I have just received news that the Ghanaian banking sector has seen its worst financial results in recent times. Growth in revenues fell nearly 40% in 2015, whilst profit growth dropped nearly 45%. How the mighty has fallen!
Many are of course pointing fingers at the fiscal and monetary managers for hanging us to dry, which is of course understandable criticism. But beyond gnashing our teeth, we need to reckon with some deep truths as well.
The truth is that Ghanaians, like most Africans, have been bullied into submission by a reign of jargon that prevents them from seeing home BASIC truths, or what the Akans like to call, ‘efie nyansa’. The blatant fact is that ‘remote leadership’ is not possible. No one can manage something without having ‘skin in the game’, metaphorically speaking. That is why the Americans made the Federal Reserve a federation of banks, a guild of money changers, literally speaking. Much derided and much criticised, especially by our brothers on the left, yet the model has endured and created more financial power for the Americans than any power has ever seen in history.
But why look to the Americans, when we can look to our own history?
In 1835, the Asante watched in horror as the 800-year old currency, the cowrie, began to collapse in inflation. This was a trans-regional currency long before sterling and euro had acquired their later, multinational, prominence. Cowries were legal tender from the coasts to the southern reaches of the Sahara. But by the mid-19th Century, the currency was in free fall. The first two decades of the inflationary period was actually less dramatic than we have seen of currencies like the Cedi and Zimbabwean Dollar in our own time, which is itself saying a lot. The cumulative depreciation of the cowrie was about 73%. But in the following decade the loss of value spiraled to a cumulative 1500%.
Many factors account for the decline of the currency, the most pressing of which were international. The British had started to trade large volumes of the shells between their various colonial regions, and as political instability in certain colonies, due to poll tax rebellion and similar agitations, reduced demand elsewhere, excess shells poured into other places.
But the Asante knew that they did not fully control the rise and fall of currencies. Just as today, no nation fully controls the value of their currencies. But the Asante fiscal and monetary managers, the Batahene, were directly implicated in the rise and fall of the national wealth, and every penalty and incentive worked together to ensure that they never forgot that. So, they implemented a tri-monetary system involving gold dust for the coastal trade with the Europeans, cowries for the Northern trade with the Sahelians, and kola as a transactional medium that enabled hedging.
They further devised an elaborate conversion mechanism across the three currencies, whereby gold dust served as the chief reserve currency, since it also played the role of forex, the means by which firearms from Europe were secured for national defence, and iron bars obtained for light manufacturing (the importance of light manufacturing is itself revealed by the use of iron and brass prior to gold as the reserve currency).
One cannot emphasise enough that the fiscal and monetary authorities saw their actions directly translated into financial indices for the health of the economy in a very direct manner. Bankruptcy of national institutions could not be covered by ‘IMF English’. Taxes could not be raised arbitrarily. The mercantile system literally rode on the back of the skill of the fiscal and monetary authorities. So much so that by the mid-19th century, the skills required for effective currency trading could only be acquired after years of training in goldweights, hedges and trade-routing.
Even more intriguingly, customs outposts were increased to prevent any unsanctioned osmosis across the three currencies. This is how Asante managed to preserve the value of kola from crashing alongside cowries. In fact, the cowrie inflation actually therefore led to a boost of margins of more than 250% for Asante traders well until the collapse of Asante power in 1874, when the British started to dismantle the customs union Kumasi had imposed across the Sahel-forest belt.
Furthermore, the Asante implemented a policy of tight quality assurance for gold dust, considerably raising the penalty and costs for adulteration, and devising techniques for bullion management that are intriguing even by today’s standards. Had they failed, adulterated gold dust would have triggered an inflationary spiral capable of crashing the national exchequer. Clearly, this was efie nyansa at work. When there is no IMF jargon to hide behind, and leaders have their skin in the game, getting down to it is the only option.
No wonder the Asante could maintain that scale of import trade in firearms. In this era, the major gunmakers of Birmingham, the heart of the British armaments trade, and even further afield in the Belgian Liege, knew that the Gold Coast was the happening place. The likes of Webley & Scott, William Tranter, Samuel Galton, and George Kynoch were soon shipping 100,000 units of prized flintlocks, and could still not keep up with orders. The amount of pure gold dust needed to sustain such a trade was quite staggering. Dutch records talk about some vessels transporting 10,000 ounces (circa $12.5 million in today’s money) in single consignments.
The gun traders of Great Britain could of course not have known that the Asante was slowly developing a gunmaking culture of their own, and that their policy included blocking British guns from reaching the Sahel. They could not have known that the plan was to station gunsmiths in those regions in order to own the trade in arms once their supply chain could handle the requisite output at sufficient scale and quality.
Of course, the fall of Kumasi prevented this and similar industrial strategies from coming anywhere close to reality, but the key point is how integral a sound fiscal and monetary policy, which ensured adequate flow of forex without inflation, was to maintaining the economic expansionist ambition of a 19th century African power. And how an economic leadership ‘with skin in the game’ often excels in the development of such policies.