Tuesday, August 12, 2014

The current Ghanaian economic crisis

The loss of value of the Ghanaian cedi has not only made buying dollars very expensive, but since so much is imported and paid for in dollars it has also fuelled general inflation. The price of everything except labor has gone up dramatically in recent months. Wages and salaries in contrast have stagnated which in real terms especially when measured in dollars, pounds, or euros means they have plummeted. I am making less in terms of dollars now than I was in January 2011 when I started working in Ghana. This crisis is the result of importing expensive manufactured goods and exporting cheap raw materials with inelastic demand. Currently cocoa is the main export of Ghana and it's price compared to manufactured goods is low and subject to collapse as has happened recently.The demand for the product is inelastic so a lower price does not result in a larger volume of exports. There are only two ways out of this perennial problem. The first is to change the currency. That means getting rid of the cedi and using the dollar, euro, the CFA, the yuan, or some other larger currency which has a manufacturing base behind it like the US, Germany, France, or China. Ecuador got rid of its currency and went to the US dollar and it solved a great many of its economic problems. This is unlikely to happen in Ghana even though it is the quicker and easier solution. The other solution is to create a domestic manufacturing and agricultural base to either substitute for imports or to provide exports to pay for imports. This is also unlikely to happen in Ghana even though people have talked about its necessity for over fifty years.

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