Ghana’s Cedi May Extend West Africa’s Worst Drop

Ghana’s cedi, West Africa’s worst performing currency this year, will depreciate about 5 percent in 2013 to a record low on greater demand for imports, according to the country’s second-biggest bank.

The cedi is projected to trade at 2 per dollar by the end of this year, John Awuah, chief financial officer at Ghana Commercial Bank Ltd., said by phone from Accra, the capital, on May 2. The cedi gained 0.1 percent to 1.9755 per dollar by 8:16 a.m. in Accra, retreating from May 3’s lowest level since at least June 1994 when Bloomberg began compiling the data. The cedi started the year at 1.9045.

The currency of the world’s second-biggest cocoa producer weakened 14 percent in 2012 and is down 3.6 percent this year, the worst performer among seven West African currencies. Ghana’s debut as an oil exporter in 2010 fueled the fastest economic growth on the continent and spurred a rise in imports that are paid for in dollars, adding pressure on the cedi as traders seek notes to exchange.

The current account deficit, the broadest measure of trade in goods and services, is projected at 10.2 percent of gross domestic product this year, according to Fitch Ratings. Inflation accelerated to to 10.4 percent in March, the highest in more than 2 1/2 years.

Dependence on imports keeps the cedi “volatile,” which makes “planning and projections for earnings very difficult,” Awuah said. Ghanaian exporters haven’t taken advantage of the depreciation to sell their products abroad in dollars to earn more cedis, he said.

Bond Sale

The cost of importing raw material, power blackouts and high credit charges are curbing growth for companies, according to the Association of Ghana Industries’ survey for the fourth quarter of 2012.

“We are being whipped from both ends,” Awuah said.

Ghana, which became the first sub-Saharan African country outside of South Africa to issue dollar debt in 2007, may offer $1 billion in a second sale this year, two people with knowledge of the plans said on April 26. While $750 million will probably be used to restructure the earlier debt, the remainder “will be used to shore up the cedi if that bond sale takes place,” Awuah said.

Yields on the bonds due October 2017, rated B by Standard & Poor’s, fell five basis points, or 0.05 percentage point, to 4.82 percent on May 3. That compares with yields that were little changed at 4.05 percent for Nigerian bonds due January 2021, rated BB- by S&P, three levels below investment grade.

Gold Prices

Foreign-currency reserves, which slipped a monthly 3.2 percent to $5.3 billion in February, have declined as prices for Ghana’s exports fell, Awuah said. Spot prices for gold, Ghana’s biggest source of international exchange, have dropped 13 percent in the past six months and may mark the first annual loss since 2000, according to a Bloomberg survey of 38 analysts.

Ghana is Africa’s second-biggest gold producer after South Africa. The central bank uses its foreign reserves to occasionally sell dollars directly to lenders to shore up the cedi when local demand for the U.S. currency is high. A sale of $24.2 million on May 3 wasn’t enough to stem the cedi’s decline, said Richard Dei-Tutu, a currency trader at CAL Bank Ltd.

To contact the reporter on this story: Ekow Dontoh in Accra at edontoh@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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