1. Due to excellent public education by Ghana’s pundits & analysts, everyone now knows that the massive rally of the Cedi (~25% gains since January 2025) is due to both domestic actions by the government & international factors beyond its control.
2. An exchange rate is like any other price in the economy; it’s set by demand & supply. As the demand for cedis rise relative to the demand for the dollar, the cedi’s price, measured in dollars, goes up.
3. Everyone knows that dollar inflows into Ghana have increased because the price of Ghana’s main export commodities, for e.g. gold & cocoa, has surged. Since January 2024, the price of gold has gone up by over 60%. For the same quantity of gold, Ghana gets lots more dollars than before. Despite some market fractions, Ghana is also getting far more for cocoa than before. That is the supply side.
4. (Note that the GoldBod has not yet licensed any aggregators and, thus, has not introduced any new dynamic. The preexisting market structure is what is currently at play. The long rally in gold prices by itself explains all the supply-side trends being observed.)
5. The demand side, however, is more interesting. There are different layers of demand for the dollar & the Cedi. Consider some examples: a) There are people who buy dollars to earn income. They buy relatively small quantities over time and sell in bits to cushion their income. b) There are those who try to trade dollars to make massive profit. They time the market to buy low and sell high. c) There are business owners who need to import goods and services, and pay in dollars. Fear of massive swings forces them to park some of their trading capital in dollars. d) There are rich people and companies – local & foreign – with significant savings who do not trust local investment options and thus save some of their cash reserves in dollars. e) There are normal traders and producers who just need dollars to pay overseas counterparties. f) There are citizens who need dollars for travel, personal services abroad (like health & education etc). g) And so on & so forth.
6. The behavior of these different categories of dollar buyers differ considerably when the price of the dollar starts to change. Whilst “market sentiment” is an aggregate phenomenon, it helps to bear in mind how such differences in behavior can lead to the wild swings we are currently seeing in the manner described below.
7. When it looks like the dollar will keep falling (like right now), most of the people who hold dollars only intermittently for income and hedging purposes rush to dump their stash because they can literally NOT AFFORD to absorb the losses. They can be bankrupted for holding out.
8. The massive, sudden, dumping then pushes some of the more endowed speculators (those who are purely trading for profit) to also reduce their holdings. But many of the longer-term market players simply scoop up the dumped dollars and bide their time. These actors have LONGER HORIZONS and can absorb short-term losses. Some bigger companies and high net worth folks also do the same.
9. Cedi rallies in Ghana based on pure market sentiment thus do not last for the simple reason that after the initial dumping, the STRUCTURAL DEMAND stays unchanged. As the upswing inevitably begins, speculators start to probe again.
10.The structural demand barrier described above is based on a very simple logic: the economic competitiveness of Ghana versus its main trading partners. The idea is that countries with similar economies would normally have near-identical prices for goods. The exchange rate reflects the differences among the key measures that describe the economies of trading partners.
11.One category of those key measures is made up of other price indicators in the economy, such as inflation and interest rates. Ghana’s main trading partners are China, the EU, US, UAE & the UK. the interest and inflation rates in all these countries have stayed considerably lower than those for Ghana throughout 2025, and in a rather STABLE FASHION. Consider, for instance, that inflation in China has been under 1% in 2025, and that the interbank interest rate has hovered under 2%. The comparative figures for Ghana are 21%+ and 27%+ respectively.
12.What this means is that the REAL EFFECTIVE EXCHANGE RATE between Ghana and these countries has not shifted much this year. The weakness of Ghana’s currency compared with its trading partners should ordinarily persist in light of the UNDERLYING MISMATCH of price-sensitive economic fundamentals.
13.It is thus very likely that the Cedi’s rally on the back of market sentiment could hit a structural block in coming months unless the inflation and interest rate indicators adjust quickly enough to remove the arbitrage distortions that have opened up due to the misalignment of the exchange rate with other major determinants of market prices.
14.The wild card here is commodity prices. Much of Ghana’s fiscal and monetary policy is currently riding on the unprecedented hike of gold prices in particular. Rising commodity prices can generate a series of short-term boosts indistinguishable from a long-term trend. But once commodity prices plateau, and investors have priced them in their models, or worse if prices start to fall, the switch in sentiment could be just as abrupt as the pre-rally swing. Meanwhile, the government has signalled plans to start reducing its arrears to its contractors and vendors, which should see an increase in Cedi circulation. It is also instructive to bear in mind that government dollar reserves are always dwarfed by the volumes circulating in the private and commercial sector. Any claims therefore that the government can indefinitely maintain an artificial Cedi-dollar peg in the face of sharp structural swings are therefore unsound.
15.Balancing economic growth and Cedi stability over the medium-term is, all said and done, a matter of fundamental ECONOMIC COMPETITIVENESS and not just market sentiment.
16.It is not, however, as so many tend to think, just about reducing imports. In fact, in most situations, the volume of imports grows in tandem with that of exports in a healthily expanding economy. Ghana has seen several periods since 2015 during which the country has improved its trade balance and even ran surpluses (more exports than imports) without a commensurate improvement in competitiveness compared to her trading partners, thus leading to the continued erosion of Cedi value.
17.The point about low competitiveness is corroborated by the fall in the contribution of trade to GDP seen in the attached graph. In the last couple of years, both exports and imports have underperformed relative to the potential of the economy. High tariffs and the generally high cost of doing business have moderated the ambitions of producers, who are thus not increasing their importation of high-value intermediates and capital goods.
18.Without high-value intermediates and capital goods, a newly industrialising country cannot produce increasingly more sophisticated exports that are competitive on price and value. Thus, Ghana’s export basket continues to be composed of 80% commodities by value. A situation that has not improved in 30 years.
19.The government’s attempts to start with sectoral competitiveness by supporting core industries which can then be linked together in a value chain network, thereby boosting productivity in the overall economy to drive national competitiveness, has so far not yielded much fruit.
20.I want to argue that this failure is due to the opacity and murkiness with which industrial policy and sectoral support policies have been pursued. The lack of transparency and documentation has made it impossible to learn from mistakes and to double-down on and improve what works. Such poor feedback loops worsen the lot of the already weak and shallow policy community. Consequently, there is NO NATIONAL LEARNING.
21.So long as voters strongly demand aggregate results (such as a stable Cedi) without much interest in HOW their demands are met through a web of discrete government processes, politicians would always look for shortcuts to simulate the attainment of desirable ends.
22.WHAT the public want is defined by POLITICS, a function of aggregates. HOW what they want can be achieved is, on the other hand, defined by POLICY, a function of discrete processes. I argue that there is currently a major fracture between the two – policy and politics, that is. A phenomenon I have termed KATANOMICS (from two ancient Greek words loosely translated as, “fractured norm”.)
23.We can illustrate the idea of katanomics in the context of industrial policy and sectoral competitiveness by looking at the work being done by Ghana’s EXIM Bank to build up export-capable firms through direct and targeted support. I have spent the last few months trying to get my head around the performance of EXIM’s portfolio of various programs to support Ghanaian companies in ways that can increase the structural, STABLE, supply of dollars/forex in the economy.
24.Amidst the murkiness and opacity, my reckoning is that most of these programs have been abject failures. It is not in the interest of the political elites in the country, however, to switch to a national learning mode that would enable effective monitoring and tracking by an empowered policy community. Consequently, most of these programs will just be re-labelled and the rot allowed to fester.
25.It was very saddening to review the situation at Darko Farms, Ghana most storied chicken farming and processing firm, for instance. Despite the government’s claims of capital injections exceeding $4.5m and other support measures, we have found that plant utilisation and general productivity remain well below subsistence level. The same is the case at Ekumfi Juice and several other companies that have benefited from EXIM’s programmatic support.
26.Proactively disseminating information on the performance of government initiatives with a sincere intent to drive continuous improvement by encouraging “policy audience” formation and engagement is the only way to boost policy-based national competitiveness. The scrutiny and constructive critiques are the only means to ensure that lessons are learnt and incorporated into adjusted strategies for continuous improvement in how the government supports key producers to boost national competitiveness.
27.The alternative is what we have seen happen time and time again. Short-term euphoria over sudden gains in the currency slowly giving way over the medium-term to despair as the exchange rate reverts to its natural ways, steady depreciation.
*Bright Simons is the Honorary Vice President of IMANI AFRICA
