Seven key sectors of the economy that suffer whenever the cedi depreciates

GhanaWeb Feature by Ernestina Serwaa Asante

The depreciation of the local currency, the Cedi, is a significant concern for both business owners and individuals as it leads to rising prices of goods and services.

When we talk about the depreciation of the cedi, it means the currency has lost its value against major trading currencies such as the US dollar, Pound Sterling, and Euro.

This depreciation also contributes to the high inflation rate the country has experienced in recent months.

In April 2024, inflation surged to 40.4% year-on-year, driven by escalating food and fuel prices.

Inflation for locally produced items stood at 16.1%, while inflation for imported items reached 25.0% in April 2024.

Banking Consultant, Dr. Richmond Atuahene, notes that inflation is sharply eroding consumer purchasing power, with prices of most consumables increasing almost weekly. This has led to reduced demand for more expensive goods.

Additionally, there is a secondary effect: a decreased demand for products that average consumers now view as luxuries and no longer affordable. This shift is not necessarily due to price increases of these products but because the costs of competing basic needs have risen dramatically.

This article highlights the key economic sectors affected by the depreciation of the Cedi, where consumer demand has also significantly declined.

1. Consumer and household goods.

As the currency loses its value, the cost of importing goods increases. This subsequently raises the prices of goods such as clothing, food, personal care items, electronics, and automobiles for consumers. Also, the depreciation has been linked to a decline in the living standards of people as they cannot afford basic needs such as food and shelter.

2. Agricultural inputs like fertilizers and pesticides.

As the Cedi weakens against major trading currencies, the price of these imported goods - fertilizers and pesticides - skyrockets, leading to increased production costs for farmers. Consequently, farmers are forced to raise the prices of their produce, which affects the entire supply chain, including consumers.

3. Oil and gas (gas and diesel).

Fuel prices surge whenever the Cedi depreciates because Ghana imports a substantial amount of its petroleum products. Most of these transactions are conducted in dollars; therefore, when the Cedi loses value, the cost of importing these petroleum products increases, and consumers end up paying more at the pump.

4. Agribusiness and processed foods.

This situation has created significant challenges for the agribusiness sector, which relies on imported inputs for production. The Ghana Union Traders Association (GUTA) and the Chamber of Automobile Dealership Ghana (CADEG) have expressed concerns about the depreciation of the Cedi, lamenting the high cost of goods and services, which makes it difficult for them to stay in business.

5. Pharmaceuticals and Drugs.

The cost of pharmaceutical products has risen significantly due to the depreciation and associated inflationary pressures. The price buildup of generic medicines, which represent 60% of purchased products in Ghana, is influenced by factors such as the manufacturer's selling price, freight, taxes, tariffs, and markups. Taxes and tariffs contribute between 30% to 40% of the end-user cost, with markups ranging from 50% to 200%. This means the manufacturing cost for most generics is less than 10% of the actual price a patient pays at the pharmacy counter.

6. Raw materials and semi-processed products.

Companies like B5 Plus Limited, a steel manufacturing company, have seen the prices of their raw materials increase by 50%, forcing them to raise their product prices. This move may render them uncompetitive in the market. To curb this challenge, the government has been urged to ensure a more stable exchange rate.

7. Poultry products and meat products; tomatoes, onion, and carrots.

Ghana heavily depends on other countries for these products - poultry, meat, tomatoes, onions, and carrots. Until measures are put in place to grow and consume local produce, consumers will always bear the consequences of the Cedi's depreciation, as high import duties will translate to high prices for these goods.

To address this persistent issue, the government must implement lasting solutions, including short-term, medium-term, and long-term strategies to stabilize the faltering economy and strengthen it.

Portions of this article were derived from Dr. Richmond Atuahene's report titled "Navigating the Rapid Depreciation of the Local Currency: Finding Long-Lasting, Workable, and Achievable Solutions."