CHAPTER ONE INTRODUCTION
Background of the Study
Exchange rate is considered as a principal determining factor of world trade and it has received much attention due to its global imbalances (Alegwu, Aye & Asogwa, 2017). Exchange rate or foreign exchange rate or Forex rate has been described as how much one currency is worth in terms of another. Past years experienced instability which has impacted on exchange rate and trade issues. According to Umaru (2013), the world’s most powerful economies including the United States and China are typical examples to have experienced exchange rate instability. Exchange rate volatility has been defined as “the persistent fluctuation of the exchange rate” (Alagidede & Ibrahim, 2017, pg. 169). Issues surrounding exchange rate volatility have dominated studies due to its importance in both national and international finance and trade. Alagidede and Ibrahim (2017) are of the view that, exchange rate volatility mostly affects developing countries hence has become a major concern to many of these countries.
Over the past years, economists as well as those in the agricultural sector have developed interest in matters of exchange rate and its influence on agricultural sector (Alegwu, Aye & Asogwa, 2017). For instance, agricultural producers have been concerned and interested in how exchange rate influences commodity prices. The influence of exchange rates in determining the level of agricultural production and other related issues such as farming equipment has become critical to those in the agricultural sector due to the fast-changing global economy that can be attributed to rapid development of technology (Kafle & Kennedy, 2012). For instance, Kafle and Kennedy (2017) opine that the US dollar which mostly determines international trade most often depresses agricultural prices and agricultural export volumes which puts much pressure on the agricultural sector.
Ghana is no exception when it comes to exchange rate volatility. For instance, the Ghana cedi has suffered extreme depreciation against major currencies such as US Dollar, Great Britain Pound, Euro and many others (Alagidede & Ibrahim, 2017). They, for instance revealed that the Ghana Cedi was somehow stable between 2002 and 2007 but saw a major depreciation afterwards and that by the end of July 2009, 1 US dollar was exchanged for 1.49 Ghana Cedis. As at July 2018, 1 US dollar was exchanged for 4.6943 Ghana Cedis (Bog.gov.gh, June 2018). The depreciation of the Ghana Cedi against the major currencies has affected the country’s performance which in turn affects all facets of life including the agricultural sector. It is therefore important to look at how the exchange rate volatility affects the agricultural sector.
Problem Statement
According to Banson, Bosch and Nguyen (2015) Agriculture remains the backbone of the Ghanaian Economy and accounts for 40% of the “Gross Domestic Product” (GDP) and about 70% of employment. This suggests that the significance of agriculture and its related activities cannot be underestimated. According to Khor and Hormeku (2006), the importance of agricultural activities in Ghana is not only limited to the agricultural activities because (many) different sectors of the economy are connected to agriculture. For instance, they mention that, trade, processing and transport of agricultural products and materials are linked to agriculture. The agricultural sector also serves as a source of livelihood and income for people which helps reduce poverty in the long run.
Even though the agricultural sector in Ghana has experienced significant economic, political and social transformation, the sector continues to face challenges such as lack of access to credit facilities by farmers, high prices of agricultural equipment and materials, poor storage facilities and many others. According to Alegwu, Aye and Asogwa (2017), exchange rate volatility indeed has some effect on agricultural output, especially in African countries. This
study therefore seeks to investigate “the impact of exchange rate volatility on agricultural sector lending” in the Ghanaian context with the focus on Agricultural Development Bank.
Purpose of the Study
The purpose of the study is to examine “the impact of exchange rate volatility on agricultural sector lending” in Ghana.
Objectives of the Study
The main objectives of this study is to:
- Analyze the factors that influence farmers’ access to credit from Banks.
- Examine the impact of exchange rate volatility on farmers’ access to credit facilities from Banks.
- Assess the effect of exchange rate volatility on export volumes
Research Questions
- What are the factors that influence farmers’ access to credit from Banks?
- What is the impact of exchange rate volatility on farmers’ access to credit from Banks?
- How does exchange rate volatility affect export volumes?
Significance of the Study
Over the years, governments and non-governmental organisations (NGOs) have adopted many strategies to encourage farmers to implement new methods of agricultural activities but most of the farmers are still being confronted by several challenges. Banks are most often unwilling to give credit facilities to the farmers which can mostly be attributed to farmers’ failure to repay loans in timely fashion. Therefore, the study which seeks to investigate the impact of exchange rate volatility on the agricultural sector will help stakeholders such as the farmers, governments and banks understand the challenges that exchange rate instability may pose to the agric-sector.
This will also assist the stakeholders to formulate and implement appropriate strategies to deal with the challenges.
Chapter Outline
Chapter one introduces the research work. It also describes the research background, research problem, purpose of the research, the research objectives, research questions, as well as the importance of the study.
Chapter two comprises a review of related literature on factors that influence farmers’ access to credit, exchange rate volatility and productivity as well as exchange rate volatility and exports.
Chapter three presents the methodological issues of the research. It also identifies the “research design, the study population, sample size and sample technique, instrumentation, measurement of variables, data collection procedure, ethical issues, analytical procedure and the challenges of the study”.
Chapter four presents results as well as the findings. This chapter also discusses the findings. Chapter five presents the “summary, conclusion and recommendation of study”.
