PAHS401: Assessing the Impact of Bank of Ghana's Financial Purge

This essay examines the economic ramifications of the Bank of Ghana's financial sector reforms, specifically the revocation of licenses from numerous microfinance and savings & loans companies. It analyzes the impact on key areas such as money supply, company growth, employment, and overall economic growth in Ghana. The essay highlights the negative impacts, including job losses and decreased business growth, while also acknowledging potential positive effects like increased investor confidence due to stricter regulations. Furthermore, the essay discusses the potential of the Africa Continental Free Trade Area (AfCFTA) to boost intra-African trade and investment, focusing on sectors like automotive, agriculture, pharmaceuticals, and transport/logistics. It emphasizes the importance of eliminating trade barriers, fostering cooperation among member states, and developing competitive manufacturing to unlock Africa's business potential and promote economic development.

STUDENT ID: 10837360
NAME: MAVIS BIO ASIEDUAA
COURSE CODE: PAHS401
GROUP NUMBER: 2

QUESTION ONE
The Bank of Ghana has revoked and placed under control the licenses of approximately 347
microfinance companies and 23 savings and loans and finance companies in 2019. Files were
created for 13 professional deposit and withdrawal agencies and was forwarded by EOCO to the
Attorney General for advice and prosecution. This economic practice has had many ramifications
and has affected several sectors of the economy. The note here is to discuss some areas that have
impacted Ghana's economy, and these areas are discussed as follows:
a) Money supply:
As for the money supply, the bank purge initiated by the Bank of Ghana has had a major impact.
The sense is that greater of these microfinance, savings and loans received huge amounts of
money from businessmen. Because some of the businessmen launched investment opportunities,
convincing the general public and encouraging more people to decide to fund these financial
institutions. This actually made the interbank transfer within the Ghanaian system and there was
always money in the system to transact. They attracted a lot of local investment, so money
circulation was very high. An example of this was when these financial institutions were formed
in indigenous areas. There, trust was easily eroded because the investment sounded attractive and
attractive to people. Currently, the money supply in the system is in trouble because people
prefer to hide money in their homes rather than relying on banks and financial institutions to
deposit and save.
b) Company Growth:
Most of these ventures were virgins, young entrepreneurs determined to do something for
themselves and society. Such a decision by the Bank of Ghana was a tough one that crushed the
dreams of many young entrepreneurs. Many people have also locked up capital in these financial

institutions. It is the same funds that these entrepreneurs in the country used to run their
businesses that somehow led to the collapse of the companies. In the long run, the collapse
resulted in the decrease rate of growth of the country's businesses.
c) Employment:
In my view, the labour sector (employment) is the main beneficiary of the negative impact of the
restructuring of the banking sector by the Bank of Ghana (BoG). About 42,850 Ghanaians who
worked under these banks have lost their jobs, according to the African Eye Report. Of the
42,850 figures lost after breakdown, 4,500 direct jobs and 2,000 indirect jobs were lost due to the
revocation of 16 banking licenses.
He added that 4,000 direct and 3,800 indirect jobs have been lost due to the bankruptcies of 23
savings and loan companies in the country. Thompson further announced that 17,350 direct jobs
and he also lost 10,000 indirect jobs because of the collapse of 386 microfinance institutions
(MFIs) in Ghana. The collapse of 53 fund managers operating in the West African country has
resulted in the loss of 1,000 direct and 500 indirect jobs. Addressing the social impact of
the clean-up on lives and their loved ones, Thompson said 18,000 workers involved in the clean-
up had perish.
d) Economic Growth in Ghana:
According to Gilbert Sebe-Yeboah, MBA, MA. As ADB's head of consumer finance, he is
certain that the clean-up is having a direct and indirect impact on Ghana's investment climate, in
addition to the direct financial costs and its impact on the economy. I emphasized. These effects
on both the economy and investment activity can be positive or negative.
One of the effects of the banking sector purge is that the investment environment has softened
somewhat as investment firms that operate like Ponzi schemes have been eliminated. Regulators

have stood up to a strict licensing regime and heavy scrutiny of investment firm activity,
boosting confidence in the system, which had previously eroded as it emerged that it had wiped
out the system's inherent weaknesses. After the bailout, bank deposits, including term deposits,
increased significantly.
The banking sector purge has taught individuals and businesses a bitter lesson about investment
choice. The clean-up has revealed weaknesses underlying the investment decisions of some
companies and individuals. Many people invest in favour of higher returns, ignoring other
important considerations of investment risk and safety. Individuals and businesses recognize that
returns come with risks. In other words, the greater the return, the greater the risk. Companies
and individuals are now making more prudent investment decisions based solely on returns.

QUESTION TWO
“Africa Continental Free Trade Area (AfCFTA) Will Boost Intra African Trade and
Investment” Akuffo-Addo (2020).
The Africa Continental Free Trade Area (AFCFTA) was signed by 44 member states in Kigali,
Rwanda in 2018. It was officially launched in 2021 with its Secretariat located at Accra, Ghana.
The AFCFTA creates a single market in Africa. According to the World Bank, the AFCFTA
could ameliorate 50 million people from poverty, increase intra-African exports up to 109%,
increase international exports up to 32% and increase overall income by 8% by 2035 (World
Bank, 2022). These predictions by the World Bank suggest that there is an unrivalled opportunity
for indigenes and the international community to invest in the growth and development of vital
local and regional value chains on the African continent.
The AfCFTA identified four major sectors as vital areas as a result of its potential for meeting
local demand. These sectors are the Automotive, Agriculture and Agro-Processing,
Pharmaceuticals and Transport and Logistics (Signé & Munyati, 2023). It is expected that these
four sectors would accelerate production and trade volumes under the AfCFTA because of their
potentials of meeting local demand and production. How would the AfCFTA boost investment
and Intra-African trade?
The AfCFTA will create a single market. The number one objective of the AfCFTA is to create a
single market for goods and services to increase trading among African countries. The AfCFTA
is aimed at eliminating trade barriers. This will foster cooperation among member states on
investment and competition policies, intellectual property rights, settlement of disputes and other

trade-liberating strategies. The unified market under the AfCFTA improves the competitiveness
of local assembly and local sourcing partnerships. The unified market is a much more attractive
dynamic for investors than 54 separate economies.
The presence of a collaborative structure and enforcement will help increase trade and
Investment. Decisions regarding the AfCFTA member states are mainly reached by a simple
majority vote. Meaning, everyone has a say in the decisions of the AfCFTA. The AU will
provide oversight, guidance and interpretations of the agreement.
The elimination of tariffs would increase trade and investment. Member states will progressively
eliminate import duties and apply preferential tariffs to imports from other states. Member states
with already existing regional trade arrangements must maintain and improve on them. In
agriculture and agro-processing sector, this initiative will help reduce the dependency on foreign
inputs and enhance continental food resilience. The elimination of import duties also creates
room for trading activities to small businesses in the regional markets. Eighty percent, 80% of
African businesses is made up of Small and medium-sized Enterprises (SMEs). Increased trading
also expedites small business products to be traded as inputs for larger enterprises on the
continent.
The AfCFTA will help develop competitive manufacturing. With a successful implementation of
this new trade initiative, there is possibility for Africa’s manufacturing industry to double in size
from $500 billion in 2015 to $1 trillion in 2025, creating 14 million stable jobs.
In conclusion, the implementation of the AfCFTA will make Africa the hub of investment and
improve trade as asserted by H.E Nana Addo Dankwa Akuffo-Addo, the President of the
Republic of Ghana.

References
Signé, L. (2020). Unlocking Africa’s Business Potential: Trends, Opportunities, Risks, and
Strategies. Brookings Institution Press. Retrieved from
https://www.brookings.edu/book/unlocking-africas-business-potential/
Signé, L., & Munyati, C. (2023). AfCFTA: A New Era for Global Business and Investment in
Africa. World Economic Forum.
World Bank. (2022, June 30). Free Trade Deal Boosts Africa’s Economic Development.
Retrieved from https://www.worldbank.org/en/topic/trade/publication/free-trade-deal-
boosts-africa-economic-development#:~:text=A%20new%20agreement%20creating
%20Africa's,people%20out%20of%20extreme%20poverty