Ghana’s strengthening and stabilisation of the cedi may be bringing welcome relief to consumers and businesses, but Natural Resource Governance Expert Dr. Steve Manteaw says the gains could become less meaningful if the stronger currency simply makes it cheaper for Ghana to import more of what it does not produce.
According to Dr. Manteaw, cedi stability is important for containing inflation and reducing the cost of imported goods, but it also carries a less obvious risk. Ghana could become an even bigger market for imported consumer goods without building the productive capacity needed to manufacture more locally.
He is therefore calling for the government to take a deliberate step alongside its efforts to stabilise the currency. He is calling for the government to abolish the 5% import duty on industrial machinery.
In his view, a stronger cedi should buy machines, not just more consumer goods. He explains that when the cedi is stable and stronger against major currencies, imported goods become relatively cheaper in cedi terms. That is good news when Ghana imports machinery, production equipment, and technology because businesses can acquire the tools needed to expand production at lower cost.
But the same currency strength can also make imported finished goods more attractive to consumers. This creates a familiar problem for Ghana, which is the country can end up importing more products while struggling to produce enough of its own.
Dr. Manteaw argues that policy must therefore deliberately tilt the benefits of currency stability towards productive imports rather than consumption-driven imports.
In practical terms, instead of using a stronger cedi mainly to bring in more finished products, Ghana should make it easier and cheaper for businesses to import the machinery required to manufacture those products locally.
This could mean food-processing equipment for companies turning Ghanaian crops into packaged foods, machinery for textile and garment manufacturers, equipment for pharmaceutical production, or technology that allows local businesses to process raw minerals and agricultural commodities rather than exporting them in largely unprocessed form.
The 5% duty could be standing between Ghana and more factories. This means for an importer, a 5% duty may appear relatively small. But for a business already facing high financing costs, energy expenses, transportation costs and other taxes and charges, every additional cost can influence whether an investment goes ahead.
Removing the duty, Dr. Manteaw argues, would lower the cost of acquiring industrial machinery and potentially make it more attractive for businesses to invest in productive capacity.
“While the Cedi’s stabilisation is good for containing inflation, it also risks accentuating our import dependency, turning us into consumers rather than producers, and making BoG’s intervention in the forex market unsustainable, and without clear purpose in the long term,” he remarked in a comment.
He recommended that, “at this point, while we do all in our power to stabilise the local currency, we must be deliberate and aggressive about incentivising machinery and technological, rather than consumer imports, to diversify the economy away from primary commodities. In this regard the 5% duty on industrial machinery must be abolished completely. This will serve as a boost to the 24-hour economy agenda of the government.”
The reason for his call, he says, is not simply to make machines cheaper but also to make production cheaper and investment more attractive. If a manufacturer can acquire modern machinery at a lower cost, he/she is better positioned to increase output, improve efficiency, create jobs, and compete with imported products.
This is where cedi stability could begin translating into something more enduring, such as from import consumption to import substitution
For him, a stronger cedi can make imports cheaper; however, the policy challenge is to ensure that Ghana uses that advantage to import the machines that can eventually make fewer imports necessary.
