Sound Money or Printed Money
I didnt appreciate the severity of the monetary crisis in Ghana until I stopped at a bank shortly after crossing the border from the Ivory Coast.
When I asked for $200 worth of cedis - the local currency, the teller passed me an empty plastic bag. "What's this?" I almost blurted, when I suddenly noticed every customer was carrying black plastic sacks, most of them filled to the brim with cash. The teller then passed me my credis, filling my sack, too.
We've all seen pictures of or heard about people walking around with wheelbarrows full of cash just to buy a loaf of bread. But I could hardly imagine such extraordinary circumstances existed until I experienced it myself.
At first, my wife, Paige, and I worried about carrying so much cash in plain view, convinced bandits would attack us in our hotel or rob us walking out of the bank. We soon realized even a bag full of money didn't go very far in Ghana - the largest denomination of cedi is worth less than 50 cents in U.S. currency. A thief would need a small truck to cart off enough cedis to buy anything of value.
The currency problem really hit home when first we looked for Kente cloth, the colorful patchwork material local craftsmen weave in the Asante region. We discovered from local merchants the best weaver in town was a man named God Knows Setordzi. (Yes, thats his real name. Ghana is a very religious country where the people and businesses adopt religious euphemisms as names - shops called 'I love Jesus Dry Cleaner' or 'Hail Mary Plumbing.')
God Knows was a smart businessman. When he heard we were looking for him, he took the initiative to track us to our hotel. His Kente cloth was beautiful, rich yellows, greens, reds, and blues all finely woven together. When it came time to pay, God Knows didn't want anything out of my black plastic bags, he wanted American dollars - an unmistakable sign of a monetary crisis.
When even local merchants won't take their countrys currency, you know the country has big problems. Soon, Paige and I discovered local merchants wouldnt accept our credit cards, either, because it's a month or more before a card company's bank sends them a check. During that month, the currency could drop even farther, turning their sales from profit to loss.
One of the stronger economies in Africa is the Ivory Coast, the world's largest producer and exporter of coffee and cocoa and the last African nation we visited. Its gross domestic product has grown 6 percent annually since 1996. Abijan, the capital, is a bustling city, one place I might go if I were an entrepreneur in Africa intent on building a fortune.
We had no problems using our credit cards in Abijan and the currency is rock solid. Why such a dramatic difference between Ghana and the Ivory Coast? One marked distinction - Ghana was a British colony, the Ivory Coast a French colony.
In the 1950s and 1960s when Ghana, Nigeria, and Gambia gained their independence, the British basically up and walked out - leaving the new governments to fend for themselves. Each formed its own central bank, printing its own currency. Dictators took charge, many of them bungling the job.
In contrast, former French colonies, including the Ivory Coast and Togo, still have strong connections to France. In every city I've visited in these countries, the French influence is quite visible. I've met French businessmen, walked by French militia on the street, eaten in splendid French restaurants, and purchased fine quality French wines and cheeses. The French still have a hand in local politics. Senegal's new president has publicly vowed to import retired French officials to help run the country.
Personally, I believe the coup engineered in the Ivory Coast in December was as much an order from Paris as a call from the people for change. The 14 former French colonies in Africa also share a common currency, the franc de la Communaute financiere africaine, or CFA franc.
That difference has profound implications on maintaining financial stability. When Jerry Rawlings, the dictator who runs Ghana, wants to boost the money supply, he simply tells Ghana's Central Bank to print more. It may sound foolish, but remember hes a dictator, he can do that. And he's been doing if for years - a process sending the value of the cedi spiraling down even though more and more bills are circulating on the market.
But if the president of the Ivory Coast wants to inject more Francs into the system, he must go to the central bank governing the money supply for all 14 CFA countries. Such strict management - and the fact the CFA franc is now connected to the Euro - makes the CFA stronger and the economies of the former French colonies far more sound. Now there's even talk of a free-trade zone between the 14 CFA countries.
In Ghana, the standard of living is dropping. Soon, the country won't be able to import anything because the cedi will be worthless. Given its heavy dependence on foreign oil, the ramifications could be quite serious. People won't be able to drive their cars, cool their homes, or even turn on their electricity.
Home to the largest population in Africa, Nigeria, another former British colony, is also in trouble. Although one of the world's biggest oil producing nations, its refineries desperately need repair, yet there is no hard currency available to fix them. I was incredulous that in one of the world's largest oil-producing nations, I had a hard time getting fuel for my car. The head of a large western oil conglomerate told me he thought the situation could quickly escalate to a full-scale fuel crisis.
One recent revelation sheds light on some of the problems: the former dictator embezzled billions of dollars. One of his sons even said his father gave him $700 million in cash. Like the Euro, the CFA is currently down against the dollar, but it should ultimately climb as the Euro improves - making places like the Ivory Coast attractive investments. Coffee and cocoa have been suffering through their own bear market and Im waiting for them to hit bottom before I invest.
The former French colonies, of course, are not without problems. Because their leaders can't always print more currency, they often borrow it from other countries - making the Ivory Coast one of the most indebted nations in the world. When these countries can't borrow money, they often stop paying their employees.
Border guards we met in Togo were less interested in trinkets from us and more interested in any money we could spare because they hadn't been paid in three months. However, they told us they would rather continue working for the government unpaid than be unemployed with no hope of income.
The former presidents of the Ivory Coast, Houphouet and Bedie, borrowed heavily from foreign lenders and stole money meant for their people from the IMF and World Bank. The tragedy of all this is the cynicism it breeds.
When I tell people I wish their politicians wouldn't steal so much money, my words fall on deaf ears. They don't want to hear it. The practice has become so familiar they can't recognize they are being robbed blind.