Poor Ghana: it made 1 Cedi = 1 USD a few years ago hoping that abracadabra magical algebra makes sense in global economics/currency: “In the report, the worst-performing currencies in the African region since the beginning of the year 2022, include Ghana with a depreciation rate of 60 percent, South Sudan with 50.8 percent, Sudan with 28.6 percent, Malawi with 25.4 percent, and CFA Franc with 13.3 percent.” Today, the Cedi has lost value against the US dollars due to the fact that Ghana is not doing what America does: productivity, innovation and high export.
But it is not just Ghana. Some Nigerian politicians promised to make 1 Naira = 1 USD. But here we are. Of course, such is not possible when we cannot even keep the universities open for business.
Look at the CFA Franc and how it is being rattled. This is also a strong indication that currency union will not save Africa until we begin to win on innovation and productivity. You have no national positioning under a supranational central banking ordinance under a currency union within a heterogeneous market system with limited commonalities. If Africa goes ahead on its planned single currency and does this without thinking, welfare losses will be huge.
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I have made that point before the African Union Congress – and I remain hopeful that we do not adopt the EU/euro playbook without considering that EU’s economy is very homogenous and shocks are relatively more manageable.
According to a recent report from the World Bank, it ranked the Ghana cedi as the worst-performing currency in Africa since the beginning of the year with a depreciation of 60 percent against the United States dollar.
In the report, the worst-performing currencies in the African region since the beginning of the year 2022, include Ghana with a depreciation rate of 60 percent, South Sudan with 50.8 percent, Sudan with 28.6 percent, Malawi with 25.4 percent, and CFA Franc with 13.3 percent.
The report stated that although inflation in the African region was moving on an upward trend before Russia’s invasion of Ukraine, factors including the depreciation of currencies against the dollar and an increase in commodity prices had contributed to inflationary pressures.
The World Bank stated that it was imperative to tame inflationary pressures in the African region, otherwise, inflation could lead to social unrest, intensify conflict, and ultimately ignite political instability.
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Comment 1: Well done Prof, your articles are always on point. ??
It’s always mind blowing when I hear many of our fellow Africans talk the disparities our currencies against the dollar. They think it’s unfair, and its because of anything but production.
If we can focus on the economic fundamentals; build our capacities on the things that we have natural advantage and best the at it in the marketplace, our currencies will finds their right levels.
Comment 2: You don’t have to warn Africa about currency zone, their colonial leanings will not allow them get there. Yes productivity is the way to go but before that route becomes attractive the government has work to do. That’s why I love your post on diaspora remittances. If the policies are right we can move from remittances to investment. When the investment is made by knowledgeable people expect good things with time. Currency zone is not the way, well thought out productivity that will not only serve as import substitution but also foreign exchange earner via exports. That’s what will save our exchange rate.
Comment 3: Prof we can start from somewhere. It’s twisted discourse from scholars like yourself that has been keeping Africa stagnant for years now. If you try it’s risky. If you don’t try it’s risky.
I stand for anything that will get Africa to being united….Ndubuisi Ekekwe in the last paragraph of your post above you insinuated that we should consider how homogenous the European economy is before we work on a unified African currency.
Meanwhile, you know that its our collective efforts as Africans that can get us closer to achieving such a great height.
My Response: “Meanwhile, you know that its our collective efforts as Africans that can get us closer to achieving such a great height. ” I was expecting something tangible on the “somewhere” but you offered none. We all want AfCFTA, closer integration of Africa but we have to consider going all the way to currency union. Think about it: the economy of Eti Osa LGA in Lagos is possibly bigger than the GDP of Gambia. If Nigeria messes up under ECO planned currency, ECO will suffer and all West African countries will suffer despite whatever they are doing since Nigeria’s GDP is a big component of the region’s GDP and exerts too much weight on the currency.
But because the economy of Nigeria (oil) is totally different from Ivory Coast (cocoa), you cannot decouple Nigeria’s risks to the price of oil on IV since they use the same currency. So when oil falls, IV will suffer welfare losses irrespective of what they are doing on cocoa.
Contrast with Europe where most Euro users have industrialized or largely industrializing making them more homogenous that shocks cannot be overbearing on smaller economies. “Collective efforts” in Africa requires deeper thinking over blind optimism. I send briefs to governments, World Bank, AU, etc and I will continue to do so.
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Production! Production! Production! Whether you produce goods, services or talents, just produce things that are in high demand within and outside, and you won’t spend disproportionate amount of time trying to keep your currency from falling. Whenever you mint money without corresponding new product on the market, you are creating poverty!
We need more people wearing overalls and aprons than suits, the latter is why we are incapable of leading in anything; but only great at analyzing why we are abysmal and mediocre.
This generation has not given a very good account of itself, and it’s gradually fading away. I will be supremely embarrassed if I fade away with this failing generation.
We will keep pushing forward.
“Whenever you mint money without corresponding new product on the market, you are creating poverty!” This is the greatest statement that I have in recent times.
You see, one of the main functions of money is to help in the exchange of goods and services, replacing the barter system. In African countries where individual countries issue their own currencies, the central banks print currencies and allow governments to withdraw money from their accounts when they do not have enough revenue. What happens is that the supply of money or currency in circulation is always overstripping the supply of goods and services produced (including foreign currencies earned from exports). So prices of goods and services are forever on the upsurge.
The reason the CFA does not depreciate rapidly is simply because France, the colonial master, does not flood the CFA zone with currency the way the individual countries like Nigeria and Ghana do.
All things being equal (which scarcely happens), the supply of money in an economy must increase in tandem with the increase in goods and services if inflationary pressures are to be avoided and exchange rates are to be stable. Period!.
Production! Production! Production! I agree. But let us always keep in mind how money, as a means of exchange, a store of value, a unit of account, etc., evolved. One does not need a Ph. D. to understand these things.
I have read the article carefully and interestingly appreciate the analysis, however, I found the analysis very weak for its inability to correlate cedis worse performance to other foundamental factors. These factors are systematic and most importantly political.
Ghana economic strategic of boosting local content and digital transformation are plus to their economy. The white elephant to the cedis depression is simply lack of parliamentary major government in Ghana. Ghana debt to GDP is high but not the worse out there. Currently Ghana parliament is split in the middle. These makes it impossible for the ruling giver that is the president to pass and significant debt management plan such as increased in borrowing.
Note that, before such deep depreciation of the cedis prior to the last election the cedis was doing well. Yes one may say the COVID, Ukraine war and perhaps fed interest hike but the foundamental problem with Ghana steams from government inability to raise funds. Now every fiscal policy that involves borrowing must go through parliamentary approval.
Last time it took almost 8 months and fight in Ghana’s parliament to pass just E-levy. Well, the issue of currency integration is neither here nor there. I have hear people making strong case for it and understand the benefits but the case of Africa currency integration must be a no go area. One can not compare Africa regional currency to the Euro or the CFA. Why? Because there is no economy in Africa at these moment to support such dreams particularly the creation of central bank like the ECB. For indigenous currency to work all members countries must contribute heavily to a central bank. In addition, there must be at least not less than 3 major economies as part of the trading area. These echos Germany and Greece and Italian financial crisis not long ago.
What Africa and particularly the ECOWAS subregion needs is modern clearing houses to facilitate cross border transactions, this will remove most of the barriers for example Euro, pounds, dollar and yen transactions are done in multiple chases in every seconds due to the swift system. Africans governments should also diversified by investing in western and other foreign entities before pushing for major economic developments. Only such investment would bring long term growth and transfer know how. Over the years Africans governments have been pushing for shortcut for immediate impact outcomes but these result in poor developmental projects. It is also about time to see Africa as Africa and integrat our way of living in a sustainable way.
Poorly written article, devoid of facts.
Just social media lies.
Immediately I saw “a Nigerian politician promised 1# to 1$. I knew at once that it’s going to be farce of an article.
Can you bring some facts then or are the methodology he used in the article beyond your comprehension. Just because you are literate doesn’t make you an economist.
I find your analyses and comments on them very insightful. Yet, the preeminent focus on the economic factor is disturbing. This is because the political realities of Africa would not allow for rational economic principles. Many African states that are considered terminus a autonomous economies are no more than economic freedoms of a few elites whose preoccupation is merely to burnish personal fortunes of the few elites. Look at Nigeria where the political elites are the richest non productive sector of the economy. Yet, it is most lucrative sector of the economy. The same applies to different degrees. The Governors of Central Banks are beholden to this political class. The bottom line is the consolidation of Africa political. Economic integration is fashionable over political consolidation because it integration retains the powers of the political entrepreneurs to continue to loot Africs blind. Politics matters. These unviable little political entities would take Africa no where.
I find your analyses and comments on them very insightful. Yet, the preeminent focus on the economic factor is disturbing. This is because the political realities of Africa would not allow for rational economic principles. Many African states that are considered co-terminus as autonomous economies are no more than economic fiefdoms of a few elites whose preoccupation is merely to burnish their personal fortunes of the few elites. Look at Nigeria where the political elites are the richest non productive sector of the economy. Yet, politics is the most lucrative sector of the economy. The same applies to different degrees across Africa.m The Governors of Central Banks are beholden to this political class. The bottom line is the consolidation of Africa politically. Economic integration is fashionable over political consolidation because integration retains the powers of the political entrepreneurs to continue to loot Africs blind in their little enclaves. Politics matters. These unviable little political entities would take Africa no where.
Is this intellectual dishonesty or? Ghanas redenomination was done over 20years butbl if the cedi is now 10 to 1 during a 100year pandemic and near WWIII, would you consider all that?
From 2007-2022 is how many years, how could this amount to over 20yrs? Exaggeration could affect otherwise good analysis. Please note.
The idea that production will lift any economy is simply wrong. What’ type of produce and for what market is very important, we have concentrated on export products at expense of our local market, we will remain at the mercy of other for pricing and demand. If we concentrate in feeding ourselves and building our industries we will not need to borrow to run our economies. Borrowing demands us to export to earn foreign credit and money.
What do you think spearheaded the American and now the Chinese economy to be number 1 and 2 in the world? Make some research…
The whole system is a scam.
Who set those standards ?
Why are we going always rely on their way of living to determine ours if it’s ok or not? Palm wine should respect Red wine and no comparism made when it comes to setting records.
The whole thing has to be revamp because this article is only in line to thier ways.