The Ghanaian cedi has experienced a significant depreciation against the U.S. dollar, particularly since the beginning of 2022. This sharp decline, exceeding 55% between January and October 2022, positions the cedi among the world’s most rapidly depreciating currencies this year. A weakening currency makes imports more expensive, creating a ripple effect throughout the economy.
Impact on Ghanaian Importers
Ghanaian businesses engaged in importing are facing considerable challenges due to the escalating costs associated with bringing goods into the country and clearing them from ports. The increased expense of imports is squeezing profit margins and, in some cases, rendering businesses unsustainable. Some importers are finding it increasingly difficult to secure sufficient funds to finance their planned shipments, leading to disruptions in supply chains and trade volumes.
Furthermore, accessing foreign exchange (forex) has become increasingly restricted, causing further delays in trade activities. Ghana’s constrained balance of payments account has led the Bank of Ghana, the nation’s central bank, to implement stringent controls over forex distribution. Importers, both large and small, are reporting delays in obtaining the necessary foreign currency to finalize transactions. The Chamber of Bulk Oil Distributors has highlighted a severe dollar shortage, stating that the Bank of Ghana is only able to provide its members with just 30% of the forex required for petroleum product imports. Adding to these challenges, on November 17th, the Bank of Ghana announced the cessation of foreign exchange support for the importation of various goods, including rice, poultry, vegetable oil, and numerous other items, signaling a move to further manage forex reserves. The detailed list of affected goods based on tariff lines was pending release at the time of the initial report.
Inflation and Eroding Consumer Purchasing Power
The depreciation of the Ghana Money To Dollar exchange rate is a major driver of the high inflation rates currently impacting the local market. In October 2022, Ghana’s year-on-year inflation surged to 40.4%, primarily fueled by rising prices for food and fuel. Inflation for goods produced domestically reached 39.1%, while imported items experienced an even higher inflation rate of 43.7% during the same month.
This high inflation is significantly diminishing the purchasing power of Ghanaian consumers. As the prices of essential consumables rise frequently, often weekly, consumers are forced to reduce their demand for goods due to affordability concerns. This situation also leads to decreased demand for products considered non-essential or luxuries, not necessarily because their prices have increased disproportionately, but because the cost of basic necessities has risen so sharply, squeezing household budgets.
Key Sectors Affected by Cedi Depreciation
The economic challenges stemming from the Ghana money to dollar depreciation are widespread, affecting nearly all sectors of the Ghanaian economy. However, certain key sectors are particularly vulnerable due to the combined effects of depreciation and weakened consumer demand. These significantly impacted sectors include:
- Consumer and Household Goods: Reduced consumer spending and higher import costs for materials and finished goods are impacting this sector.
- Cosmetics: Often considered non-essential goods, cosmetics are experiencing reduced demand as consumers prioritize basic needs.
- Oil and Gas (Gas and Diesel): Importation of fuel becomes more expensive with cedi depreciation, directly impacting prices for consumers and businesses.
- Agribusiness and Processed Foods: Increased costs for imported inputs and potentially reduced consumer demand affect this sector.
- Pharmaceuticals: Reliance on imported raw materials and finished products makes this sector susceptible to currency fluctuations and increased costs.
Hesitancy in Long-Term Dollar Contracts
Another consequence of the continuous and rapid depreciation of the cedi against the dollar is the growing reluctance among local clients to enter into long-term, dollar-denominated contracts. Businesses and customers are increasingly concerned about the unpredictable long-term financial implications and risks associated with such agreements in the face of ongoing currency volatility. This hesitancy can stifle investment and long-term planning within the Ghanaian economy.
For further information regarding the business environment in Ghana, please reach out to the Commercial Service Ghana at [email protected] or by phone at +233(0)30-274-1870. Additional insights can be found in their Country Commercial Guide for a broader understanding of conducting business in Ghana and their market intelligence reports for current updates on specific industries and topics.
