Slumping Cedi, Runaway Inflation Worsen Cost-of-Living Crisis for Ghana’s Consumers, SMEs

The struggle against price inflation has been felt worldwide, but in Ghana, the problem has been made worse by an ongoing devaluation of the local currency. In fact, the cedi currency has plummeted more than 40% against the dollar this year, while consumer inflation hit a new 21-year high of 37.2% in September.

While interest rate hikes of 0.1% or 0.2% have been enough to stabilize runaway inflation elsewhere, in Ghana, three consecutive rate hikes of 0.25%, 0.2% and 0.3% in March, May and August proved ineffective at curbing skyrocketing prices.

The impact of high interest rates increases on the cost of capital has been challenging for the country’s small and medium-sized businesses (SMBs) looking to access credit, not to mention households now faced with a crippling cost-of-living crisis.

Besides interest rates, taxes are another fiscal policy in which Ghana’s government is trying to improve the situation. For example, the country introduced a 1.5% electronic transaction tax known as the eLevy earlier this year.

Read on: ‘eLevy’ Causes Mobile Money Concerns in Ghana

But while the eLevy is expected to help raise much-needed tax revenue to lessen national debt, critics argue that this particular form of taxation disproportionately affects the poorest in society, who may end up reverting to cash transactions to avoid it.

Related: The Changing Face of Mobile Money in Ghana

Also related: Tanzania Backtracks as Mobile Money Levy Proves Unpopular Across African Markets

To provide some needed relief to the economy, the government has finally turned to the International Monetary Fund (IMF) after previously vowing not to take that route, and a bailout seems to be on the cards in the coming weeks, along with whatever measures the IMF sees fit to impose.

Devalued Cedi Adds to Inflation Woes

A weak cedi has pushed up the wholesale cost of imported grain in a global marketplace that is also suffering from poor harvests and multiple supply chain disruptions.

Coupled with fuel inflation, the wholesale price of commodities is contributing to a cost-of-living crisis that has driven many Ghanaians to the streets to vent their frustration.

Since June, demonstrations have been taking place in protest of the government’s perceived mismanagement of the economy and lack of action to protect people’s quality of life. Most recently, in September, traders across the country shuttered their stores as part of a multiday strike over the effects of the current exchange rate.

One year ago, the cedi stood at around $0.16, but since March has been steadily declining. By September, it was down to $0.1 and has been plummeting since then to $0.072.

Merchants who buy their goods on the international market now find the Ghanaian currency valued at less than half the purchasing power it had this time last year. As a result, they are left with little choice but to pass the difference on to consumers.

Overall, the West African country is overreliant on income from primary commodities such as cocoa, gold and oil, which are subject to significant price volatility, indicating that shifting to alternative exports to diversify the economy might be the way to go.

From manufacturing to tourism to Ghana’s nascent digital services sector, these are other avenues that could be explored to boost economic growth and help the country break the cycle of debt.

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