The future of Ghana's economy and its currency, the cedi, is a topic that demands our attention and thoughtful analysis. In a recent engagement, Joe Jackson, CEO of Dalex Finance, shed light on a critical issue: the persistent weakness of the cedi and the need for bold reforms.
The Currency Conundrum
Jackson's perspective challenges the conventional wisdom that excessive imports are the primary reason for the cedi's depreciation. He describes this belief as a "Ananse story," a clever metaphor that hints at a deeper, more complex narrative.
What's fascinating is that Ghana, despite a trade surplus of over $5 billion in 2024, still saw its currency weaken. This paradoxical situation warrants a closer look.
Structural Leaks and Their Impact
The issue, as Jackson highlights, lies in the structural challenges of the economy. He points to significant foreign exchange leakages, including service payments, profit repatriation, debt servicing, and capital flight, which erode the benefits of merchandise exports.
Take the mining sector, for instance. While Ghana exported $11.9 billion worth of gold in 2024, it retained only 46% of the value. The rest was lost to management contracts, technical services, and profit repatriation by multinational firms.
This trend is not unique to mining. In the oil and gas industry, Ghana retained a mere 35% of export value in 2024, resulting in a substantial outflow of over $2.5 billion.
These structural leakages overshadow the positive trade balances, creating a continuous pressure on the cedi.
The Need for Usable Foreign Exchange
Jackson emphasizes the importance of "usable foreign exchange"—the portion of export earnings that stays in Ghana to support its economy. He argues that the focus should shift from reducing imports to increasing this usable forex.
"If forex demand exceeds usable forex, the cedi will remain under pressure," he warns.
Policy Recommendations
To address these challenges, Jackson urges policymakers to take action. He suggests renegotiating resource contracts, strengthening local value chains, and increasing Ghanaian equity in extractive industries.
These measures, he believes, will improve foreign exchange retention and reduce Ghana's vulnerability to external shocks.
A Shift in Perspective
Jackson also encourages a shift in public perception. He cautions against blaming importers or consumers for purchasing foreign goods, emphasizing that market choices are driven by price competitiveness, not patriotism.
"The depreciation of the cedi is rooted in structural weaknesses, not consumer choices," he asserts.
Conclusion
As we reflect on Jackson's insights, it becomes clear that Ghana's economic challenges are multifaceted and require a nuanced understanding. By addressing these structural issues and implementing bold reforms, Ghana can take control of its economic destiny and strengthen its currency.
The path forward is clear: it's time for Ghana to reclaim its share of the value created from its natural resources.
