Understanding Ghana’s economy: Key to sustainable growth

The economy of Ghana, like any other, is a complex system influenced by multiple sectors, including agriculture, energy, manufacturing and human resources.

In recent years, economic challenges such as inflation, currency depreciation and a high cost of living have raised concerns among citizens.

To understand why the economy fluctuates and how we can improve it, we must examine the key factors that contribute to economic growth and stability.

Impact currency depreciation

Over the years, many Ghanaians have noticed that despite fluctuations in the exchange rate, their salaries have not kept pace with the cost of living.

A clear example is how the depreciation of the Ghanaian cedi has significantly reduced the real income of workers when converted to US dollars.

In 2018, the exchange rate of the cedi to the US dollar was around GH¢ 4.7 to $1. At that time, Ghana’s minimum wage was GH¢ 10.65 per day, which was equivalent to $2.27 per day.

Over a month (30 days), this amounted to $68.1, and annually, a worker earning minimum wage would make about $817.2. Fast forward to 2025, the exchange rate has weakened to around GHS 15.5 to $1, while the minimum wage has increased to GHS 18.15 per day.

In cedi terms, this appears to be an improvement, but when converted to US dollars, the real value of this wage is now just $1.17 per day. Over a month, this amounts to $35.1, and annually, a Ghanaian worker earning minimum wage now makes only $432.

Impact worker

• Declining purchasing power: While salaries in cedi terms have increased, their real value in global terms has drastically fallen.

If the exchange that we had in 2018 had remained stable till now, a worker would have been earning minimum wage of $817 annually, but today, that same worker has only $432.

This means that despite working the same number of hours, their ability to afford goods and services has more than halved in just a few years.

• Rising cost of living: Since Ghana relies heavily on imports, the depreciation of the cedi increases the prices of essential goods, including food, fuel, and transportation.

Workers now need to spend more on necessities while earning less in real terms.

• Widening income inequality: While some professionals with salaries tied to the dollar or other foreign currencies may not feel the direct impact, the majority of Ghanaian workers earning in cedis have seen their earnings lose significant value.

This deepens the wealth gap, making it harder for the average worker to afford a decent standard of living.

• Increased financial struggles: With a weaker currency, businesses also struggle with higher operational costs, leading to stagnant wages and fewer job opportunities.

This worsens unemployment and underemployment, as many workers are forced into low-paying jobs just to survive.

Despite some progress, Ghana continues to face persistent issues such as inflation, currency volatility and fiscal constraints.

These challenges pose risks to the country's economic recovery and require prudent economic management and structural reforms.

Addressing challenges

On Thursday, February 27, 2025, President John Dramani Mahama delivered his first State of the Nation Address since taking office. In his speech, he made a stark declaration: “We have inherited a country that is broken on many fronts."

Fellow citizens, for a sitting President to acknowledge that the economy is broken is deeply concerning. But what does it truly mean to have a broken economy? Let’s break it down:

The declaration of a "broken economy" in Ghana reflects not only short-term financial struggles but also the deep-rooted issues that prevent the country from achieving long-term economic growth.

One critical factor is the underperformance of key economic sectors such as agriculture, energy and manufacturing. In contrast, the world’s largest economies have developed strategies to boost their economies and ensure they are competitive on the global stage.

Agriculture is still a vital part of Ghana’s economy, yet its contribution has not been enough to meet global standards. Despite being one of the world's top producers of cocoa, Ghana continues to export raw agricultural products with little value addition.

This lack of processing and innovation limits the revenue potential and restricts the country’s ability to compete globally, thereby hindering economic progress.

Struggling sector

The energy sector in Ghana has long struggled with instability and inefficiency. While the country has made strides in increasing its energy production, the infrastructure is still inadequate to meet the growing needs of industries.

Reliable and affordable energy is critical to industrial growth, and without it, Ghana cannot build the manufacturing base needed to compete globally.

Lack of industrialisation and limited diversification:

Unlike advanced economies such as the United States, the United Kingdom and the United Arab Emirates, Ghana remains heavily reliant on the export of raw materials such as gold, oil and cocoa.

These nations have diversified their economies through significant investments in manufacturing, technology and services.

They produce goods and services at a scale that allows them to dominate global trade. Conversely, Ghana has yet to diversify its economy to a sufficient extent, leaving it vulnerable to external economic shocks.

The writer is with the Istanbul Commerce University, Istanbul, Turkey.