Tourism-related businesses will tell you how dependent their businesses are on the dollar. Businesses such as car rental companies, travel agencies, hotels, tour operators and so on and so forth need the dollars to pay for the services the tourists will need when they arrive in the country, just as importers of goods rely on the foreign exchange to pay for imported goods. International tourism is an invisible export to Ghana, thus the more tourists visit the country, the more foreign exchange we will receive into the economy, and the better the economy will be.
That has been our reliance on foreign exchange, specifically the dollar, to the extent that when one makes a call to a car rental company requesting a car, the rate will most often be quoted in dollars. When trying to book a room in a hotel, the price is most often quoted in dollars. Try purchasing a ticket from an airline company, and the price will most often be quoted in dollars. These businesses may not be blamed for the quotation in dollars. They find safety in the dollar due to the continuous depreciation of the Ghana cedis which affects projections made.
We have been too accustomed in doing business with the dollar that sometimes it appears to us as our unofficial currency. Who is to bear the blame? Some time back, the Bank of Ghana issued a directive warning businesses not to display dollar rates and quoting dollars in advertising their services or goods. It read that the Bank of Ghana wished to advise the public against unauthorised dealings in foreign currency. Bank of Ghana, hereby reminds the public that in accordance with the Foreign Exchange Act, 2006 (Act 723), companies, institutions and individuals are prohibited from:
- Engaging in foreign exchange business without a license issued by Bank of Ghana; or
- Pricing, advertising, receipting or making payments for goods and services in foreign currency in Ghana without written authorisation from Bank of Ghana. Such violations are punishable on summary conviction by a fine of up to seven hundred (700) penalty units or a term of imprisonment of not more than eighteen (18) months, or both. Bank of Ghana hereby cautions the general public to desist from dealing in illegal forex activities (black market transactions), pricing, advertising, receipting or making payments for goods and services in foreign currency in Ghana without the requisite license or authorisation from Bank of Ghana. The General Public is hereby notified that the sole legal tender in Ghana is the Ghana Cedi. Bank of Ghana, in collaboration with National Security and Law Enforcement Agencies, will continue to clamp down on illegal foreign exchange operations. All offenders shall be dealt with in accordance with the law.
I was listening to a programme on radio, and some of the panelists alleged that many of the banks do business with the black market, and the black market is partly to blame for the depreciation of the cedis. They further alleged that the black market is allowed to operate because people seem to benefit from the black market. I cannot tell how true this is. Only the Bank of Ghana can.
Meanwhile, Joy FM report that the President of the Ghana Union of Traders’ Associations (GUTA) has blamed the Bank of Ghana (BoG) for creating room for the black market to operate. This, Mr. Joseph Obeng said, is due to the bank’s “stringent documentary requirements”. “It does not allow people to do business with the mainstream businesses.” Mr. Obeng insisted that Bank of Ghana “knows the problem. It means that the solution is what they are not bringing”. Meanwhile, the Head of Financial Stability at the central bank, Dr. Joseph France, said his outfit won’t hesitate to clamp down on activities of forex bureaux found culpable and operating illegally. The Bank of Ghana said this is one of the measures to control the sharp depreciation of the cedi. The fact remains that the continued depreciation of the currency will kill all the gains made within the tourism industry. Tourism businesses will also drastically be affected; so the Bank of Ghana needs to act.
A tour operator begins planning a tour one year ago. If US$1 equaled GH¢6 at the beginning of the planning stage, a year later when the tour is about to take place, US$1 equals GH¢10; and if the tour was priced at about US$1000 per head, the difference in value a year later per head will be US$4000. In such a situation, will the tour operator be able to cover up the difference in value, and settle all third parties he or she deals with? This is obviously not possible. This situation will go a long way to affect his profit margin. How will this tour operator then remain in business if such a situation persists? How will he pay his bills and workers’ salary? According to a UNWTO report, tour operators are the main drivers of tourism to a destination or country. What happens if tour operators cannot make profits and undertake tours to Ghana because of the depreciation of the currency? Your guess is as good as mine.
Many researchers point to the relationship between the depreciation of a currency and tourism flow. An article by Başvuru Tarihi highlights this relationship. His study was focused mostly in Turkey. The question he tried to unravel was whether the value of a currency affects the numbers of international inbound tourists to Turkey.
He analysed that many factors contribute to an increase in tourism demand for a particular region or country. The most important ones are income, relative tourism prices and transportation costs. While considering these critical dynamics, it is critical to distinguish between domestic and international tourism. The exchange rate is the most important variable in international tourism because visitors will undoubtedly gain more purchasing power if the value of their home currency is higher than that of the country to be. This occurs when the foreign tourist’s domestic currency appreciates or the currency of the visited country depreciates. When both of these events occur at the same time, the tourist’s purchasing power increases even more. Thus, the relative affordability of the destination country is a fundamental reason for tourist preferences as the relative depreciation of the local currency will boost the number of foreign tourists visiting that country. However, he affirms that further empirical evidence is required to verify this seemingly valid theory. Activities that bring in foreign currency, with tourism being one of the leading industries in this regard, are critical for economies depending upon short-term capital inflows. Furthermore, as the global growth rate has slowed in recent decades, tourism’s contribution to economic growth cannot be underestimated. For example, in Dominica and Malta, the travel and tourism sector has accounted for 22.3 percent and 11.7 percent of GDP respectively in 2019 (World Data Atlas, 2021).
Similarly, in Turkey, tourism has also contributed to inward foreign currency flows and economic growth. Although direct travel and tourism only contributed 3 percent to GDP growth in 2019 due to the coronavirus pandemic, the average contribution for 2010-2019 was around 6 percent (World Data Atlas, 2021). Turkey has considerable tourist potential, but has frequently experienced currency problems as a result of excessive outflows or insufficient short-term capital inflows. Germany and Russia are the top two tourist generating countries for Turkey with the Threshold Autoregressive Vector (Threshold-VAR) model. These countries were chosen because they were the top two sources of tourist flows to Turkey between 2000 and 2019, accounting for 27 percent of total foreign tourist visitors. The following section reviews previous empirical studies of international tourist demand. These empirical studies have used various variables and samples from small Pacific Islands to Europe, America and Africa.
In contrast, foreign tourists in Malaysia from January 1999 to June 2019 primarily came from Singapore, Indonesia and China. Several studies have focused on the impact of crises on tourism demand. For example, they examined the effect of such events on tourism demand in Taiwan, which experienced four major disasters at approximately two-year intervals. As expected, terrorism reduced tourist arrivals in Egypt. Most studies have examined the determinants of tourism demand from a macroeconomic perspective, particularly by using the number of percentage change in tourist arrivals as the dependent variable while the independent variables include exchange rate, production index, rival prices, and oil prices. These studies have used the exchange rate in different ways in their models.
Philip Gebu is a Tourism Lecturer. He is the C.E.O of FoReal Destinations Ltd., a Tourism Destinations Management and Marketing Company based in Ghana and with partners in many other countries. Please contact Philip with your comments and suggestions. Write to [email protected] / [email protected]. Visit our website at www.forealdestinations.com or call or WhatsApp +233(0)244295901/0264295901.Visist our social media sites Facebook, Twitter and Instagram: FoReal Destinations.