After the persistent depreciation of the Ghana cedi, the currency is seeing some respite, enjoying some stability in the last weeks. The business community in Ghana is full of praise, and the shoulders of the economic managers are up high, taking credit for the feat achieved.
The cedi’s stability is mainly driven by booming gold exports and reserves, the sharp rise in remittances, fiscal discipline, and restrained imports.
There is a new hope within the business community as they anticipate sustained positive speculation and predictability of the forex market. The stability, as GUTA has admitted, is boosting business confidence and is poised to quicken the pace of the country’s economic recovery.
The benefits of the cedi’s appreciation, as earlier discussed by The High Street Journal here, are enormous.
But beneath the surface of the cedi’s appreciation lies an uncomfortable truth. A sustained strong cedi, if not managed alongside strategic reforms and complemented with other policies, risk making Ghana’s exports expensive on the global market. For local manufacturers and exporters, the very stability that signals recovery could become a silent threat to competitiveness.
The Threat to Export
When a currency appreciates, it lowers the cost of imports and can help curb inflation. These benefits are critical in a country like Ghana, where the rising cost of goods and services has for years squeezed households and eroded purchasing power.
However, there is a flip side. A stronger cedi means that Ghanaian goods priced in dollars become more expensive for foreign buyers. This means foreign buyers, due to the appreciation of the cedi, will get less of the currency for every dollar spent on Ghanaian goods. As a result, Ghanaian products or exports become expensive and hence less attractive compared to other alternatives.
Foreign buyers will now prefer cheaper alternatives from other countries. This is a major threat to the survival of local businesses and industries that produce for export. Revenues are threatened, risking jobs in those affected businesses.
This is particularly damaging for non-traditional exports such as textiles, crafts, processed foods, and light manufacturing produced by local businesses that already operate under high-cost conditions.
On the general economic level, the expensive exports is a threat to the country’s foreign earnings. This also has consequences for the local currency.
The New Export Strategy
President John Dramani Mahama recently launched the Accelerated Export Development Advisory Committee. This Committee is chaired by the President himself, indicating the importance placed on this committee.
The government has announced an ambitious aim to achieve through this committee. Under the Accelerated Export Development Programme (AEDAC) and the National Export Development Strategy, the government aims to grow Ghana’s non-traditional export earnings from $3.5 billion annually to at least $10 billion by 2030.
To achieve this, the President will prioritise value addition and economic diversification.
This signifies that there is a deliberate strategy by the new government to increase its earnings from goods exported from Ghana. However, this vision is under threat with the new appreciation of the cedi.
Why Reducing the Cost of Doing Business is Crucial?
As agreed by analysts and economists, stability and appreciation of a currency are not negotiable. This means that there is a balancing act required to maintain the cedi’s appreciation without collapsing the country’s export sector.
Ghana’s exports must still stay competitive and hence strategies are needed to ensure that the country’s exports are less expensive despite the impact of the cedi’s appreciation.
One way to ensure this is for the government to aggressively reduce the cost of doing business in Ghana. This means tackling key business bottlenecks such as energy costs, bureaucratic processes, poor infrastructure, nuisance taxes, among others.
The government must counter the impact of the cedi’s appreciation on exports by deliberately ensuring the reduction in energy costs, streamlining bureaucratic procedures, modernizing transport and logistics infrastructure, and offering targeted incentives to exporters.
It also means reforming the tax system to encourage reinvestment and scaling, while expanding access to financing through development banks and export credit facilities.
The goal must be to create an export-driven economy that thrives regardless of exchange rate movements.
Turning Stability into Sustainability
The cedi appreciation, if sustained, can be a powerful economic tool for economic growth and development. However, if accompanied by deliberate policies that strengthen the productive sector, the government can mitigate the downsides that come with it. Without measures to make Ghana’s exports competitive, the gains will remain cosmetic, propping up macroeconomic figures while hollowing out export capacity and stifling growth.
The opportunity is now for Ghana to use this window of currency strength to rebuild its export foundation by making the business environment more efficient and cost-effective.
