“One of the main reasons why a weak Cedi is good for tourism in the long run is because it can make Ghana a more affordable destination for foreign visitors.”
For most economies, the floating exchange rate system is the norm; this means a currency’s
value is allowed to fluctuate following the foreign-exchange market trends. Because currency
rates are influenced by factors usually in a state of perpetual flux – interest rates, economic
performance, currency supply and demand, and inflation – a currency’s relative strength, or lack
of it, is often measured against the US dollar, which is the global reserve currency, varies at any
given time.
Currency rates have a huge impact on our day-to-day life and, not surprisingly, play a crucial
role in the travel and tourism industry – one of the largest economic sectors globally. In many
countries, tourism makes some of the most significant contributions to generating foreign
exchange earnings, boosting local revenue, and creating massive employment.
According to the 2020 UNWTO report, tourism represents one of the top five export categories
for over 80 percent of countries. It is also the primary source of foreign exchange earnings for
up to 40 percent of the world’s economies; it also supports one in ten jobs worldwide. Between
2009 and 2019, real growth in international tourism receipts (54 percent) exceeded growth in
global GDP (44 percent).
Ghana is one of the major destinations for tourists traveling to West Africa. As an English-
speaking country, most visitors come from the United States, Nigeria, and the United Kingdom.
For instance, in 2020, some 40,000 people visited the country from the US, with total registered
visitors of around 355,000 overall that year. This represented a sharp decline compared to the
preceding years, which reported more than 900,000 annual visitors.
The effects of the coronavirus (COVID-19) pandemic on tourism in the country have remained problematic in
recent years.
Travel and tourism is, by nature, an international business, which is why global currency
fluctuations are pivotal forces in the global travel and tourism industry. Given their ability to
control the purchasing power of all travellers – a fact that ultimately determines all other
developments in this sector – understanding how currency fluctuations can affect the
affordability of travel is important.
The Ghanaian cedi has depreciated sharply against many currencies, particularly the US dollar,
since the start of 2022. The cedi has declined more than 55 percent between January and
October 2022, among the steepest declines of any currency in the world this year.
The depreciation of the cedi, in turn, has led to high inflation rates in Ghana’s financial market this
year. In October, inflation surged to 40.4 percent year-on-year, driven by higher food and fuel
prices. Inflation for locally produced items was 39.1 percent, while inflation for imported items
was 43.7 percent in October.
From this perspective, currency depreciation is rarely welcomed with open arms because it
usually causes the cost of living to rise and impacts international trade and exchange, among
many other factors. The depreciation of the cedi has negatively affected imports and intensified
local inflation, indirectly affecting travel and hospitality. But while currency falls in value like this
spell doom for most other economic sectors, the hit on tourism has been relatively mild.
Currency depreciations bring domestic prosperity for nationals. This is especially the case for
countries like Ghana that depend heavily on travel and tourism to boost local employment and
the economy – the cedi’s depreciation makes travel more affordable, giving locals more travel
and spending options. This is a reality the Ghanaian government is alive to and which it has
factored into its planning for 2023 and beyond.
One of the main reasons why a weak Cedi is good for tourism in the long run is because it can
make Ghana a more affordable destination for foreign visitors. As the Cedi loses value against
other currencies, the cost of flights, accommodations, and other travel expenses decreases for
visitors from abroad. This can make Ghana a more attractive destination for tourists, especially
those on a budget.
The chair of Ghana’s Parliamentary Finance committee, Dr Mark Assibey, noted in February
2020 that a weak cedi was not necessarily bad because it attracted more tourists to the country.
“All those people who come into the country do so because our currency is weak; when they
bring their dollars and convert them, they get a lot of money and can spend, so when our
currency starts getting stronger, it affects tourism. A strong currency in and of itself is not a good
thing [for tourism],” Dr Assibey noted.
As the Ghanaian economy, indeed economies the world over, find their footing once again,
experiencing first-hand how currency fluctuations affect travel would be, at the very least,
anecdotally helpful when shaping perspective on where the sector is headed next.
Inflation is sharply eroding the purchasing power of consumers as prices of most consumables
go up almost monthly.
Whenever there has been a financial crisis, the tourism industry has got
affected, and traces of it carried into the development of the social, cultural, political, economic,
and environmental domains. This trend continues to obtain even as its effect on tourism remains
minimal.
In fact, as the value of the Cedi decreases, exports from Ghana become more competitive on
the global market. This can lead to an increase in the amount of money flowing into the country,
which can stimulate economic growth and create new jobs.
The tourism industry in Ghana is one of the sectors that can benefit from economic growth. As the economy grows, more people will have disposable income to spend on travel and tourism-related activities. This can lead to
an increase in the number of tourists coming to the country, which can help to generate more
revenue for businesses in the tourism industry.
On the other hand, the depreciation of the cedi means that travel, accommodation, and related
expenses have become more affordable for international tourists. This fact compensates, in
some way, for the ill effects of a downward trend. However, while depreciation can be
favourable for tourism, a volatile market can prove too unstable for people who prefer to plan their holidays over time.