Price reduction and cedi appreciation

The recent strengthening of the Ghana cedi (GHS) against the US dollar (USD) has spurred debate among businesses and customers regarding possible price cuts. 

While a stronger cedi may indicate cheaper import costs and operational expenses, as a business owner, I do not want to suddenly drop pricing. 

This is a strategic decision based on long-term sustainability, considering a variety of economic and operational aspects. In this article, I will explain why maintaining current prices, despite the cedi’s gains, is a prudent business decision. 

I will outline six key reasons, including cost volatility, supply chain considerations, profit recovery, reinvestment needs, competitor dynamics and customer expectations.

Currency appreciation

The appreciation of the cedi, while positive, may not be sustainable in the medium to long term. Ghana's economy remains exposed to exogenous shocks like increased global oil prices, supply chain disruptions and geopolitical tensions.

These exogenous influences have the potential to reverse the cedi's advances within weeks. As a sensible business owner, I must wait to see if this increase reflects a long-term economic trend or a transient resurgence affected by short-term monetary policy.

Premature pricing cuts could put the company in a precarious situation if the cedi depreciates again.

Stock acquired

Much of my current goods were purchased when the cedi was lower and the USD was higher. The cost of importing such goods, including shipping, customs fees and other overheads, was computed using the higher exchange rates.

To suddenly lower pricing due to today's exchange rate would result in losses on goods purchased at a far higher price.

Price stability must be maintained until that stock is cleared and replaced at new, potentially lower exchange rates, in order to recuperate past investments.

Business operating cost

Exchange rates are not the only factor influencing business costs in Ghana. Utility bills, fuel expenditures, local taxes, rent and labour costs all remain high.

Several of these costs have stayed constant or grown despite the cedi's recent appreciation. For example, utility tariffs are changed using a formula that considers global inflation and energy prices, which do not necessarily fall as the cedi strengthens.

Reducing pricing without equivalent reductions in operating costs would reduce margins and perhaps jeopardise the company's long-term viability.

Building financial resilience 

Currency devaluation, inflation and rising import costs have weakened the financial position of many Ghanaian small and medium-sized firms in recent years. Some took out high-interest loans to survive, while others decreased their staff or curtailed operations.

The appreciation of the cedi allows enterprises to recover, stabilise their finances and restore reserves. Cutting prices too rapidly could jeopardise the recovery effort.

As a business owner, I must choose resilience and sustainability over an immediate response to economic emotion. 

Price stability 

Customers like firms that provide transparency and consistency over those that frequently change their prices. Sudden price decreases due to short-term currency gains, followed by rapid hikes when the cedi weakens, might erode customer trust.

These variations may give the impression that the firm is unstable or opportunistic. By keeping pricing consistent even when the cedi appreciates, a company exhibits dependability, fosters long-term client connections and strengthens its reputation for honesty.

Business reinvestment opportunities

The higher margins that may emerge from a stronger cedi, assuming reduced import costs, can be reinvested in product quality, customer service, operational digitisation or market expansion.

These long-term expenditures are more valuable to the consumer experience than short-term price decreases. Improving delivery timelines, changing product packaging and educating employees, for example, can all have a substantial impact on customer happiness and retention. Strategic reinvestment of surplus cash promotes growth and future competitiveness.

The appreciation of the Ghana cedi is a favourable economic signal, but it should not automatically result in downward price adjustments, especially if it is not accompanied by long-term structural reforms.

As a business owner, my goal is to assure long-term stability, high-quality service delivery and a viable financial model.

While I recognise that people are expecting relief through lower costs, it is my obligation to reconcile such expectations with the reality of company management in a very fragile economic situation.

The writer is a Lecturer/SME Industry Coach, Coordinator (MBA Impact Entrepreneurship and Innovation), University of Professional Studies Accra

ayiku.andrews@upsamail.edu.gh
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