When money dies... due to inflation

Lately in Ghana, there’s been a vigorous debate on inflation. The crux of the matter is that the government touts its achievement of keeping inflation at single digits throughout its term (9.3 in May according to the Ghanaian Statistical service). This is a laudable achievement because essentially high inflation erodes purchasing power. It makes it difficult for companies to budget and plan long-term. It discourages investment and savings. It makes your country’s exports more expensive relative to others, thus affecting your balance of trade. At the extreme, it can cause social unrest and revolts. Some people believe that food inflation was one of the major causes of the unrest in Egypt and Tunisia that ultimately toppled their respective presidents. So kudos to the Ghanaian government for keeping inflation at single digits throughout its term.

In comes Dr Mahamadu Mumuni Bawumia

Dr Bawumia is the opposition vice-presidential candidate, he obviously is trying to get his party to win the election and will therefore try to make the current government look bad. His first major policy speech as candidate was exactly on this topic. His main argument was essentially: ‘how can you claim to have single digit inflation when prices are rising?’. He then went on to quote all kinds of prices that have appreciated seriously during the past four years and questioned the methods of the Ghanaian Statistical Service. What basket of goods were they using? How come the cost of living increased so much? Can the current government be so proud of this achievement is not reflected in the lives of the average Ghanaian? Why is the Cedi africa’s worse performing currency if inflation is so low in Ghana? The debate raged on for a while and my conclusion was that something is fishy about the government’s single inflation claim. My other conclusion was that I need to read up on inflation! Not being a theoretical guy, I didn’t want to pick up another boring economics book that would have me more confused. I instead chose to go with the most popular book I could find at the moment that deals with inflation.

“When money dies” by Adam Ferguson

I had already heard of the aforementioned book and figured it would help me understand the causes of inflation and also what are the consequences of hyperinflation. Despite being a non theoretical book, it was also pretty boring but I slogged through and finished it. I’m not sure it increased my understanding of the causes of inflation but it made me think of other things. Which is why I even blogged about it because I usually write a few tweets about the book I’ve just read and leave it at that. These are the main points I got from reading the book:
1. Inflation is caused by economic mismanagement. In the case of the Weimar republic it seems the leaders of the economy figured printing more money would be the cure to their problems. And just printed and printed and printed which then eroded the value of their currency even more
2. Inflation is caused by too much irresponsible deficit spending. Essentially as a government you can’t make everybody happy and give everybody more money. If you do, you’ll face inflation.
3. Inflation in the Weimar Republic was also caused by the French extortionary demands in terms of war reparation payments. The poor German leaders were struggling to pay their salaries, balance their budgets, collect any form of taxation and if that’s not enough, they had to worry about paying France ridiculous amounts of money. So of course they would turn to the printing press.
3* It is important to be magnanimous in political victory (Ivory Coast, please listen...). If the French were a bit more considerate, Germany would have probably been able to cope with its economic problems better and it wouldn’t have led to point 4…
4. There is a strong correlation with Germany’s economic problems and the rise of extremism. To be more precise: the rise of Adolf Hitler. Hitler can therefore thank inflation as he was one of the indirect beneficiaries. 4* I agree with Joseph Stiglitz in his book "Globalization and its discontents” that most conflicts have unemployment at their root cause. Which is why I believe managing your country’s economy well is soooo important.
5. Governing is not easy. If you try to get out of an economic slump by fiscal stimulus spending you face potential inflation and its consequences. But if you really insist on austerity, you stifle growth. That is the choice that Europe is struggling with right now. Francois Hollande at least thinks that it is possible to stimulate growth via government spending and yet still be fiscally responsible. We all hope he’s right!

And as for me, the price of my digestive biscuits that I buy on my way to work was 70 Pesewas (.7 Ghana cedis) last month. It has now moved to 80 pesewas. That’s a 14% increase right there! P.S. I just found out that the legendary Warren Buffet recommended the book to a friend and it became a hit. If you’re interested in finance, you can’t go wrong reading a book Warren Buffett recommends!

Subsidized intellectuals

I am part Nigerian, so I'm not indifferent to the events that happen in my country. This is why I've been following the social unrest that has resulted from the petroleum subsidy removal with a keen eye.  

Quick recap.
 Nigeria, Africa's first oil producer and second largest economy has been providing oil to its citizens at a cheaper price than it should be selling on the market. This has been accepted by the citizenry as one of the advantages of being an oil producing country. Long story short, the government removed the subsidy as a 'new years gift'. Citizens got really mad, labor unions joined in and it has brought the country to a standstill. Negotiations are on their way and based on what I'm hearing the government will budge, but not too much. 

A good explanation of government's rationale is provided by Lamido Sanusi, current central bank governor( on Reuters or bbc). And a good take on why people are protesting can be found on bbc, 'have your say' I think they archive their shows. 

This is my problem. I've listened to a wide variety of opinions on this matter, a lot of the critics' arguments made sense and were very convincing. But there's always something missing from these great intelligent, smart, intellectual people's  opinions. 

What the hell would you do?

In more polished English: in matters of governance, I believe that it is useful to correctly identify the root problem and provide constructive criticism. But it is even better to provide an alternative that might address the problem at hand. 

Today for the first time, after probably reading my 25th article on this issue, I came across a novelty. A person that followed up his criticism with an proposal for a better way forward. 

Yeshir Ben Yahmed (editor in chief) of Jeune Afrique in his column "Ce que je crois" I've come to respect his analysis and opinions, even though I don't always agree with him. He did a good job breaking down the problem, and he actually provided his alternative. 

Before getting there, I want to point out that in my opinion, the sudden way in which the government removed the subsidy without any warning was not 'stupid' or 'not well thought out' as some have said.  It was probably a pre-meditated move. 

It made me think of  'shock-doctrine' an idea really made popular by Jeffrey Sachs whereby when the government knows it is about to implement a really unpopular policy, it should go about it very quickly and even as a surprise so as to shock people. Sort of how people remove band aids brutally as opposed to doing it meticulously to just get the pain out of the way in one stroke. Jeffrey Sachs pioneered this idea with his work rehabilitating the Chilean, and Polish economy by advising their governments to do just that. In strictly statistical terms his work in those two countries was deemed as a success albeit a very painful one. (not so much in Russia)

So yeah, the Nigerian government is not 'stupid' to just spring that on Nigerians, I think it was on purpose. Especially when you consider that Goodluck Jonathan's economic has a Goldman Sachs alum and a World Bank alum. Smells  like shock doctrine to me. I haven't looked at empirical evidence to see if shock therapy in governance actually works or not, but in this case in Nigeria, it did not. Resoundingly so. 

Anyway, that was a digression. Our BBY of jeune Afrique says that he would have removed the subsidy gradually over a ten year period of time to give the people of Nigeria time to adjust. 

Thank you BBY, at least you put yourself out there with a solution instead of safely hating from the sidelines. 

I disagree with him though. The subsidy is estimated to cost Nigeria $8 billion a year. So basically you would still be wasting money until the subsidy was removed all for the sake of appeasing your citizenry. And the purpose of removing the subsidy is to cut waste. 

I think the government of Nigeria should have instead run a sensibilization campaign on tv and on radio warning and educating its citizens about the subsidy removal and why it was necessary, it's citizens would have been better prepared to then face it. Some would counteract that with its high level of illiteracy, such a prescription would not work in a country like Nigeria. Especially given that we're dealing with economics here a subject too 'complicated' for the average Nigerian. I REJECT such thinking, low levels of literacy does not mean lack of logic and inability to think rationally. 


Bottom line, African government need to spend more time communicating with its people, if they do, they will have an attentive and more patient ear.

I agree with Mark Penn when he says "Voters are not stupid". 

Debt... And optimism

Just finished reading "Boomerang" by Michael Lewis, felt it would give me some cultural insight into the Eurozone debt crisis. It did. The book ends with the following paragraph that I found very pertinent in many ways...

When people pile up debts they find it difficult and perhaps even impossible to repay, they are saying several things at once. They are obviously saying that they want more than they can immediately afford. They are saying, less obviously, that their present wants are so important that, to satisfy them, it is worth some future difficulty. But in making that bargain they are implying that when the future difficulty arrives, they'll figure it out. They don't always do that. But you can never rule out the possibility that they will. As idiotic as optimism can sometimes seem, it has a weird habit of paying off.

“Africa needs strong institutions not strong men” Barack Obama

The biggest, saddest, most dramatic thing is happening in the Ivory Coast. One country, two presidents, three first ladies. I was asked by my cuz to write something for some thing he's organizing. So I figured, if I'm out there, I might as well put myself out there here too. For the record, it took me 30 minutes to write this, it's not edited, I didn't bother citing nobody and it's off memory. I didn't cross check my facts. Ce qui est sur,
"Lisez mes écrits... je laisse des traces" I wonder who I just quoted...

The biggest lesson to be learnt from the Ivory Coast crisis is that Africa needs to strengthen its institutions. It was through a revision of the Electoral code that Bédié was able to prevent Ouattara for President from running in 1995. That was an abuse of executive power. It was through a presidential decree that Gbagbo then overruled the electoral code to allow Ouattara to run for elections, hoping that such a gesture would help bring about reconciliation. Even though one can understand the well-meaning intent of that gesture, one has to shudder when the president of a nation can change the law of the land through a presidential decree. It was again due to a weakness in the institutions that Gbagbo decided to ask for the United Nations help in conducting the elections. Finally it was due to weak institutions that the constitutional council decided to cancel the votes of more than 500, 000 Ivoirians claiming ‘irregularities’ in the electoral process in their departments. In each of these instances, the overwhelming power of the Executive vis a vis the Judiciary was abused in a way that would have negative consequences for Ivory Coast.
The Ivory Coast constitution as presently written stipulates that if the constitutional council notices irregularities in the elections, they can declare the elections null and void and they are responsible for organizing new elections within a limited time frame. The constitutional council is also the only body that is supposed to declare the winner of the elections in the Ivory Coast. This is the thrust of Gbagbo’s camp’s argument against the UN, that the UN has overstepped its boundaries by declaring Ouattara President instead of the country’s entity responsible for doing so. This is true. But the constitutional council also overstepped its boundaries by only partly cancelling the results of the elections and then declaring Gbagbo the winner. They should have followed the letter of the law and organized a new set of elections if they felt that these ones were marred by irregularities and fraudulent. That would have caused waves, but at least it would have been in line with the law of the land.

Violence is not an answer
The declared reason by the ‘Force Nouvelles’ for attacking the Ivory Coast 2002 and causing a conflict that split the country in two, was that they were doing this because they wanted Alassane Ouattara to be eligible to run for president. He had been unfairly sidelined by Konan Bédié and was ‘out of politics’ when the crisis started. The Force Nouvelles, who mostly hail from the North, felt Northerners were marginalized and their solution was to pick up arms and attack the country. That was a misguided decision. What was even more misguided was forcing Gbagbo to sit down and negotiate with them and include some members of the Forces Nouvelles in his government. The lesson was very clear, if you can’t get what you want via the political process in your country, pick up arms, attack the country, start a conflict and then through French imposed negotiations you’ll become a Minister in the government. The international community should have condemned the 2002 uprising and the leaders of the rebel movement should have been tried for war crimes. Instead, some of them became cabinet ministers. This may have seemed to be an expedient solution at the time, but it would have disastrous consequences in the future. You don’t compensate violence with ministerial jobs. Unfortunately, now everybody seems to have learnt the lesson and violence is now the modus operandi in Ivory Coast politics. As a Ghanaian, I do hope that we as a country are paying attention, especially these days when ‘all die be die’ is the mantra for the main opposition party… Violence only begets violence.

Don’t rush to elections
Another lesson to learn is not to rush to elections. Laurent Gbagbo had been accused by the whole world of delaying and dodging the elections. This is because he overran his mandate by 5 years saying repeatedly that his country was not ready for elections. It seems that achieving the completion of the HIPC program was motivation enough for him to go to elections, especially since it was estimated that achieving the completion point would mean a $500 million annual addition to Ivory Coast’s budget. Even though it was not openly stipulated, it was an unwritten agreement that Ivory Coast would have to go through free and fair elections before achieving that completion point.
I am all for elections. But how can an election be free and fair, when half of the country is still occupied by rebel forces who are unwilling to disarm? This situation was actually a ticking time bomb. The international community should have insisted on all parties putting down weapons and disbanding their militias before elections occurred, this would have reduced the chance of any side claiming ‘irregularities’. Such an important and expensive election should have at least been adequately prepared so that all that money didn’t go to waste and no party would have a chance to claim fraud. As it is, EVERY camp in these elections claimed that there was fraud against them. Some of these claims have been buttressed by independent electoral observers. What’s the point of rushing to an election that will be fraudulent and marred by irregularities?

The way forward
Since the beginning of this post electoral conflict, I have been amazed at the amount of ‘solutions’ provided by well meaning intellectuals in their Ivory Towers. They seem to forget one little problem: politics is conducted by real human beings in a real world. Not in a theoretical textbook. Any solution to the crisis needs to bear that in mind, it needs to be practical, feasible, and take into account the complicated nature of the Ivory Coast crisis.

Middle class security guards

(Sorry for the typos and the general roughness, I wrote most of this post on my iphone, while stuck in traffic in Accra)
Roughly about 4 years ago I had a conversation that marked me and another one I had today brought it to mind. So I thought I'd share it with ya'll. My house in Ghana is 'protected' by a security guard. This is actually fairly standard practice in Africa. People who are doing ok have security guards who actually pretend to watch over the house and I guess it acts as a deterrent against people trying to come and rob the house.
Basically John our security guy was telling me that he was studying sociology at Legon university. Pretty mundane stuff... Or is it?

A security guard who has the great idea to go to university and study for his classes while he is pretending to work! As 'duh' as it seems, in all my years in Africa I had never come across this. Security guys doing a few businesses on the side, sure, but not actually going to one of Ghana's better universities and getting a bachelors in sociology of all topics.
This simple conversation speaks to Africa's progress in so many ways. Let me highlight the ones that stand out to me.
Affordable education: I don't know the details of johns salary but I have a rough idea of Legon's fees and they are not exorbitant (at least for Ghanaian nationals). And the government of Ghana has created an environment where John could afford to live and go to university off his security guard salary.

Aspiration: shout out to John to aspire to more and identify education as his way of moving up in the game

Africa has progressed: about 10 years ago I remember that a security guard friend of mine was begging me to sell him my Walkman for $40, which was incidentally his monthly salary... From a Walkman to a bachelors in sociology.

Middle class: and this is the most important point. To me, middle class is actually a state of mind. Provided u comfortably have food and shelter, u are middle class if u are comfortable that with hard work, you can improve your standing in life.

And no matter what your political affiliation. You have to admit that the middle class in Ghana has swelled dramatically over the last ten years...

I asked about John recently, and now he's not a security guard anymore. He works for the Criminal Investigation Department of the Ghana police force at Tema, Accra's main port. I joked that if he's not careful, he'll be making some serious money fast. And what do you know, I was told he now 'has his own car and a very big stomach'. (unfortunately in Africa, customs is a great way to make money, Paul Collier does a wonderful job explaining why in his book: The bottom billion. But that's another story...)

So today I saw another security guy studying some very difficult looking statistics. So I asked him why he was looking at these difficult looking mathematical equations. His answer: "he has to do statistics as part of his b.a. in poli-sci" me:'this looks hard' him:"actually this is the easy part"....

I wonder what he will become four years from now...

Straight from Twitter

I don't usually do this. But I felt this one had to reach as many people as possible, so I'm gonna copy and paste a few of my tweets about a book I read. For better understanding you gotta read from the bottom up


You can check out www.villagehealthworks.org if you wanna know more about the clinic


Hopefully doing that will allow people to learn from past mistakes. Especially looking at what is going on there these days...


Sidenote: it's one thing to kinda know the facts about the genocide in Rwanda/Burundi. But it's better to try look at the causes


The clinic was built by a Tutsi in a village mostly inhabited by Hutus


He wants to do this so bad that he drops out of med school to focus on building his clinic in his village in Burundi



By then, things have calmed down back home and he visits a couple times. Until he decides that he really wants to build a clinic


From there he gets into dartmouth medical school (from homeless to dartmouth med school... Do you receive it today!)


So after Columbia he manages to meet dr Paul Farmer (wikipedia him) and finds a job at partners in health


For the record, I'm not a big fan of the USA but one thing is for sure the 'American Dream' is a very REAL thing


The undergrad is Columbia. So from cowherding, to med school student, to refugee, to delivering groceries, to Columbia university


And eventually help him enroll in a Esol program. From the esol program he gets into undergrad



To be more precise, I think his home is central park. So anyway he eventually runs into a couple good samaritans who take care of him



He eventually lands a job delivering groceries. But this job pays him so little that he's homeless for a looooong time


Lands in the us with $200 in his pockets, not knowing how to speak English still dazed from the war.



He somehow manages to find himself on a flight to the US with a visa and everything.


So the war breaks out and he has to spend his time fleeing from left to right because he's a Tutsi



Before the war broke out he was a med school student in Burundi. His dad was a cow herder and farmer...



Now. Deo barely escapes from the genocide in Burundi. And when I say barely, I mean barely.


Before I continue, I want to say that for a portion of my life I want to do stuff like what Paul farmer and Deo are doing. So help me God



"Strength in what remains" by Tracy Kidder is a book about Deo a guy from Burundi

Premier Katta Decalle chinois...

To me China's move into africa primarily means this. Yeah, i don't know how to embed a video in a blog, maybe I should ask dctobc.

Anyway, some people view China as this new savior that will change things for Africa because 'They don't tell us what to do'. Well, this is my answer to that:

China has made a significant return on the African scene. This return was sparked by the Western world’s reaction to Tiananmen Square and their condemnation of the event. China had to look for new partners with whom they could form an alliance that would counterbalance the west. Also due to their rapid economic growth in the last decade, China will face a higher demand for natural resources. All these factors were the catalyst of China’s increased involvement in Africa. For African countries, China offers the advantage of being a partner that will not impose conditionalities or interfere in their domestic affairs. It offers an alternative to the traditional western form of aid that typically requires you to make certain changes and reforms. This combined with the fact that the US has historically not put Africa on the top of its priorities list in foreign relations has allowed China to establish itself as a partner for African countries via numerous long-term investments and contracts. But will this new order significantly change the position of African states in the international system? I argue that so far it has not and I do not expect it to do so in the short-term.

One of the reasons that Africa will not meaningfully change its position in the international system is that Africa will have to first go through significant economic growth and development to be a significant player on the international scene. Theoretically, Africa as a whole can be a significant player on the international scene, but in practice when dealing with foreign countries there is no such thing as Africa’s foreign policy. African countries are dealt with on an individual basis. Africa possesses only a few states that have economies so strong that they are actually significant in the international system. Furthermore, these countries like Nigeria or South Africa do not pursue foreign policies that are coordinated. The other smaller countries also act unilaterally and Africa rarely has a unified foreign policy stance. This is despite the existence of such institutions like the AU. This underscores Africa’s need for integration, which would unify the countries and spur them to act in unison. This will also strengthen their economies and give them more importance on the international economic scene. So regardless of who its partner is, Africa will have to increase its economic significance via stronger and more viable integration efforts.

Another reason why I believe Africa’s position will not change is because of lack of competent leadership at the head of African States. To negotiate the new geo-political world order, African states need to be headed by pragmatic leaders who approach foreign policy in a systematic fashion. So far in most cases, foreign policy in African states is personalized and catered to the idiosyncrasies of the specific leaders. In most cases, these leaders are not foreign policy experts and would benefit a great deal from counsel from experts on these matters. Most African countries possess seasoned diplomats with foreign policy expertise and knowledge but too often these individual’s opinions are not sought after. Instead they are replaced by a coterie of presidential ‘advisors’ and that’s even when the president is indulgent enough to actually listen to his advisors. For Africa to drastically change its stature on the international scene, African states will need to be lead by competent leaders who are either adept geo-politically or are willing to take advice from people with that kind of expertise.

African states for the most part still need to make strides in terms of democracy to increase their stature on the world stage. It is true that democracy is not a pre-condition for Chinese investment in Africa but for the rest of the world it still plays a significant role in terms of credibility. If you’re viewed as having imposed yourself on your own people, will foreign countries even take you seriously? I don’t think it is sustainable for African countries to simply rely on China as their partner while turning their backs on everybody else. If not for the simple fact that the world is becoming more globalized and nations are increasingly becoming interdependent on each other. To use a more practical example, Mugabe can turn to China all he wants but China cannot lift the sanctions that are currently imposed on Zimbabwe by the other countries. And China’s involvement cannot compensate for all the lost investment opportunities these sanctions are causing. If your country is perceived as not making any strides towards increased democracy and you’ve now become a pariah on the international stage, China can only do so much for you.

The most important reason I think that China’s emergence on the African scene will not drastically change Africa’s position is simply because African states for the most part have not been adept at managing their vital natural resources. African countries have always been a destination for other countries that needed their natural resources for development purposes. But too often the money that comes in from these natural resources benefits a select few elites in the country while the majority of the population still remains in poverty. So if China is paying you for your resources instead of the typical countries and the majority of your country still remains in poverty, what has changed? African states will have to follow the example of Botswana which has pragmatically managed its diamond resources before there can be any talk of a change of their position on the international scene.

Finally a word has to be said about the US reaction to China’s increased involvement in Africa. Some people foresee that the US will counter China by modifying its stance on Africa. The US has historically taken the back seat from African involvement especially after the end of the Cold War. They have left Africa to the former colonizers. Some point to Africa’s minimal economic impact on the world stage and to the fact that Africa has no serious lobby in Congress as reasons for the US lack of focus. They also look at the fact the current US president is of African ancestry and hope for an increased focus on Africa by the US. So far they have been disappointed. The Obama administration has not made any significant changes from the Bush administration’s policy on Africa. Furthermore the US has shown that Africa is not on the top of its foreign policy agenda. Maybe in due time this will change, but one has to see the new policy before one can even assess its impact on Africa.