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Why Is The Cedi Depreciating?   
 
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18-Mar-2019  
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To the majority of Ghanaians whose daily activities do not directly demand changing the cedi into dollar to either save, import or probably export, the worries surrounding the cedi depreciation in recent times would not be an immediate bother.

However, to those whose, businesses and livelihoods concern the aforementioned activities, the loss in the value of the cedi to the greenback poses a disturbance and continues to be.

On Friday, bank customers who went to the bank with US dollars to exchange them for cedis had it at GH¢5.20 while for those who wanted to buy the dollar with cedis had one sold to them at GH¢5.60.

In 2008, a trader paid one Ghana Cedi for one U.S. dollar, but at the beginning of April 2012, the same trader travelling outside the country paid GH¢1.74 for one U.S. dollar.

Also, between January 2018 and January this year, the cedi depreciated by 11 percent. The local currency sold at GH¢4.91 to a dollar on the interbank foreign exchange market till it crossed GH¢5.

Hardest hit by the cedi’s depreciation are importers of all kinds of goods and services who have had to look for more cedis to ship their consignment or enjoy the services into the country, including spare parts dealers. In all this, the additional cost they incur as a result of the depreciation is passed on to people who buy the products. This continues to be an albatross on the necks of most businesses including those of the Association of Ghana Industries.

Factors

A number of factors are contributing to the depreciation of the local currency to the dollar, despite the political assurances. Among these is capital flight which can best be described as the rapid movement of large sums of money out of a country.

In the case of Ghana, for example, there are a number of huge multinational companies that operate here as well as individual businesses that engage in import and selling.

Since they are all investors who are looking for profits, anytime they make sales in Ghana cedis, they change the Ghana cedis into dollars and have no choice than to repatriate such huge amounts of money into their respective countries they came from.

What this means is that any amount of dollars that Government secures and pumps into the economy to shore up the local currency, is immediately swallowed by the cedis that is exchanged for dollars and dispatched out of Ghana.

What the experts say

According to experts, factors such as a country’s economic condition, monetary policy and global market conditions do impact currencies on a regular basis. There is also the fact that when global demand for a country’s exports is low, the value of its currency declines.

For Ghana to be able to tame the flight of the dollar, irrespective of which party is in power, a lot of capital need to be retained in the country and this can come about when indigenous businesses are able to attract high local patronage, export more of their products to neighbouring countries and by extension the diaspora.

1D1F

It is in an attempt to help arrest the situation, among others, that Government has introduced the One District One Factory (1D1F) policy, to ensure that the establishment and operation of heavily indigenous-owned private enterprises in every district, could help arrest the heavy dependence on imports through sales of products locally and to the sub-region and eventually help to bridge the constant pummeling of the local currency.

Government’s solution

It would be recalled that on Wednesday, Government gave assurance that it was adopting a number of measures, within the next couple of weeks, to reverse the depreciation of the cedi.

On Friday, the cedi gained some marginal strength in its competition with the dollar.

Finance Minister Ken Ofori-Atta told Parliament he was “very confident that the reversal is going to occur, and make the cedi stable going forward,”

He announced that Government was to receive GH¢900 million receipts from COCOBOD and $3 billion in the Eurobond launched last year and additional bridge finance of $750 million.

This was after the House had finished a debate on Government’s request for a GH¢2 billion Sovereign Guarantee for Ghana Amalgamated Trust (GAT) Limited to support indigenous Ghanaian banks.

Import dependence

However, the Finance Minister said the challenge was how to deal with the country’s imports and at the same time boost export, adding that the country needed to change her import dependency, “otherwise we’ll always be battling this issue,” irrespective of which party was in power.

Interventions so far

Last year, he said the Central Bank had to intervene with $1.8 billion while for the first quarter of this year, Government had already injected $90 million.

He wondered how the cedi should depreciate after government efforts to stabilise the economy including the attainment of single-digit inflation.
 
 
Source: Daily Guide
 
 

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