Ghana is one of the most respected economies in Africa. In West Africa, it is among the top three economies of the region. In 2020, Ghana had become the second-largest GDP in all of West Africa after Nigeria. It is very interesting to see that Ghana is not reliant on any particular good despite having a wealth of natural resources, including cocoa. In addition, a GDP rebasement helped Ghana’s economy grow at the quickest rate in the world in the early 2010s. Ghana is considered one of the strongest democracies in Africa and a lower-middle-income country since 2010 on an international scale. Since last year though, Ghana has been struggling economically due to its currency, the Ghanaian Cedi.
African takes pride in having their own currency, and Ghana is an example of that pride. In fact, French-speaking West African countries (except for Guinea) are all linked by the West African Franc (XOF). In French, it is called the FCFA, and it stands for Franc des Colonies Françaises d’Afrique, which means in English, “Francs of West African colonies.” This currency is directly tied to France, and therefore, to the Euro since France is part of the European Union. This then means that the value of the currency is strictly tied to the monetary policies of the Central Bank of Europe. Since the Post-Independence era, the West African Franc has been cataloged as a tool of enslavement for French-speaking Africans, and of domination for France over its former colonies. The fact that Ghana has its own currency is seen as a symbol of freedom from the remnants of colonialism.
Source: Ghana Statistical Service
The Ghanaian Cedi is depreciating, and this depreciation is harming the Ghanaian economy, especially in its imports. This depreciation has intensified local inflation. Inflation in Ghana is currently at 54%. This means that Ghana is currently experiencing hyperinflation. Food prices rose 59.7%, transportation costs increased 71.4%, and furnishing and household equipment came rose 65.7%. Ghana had not reached such high levels of inflation in over two decades.
The Ghanaian Cedi has declined more than 55% between January and October 2022. This decline impacted importers. Ghanaian importers have been struggling to stay in business due to the high cost of importing and clearing of goods from Ghanaian ports. Some importers are unable to raise enough money to finance planned shipments. Inflation has been eroding consumer demand as well. Indeed the depreciation of the Cedi has contributed to high inflation rates in the local markets. In October 2022, inflation surged to 40.4% year-over-year, driven by higher food and fuel prices, precisely. Inflation has been sharply eroding the purchasing power of consumers as prices of most consumables have gone up. This has subsequently reduced consumer demand, hence, lowering economic growth. The depreciation of the Ghanaian Cedi made local clients hesitant to commit to long-term dollar-based contracts, and consumer remains concerned about the long-term financial impact of such contracts.
Ghana, at the end of the day, is a strong economy overall. The depreciation of the Ghanaian Cedi is a temporary setback. Nevertheless, the Ghanaian monetary authorities need to address this issue as fast as possible and tame inflation as soon as possible. Most countries have been following the lead of the United States in terms of monetary policies. Most central banks have been practicing soft landing as a means to reduce inflation while avoiding a recession, and the Ghanaian monetary authorities have also embarked on that route.