Ghana makes a success of its currency re-denomination initiative, making gains in tourism and other spheres of its economy
By Babajide Kolade-Otitoju/ Just back from Ghana
Recently, three Nigerian journalists on a visit to Ghana got a rude shock. They had gone to the Greater Accra area, hoping to buy enough Kente fabric at the textiles market located there. They thought they had enough dollars on them to buy as much of that legendary Ghanaian hand-woven fabric, which, the government and people of Ghana like to present as the country’s most favoured tourism product.
However, the visitors were taken aback when the trader sold to them two tiny pieces of the Kente material for $100. For the journalists, this was evidence that the era of dollar superiority over the Ghana cedi was over. Indeed, right now, the Ghanaian currency, the Cedi, is slightly stronger than the dollar. A visitor seeking to exchange $100 for the cedi will get 98 cedi. Most hotels, however, prefer to put the two currencies at par.
The current exchange rate in Ghana means that tourists from Nigeria or even South Africa must be conscious when shopping in the country, because the Ghanaian Cedi is much stronger post-redenomination than the currencies of both nations. Significantly, the dollar is still much stronger than the currencies of both South Africa and Nigeria. In most top-class Ghanaian hotels, it costs more than $4 to use the Internet for just one hour. Converted to naira at the current exchange rate, that is approximately N582 per hour. In Nigeria, most cybercafés charge about N100 per hour. Taxi cabs generally charge $5 per trip in Ghana, which is also on the high side.
Ghana opted to re-denominate its currency with effect from 1 July 2007, in accordance with Section 41 (4) of the Bank of Ghana Act 2002 (Act 612). The new currency (Ghana Cedi) and Ghana Pesewa, its smaller unit, were in concurrent circulation for a six-month period, ending in December 2007. During the transition period, pricing of goods and services was made in both the existing cedi and the new Ghana Cedi and Pesewa. With effect from 1 July, all exchange rate quotations were made in four digits to reflect international practice, rounded off at the fourth decimal. Figures at the fifth decimal equal or higher than half a Ghana Pesewa were rounded upwards to one Ghana Pesewa, while the figures at the fifth decimal lower than half a Ghana Pesewa were disregarded.
The Ghanaian government embarked on a comprehensive public programme, explaining not just what re-denomination is about but the advantages therefrom. The Bank of Ghana argued that the former note regime placed significant deadweight burden on the economy in form of high transaction costs at the cashiers, general inconvenience and high risks in carrying loads of currency for transaction purposes, increasing difficulties in maintaining book keeping and statistical records and ensuring compatibility. Government argued that there would be significant reduction in transaction volume and that conversion of ¢5000 and below into coins would increase the efficiency of banknote processing systems and improve the overall quality of bank notes in circulation as well as enhance efficiency in payment systems, in particular, ATMs.
The Ghanaian government argued that the timing for re-denomination was right, given the fact of the economy’s macroeconomic stability over a period of five years, with inflation and interest rates falling and the currency assuming some measure of stability, under a policy of commitment to fiscal and monetary prudence by the John Kufuor administration. Indeed, the old cedi had maintained a rate of between 9,700 and 9,800 to a dollar for about six years. The Ghanaians also opted for redenomination as a way of preparing for the eventual emergence of the Eco, the West African currency. Eco has been slated for introduction next year, with Ghana and Nigeria having almost met all the requirements.
Though government never really talked about it, TheNEWS investigations in Ghana showed that the John Kufuor government was uncomfortable with the apparent dollarisation of the Ghanaian economy. The middle/upper class of the economy was highly dollarised. Real estate owners preferred to place value in dollars, especially in places like East Legon. Big shopping malls back then charged in dollars, to the chagrin of many Ghanaians.
However, with the Ghana Cedi becoming quite strong as a result of re-denomination, prices are now being quoted in Cedis. The Cedi is becoming the most preferred means of transaction and dollarisation is disappearing. Many Ghanaians spoken to believe that the government was right in settling for re-denomination of the Ghanaian currency. ‘‘Basically, the currency was difficult to count. One million dollars was about ten billion cedis. When you have $100m you are talking of about ten trillion cedis. The budget used to be in trillions. The budget of one sector of the economy ran into trillions of cedis. It looked more like what is happening in Zimbabwe now. We used to feel embarrassed that N10,000 exchanged for 1.2 million cedis, making the Nigerian trader to look like a ‘millionaire’.” But now, N10,000 will give you just 90 Cedis, so we are proud that you Nigerians can no longer taunt us about the value of our currency,” James Sagoe, a resident of Osu in Ghana, told TheNEWS.
Ghanaians take pride in having a stronger Cedi and are keen about making good money from tourism. Last year, the centenary of the abolition of slave trade and the 50th anniversary of Ghana’s independence, the country targeted at least $1.5b from tourism. Many tourists came to Ghana during the celebrations, as well as during the Black History Month in the United Kingdom and United States, to see the Elmina Castle, the point where slaves were shipped to Europe, Americas and West Indies. It is located in Ghana’s Central Region of Cape Coast. As it seeks to make huge capital from tourism, Ghana is keen about hosting big conferences, some of which Nigeria used to host; an example is the United Nations Conference on Trade and Development, UNCTAD, during which over 10,000 visitors were in Ghana. It was certainly the biggest event of the year, with all major Ghanaian hotels fully booked.
Though critics say the re-denomination has increased inflation in Ghana, that has since been dismissed by government, which argues that the inflation is induced by rising oil prices globally. Indeed, the prices of goods and services have gone up in Ghana. The Ghana Statistical Service releases the inflationary rate monthly and lately it has gone up to 18.4 per cent. With the redenomination, many secondary school leavers earn just 50 Ghana Cedi as salary, which is just one note. For many of such categories of workers, it leaves a sour taste in the mouth that their monthly toil can only earn them one Ghana Cedi note, but that is just one of the many implications of Cedi re-denomination. And Ghanaians, who, unlike Nigerians, had the courage to follow it through must live with those implications.
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