Ghanaian cedi depreciates against US dollar: Here's how it may impact you

The Ghanaian cedi has experienced a sharp decline, depreciating against the US dollar by 9 percent to GH¢4.92 from GH¢4.43 in February 2018. This rapid rate of depreciation within a year has raised concerns and questions about what is causing this decline. To shed light on the situation, Emmanuel Zewu, an Analyst at Groupe Nduom, joined CNBC Africa from Accra to discuss the impact this currency depreciation is having on businesses and the economy. Zewu highlighted that a major driver of the cedi's decline is speculation in the foreign exchange markets. He explained that historically there is some level of depreciation in the cedi against major currencies each year. Currently, speculations about an increase in interest rates in the US are making investments in the US more attractive, leading to inflows into dollars. The strengthening of the dollar compared to other currencies like the euro and pound is also contributing to the cedi depreciation as investors seek to protect their investments by converting cedis to dollars. Moreover, challenges within Ghana's banking and securities industries have eroded confidence among investors. Scams and losses in these sectors have prompted individuals and businesses to turn to the dollar as a store of value, further impacting the demand for cedis. Zewu emphasized that these factors, combined with uncertainties in the economy, are fueling the depreciation of the cedi. When asked about the measures taken by the Bank of Ghana to stabilize the cedi, Zewu expressed skepticism about the approach of injecting more dollars into the system. While this may provide short-term relief, he warned that depleting reserves to support the currency could expose the cedi to long-term vulnerabilities. Zewu suggested that the focus should be on stabilizing the cedi rather than solely focusing on depreciation or appreciation. He urged for alternative strategies to boost the currency's value and reduce volatility. In terms of attracting foreign direct investment (FDI), Zewu expressed concern about the need for more confidence in Ghana's banking sector and a clearer government policy to support investments. While Ghana witnessed significant FDI inflows in sectors like manufacturing and agriculture in the past, recent developments have raised doubts among investors. The lack of clear policies and the current foreign exchange risks are likely to dampen FDI inflows in the coming year. Overall, the depreciating cedi poses challenges for businesses and the economy of Ghana. Uncertainties in the foreign exchange markets, lack of confidence in the banking sector, and the need for more stable government policies are key issues that need to be addressed to mitigate the impact of currency depreciation. Moving forward, a concerted effort is required from both the private and public sectors to restore confidence in the cedi and create a stable economic environment for sustainable growth.