal but it is a decision for the corporate office to take," he said.

Newmont Mining Corporation's External Affairs Manager, Chris Anderson, said the company attended the meeting and it was about how much the companies can keep in commercial banks in Ghana. He said it was too early to tell what Newmont's response would be.

Ghana's finance minister said the withdrawal of foreign investors from the government securities market and very weak economic fundamentals at the time of the introduction of the new currency had led to the pressure on the cedi.

"The new Ghana cedi was introduced at a time when there were high levels of money supply, inflation and high government spending and a trade balance deficit, as well as deterioration in the overall balance of payments," he said on Friday.

He said the central bank had tried to prevent serious currency depreciation by selling dollars on the foreign exchange market to prop up the cedi.

Duffuor said the offloading of some $145 million worth of bonds by foreign investors to local buyers since the beginning of the global financial crisis in October had compounded the pressure on the cedi.

As of December, foreign investors held 46 percent of Ghana's three-year fixed bond and 87 percent of five-year fixed bonds.