The recent sharp depreciation of the cedi has thrown the spotlight on the fact that there are lots of ways in which business activities in Ghana that are wasting the foreign exchange available in the economy. One of them is through the blunt refusal of many, indeed most importers to obey current regulations that require all imports to be insured with locally registered general insurance companies on CIF basis.
This is costing the Ghanaian economy huge sums of foreign exchange given out to foreign insurance firms as premiums, to provide cover on goods being imported into the country on FOB basis. Not only is this contributing to the pressure on the Ghanaian cedi; it is downright illegal too.
To be sure, this newspaper can understand why some importers disobey the regulations on compulsory local insurance of imports. If a company imports goods from abroad on credit, using bills for collection, rather than paying cash through the usual process of establishing a letter of credit, the foreign counter-party (who is the exporter) would prudently insist that the marine insurance be done in the exporter’s home country, preferably using the insurer of the exporter.
This is because since the exporter has not been paid at the time of shipment, it would be prudent to ensure that if anything goes wrong, the insurer would be within easy reach. Since the transaction is being done on credit, the exporter can insist on this – if the importing counter-party in Ghana refuses, insisting on following local regulations, then the exporter would simply withdraw the offer of credit and insist on a cash pre-payment.
However, when the transaction is being done on cash basis, using a confirmed letter of credit, the opposite circumstances arise – the exporter has already got his money by the time of shipment and so it would be best for the importer to have insured the goods at home so if anything goes wrong, the insurer would be within easy reach.
So why do importers in Ghana refuse to obey regulations that are useful not just to the Ghanaian economy in general but to the importers specifically as well. This newspaper has been informed that it is for the simple reason that the foreign insurers offer cheaper insurance in the form of lower premiums, whether computed in cedis or in dollars. This is because of straightforward economies of scale which the bigger foreign insurers enjoy over their smaller Ghanaian counterparts.
We believe however that business enterprises that think in this way are simply short-sighted; they contribute to the very cedi depreciation that ultimately makes business success next to impossible.
But even more importantly, the law makes marine insurance placed abroad illegal. Of course, it is easy to discern why enterprises are able to disobey the regulations without sanctions, despite the fact that the identification of breaches of the law and computation of the amounts involved should be simple – staff of the authorities who are supposed to do this and take legal action take money to look the other way.
Insurance industry analysts estimate that marine insurance, properly placed locally as required by law, should be competing with compulsory motor insurance as the biggest contributor to insurers premium income. At the same time, it would save Ghana huge quantum of foreign exchange.
It is therefore time to get those responsible to do the right things.