Rapid — and perhaps accelerating — depreciation of the cedi is challenging the ability of local vendors and service providers to price accurately. (Recall that most everything in Ghana is imported.)
The Bank of Ghana seems to be in wonderland because they are quoting what I regard as a “fake” rate of 3.0319 – 3.0343. (I don’t think they’d be willing to convert my cedis for me.)
On Monday, I changed dollars for cedis at 3.35. I didn’t shop around so I don’t know if this was the best rate for Monday.
Today, I decided to pay for membership at a gym. I’ve been weighing several different options. The place I ultimately decided on quoted their membership in dollars. I told them that I didn’t have dollars so I asked, “What rate are you using?”
They replied 3.15 (!). In other words, if I exchanged dollars using Monday’s rate, then I would automatically save 6 percent on the quoted dollar price ((3.35 – 3.15)/3.15). The gym’s rates are 3.15 – 3.40.
I asked my helper to shop around the forex bureaus in Osu for the best rate. He got the following rates (the number on the left is to change dollars into cedis and the number on the right is to change cedis into dollars):
- 3.35 – 3.70
- 3.60 – 3.80
- 3.30 – 3.90
- 3.30 – 3.80
I selected the forex bureau offering 3.60 and decided I needed to act immediately because I would save 14 percent on the quoted dollar price ((3.60 – 3.15)/3.15). By the way, the forex bureau in East Legon had a rate of 3.50 – 3.75 and the Accra Mall is usually even better than the forex bureau in East Legon. I think most of the forex bureaus quoting 3.30 are ripping people off.
Some people, may recognize that this gym is actually offering a way to make riskless profit (arbitrage). A person could get $100,000 convert them to cedis at 3.60 or 360,000 cedis then convert back into dollars at 3.40 to get $105,882. Apart from the cost to drive around town to do this continuously, it’s theoretically a riskless profit. I say “theoretically” because I doubt this place would be willing to convert $100,000 worth of cedis. Maybe they’d be willing to do $2,000 or a profit of $117.
This example just illustrates how vendors seem to be having a difficult time figuring out what the true rate is.
In a way, I feel sorry for vendors of goods and services because they cannot keep changing their prices every day to maintain margins. These vendors need to decide by what percentage they need to raise prices without losing too many customers and how frequently they need to change their prices.
I’m glad I closed my business because my basic plan used to cost 30 cedis. In order to maintain margins, I’d have to be charging 72 cedis. I can’t imagine many customers hanging on all the way up.
I have become mindful of which restaurants have changed their menu prices and which have not. For instance, my favorite Thai restaurant, Zion Thai, has not raised prices in 2 years! (In 2012, the rate was around 2.0 so prices are 80 percent cheaper.) The owner seems to think that raising prices by any amount would result in less customers.
You might think that 80 percent cheaper is a good thing; you have to wonder what she has done to still make money. Ok, I know what she’s done. First, the portion of meat (chicken, beef, pork, shrimp) is much smaller — and probably of lower quality. Second, she used to have fresh fish in her dishes. Now, she uses dried fish or perhaps frozen fish. I “cope” by ordering double portions of meat and eschewing certain items.
In the other direction, my favorite sushi restaurant, Santoku, has been slow to raise prices. It used to cost 22 cedis or $11 for two pieces of sushi (nigiri) when the exchange rate was 2. Unfortunately, Santoku is the only good sushi restaurant in town where the nigiri (cut fish on rice) outnumbers the rolls (mixed, old fish packed between rice).
To my benefit, they didn’t raise prices until the cedi hit 3.0 or when the same two pieces of nigiri cost $7.33. Now the cost of two pieces of sushi is 31 cedis or $8.60. It’s higher but not as high as when they first opened.
Besides food, entertainment options are also struggling to keep up with the depreciating cedi. For instance, Silverbird Cinemas, the only movie theater, has also been reluctant to raise prices. In 2011, the price of a ticket was 16 cedis or $10. Then they raised it to 20 cedis and it stayed that way until the cedi hit 3.30. Now it’s 25 cedis or $7.14.
Despite all the “depreciating cedi” deals, I’m trying not to spend my dollars. The cedi started the year at 2.35, crossed 3.0 on May 29, and is now at 3.6. Since the start of June, the currency lost 20 percent of it’s value in 7 weeks. At that rate, the cedi will be at 4.0 in a month and it will be at 5.0 by October and 6.0 by the end of the year. Why spend now, when there will be better deals in the near future?