Mood swings: A period of increased currency stability is expected to give a boost to overall business confidence

While helping to increase exports, Ghana’s depreciating currency, the cedi, has had a negative impact on a number of local industries relying on imported inputs, like manufacturing. As 2016 reached its close, though, a combination of measures appeared to be contributing to greater currency stability.

Notwithstanding this, further improvements are likely to depend on the success of government initiatives to counter the country’s hefty import bill, through the promotion of local production and value-added exports. To this end, it will be important to tackle other key challenges as well, like the high cost of utilities and the multiplicity of taxes, which currently affect business development.


According to the Bank of Ghana (BoG), the cedi had depreciated 4.3% against the US dollar as of the end of October 2016, reflecting a major improvement in currency stability compared to the 15.7% registered in 2015 and 30.9% in 2014. The combination of a three-year arrangement with the IMF under its extended credit facility, worth $918m, the tightening of monetary policy promoted by the BoG, and the issuance of a $1.8bn cocoa syndicated loan and a $750m Eurobond contributed to this.

Following the third review of its arrangement in September 2016, the IMF approved the release of $114.6m to Ghana, while the BoG lowered its interest rate from 26% to 25.5% in late November 2016 for the first time in five years, after inflation decreased from 17.2% in September 2016 to 15.8% in October.

Such currency stability is unusual for an election year. According to the local press, when Ghana went to the polls in 2012 the cedi depreciated by 17.2% during the first half of the year.

Business Sentiment

Currency depreciation has been among the key topics included by Ghanaian businessmen in their top three challenges of 2016, when surveyed by the Association of Ghana Industries (AGI) for the organisation’s business barometer.

Throughout the first and second quarters of the year, medium-sized companies ranked currency depreciation as their second top challenge, while businesses of all sizes identified it as their third top challenge. From the standpoint of specific sectors, the situation varied. In manufacturing, the perception of currency depreciation as a top challenge worsened, with the issue taking second place in the second quarter of 2016 compared to third position in the first quarter of the year. In construction, however, the issue did not figure altogether during either period.

Nonetheless, given the currency’s stability compared to previous years and the BoG’s efforts to ensure continued improvements, the AGI posited that businesses which reported cedi depreciation as a challenge during the second quarter of 2016 may have yet to recover from its previous effects.

This lag is hardly surprising considering the size of the challenge recovering the currency has presented. In 2016 Ecobank Research ranked the cedi as the seventh-worst-performing currency in Africa, and predicted that strong US dollar demand to meet import bills, US debt servicing costs, and large and unsustainable fiscal and current account deficits would weaken the currency further against the dollar.

In spite of this, according to the AGI, businesses expected the third and fourth quarters of 2016 to witness improvements in macro-economic conditions and in the commitment to fiscal consolidation to ensure sustainable economic growth.

Stronger Measures Called For

Notwithstanding the currency stability achieved in 2016, the government has acknowledged that stronger measures are required in order to shore up the local dollar supply and strengthen the local currency. They have, therefore, begun to take steps towards achieving greater stability through initiatives such as the National Export Development Programme 2016-20 and the establishment of an export-import bank.