The 10.94 Cedi to 1 USD Paradox: Macroeconomic triumph, the import subsidy trap, and the threat to youth employment

A viral assertion among Ghanaian youth and entrepreneurs claims that the current exchange rate of approximately 10.94 Cedis to the US Dollar is killing local jobs by making imported products cheaper than locally manufactured goods. To evaluate this objectively, one must acknowledge the remarkable macroeconomic recovery led by the current administration.

Since the 2022-2023 economic crisis, inflation has dropped to 4.6%, and the economy is expanding at a solid 5.5%. The Bank of Ghana has cut interest rates to 14.0% from a peak of 30%, while the Ghana Accelerated National Reserve Accumulation Policy is rebuilding international reserves, currently valued at $13.8 billion. Tax reforms, such as abolishing the COVID-19 levy and raising the VAT registration threshold, have also benefited local businesses.

However, this macroeconomic success has given rise to a "Strong Currency Paradox." The appreciation of the Cedi has made imports cheaper, but this subsidy for imports inadvertently contributes to the destruction of local jobs. The agricultural sector, for instance, has only managed to produce 57,871 metric tonnes of poultry meat, far below the projected 400,000 metric tonnes per year.

Imported frozen chicken remains over 30% cheaper than locally produced chicken. While Ghana has tried to encourage local production through VAT exemptions, many other policies contribute to the tension between modernization and job creation. For example, zero import duty on electric vehicles makes foreign EVs more attractive than potential domestic assembly plants.

The real issue lies in the high domestic cost of production. With industrial electricity costing about $0.16 per kWh, local factories cannot compete with imports from countries with significantly lower electricity costs, such as Vietnam and China. Even after VAT reforms, formal manufacturing businesses still have to contend with a 20% effective VAT rate.

Consequently, entrepreneurs often find it more profitable to import finished goods than to establish local factories. This capital reallocation could potentially destroy high-yield industrial job creation, leaving the workforce in an informal, retail-based economy.

Importantly, not all imports are finished consumer goods that displace local businesses. A significant portion of imports consists of capital goods and intermediate materials crucial for industrialization. These include heavy machinery, industrial energy inputs like diesel, and agricultural equipment. Without the ability to manufacture these essential items domestically, Ghanaian factories rely entirely on imported machinery and raw materials.

In this sense, a strong Cedi is a lifeline for ambitious local entrepreneurs who can afford these imported inputs. Thus, the jobs narrative is complementary, not contradictory, as a strong currency enables capital accumulation necessary for industrialization, creating high-yield jobs for the youth.