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01.10.2008 Business & Finance

Cedi in free fall - Drops 14% to dollar

By Graphic Business
Cedi in free fall - Drops  14% to dollar


Topsy-Turvy exchange rate of Ghana's currency, the cedi, against those of our major trading partners has become a source of significant worry to the business community in the country.

Many companies, including those which are in the informal sector, see the erratic nature of the value of the cedi as the main reason for their declining profits.

In fact, in some cases, the impact has been so negative that the companies are not making profits at all.

The main trait is that as the cedi depreciates, companies, especially those that have to account for some inputs in foreign currency, are left with exchange losses in the translation from the cedi to, say, dollars.

Posting exceptional items such as exchange losses in financial statements is nothing new, but where this becomes extremely significant, and thus go out of control, even after making contingent provisions for its occurrence in budgetary allocations, accountants, and therefore business managers find it difficult to plan for the future.

And that seems to be the case with Ghana's currency which had been so strong against the major currencies lust some few months back, especially following the redenomination exercise carried out in July last year.

The situation is worrying and the fact that it is impacting negatively on all aspects of the economy has got market watchers and individuals tetchy.

A brief survey undertaken by Graphic Business, mainly involving interactions with selected companies and market traders, revealed that most of them were seriously concerned that from the way the cedi was trading now against the major currencies, it could be out of control by the end of the year.

Even though market women may not be the ideal economists you would normally listen to for advice on the economy, they still seem to have an understanding of the market dynamics that makes them worthy partners in any study to understand why, after so many months of cedi appreciation, it should be dreadfully going down the other direction.

Mark Sereboe, a used clothes seller at Kantamanto, a market district in the capital, is worried that the market dynamics with regard to the exchange rate of the cedi against the dollar are not good for his business. His concern is that "prices of the goods offered to us by the importers keep going up every day" because the importers are now paying more in real terms for the same quantity of goods due to the depreciating currency.

Analysts are equally worried about the development. On September 23, for instance, the Gold Coast Securities (GCS-Cedi Index went up by 0.29 points owing to the fall of the cedi against the major currencies.

The index, developed by GCS as a composite measure of the value of the cedi against the four major currencies, went up to 116.30 points on September 23 from 116.01 the previous day.

This was underpinned by the following value depreciation on the day: 0.84 pesewas fall to the British pound, GH¢ 1.69 to the Euro and 0.10 GH pesewas to the dollar. It, however, appreciated by 0.04 pesewas to the CFA.

The GCS index year-to-date performance shows a deprecation of the cedi by 15.69 per cent, 16.24 per cent and 8.11 per cent to the dollar, the euro and the British pound sterling, respectively.

Analysts at Renaissance Capital believe that the cedi could fall further should the current trend continue.

"In 3008 [third quarter of 2008], and notably after the delay in the approval of Vodafone's takeover of Ghana Telecom in Parliament, the cedi depreciated at an accelerated speed to reach a low of GH¢1.1639/$1 and GH¢ 1.804/Euro in early August, reinforcing a trend which has been evident since last year", analysts at Renaissance Capital stated.

"Given the economic structural imbalances, we think the cedi is set to weaken further in the coming years to GH¢1.30/$1 in 2009 and Gh¢1.33/$1 in 2010, even if rising oil production from 2010 stabilises the Ghanaian currency as expected, at about GH¢1.39/$.1 and Gh¢1.42/$1 in 2011 and 2012, respectively," the analysts added.

The dour projections by analysts seem to confirm the fear by the general public that the cedi is in a free fall, and as such is having severe effects on the prices of goods and services in the country.

Source: Graphic Business

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