Mensah Chris Ayesu, Level 400 makerting student of UPSA

A remarkable turn of events has taken place in the past weeks as the Ghanaian Cedi has appreciated, eliciting economic debates that range from ‘for’ and ‘against’. As is common in life, the ‘why and how’ come to mind, along with many other pertinent questions on how this surge might affect businesses and consumers in the foreseeable future, be it short or long term.

As gentle waves of hopes arise from years of battling with the Cedi's volatile currency, one eying the question remains- is this hope a long term festivity or a PhD level of "temporary"? For both Denizens and businesses out there, turbulent economic backdrop must be decoded with determined strategies in mind, to equip themselves amid upcoming waves.

The Cedi's Recent Resurgence: How Did We Get Here?

The relatability of the Cedi’s reliability and global strife must be underpinned to gain focus for the local economy to see the benefits owed to it. Interestingly enough, focus has been shielded yet diverged towards Cedi’s ease.

This appears to stem from:

Easy Money and Targeted Policy Changes: Owing to post-Covid periods, focus on the stricter monetary policies are positively geared in considering the currency itself which is very optimistic indeed. Spending habits alongside financial monitoring policies require more tightening, posing strong changes beneficial hitherto.

The Gold for Oil (G4O) Program: This innovative program, aimed at curbing the demand for US dollars for imported fuel, appears to be very effective in stabilizing the Cedi. The program, by utilizing the gold reserves of Ghana, deflects pressure from foreign exchange reserves and perhaps reinforces the local currency.

International Positive Trends: International commodity prices alter, or even changes in foreign monetary policies, can also influence the worth of such new market currencies as the Cedi. The attention to such global forces is required for a holistic analysis.

Increased Market Expectations: A combination of the foregoing, together with hopefully favorable investor expectations, can create a self-reinforcing cycle whereby greater confidence is fuelling yet more demand for the Cedi, thereby supporting its value further.

The Economic Waves: Impacts Across Sectors

The strengthening of the Cedi is not an isolated phenomenon; it sends waves through the Ghanaian economy with varied impacts across sectors:

To Importers

A stronger Cedi translates to lower import costs of goods and raw materials. This would lead to lower prices for consumers and lower input prices for manufacturing firms, bringing much-needed respite from inflationary pressures. Businesses that depend almost entirely on imports will definitely see their profit margins increase. A local store importing electronics would be able to reduce their costs of procurement, with increased margins of profit or lowering prices to compete in the market.

For Exporters
Conversely, a stronger Cedi can make Ghanaian exports more expensive to foreign consumers. This can have the capacity to impact the competitiveness of export-oriented industries, particularly those involving price-sensitive products. Exporters might be compelled to explore steps to help them retain their market share, such as putting more emphasis on quality or value-added products. A Ghanaian cocoa exporter might discover their beans are more expensive to European customers than their competitors who export from countries whose currencies depreciate.

For Consumers

The initial effect for consumers would be a lowering of the price of imported goods. This would relieve the pressure of living expenses, which has long been a point of concern. However, the extent to which the savings are passed on to the consumer will be determined by various market forces.
For Debt Management

A stronger Cedi is helpful to Ghana's foreign currency-denominated debt. With the strengthening of the Cedi against these currencies, the local currency value of the debt declines, thus potentially lowering the burden of debt.

To Investors

The strengthening Cedi can attract foreign investment as it indicates a stable and possibly appreciating asset. This can spur increased capital inflow and yet propel economic growth even further. But it is sustainability that is needed to make long-term investor confidence. Navigating the New Landscape: Strategies for Businesses and Individuals:

In this new economic landscape, businesses and individuals alike have to use forward-looking strategies:

For Businesses:

Importers should capitalize on the stronger Cedi to optimize procurement and, where feasible, offer savings to consumers. Seek opportunities for expanding product offerings with less costly imports.

Exporters must focus on improving product quality, exploring international market niches, and developing intimate relationships with overseas buyers to mitigate the impact of potential higher costs. Examine hedging as a method for hedging against currency exchange risk.

A Note of Caution: Sustainability and the Road Ahead

While the recent strengthening of the Cedi is a relief, it is necessary to emphasize that sustainability is everything. The determinants of this surge must be nurtured well and solidified by continued fiscal discipline, prudent economic leadership, and a conducive global environment.

The alternative perspective by Absa bank, hypothesizing the Cedi might have appreciated too much, serves as an important reminder that currency markets are fluid and subject to reversals. Constant monitoring of economic indicators and creative policy efforts will be required to ensure the stability and long-term health of the Ghanaian Cedi.

In general, the recent appreciation of the Ghanaian Cedi is both an opportunity and a challenge. By understanding the drivers and potential implications, business organizations and individuals can successfully navigate this shifting economic landscape. The focus now is to make the positive trend sustainable and achieve a strong economy that is suitable for all Ghanaians.