Changing the ‘weak cedi’ narrative


Today, the Ghanaian economy has grown in leaps and bounds as compared to other African countries.

The economy has been diversified and developed to match some of the most vibrant economies within the sub-region. Throughout the decades of building, growing, transforming and reforming; the Ghanaian economy has supported the creation of business partnerships in the global business ecosystem.

Predominating these partnerships to some extent have been imports and exports trade and these have snowballed over time. Although Ghana continues to garner from the benefits accrued from importation and exportation of goods and services, the country’s over-dependence on imports continue to have a momentous impact on the Ghanaian currency, the Cedi.

Exhibit 1; Real GDP Growth and Consumer Prices of Countries in Sub-Saharan Africa

Summary of the narrative

The over-dependence on the importation of goods and services have resulted in perennial depreciation of the cedi.

The burgeoning of the black market operations in the country impacts the strength of the Ghanaian cedi.

The impunity enjoyed by business, organizations, companies and individuals for the dollarization of the Ghanaian economy continues to snowball the depreciation of the cedi.

Upward adjustments in the US Federal reserve rate and hike in interest on investment assets in the global financial market also impact the cedi performance.

Persistent current account deficit and the fluctuations in international commodity prices especially Ghana’s key commodity exports have accentuated the cedi weakness.

A host of other factors including market speculation, inflation, the collapse of confidence all contribute to the depreciation of the cedi.

Exhibit 2; Cedi depreciation against major trading currencies.

 The surging depreciation of the Ghanaian cedi year after year since independence has weighed heavily on the growth of the Private Sector and State-Owned Enterprises especially those in the energy sector. It has over the years also eroded economic gains and its multiplier effect on microenterprises and to a larger extent poverty alleviation. Indeed, the continuous depreciation of the cedi has resulted from a confluence of weak macroeconomic fundamentals and external factors including, high importation of goods and services, black market operation, pricing in dollars locally, increasing unplanned expenditure by the government (fiscal discipline) etc.

This article would briefly consider the factors that cause the cedi to depreciate and offer some workable solutions on how best as a country we can change the narrative on the perennial cedi depreciation.

Over-Reliance on Importation and how it affects our currency

Ghana’s over-dependence on importation erodes the country’s foreign currency reserves and this impacts on the value of the local currency, the Cedi. This is because high import levels must be matched with an increase in foreign reserves, that is how you pay for the imported goods but that is not the case with Ghana.

Persistently, Ghana has been running a trade deficit due to the high levels of imports vis-à-vis exports. Anytime Ghana has a budget or trade deficit, it must borrow to pay for the extra imports and this impact on the value of the local currency. Indeed, our over-reliance on imports like food, petroleum products and machinery for our local operations makes us depend on other countries economic power. It’s important to mention that it’s dangerous if as a country we continue to rely on a foreign power to keep feed our citizens and industries.

The local industries, businesses and entrepreneurs are unable to compete with the imported goods and services due to the high cost of production, labour, electricity and other factors and this affect employment. High unemployment breeds poverty, low economic activities, low domestic revenue generation which culminates into low economic growth for the country.

Changing the narrative

Fortunately for us as a country, we have an incredible example to learn from the Acheampong regime (1972-76) where so much funds were allocated to agriculture expansion and industry. This effort was complemented by ADB and NIB extending loan facilities to farmers and industry in an effort to stimulate the cultivation of both food and industry related crops.

Now let me give you a brief insight from the “Linchpin” of the Acheampong’s economic policy on agriculture. The Operation Feed Yourself (OFY) program was purposely to increase the production of foodstuff (rice, maize, cassava, yam, groundnuts, plantain and millet) for the market, ensuring the availability of adequate foodstuffs for local needs at a reasonable price.

Furthermore, the programme was implemented to improve cash crops (pineapple, ginger, citrus, pepper, avocado etc.) for exports to increase foreign exchange earnings. In addition, Operation Feed Yourself Industries were also introduced to add value (cotton, tobacco, oil palm, sugar cane etc) for export and local consumption. The Acheampong government provided enough agricultural incentives to boost local production.

One can say that the Planting for Food and Jobs, one of the flagship programmes of the current government to some extent can be likened to the Operation Feed Yourself programme in the 70s except that its implementation is very wrong.

According to the Minister of Agriculture, Dr Owusu Afriyie Akoto, the programme in its first year of implementation produced a total crop value of GH¢1.2 billion. The objectives of the programme are, among others, to ensure immediate and adequate availability of food and to provide the raw material base for agro-processing in the country through improved productivity and intensification of targeted support to private sector service providers, and to provide job opportunities for the teeming unemployed youth in the agricultural sector. In spite of this, the produce never gets to the market because of the very bad transportation network, lack of storage facilities among others.

Also, the government recently launched another programme under the Planting for Food and Jobs called the Planting for Export and Rural Development (PERD). PERD is designed to focus on the development of selected export tree crops, namely cashew, coffee, oil palm, coconut, mango and rubber. PERD provides a historical opportunity for addressing the economic fundamentals by expanding the capacity to earn foreign exchange from agricultural exports and generate much-needed jobs. The PERD programme when implemented successfully would also link agriculture to industry through the provision of a solid raw material base for industrialization, develop rural economies and the structural transformation of the national economy all of which will go a long way in changing the dynamics of the structure of the economy to shore up the cedi against its peers. For the successful implementation of the above-mentioned programme, a draft bill for the development of the tree crop sector is in the offing. The bill, when passed by Parliament, will establish the Tree Crop Development Authority (TCDA). The proposed Authority will provide policy direction and regulation for the development of the sector. Unfortunately, there is no synergy in all the programmes by the government to create jobs and boost revenue generation.

Additionally, very important to change the narrative is the government flagship programme One District One Factory (1D1F). This is a policy that is set to ignite Ghana’s industrialization and set it on course for socio-economic development. It is aimed at establishing at least one factory or enterprise in each of the districts in Ghana as a means of creating economic growth poles that will accelerate the development of these areas, produce import-substitution goods for local consumption, export value-added products to generate foreign exchange and create jobs for the youth. The government has indicated that 79 projects under the One District, One Factory (1D1F) Initiative, which is at different stages of implementation, would be rolled out by the end of this year. Although the implementation has not gone that well, in my opinion, it is still one of the critical policies that will change the structure of the economy, and all must be done to make it succeed.

Therefore, with the success of the various interventions government is making in the agricultural sector, the PERD initiative, combined with the other flagship programmes like “One Village, One Dam”, “One District, One Factory”, and “One District, One Warehouse” policies, together, provide a historical opportunity for the complete transformation of agriculture and through that the transformation of the economy of Ghana.

Ways to Increase Exports

Trade Protectionism

The Ministry of Trade and Industry should develop a framework to insulate our local goods and services from global competition for a period and this must be done strategically. The strategic document should seek to use some sanitary and phytosanitary measure and tariff barrier to bar some imports which are or can be produced locally as it is the case for the EU countries.

Government Subsidies

The government should collaborate with the ministry of Finance and Trade to provide some significant trade subsidies for local industries and farmers to lower their production cost to boost production and be competitive in their pricing on the global market. Some emerging markets protect new industries. They give them a chance to catch up with technology in developed markets. For example, the European Union and the United States refused to end their agricultural subsidies to their industries.

The Black Market Operations

The black market business is one of the most proliferated and vibrant illegal forex market in Ghana. Their operations are not regulated and they have become an influential force in determining the exchange rate of the major trading currencies especially the dollar. Currently, their operations have spillover to the extent that they influence the demand and supply of forex in the Ghanaian economy.

It is very clear that the Bank of Ghana has lost control over the activities of the black market operators because they failed to clamp down their activities when it mattered most. Unfortunately, the operations of the black market operators have created a parallel forex market in Ghana where the central banks quote a rate for a dollar and the black market quote a higher rate, this continues activity is a contributing factor to the depreciation of the cedi. The central bank currently is confronted with a daunting task on how to collect accurate data especially on the amount of forex in circulation within the black market for proper management of forex trading in the country. Coupled with this is the universal banks’ ability to meet the market demand for forex due to limited availability of forex from the Bank of Ghana.

Dealing with Black Market Operations

The bank of Ghana first of all should create a condition within the market which is favourable for all traders to have access and availability of forex for their business.

The Bank of Ghana, Ministry of Finance and the security forces should collaborate to launch a task force that would crack down on all black market operators within the major business areas in the country.

Government of Ghana should launch a prosecution campaign to deal with persons running a parallel forex market in Ghana. Huge financial penalties should be imposed on all black market currency operators.

Dollarization or Currency Substitution

From my point of view, dollarization occurs due to the weakness that lies in the monetary and economic management by the central bank and the government. This is because dollarization is a clear manifestation of the citizen’s desire to insure their funds or investments against hyperinflation. Indeed, some believe that the uncertainties as to the effective yields of the assets denominated in the local currency “CEDI” arising due to the volatile nature of inflation and exchange rate is a contributory factor to the dollarisation of the economy. Therefore, to ensure the stability of their investments, individuals and business entities prefer to price in dollars as well as holding dollar assets to that of the cedi.

The resultant effect is that, in Ghana, even the payments of school fees, mortgages and government contracts are priced in dollars. The other important reason is the low trust in monetary policy management in Ghana.

It should be taken into account that macroeconomic conditions can influence dollarization in any economy and for that matter, the central bank should be focused and consistent not only to send signals to the public about their firm intention to ensure monetary stability but also to take supporting measures to promote a favourable business environment in the financial market.

Weak macroeconomic fundamentals create preconditions for high dollarization in any economy. To this end, the Central Bank and the managers of the economy should work at building trust and confidence among market participants of its ability to ensure economic stability. If this does not suffice in the medium to long term, dollarization of the economy would not go down or eradicated completely.

Going forward as a country, there is the need for conscious efforts made at achieving the following to deal with the dollarization in the country;

The macroeconomic environment should be stable to restore confidence and trust among the players in the market.

There is the need for creating a stable and favorable financial market environment where, there is availability, accessibility and affordability of forex in a well regulated market. The central bank should always ensure that the universal banks have forex that meets the market demand.

Active measures should be taken to prevent both government payments and pricing of goods and services especially school fees and mortgages in foreign currency particularly dollars.

The central bank should develop and improve the infrastructure system to monitor foreign exchange risks, and informing market participants about foreign exchange risks and advantages of transactions in the local currency. The government should lead the way by transacting all businesses and making all payments in the local currency, the Cedi.

Dividend Repatriation and Capital Investment

The conversation around dividend repatriation by multinational companies needs to continue since it impacts on the strength of the local currency. The Ministry of Finance, the central bank, government and the leadership of the multinational companies should collaborate and reach a decision on best ways of dividend repatriation to reduce its significant impact on the value of the local currency.

The country always experiences significant depreciation of the local currency mostly to the end of each first quarter of every year and this can be attributed to the huge sums of dividend repatriation by multinational companies in Ghana. Granting that the chief emphasis is, and must be, upon how the central bank manages the impact of dividend repatriation on the cedi, a conversation with the leadership of multinational companies to reach the proposed agreement of dividends repatriation in stages would ease the pressure on the exchange rate towards the end of first quarter of each year.

The government can review the current legislation on repatriation of profits and dividends by putting in clauses that will ensure the rollout of dividend payments through a quota or fixed amounts through a time period say quarterly or half yearly.


There is always a danger that currency depreciation may be temporary or permanent but whichever way it is, the impact on the economy is significant if not well managed. A case in point is what Ghana is experiencing, where the cedi depreciates continuously, imports are increasing, exports are reducing, government expenditure is rising, revenue generation is falling, people’s purchasing power is reducing, unemployment is rising, local companies are failing and yet government is on the borrowing spree for consumption and to service interest payment instead of government pulling the breaks to change the narrative or overhaul its strategy on managing the economy. It is important to note that the populace economic management agenda by the government cannot solve problems but rather worsen it in the long run.

By Jelili Jerry Afolabi |

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