In recent months, the Bank of Ghana (BoG) has intensified its interventions in the foreign exchange market in an effort to stabilise the cedi. These measures, aimed at containing inflation and restoring confidence, have slowed depreciation and strengthened the cedi against major trading currencies, particularly the US dollar. For consumers, the immediate effect has been welcome: imported goods have become cheaper, easing pressure on household budgets.
Yet beneath this short-term relief lies a less visible but more enduring cost. By keeping the cedi stronger than economic fundamentals justify, sustained foreign exchange intervention is quietly reshaping relative prices in favour of imports and against domestic producers. The result is not simply currency stability, but an increasingly import-biased economy in which locally produced goods struggle to compete.
A walk through any major market in Ghana illustrates this reality. Imported slippers largely from China are selling at prices local shoe makers cannot match. This outcome is often attributed to foreign efficiency or economies of scale. While these factors matter, the deeper problem lies closer to home: exchange rate policy is effectively subsidizing imports while penalizing domestic production.
By actively intervening to support the cedi, policymakers are keeping the currency stronger than underlying economic conditions would warrant. In the short term, this makes imports cheaper in cedi terms and offers temporary consumer relief. Over time, however, it systematically erodes the competitiveness of local producers.
Exchange rate support functions as a hidden subsidy. No direct transfers are made to importers, yet access to relatively cheap foreign currency lowers the local price of imported goods. Domestic producers receive no comparable benefit. Instead, they face high electricity tariffs, expensive and limited access to credit, rising transport costs, and dependence on imported inputs priced in foreign currency. Competing under these conditions becomes increasingly difficult.
Local shoe makers are among the most exposed to this policy distortion. Footwear production is labour-intensive, requires modest capital, and is well suited to small-scale manufacturing and youth employment. In many countries, such industries form the foundation of early industrialisation. In Ghana, however, shoe-making workshops are closing not due to a lack of skill or effort, but because macroeconomic policy has rendered their products uncompetitive.
Defending the cedi is often justified as a means of containing inflation, particularly imported inflation from fuel and food. Politically, a stable or appreciating currency is also appealing. However, economic stability built on suppressing the exchange rate is inherently fragile. It weakens export competitiveness, drains foreign exchange reserves, and discourages investment in tradable sectors precisely the sectors required for sustainable growth and job creation.
Economic history offers clear lessons. Countries that successfully industrialized from East Asia to parts of Latin America did not do so with persistently overvalued currencies. Instead, they allowed exchange rates to reflect fundamentals and, in many cases, deliberately maintained competitive exchange rates to make imports relatively more expensive and domestic production more attractive. Ghana’s current approach risks moving in the opposite direction.
The decline of local shoe making is not a trivial concern. When basic manufacturing industries collapse, the economy loses jobs, skills, and the foundations upon which more advanced manufacturing can be built. Industrialisation cannot take root if even simple consumer goods cannot be produced competitively at home.
Ghana faces a clear policy choice. It cannot credibly pursue industrial development while maintaining an exchange rate regime that systematically favours imports over domestic production. Greater policy coherence is essential.
A more balanced strategy would allow a gradual, market-consistent adjustment of the cedi, while protecting vulnerable households from sharp price shocks. Foreign exchange support should be deployed selectively—for critical imports such as fuel, medicines, and essential industrial inputs rather than to cheapen non-essential consumer goods.
At the same time, domestic producers require targeted support through improved access to credit, reliable electricity supply, and carefully designed trade and industrial policies.
If Ghana is serious about building a productive, job-creating economy, exchange rate policy must support local value creation rather than undermine it. Otherwise, the country will continue to import what it can produce domestically and export jobs it urgently needs at home.
Author’s Note: Samuel Owusu (PhD) is an economist and lecturer in the Department of Business Studies, Garden City University, Kenyasi. His research interests include applied microeconomics and development economics, with a focus on how economic policy affects production, employment, and welfare.
By:Samuel Owusu, PhD
Economist, Garden City University, Kenyasi
