Ghana’s President John Mahama has said the country needs to make fundamental changes to its economy if it is to protect its currency. The cedi has dropped to a record low on foreign exchange markets.
The voice of popular preacher Nicholas Duncan Williams booms through a church in the capital Accra as he offers up a prayer for the recovery of the Ghanaian currency.
"I hold up the cedi – and I command the cedi to recover! I declare the cedi will not fall any further. I command the cedi to climb. I command the resurrection of the cedi! In the name of Jesus I command a miracle for Ghana's economy!"
That is just one indication of how seriously the fall in value of the cedi against major foreign currencies is regarded in the West African state, not only by churchmen and their congregations, but especially by major trading centers and business owners.
The cedi fell to a record low on foreign exchange markets when the United States scaled back its stimulus program and investors ran shy of emerging markets. Ghana's central bank responded by raising its main interest rate by 2 full percentage points on February 6, 2014 and the government has tightened foreign exchange controls.
Ghana's main problem is that it produces little but imports a lot. The lower the value of the cedi, the more expensive imports become. Economists say if this imbalance is not corrected swiftly, the country will be plunged into a serious crisis.
Some would say that stage has already been reached. By late January 2014, the cedi had already seen a depreciation of about 3 percent for this year following a fall of 17 percent in 2013. Some analysts are predicting that the depreciation will continue and that the Ghanaian currency will end 2014 with the biggest drop in value against the dollar since its redenomination in 2007.
In a bid to prevent to stop the crisis from worsening, the Ghanaian government and the country's central bank have said they will pump twenty million dollars into the economy and have imposed new controls on the movement of foreign currency. Owners of foreign exchange accounts are now not allowed to withdraw more than ten thousand dollars in cash from their accounts.
Ghana not an isolated case
At a recent meeting with media representatives in Accra, the governor of the Bank of Ghana, Dr. Kofi Wampah, said: "We have observed a much faster pace of depreciation since the end of December 2013." He pointed out that this was not only happening in Ghana. "The commencement of tapering in asset purchases in the US, alongside weakening economic conditions in some economies, has spurred reversal of capital flows and volatility in currency and equity markets across many emerging and developing countries. The fallouts have been most severe in countries such as Turkey, Argentina, Indonesia, Malaysia and South Africa," Wampah said.
The difficulties facing other emerging economies offer little comfort to Ghanaians. Many owners of foreign exchange accounts are angry at the restrictions. Shadrach Baffoe in Accra told DW he considered it unfair that "multinationals should have unbridled access to their money and be able to transfer hundreds of millions of dollars, while I - as a Ghanaian - can't go beyond ten thousand."
Some economists in Ghana warn that the new measures could promote illegal currency dealings. The operators of foreign exchange bureaus in Accra fear their legitimate businesses will collapse. One of them, Stephen Benson, said he found the ten thousand limit hard to understand. "If somebody comes in with twelve thousand dollars, for instance, should we buy the ten and let him take the two away? I don't know which forex bureau will comply with that!" Colleague Nana Abena was also critical. "It won't help us in any way because our business is already falling. We don't earn anything," he said.
More pillars for the economy
Economic analyst and Ghanaian lawmaker Kwaku Kwarteng is critical of the way the government has responded to the crisis so far. "The government itself imports so much, and the deficit we are seeing is primarily the result of expenditures which are related to importation and that is the reason why pressure has come on the local currency. The government needs to provide incentives for the export sector. But it should also check its own expenditures, that is the way to address the problem," he said.
However Finance Minister Seth Terkpe told a press conference that the government had already taken action to shore up the economy in the long term. He rejected criticisms that paint a negative picture of the Ghanaian economy and isolate it from those of other countries. "Commentaries that make it look like Ghana's economy is a static one and that there must be some magic formulae that apply all the time, is something I think we should move away from," he said.
President Mahama in his address on Monday (10.02.2014) said his government intended to create more pillars for the economy "so that we don't have a situation where a narrow band of primary commodities that you depend on, which are subject to fluctuation on the international market, lose value and then you have a bust." In an upbeat speeech intended to restore confidence he said: "The opportunity exists for Ghana to make a game change and take itself out of this situation." Analysts say this will have to happen sooner rather than later.