Ghana elections and the impact on Cedi

January 5, 2021

Ghana has a long and historic tradition of being  one of the most democratic countries in West Africa. It’s most recent presidential election was on December 7, 2020 and featured eleven candidates in the race to unseat President Nana Akufo-Addo, running for his second term.  Mr. Mahama, a significant competitor, believed the economy was ailing and needed saving. The campaign came during the corona pandemic, which has negatively impacted the world economy, Ghana notwithstanding. This pandemic changed how campaign’s typically interacted with voters, forcing more digital contact than ever before. Many have feared the timing of the elections right in the middle of an on-going pandemic could further weaken an already depressed Ghanaian Cedi.

How was Cedi doing in previous year?

Ghanaian Cedi had weakened against major currencies, mostly the US Dollar. Ghana operates  a flexible exchange rate regime introduced via a series of policy promulgations between 2002 and 2007. According to the article On the causes and effect of exchange rate volatility on economic growth: Evidence from Ghana - IGC, the Cedi has been very volatile. A prime example of such volatility occurred from the beginning of January 2014, when the US$ GH¢ rate was 2.21, and by the end of September 2014, the Cedi against the dollar exchange rate was GH¢3.20, a fall of approximately 44.65%. This rapid and excessive depreciation level contributed to a significant rise in consumer price inflation, which rose from 13.8% in January to end the year at 17% in December 2014. GDP growth was also negatively impacted by this FX induced inflation surge. Ghana which only as recently as 2011 had held the impressive title of world’s fastest growing economy at 15.0% in 2011, dropped to 8.8% in 2012 and further to 7.6% in 2013. The provisional GDP growth rate for 2014 is estimated at 6.9%, down from a revised initial target of 7.1%.

How was Cedi at the start of election year 2016?

As we tried to look at how elections in Ghana affect Cedi, we checked Cedi's performance in 2016, which was  the last year a general election had been conducted. According to 'Cedi to depreciate by 15% in 2016' - Investcorp, Cedi, which depreciated by about 18.75 percent against the US dollar in 2015, was still expected to decline by about 15 percent in 2016, with the general election cited to be the determining factor in this prognosis. By January 2016, the situation had already started looking ominous for the  local currency as it had lost value by about 1.7 percent to the US dollar. 

How was Cedi by the end of the election year 2016?

However, according to Value Of Currency Cedi doing better than in 2016, 2017 – GN Research [ARTICLE] - Pulse Ghana as of June 20, 2016, the Cedi lost 2.83%, 2.86% and 6.88% of its value against the Dollar, the pound and the euro, respectively and 3.45%, 5.61% and 9.07% by June 20, 2017. Campaigning in 2016, the then opposition candidate Nana Addo tweeted-on May 4, 2016, saying, "The current depreciation of the Ghana Cedi against the Dollar is because of BAD leadership. We should not be where we are to buy the Dollar for 3.72." Cedi's performance against trading currencies was a major campaign issue with political parties. Though the drop in value in 2016 was not as high as what was forecasted it still was steep enough to have an impact on both leading candidate’s fortunes in the election.

How was Cedi's start of 2020?

As of March 2020, the Cedi-Dollar exchange rate was GH¢5.73 to US$1.00. which coincided with  announcements by the Ghanaian government of partial lockdown and border closures across the country. According to  Cedi, performance in the first half of 2020 is the best since 2014; the expectation was stability in the Ghana Cedi relative to major foreign currencies such as the American Dollar. However, as of July 3, 2020, the Cedi-Dollar exchange rate hovered around GH¢5.78 to US$1.00,  which whilst heading in a negative direction was nowhere as bad as previous rounds of high depreciation - 2014, & 2016

How has Cedi fared to date in 2020?

From the steep contraction in private sector output in Q1 2020, we have seen marked improvement in the fortunes of that space as at October 2020, which is the current year of elections. The improvement was due to increased output, new orders, and a steep rise in GDP as work backlogs were met. The efforts to curb the pandemic benefitted the sector as customer demand was on the rise. Cedi's performance in the first half of 2020 is the best since 2014 states that the Ghana Cedi depreciated between 2017 and 2020 by an average of 8.7% compared to 18% recorded between 2013 and 2016. Other factors held constant; if the Ghana Cedi had continued depreciating at an average rate of 18% annually since 2017, today, the exchange rate would have been about GH¢7.60 to US$1.00 or higher, given the socio-economic effect of the pandemic and elections.

Bottom line

 In conclusion, Cedi will end 2020 with a year to the date depreciation rate of less than 5%. It is far much better than the 8.33% loss over the same period last year. Though being a year of elections, Cedi depreciation was minimal. Cedi has done well by historical standards, so we can conclude that the elections have yet to adversely impact on it’s fortunes.

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