EFFECTS OF THE GHANAIAN CEDIS DEVALUATION ON SMALL AND MEDIUM SCALE ENTERPRISE IN TAKORADI

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

The concept of devaluation is the official lowering of the value of a country's currency in relation to other foreign currency within a fixed exchange rate system, Jenkins; Roy (1998).This is done through the countrys monetary institution which officially determines the new fixed rate relative to other foreign currency.  Devaluation renders the foreign currency more expensive in terms of the home currency. The Ghana cedi is the official currency of Ghana. One Ghana cedi is divided into one hundred pesewas. According to Steel & Webster (1991) and Osei et al (1993) SME is defined by the use of an employment cut-off point of 30 employees. Osei et al (1993), group SMEs  as those -employing less than 6 people; (ii) very small -employing 6-9 people; (iii) small -between 10 and 29 employees. There are various definitions for SMEs in Ghana but the most commonly used criterion is the number of employees of the enterprise (Kayanula and Quartey, 2000). According to the National Board for Small Scale Industries (NBSSI, 1990) smes are those enterprise  with not more than 9 workers, and has plant and machinery (excluding land, buildings and vehicles) not exceeding 10 million Ghanaian cedis and micro with employee less than five. The consequences of devaluation could be adverse on the performance of small and medium scale enterprise. Most  small and medium scale enterprise rely on imported input and capital goods which means that devaluation  will lead to higher cost of acquisition of this goods. The multiplier effect is the increase in the cost of production which will also lead to increase in the prices of goods. Devaluation leads to uncertainty and impedes on international trade which also leads to inflation. Devaluation makes planning and projections of business projects by SMEs difficult and has resulted in the dissolution of many small and medium scales businesses. The study seeks to appraise the effects of the Ghanaian cedis devaluation on small and medium scale enterprise in Takoradi.

1.2 STATEMENT   OF   THE PROBLEM

The importance and functions of Small and Medium-Scale Enterprise (SMEs) towards the development and growth of the nation cannot be overemphasized. They effectively utilize local inputs for productions, create employment, community development, facilitate savings and create market for large firms. They facilitate the spread of investment and channel for self-employment. SMEs can be productive and promote economic growth if government policies and institutional framework are friendly. Therefore, the consequences experienced as a result of devaluation are detrimental and has deterred the growth of many. The problem facing the study is to appraise the effects of the Ghanaian cedis devaluation on small and medium scale enterprise in Takoradi.

 

1.3 OBJECTIVES   OF THE STUDY

The Main Objective of the study is to appraise the effects of the Ghanaian cedis devaluation on small and medium scale enterprise in Takoradi. The specific objectives include:

  1. To determine the nature of devaluation.
  2. To determine the importance and roles of small and medium scale enterprise.
  3. To determine the effects of the Ghanaian cedis devaluation on small and medium scale enterprise in takoradi.

1.4 RESEARCH QUESTIONS

  1. What is the nature of devaluation?
  2. What is the importance and role of small and medium scale enterprise?
  3. What are the effects of the Ghanaian cedis devaluation on small and medium scale enterprise in takoradi?

1.5 STATEMENT OF THE HYPOTHESES

The statement of the hypothesis for the study is stated in Null as follows:

Ho: The level of performance of SMEs in takoradi is low.

Ho: The effects of the Ghanaian cedis devaluation on small and medium scale enterprise in takoradi are negative.

1.6 SIGNIFICANCE OF THE STUDY

The study seeks to project the negative consequences of devaluation on SMEs with the view of calling the attention of policy makers to proffers remedial actions in policy formulation and implementation so as to promote the growth and development of SMEs.

1.7 SCOPE OF THE STUDY

The study focuses on the appraisal of the effects of the Ghanaian cedis devaluation on small and medium scale enterprise in takoradi.

 1.8 LIMITATION OF THE STUIDY

The study was confronted with logistics and geographical factors.

1.9 DEFINITION OF TERMS

DEVALUATION

Devaluation is the official lowering of the value of a country's currency in relation to other foreign currency within a fixed exchange rate system.

DEPRECIATION DEFINE

This is the decrease in a currency's value as a result of market forces and not government or central bank policy actions.

REVALUATION DEFINED

This is a change in the fixed rate making the foreign currency less expensive. This is the opposite of devaluation.

INFLATION DEFI NED

The general rise in prices of goods and services leading to the decline in the value of currency

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