Month: July 2016

Now, suppose I were to argue that African ethnocentrism, deep down in its heart, is actually a pretty shallow affair? Would you quarrel with me?

But think carefully about it. Why aren’t Ghana’s Nzemas ethnocentric towards Zimbabwe’s Matabele folks when they meet in London? Why don’t Akyems nurture resentment against Yorubas in London?

Isn’t there something about the territoriality of ethnic bigotry in Africa that makes you wonder whether it is indeed as virulent and wired to the roots of the African subconscious as some claim?

You might argue that Ghana’s Dangme folks don’t develop a judgmental attitude towards Kenya’s Kikuyu folks after encountering them for a couple of weeks because they don’t know them all that well. But isn’t that the whole point about bigotry – its supposed conjunction with ignorance? I mean all that anti-black racism one sees in Asia, does it come from any extensive knowledge of Africans?

Isn’t therefore a case to be made that African ethnocentrism is closer to nationalism than racism and therefore less irrational and more subject to the changes of times and seasons?

But what are these times and seasons then? It seems to me that virtually all of the ethnocentrism we see on these shores are driven by weak institutional design of the state system: recruitment into the civil service, urban planning, corruption conspiracies based on hometown ties, migration patterns, environmental pressures, and a paternal state that, by fostering cronyism, inspires notions of ‘kinship’ at odds with the modern civic system. In many of these matters, ethnic collusion is purely a phenomenon of convenience. Folks come together to rig the system opportunistically simply because they went to the same hometown school. Such conduct is rarely attributable to any deeply-shared, perverse, values developed ideologically with co-ethnic feeling at the base. In this sense, ethnocentrism operates quite differently from racism, and some of its variants like anti-semitism.

If the above is correct, then the approach that some of the early independence leaders (like those of the CPP in Ghana) took to curing so-called ethnic bigotry was counter-productive. By assuming that the mentality that was built up against racism (civic rights laws etc.) will work here (banning ‘ethnic political parties’, destroying centuriees-old kingdoms, forcing certain languages into extinction etc.) were misguided since they were focused on symptoms, even whilst the deep, festering, problems of badly designed civil institutions plodded on unaddressed.

As a shallow adornment, ethnic feeling could easily be converted into jewelry no more menacing than a serpent on a Pharaoh’s crown.

While sweating in the dark, do you occasionally wonder what a crash course in Ghana’s energy situation might look like?

Well, it is pretty straightforward if you have a bit of time..

So the Government of Ghana owns GNGC, VRA, ECG and GRIDCO. VRA and GNGC are wholesalers of energy products. Gridco is a transporter. ECG is a retailer. But remember, they are all owned and controlled by the Government, so we are justified to call any and all of them ‘Government’ whenever we want. This will come in handy; just watch.

GNGC owes Government of Ghana a billion dollars that Government borrowed from the Chinese. GNGC now has a gas plant. So it sells Gas to VRA to produce power. But VRA doesn’t pay. So VRA owes GNGC nearly $400M. Which means GNGC can’t pay Government, which in turn can’t pay the Chinese. But Government isn’t complaining, for now.

VRA owes GNGC because it sells power to ECG, which can’t pay. ECG thus owes VRA nearly $1 Billion. ECG can’t pay because the Government owes it $600M from various subsidies under different names.

Government can’t pay because the cost of the power keeps increasing and the undercover subsidies it has committed to keep exploding in value.

The cost of power and subsidies keep increasing because the government won’t pay its debts and therefore ECG and VRA have to resort to expensive bank loans to keep running (now a cool $1.6 billion in liabilities). Which leads to a shortfall of power as VRA can’t find money to invest and pay suppliers. So the government goes and bring in Dubai and Turkish generators that produce power at nearly double the price that VRA can’t pay and sells the stuff to VRA with a wink. VRA sells to ECG with a wink. ECG is like, ‘guys!’

So Government now decides to step up the game and ask ECG to cut a neat $100M from sales as subsidies, just like they always do it. Government is tired of Ghanaians complaining daily about the cost of power when they get it and complaining when they don’t get. So, Government tells ECG to give Ghanaians $100M worth of free power on Government’s tab (yeah, the ‘subsidy’ thing).

ECG says thanks for the $100M that Government doesn’t have and thanks for Government asking the Turks to bring twice more of the power that ECG can’t pay for. But what about that other $600M of power you made us sell for free on your tab?

Government gives ECG a sharp look and says: Look, YOU actually you owe me (yeah, I’m GNGC-VRA-GRIDCO-BIG-KAHUNA-BURGER-WITH-EVERYTHING-ON-IT, damn!). Bet you forgot that!

What I am going to do, says Government, is go and borrow another $2 billion and spread it around on the books of you and the other guys who owe me. Of course, you are going to use the cash to pay me some of the money you owe and then I am going to pay you back with some of the money you pay and you…er…don’t you worry your little head about that for now.

When all is said and done, you – ECG – are gonna look so damn attractive that someone is going to come over here from The Big Overseas and make some cool money from you. Yeah.

So that’s where we are now, folks. Thanks for your understanding.

Half a decade ago, I started to use the term, ‘Otabil Effect’, to describe certain trends I saw in the emergence of an ‘aspirational class’ in Ghana.
 
It therefore comes as no surprise to me that Pastor Mensa Otabil has for two consecutive years now been branded as ‘Ghana’s Most Influential’ person by a well-known media network. The development is consistent with Ghanaian attitudes of recent times.
 
Yesterday, at an event in Accra to mark Pastor Otabil’s latest ‘coronation’, he delivered a lecture in which he lamented the excessive focus on politicians (not ‘politics’, mind you) and the sad neglect of many aspects of our lives by the media and the chattering industry. To his mind this has created an ‘illusion of power’ around politicians, which from repeated projection has now become self-fulfilling. By constantly hanging onto their every word we have created the conditions for politicians to occupy our headroom and to fund their distractions at our expense.
 
I think he is right to an extent. And the same situation is similar to varying degrees across Africa. He did not proceed further to diagnose the source of this behavior. I think I should venture a hypothesis.
 
Most African countries acquired their national identity either through colonisation and decolonisation or wars or other forms of struggle for independence. Because political emancipation favours the narratives of politicians, the first set of dominant influencers in Africa were politicians.
 
But a nation is not only a material project of armies and roads and national currencies. It is at its roots a project of ideas: of national identity, values, founding myths, ideology and institutions. So, to be effective, and not for a small measure of convenience, the early political leaders also assumed the mantle of ‘thought leaders’ in addition to being ‘material leaders’.
 
Not only was it the mandate of the ‘first leaders’ to build dams and metal foundries, schools and hospitals, football teams and cultural monuments, it was also their duty to teach us which aspects of our history was relevant to our identity, which poems made us patriotic, and which philosophical lens to use in interpreting poverty.
 
Unfortunately for us these ‘two poles of power’ were never separated. Material power continued to be fused with thought power, and today, the followers of political leaders in Africa still expect that in respect of ideas, these leaders should be generators of the best rather than merely studious followers of the wise. This is of course more conclusively true of modern African nations and not necessarily of all African polities that have emerged since prehistory (think of thought leaders like Imhotep and Nefer in Ancient Egypt).
 
It is my contention that in many other societies a clear split between material and thought power is guarded to the point where a political leader who does not recline on the ideas of other sages and claims to have original wisdom about any matter would simply be laughed out of the podium. It is a requirement lightly dispensed in these more prosperous and sophisticated societies that a political leader MUST have a guru, or a number of them, and that she – the politico – must reference every idea to other thinkers.
 
This accounts for the possibility of such phenomena as ‘powerful economists’ and ‘influential philosophers’ in a way that often mean that such sages/thought leaders command mass attention (rather than merely benefit from patronage).
 
I daresay that the phenomenon of a ‘Jeffrey Sachs’, an ‘Anthony Giddens’ or a ‘Bernard Henri Levy’ is not viable in most of Africa. Unless they directly seek to acquire material political power (like an Achebe or a Soyinka), there is virtually no room for any kind of concession of power to the ‘thought leader’.
 
In such a society, ‘material power’ is all the power conceivable. It is very hard then to fantasise of a Ghana in which politicians command less ‘mass attention’ than they do now. Perhaps, that is why we are beginning to explore this beguiling idea of ‘influence’.
 

On the issue of deformalisation and the ‘missing gap in the middle’ of West Africa’s economic opportunity landscape, there is a strong ‘classical’ school of thought, which is of the view that most entrepreneurs in the major economies of West Africa are primarily concerned about escaping the tax net and therefore that such observed features of business in places like Ghana and Nigeria (i.e. the tendency to focus on either high-end customers or low-end patrons with little in-between) are little more than quirks of the macro-economic environment.

I am not too sure.

At a much more granular level, it is clear that the effect of ‘brand collateral’ (including how ‘trust’ lowers overall borrowing costs) on a business and the degree to which ‘optimisation’ requires formal structures can lead to behavior that diverge from macro-trends.

For example, I personally struggle to see how a dry cleaning company that wants to handle sensitive garments, suiting material etc. can go far without investing in stuff that emphasises ‘attention to detail’ and ‘stability’.

We use to have hundreds of ‘charcoal box iron’ entrepreneurs when I was growing up in Ghana. Folks would take crumpled clothes to them and then return to find pressed shirts and pants smelling a bit of soot. They got swept away when electric irons became all the rage and folks started to do pressing at home. There were also ‘oyeadeaye’ folks who carried ‘sewing machines’ on their shoulders as they went about town looking for nit and tuck work. They have have also been largely swept away by the China-trade in cheap clothing from most of the major cities. The China-trade folks now have the second-hand clothing merchants in their targets.

Yet, you will also find the china-trade folks doing little to spread properly between Accra’s ‘ridiculous ‘fashion boutiques’ and the second-hand folks. This is what has led to Mr. Price nearly doubling its return on floor space since its earlier incarnation, and even they are not fully covering the niche. The jury is still out on self-operated laundromats catering to the laundry needs of students and young professionals and operating at any significant scale in Ghana anytime soon.

The real insight is however in the fact that those who buck the trend do validate the opportunities in the neglected middle.

We have betting companies that openly advertise and have all the trappings of formal enterprises in Accra (fears about tax notwithstanding) busily making mincemeat out of all the shady banker-to-banker and underground gambling syndicates in Accra right now. Come to think of it, a multicoloured taxi is actually more exposed to the tax man, including the municipal tax authorities, than a private saloon car rental operator.

Entrepreneurs ruling out ‘pricing’ as a strategic advantage clearly requires a more anthropological treatment. Tax-net evasion alone cannot adequately explain the trend we are seeing.

And that trend is clearly that people are abandoning the effort to grow their businesses through investing in superior management systems and attracting the talent capable of delivering robust business models (which can offer competitive pricing), and rather growing their social capital so that they can survive from deal to deal and ‘break’ to ‘break’, sometimes hand-to-mouth.

Surviving from deal to deal in turn leads to ‘posturing’ and ‘high end fakery’ (all those basic clerical businesses that insist on being called ‘management consulting’ shops so that they can charge ridiculous ‘training fees’) as a way of covering up the low price-efficiency and the hidden costs of low scale. West Africa’s mega-economies are becoming giant HUSTLING OPERATIONS.

Unbundling this ‘reality’ reveals so much more of real interest than does the classical ‘macro-economy’ framing of the issue. We need to keep unpacking and unbundling.

Spend a day or two in Ghana’s capital of Accra and you might be impelled into believing that the biggest economic opportunity in Ghana is the “Great Middle Arbitrage”.
 
Which is simply to say that there is a big, missing, middle, folks!
 
Most products and services seem targeted at the 1 or 2% of the population with income exceeding $1500 a month or the other 90% of low earners scraping by on $250 a month or less.
 
So, if you feel too big for Gutter-side waakye then be prepared to splash nearly $10 on the meat, fish, and kooko-adorned variety at the Bukas and Asankas of prime-suburb Accra. If you can’t afford the Listers of the health system, then make do with a sweaty ward at La Polyclinic. If you can’t do Liberty International or any of its kin at $3000 a term, then send the ward to ‘Sai-to’. And so on and so forth.
 
It is easy to conclude that entrepreneurs are leaving significant value uncaptured and unharnessed.
 
Take for instance the fact that some taxi drivers pay owners a sum of about $12 a day for driving their vehicles around. Many of these vehicles are actually in decent condition. They are really not all that different from the second-tier rental cars lingering around the various top hotels (the first-tier rentals are managed by the hotels themselves and are so prohibitively priced they fall out of the scope of this analysis).
 
These ‘private saloon’ cars like to charge patrons close to $120 a day for the chauffeured experience (fuel and driver included). Interesting thing though is that most business users really don’t need the chauffeur. They would happily drive themselves if only these companies will offer the option at one-third the cost. What is fascinating is that a lot of the folks who buy saloon cars, convert them to taxis, and then lease them out to ‘professional taxi drivers’ at $12 a day could easily be offering these in the market for private hires at $24 a day to business folks who do not want to sink capital into outright purchase of vehicles for marketing purposes. Looking at these figures, it is not surprising to learn that in the US, an Avis daily rental can cost about $25 in some states.
 
So why don’t taxi owners do this? This is where it gets interesting.
 
We clearly can’t blame the cost of capital here. After all, folks are already investing about $12,000 or so to buy second hand cars that generate $12 a day or thereabouts, and a bunch of these folks have three or four of these cars (apparently, senior police officers are over-represented in the category). There is no point not up-scaling one step further to double or triple the take.
 
The taxi industry’s quirks thus enable us to relax the usual refrain that all observed characteristics of entrepreneurship in Ghana may be attributed to the ridiculous cost of capital. No one can argue that 32% interest rates are traumatic, even for the most savvy business people, but look closely and you will see that even as *current investment levels* entrepreneurs could optimise for better returns in many industries in ways that they are not currently doing. We need something more than just access to capital to explain this.
 
My hypothesis will bemuse you.
 
I think this has something to do with the ‘deformalisation’ of businesses underway in Ghana, and perhaps in Nigeria too. With limited data and an overactive imagination, I would wager that these ‘deformalisation’ and ‘informalisation’ (not the same things) trends are accelerating.
 
Deformalisation in this sense refers to conscious decisions taken by business people to steadily remove the trappings of ‘formal business practice’ from their enterprises. Informalisation simply means some never even bother with the pretense. The trappings being talked about refer to such stuff as ‘payroll’, ‘governance’, ‘tax compliance’, ‘audit and accounting’, ‘process control’, ‘brand development’ etc. The point is not that they don’t do these things at all, but that they don’t follow standard practice in doing them.
 
The argument in this post is that many business people continue to evade the hurdles of implementing modern management systems and have relapsed into relying on informal networks and their personal social capital to run even high-stakes enterprises. They hire temporary staff for ‘deals’ (‘rent a receptionist’, anyone?), rely on one ‘break’ after another instead of a clear business model, and borrow ‘randomly’ rather than develop long-term credit relationships with serious lenders. And so on and so forth.
 
In these circumstances, anything ‘dressed’ to look like a ‘step up’ on the ladder of formalisation tends to be avoided. Whilst this may be shrewd survival logic, and whilst it can cut costs through tax avoidance and low overheads, it very often can also lead to the baby being thrown out with the bath water.
 
Running a proper no-frills (no chauffeurs etc) car rental business at reasonable, or ‘mid-level’, rates requires the company to implement proper vehicle tracking, event logging, branding, social media advertising, and all manner of wahala. So though one could aggressively grow revenue and build the brand collateral that will enable one to borrow at the lower strata of our ridiculous interest rate bands, many Ghanaian entrepreneurs had rather just add two more trotros to the four taxis.
 
Deformalisation is now leading to the disappearance of blue chip enterprises across whole swathes of industries. There is now barely one material design company in Ghana with more than 30 employees. Apart from the big 4 accounting firms, you would struggle to find a professional services firm outside the legal industry with more than 20 staff.
 
Ergo: a Pareto phenomenon. By which I mean: a tiny cohort of big firms (banks, mining companies, telcos, etc) and a teeming sprawl of deformalising and informal enterprises, with little in between.
 
My main point should be obvious by now if you have endured this slog of a post: it takes capable, sound capacity, mid-size, enterprises to cater adequately to the ‘middle opportunities’.
 
Insofar as the best entrepreneurs rarely see any ‘success stories’ in this giant niche, they had rather fight for the high-end customer with a mind to joining the 5% of companies at the very top right away.
 
So next time you walk by Alisa and see them flying their new ‘Swiss Spirit’ brand, go in and smile wryly at the 30% increase in prices on the food menu. Do the same at Eddy’s Pizza and Frankies. And if you see that Papaye is bucking the trend, allow yourself a cynical smile, and leave the question dangling: “for how long can they hold out?”

Spend a day or two in Ghana’s capital of Accra and you might be impelled into believing that the biggest economic opportunity in Ghana is the “Great Middle Arbitrage”.
 
Which is simply to say that there is a big, missing, middle, folks!
 
Most products and services seem targeted at the 1 or 2% of the population with income exceeding $1500 a month or the other 90% of low earners scraping by on $250 a month or less.
 
So, if you feel too big for Gutter-side waakye then be prepared to splash nearly $10 on the meat, fish, and kooko-adorned variety at the Bukas and Asankas of prime-suburb Accra. If you can’t afford the Listers of the health system, then make do with a sweaty ward at La Polyclinic. If you can’t do Liberty International or any of its kin at $3000 a term, then send the ward to ‘Sai-to’. And so on and so forth.
 
It is easy to conclude that entrepreneurs are leaving significant value uncaptured and unharnessed.
 
Take for instance the fact that some taxi drivers pay owners a sum of about $12 a day for driving their vehicles around. Many of these vehicles are actually in decent condition. They are really not all that different from the second-tier rental cars lingering around the various top hotels (the first-tier rentals are managed by the hotels themselves and are so prohibitively priced they fall out of the scope of this analysis).
 
These ‘private saloon’ cars like to charge patrons close to $120 a day for the chauffeured experience (fuel and driver included). Interesting thing though is that most business users really don’t need the chauffeur. They would happily drive themselves if only these companies will offer the option at one-third the cost. What is fascinating is that a lot of the folks who buy saloon cars, convert them to taxis, and then lease them out to ‘professional taxi drivers’ at $12 a day could easily be offering these in the market for private hires at $24 a day to business folks who do not want to sink capital into outright purchase of vehicles for marketing purposes. Looking at these figures, it is not surprising to learn that in the US, an Avis daily rental can cost about $25 in some states.
 
So why don’t taxi owners do this? This is where it gets interesting.
 
We clearly can’t blame the cost of capital here. After all, folks are already investing about $12,000 or so to buy second hand cars that generate $12 a day or thereabouts, and a bunch of these folks have three or four of these cars (apparently, senior police officers are over-represented in the category). There is no point not up-scaling one step further to double or triple the take.
 
The taxi industry’s quirks thus enable us to relax the usual refrain that all observed characteristics of entrepreneurship in Ghana may be attributed to the ridiculous cost of capital. No one can argue that 32% interest rates are traumatic, even for the most savvy business people, but look closely and you will see that even as *current investment levels* entrepreneurs could optimise for better returns in many industries in ways that they are not currently doing. We need something more than just access to capital to explain this.
 
My hypothesis will bemuse you.
 
I think this has something to do with the ‘deformalisation’ of businesses underway in Ghana, and perhaps in Nigeria too. With limited data and an overactive imagination, I would wager that these ‘deformalisation’ and ‘informalisation’ (not the same things) trends are accelerating.
 
Deformalisation in this sense refers to conscious decisions taken by business people to steadily remove the trappings of ‘formal business practice’ from their enterprises. Informalisation simply means some never even bother with the pretense. The trappings being talked about refer to such stuff as ‘payroll’, ‘governance’, ‘tax compliance’, ‘audit and accounting’, ‘process control’, ‘brand development’ etc. The point is not that they don’t do these things at all, but that they don’t follow standard practice in doing them.
 
The argument in this post is that many business people continue to evade the hurdles of implementing modern management systems and have relapsed into relying on informal networks and their personal social capital to run even high-stakes enterprises. They hire temporary staff for ‘deals’ (‘rent a receptionist’, anyone?), rely on one ‘break’ after another instead of a clear business model, and borrow ‘randomly’ rather than develop long-term credit relationships with serious lenders. And so on and so forth.
 
In these circumstances, anything ‘dressed’ to look like a ‘step up’ on the ladder of formalisation tends to be avoided. Whilst this may be shrewd survival logic, and whilst it can cut costs through tax avoidance and low overheads, it very often can also lead to the baby being thrown out with the bath water.
 
Running a proper no-frills (no chauffeurs etc) car rental business at reasonable, or ‘mid-level’, rates requires the company to implement proper vehicle tracking, event logging, branding, social media advertising, and all manner of wahala. So though one could aggressively grow revenue and build the brand collateral that will enable one to borrow at the lower strata of our ridiculous interest rate bands, many Ghanaian entrepreneurs had rather just add two more trotros to the four taxis.
 
Deformalisation is now leading to the disappearance of blue chip enterprises across whole swathes of industries. There is now barely one material design company in Ghana with more than 30 employees. Apart from the big 4 accounting firms, you would struggle to find a professional services firm outside the legal industry with more than 20 staff.
 
Ergo: a Pareto phenomenon. By which I mean: a tiny cohort of big firms (banks, mining companies, telcos, etc) and a teeming sprawl of deformalising and informal enterprises, with little in between.
 
My main point should be obvious by now if you have endured this slog of a post: it takes capable, sound capacity, mid-size, enterprises to cater adequately to the ‘middle opportunities’.
 
Insofar as the best entrepreneurs rarely see any ‘success stories’ in this giant niche, they had rather fight for the high-end customer with a mind to joining the 5% of companies at the very top right away.
 
So next time you walk by Alisa and see them flying their new ‘Swiss Spirit’ brand, go in and smile wryly at the 30% increase in prices on the food menu. Do the same at Eddy’s Pizza and Frankies. And if you see that Papaye is bucking the trend, allow yourself a cynical smile, and leave the question dangling: “for how long can they hold out?”