Folk wisdom is rarely expressed in the same phrases across borders in Africa. But this one is: “the ability to speak English is not a mark of intelligence.”

I have witnessed it in rampant use in Ghana, Nigeria, Kenya, South Africa and quite a few other Anglophone countries too. Someone even wrote a whole thesis on the subject.

It is a rare user of this truism who deploys it without an air of philosophical profundity, complete with a discussion about “mental decolonisation”.

Whether or not verbal fluency in a language is a mark of intelligence is actually a tired debate.

The ability to pick up languages is one of several “components”, and thereby partial measures, of intelligence (the belief that dolphins are smarter than salmon but dumber than humans is itself a reflection of this notion).

There are supposedly several other components, making intelligence an already murky notion murkier still.  It isn’t really all that interesting.

What is certainly interesting is the sociological observation that in post-colonial societies, ability to master the language of the coloniser has continued to serve as a marker of eligibility to replace the coloniser, and the affectations that ensue point not to intelligence but to fraud. That is to say, a pretence to knowledge using bombastic colonial languages has long been a mode of acquiring power by the manifestly incompetent.

The question therefore of whether fluency in any colonial language should be used as a heuristic to measure professional competence is quite important. Such heuristics do not have to be overt to serve as potent tools of discrimination, distraction and eventually deprivation.

This topic is too big for a short blogpost however, so I would focus on one small, but hugely important, dimension: functional literacy. And I would ask the innocent question: “can professional competence be possible without functional literacy”?

My provocative position is that functional literacy is a critical part of professional competence in any modern society and that some elite language is required to create the link.

When Asante began to modernise in the late 18th century, it “imported” a good number of Arabic and Hausa scribes from Gonja, Dagbon, Gao, Mossi and elsewhere skilled in producing records, tabulations, chronologies, chronicles and inscriptions of enchantment (i.e. “practical scripture”). These scribes were called “Moors” by the early Europeans, who detested their hold over the Asante aristocratic elite.

The Asantes maintained two literacy systems: one based on Arabic-Hausa inscriptions and the other based on cowries and goldweights, which we may call “pebbles” for simplicity.

As late as the 1820s, the royal treasury was still accounting for war booty, public debt and royal largess using pebble records and accounting. But as the demands of statecraft and trade proved overwhelming, inscriptions began to dominate, and the Asante state started to defer more and more to scribes who subscribed to a common pattern of inscription.

Having a common elite language to manage correspondence with foreign powers, record public expenditures and account for the royal fiscus is a simple matter of practical wisdom: it is efficient. Language learning takes time and interpretations come with cost. Similar questions faced equally powerful and storied states such as the Gonja and Dagbon, and they invariably found similar answers: Arabic-Hausa, an Elite lingua franca.

The Europeans, whose colonial residue are now the subject of our protest, had to endure similar choices too. For centuries literacy had to be expressed in Latin until they could replicate and exceed their intellectual productivity in their various vernaculars. That is why Newton’s Principia (in which his laws of gravity are best explained) had to be in Latin, yet a century later Adam Smith could present his Wealth of Nations in English (but still not in Scots, his native tongue.)

The question before us therefore is whether the demands of the modern Ghanaian state, public and private, in 2019 can be met without some kind of common elite language, and whether functionaries of the elite cohort, whether in government or business, can be truly effective and productive without command over and proficiency in that elite language.

After some of the testimony Ghanaians have witnessed at the Ayawaso West Wuogon (AWW) commission, how confident can Ghanaians be about the capacity of some of the officers of the national security apparatus to produce sound situation reports, design surveillance systems and write and comply with complex standard operating procedures?

Of course, a person doesn’t have to do these things in English, but they still need to use some language that other elite readers and collaborators can follow and rely upon. It may well be Ga, Swahili, Hausa or Twi, but a language it has to be.

Are high functionaries of official society, whether in the worlds of business or government, training or equipping themselves in Twi, Ga or Dagbani to the point where they can design protocols and instructions in any of those languages to prevent covert missions from becoming the shambles witnessed in AWW? What about ordnance logistics systems? Software specifications for risk analysis? Do we have functionaries equipped in Dagbani to produce them?

And beyond the security sector, what about forex rules for the banks? Monetary policy justifications that banks actually believe? Court rulings that address all salient facts in a complex case leaving litigants convinced of the justice served? Blueprints for public inoculation campaigns? Land planning diagrams? These are but a few of the products of functional literacy, and they are expressed in language.

So unless we have more folks acquiring a high degree of capacity in Ewe and Kusasi to produce these artifacts of modernity than we do in English, then it seems very obvious that functional literacy needs to be measured in English, for purely quantitative reasons.

Ghanaian elites CLAIM that they are training in English, so we expect that they SHOULD BE LITERATE in English. Alternatively we can adopt another Elite language and demand high standards of literacy in that language. Maybe, a part of the reason they keep flailing at what they do is because they are actually not literate enough, in which case more literacy is needed, in whichever common elite language they train in.

It is not possible to be a good doctor if you cannot take down medical history clearly and accurately so that another physician can rely on it. A lawyer who cannot write a persuasive and comprehensive brief is a useless lawyer. And an engineer that cannot put together a lucid project design document is not worth their certification.

In the same vein, a legislator must be able to digest reports from ministries over which she has oversight, and the head of a regulatory agency needs skills to assess a dossier from a technical committee recommending rejection of a new product.

All of these responsibilities are measurable by effective use of language in issuing instructions, providing guidance, rebutting arguments and discerning flaws in causal reasoning in project design.

In short, professional competence DOES require fluency in the society’s chosen language for functional literacy.

 

 

 

 

 

As the Mining Indaba, the massive annual exhibition in Cape Town that bills itself as the “biggest mining investment event”, winds to a close today, it is clear that the powerful overlords of Africa’s mining sector haven’t learnt any new songs since the jamboree started 25 years ago.

When that first Mining Indaba was held, its host country, in many ways Africa’s standard-bearer in all matters mining, derived 43% of its export earnings from minerals, and the mining sector alone was responsible for more than 500,000 jobs. Since then, the sector’s share of exports has dropped by 40% and its direct output of jobs is down by 10%. And as everyone knows, this has nothing to do with South Africa moving up the value chain. In fact, real “value added” in the South African mining sector has been contracting since 2015.

Even though the continued decline of the South African mining sector has been a matter of concern within South Africa for a while now, the festive air at the Indaba, and the rousing speeches celebrating the triumph of African mining, mirrors perfectly the general attitude among Africa’s elite regarding the sector.

Read the full article here.

Judges in the ICC’s Appeals Chamber ordered the release on bail of former Ivorian President, Laurent Gbagbo, and his then Youth Minister, Charles Blé Goudé, this morning after a hearing in the Hague.

The two politicians are however barred from returning immediately to the Ivory Coast, averting a potential crisis in the West African state of 25 million people. They must stay in Belgium until an appeal lodged by the ICC Prosecutor against the stoppage of their trial last month (January 15th, 2019), even before they could open their defence, by Judges in the main ICC Chamber on grounds of “exceptionally weak prosecution evidence”.

The acquittal of Gbagbo and Charles Blé Goudé on a “no case to answer” basis has plunged the ICC – the International Criminal Court – into a crisis of legitimacy. In many ways, the Rome Statute (an international treaty) that set it up envisioned it as a sort of “forum of last resort” where exceptionally heinous crimes can be prosecuted when other mechanisms of individual criminal liability and accountability in the international system has failed. Its evidentiary procedures and standards are thus expected to be rigorous and nigh unimpeachable.

Read the full article.

 

Gbagbo_Ble_Goude_ICC

 

Prologue

When the Namo Naa, Lord of the Drummer-Poets, senses in his spirit the rise of a new Yaa Naa, a new verse rises in his ears and he can feel the hairs bristle on the ancient skins of Sitobu.

He does not need to summon the Lunsi. They know to come when a new King summons all Dagbon. And this Friday, as great Allah wills, Yoo Naa Abukari Mahama shall mount the great Nam of Yani in a blaze of glory, as the 40th Yaa Naa.

His ankadi will bind the rain, dry the muskets of his chomfo nima and cherlan nima, and the Lunsi knows to sing his tributes from that sacred hour, when the Guma Naa cooks the holy yams to pacify the royal lips.

But what is the journey that has brought us here? To Yendi, to the great sambani and courtyards of Naa Gbewaa’s palace, and to this solemn moment?

The Lunsi’s drum-song cannot tell of this. For the King’s beginning on the Great Nam is the only beginning that matters. So, it is I, but a mere wayside chronicler, who must humbly bear this duty. I, who cannot sing when the gonje plays, yet it has fallen upon my mouth to tell this saga. I crave your ears.

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It began with the formation, in 2003, of the Committee of Eminent Kings by President Agyekum Kufuor, himself a man groomed in the ways of royal ritual.

Three Kings were chosen from the most revered and ancient ruling houses of Ghana.

First, there was the Nayiri, whose great ancestor, Naa Gbewaa, is the ancestor also of the Dagbamba and the Nanumba. The Nayiri it is that from remotest history has resolved the conflicts among the Princes of the Mossi and Dagomba states, for the Mamprusi are the “elder brothers” of all the Mole-Dagbani. It is often remarked that even the Mogho Naba owes the Nayiri ritual courtesy from his seat in Ouagadougou. It was fitting and proper that the Nayiri be invited to this committee to do what his ancestors have so often done in history.

Then there was the Yagbonwura, whose great ancestor, Ndewura Jakpa created the other great Kingdom of Northern Ghana, the Gonja. It was the Gonja who drove the Dagbamba from Yendi Dabari to present-day Yendi (or Yani) and pressed them till in 1713, Naa Zangina and Naa Sigili defeated the Gonja armies and killed the Yagbonwura, Kumpatia, in retaliation for the earlier killing of Yaa Naa Darizeagu. That such fierce rivalry would eventually melt into peaceful accommodation can be seen as the source of an important metaphor, making the Yagbonwura an equally fitting mediator.

Lastly, but most intriguingly, was the Chairman of the Committee, the Asantehene, whose great ancestor, Okatakyie Opoku Ware, the second Otumfou of the much younger Asante Kingdom, had sent his generals soon after the last Gonja-Dagomba war, subjugated the Gonja in 1722, and in 1744 overrun the Tolon-Kumbungu garrisons to bring all of Dagbon to heel. The eventual treaty between Asante, on the one hand, and Gonja and Dagomba, on the other hand, would guarantee peaceful trade and diplomatic relations for more than a hundred years across the Oti. The Otumfou, by virtue of this ancient involvement in Dagbon affairs was a fitting Chair for the committee.

It was clear that the Committee of Eminent Kings was carefully composed to be a reflection both of cold realpolitik and liberal pacifism. War and peace were equal hues in its penumbra of history. It was clear in 2003, upon its inauguration, that it must be an instrument both of velvet and steel. But to fully understand why this was so poignant in the Dagbon peace process, it is necessary to travel further back in history. For this affair did not really begin in 2003 with the setting up of the committee, or in 2002 with the dastardly events that prompted its setup.

Everyone knows that the tragic circumstances surrounding the death of Yaa Naa Yakubu Andani in 2002 originated in a quarrel between two royal Gates of Dagbon with equal, yet highly contested, claims to the overlordship of the Dagbamba. The modern day manifestation of the conflict are best captured in a 19th Century pact among brothers.

Abdulai and Andani were occupants of the Mion and Savelugu skins respectively and it is in their time that the tradition of alternation of succession between the Abudu and Andani Gates of Dagbon following the death of Naa Yakubu, Yaa Naa, in 1839, started to assume the particular contentious form that we have become familiar with (though disputes among Dagbon princes have been a permanent feature of the monarchy dating back to its earliest roots). Abdulai ruled from 1864 until 1876, whilst his brother served as Yoo Naa, Lord of the Namship of Savelugu.

One of the major constitutional developments that remain to this date had been promulgated by Nayiri Atabia in 1700, in the same year that Osei Tutu Opemsuo, Asantehene, welded the Asante Kingdom. The Nayiri had, during royal arbitration among Dagbon princes, ruled that only full-blooded princes who occupied the gate skins of Mion, Savelugu or Karaga could succeed to the Nam of Yani, and become Yaa Naa.

Throughout the period of Asante dominion, this rule merely established the baseline for manoeuvring among the princes of the great Gates, who became adept at manipulating Asante power to advance their own interests. As part of the treaty that freed Yaa Naa Gariba from Asante custody, an Asante Satrap had been installed in Yendi, and a new regiment, the Kambonse, established as standing infantry to give teeth to diplomacy.

A serious disruption occurred in 1874 when the British broke the back of Asante power and removed this elaborate interplay of diplomacy and realpolitik from the fray of Dagomba affairs. This was a seismic event that dramatically altered the nature of succession struggles in Dagbon.

Even before the British intervened, however, new strains on the Dagbon polity had emerged in the form of the Zabarim, a group of Muslim mercenaries and caravan runners whose presence was growing rapidly in Karaga. But in the year following Asante’s defeat, all hell literally broke loose. Here is how it happened.

After the death of Na Yakubu, around 1839, Asante preoccupation with coastal-early colonial politics, had begun to effect a growing vacuum in the power politics of Dagbon.  The Zabarima mercenaries soon established what amounted to garrisons in Karaga and imposed themselves as an important factor.

In 1864, a semblance of normalcy returned when finally Abdulai II, one of Yaa Naa Yakubu’s four sons became Yaa Naa. But when the Yoo Naa (Lord of Savelugu and another of Ya Naa Yakubu’s sons) tried to suppress the Zabarima, a great massacre ensued, which even today is the subject of great taboo. Yaa Naa Abdulai II was succeeded by his brother, Yaa Naa Andani II.

In the 11th year of the reign of Yaa Naa Andani II, the Abudu Regent and Yoo Naa, Mahami, would also clash with the Zabarima, this time led by the bloodthirsty Babatu, who would do far worse by killing both the Yoo Naa and his Lunga Naa – tthe chief drummer. Accusations that the Andani gate failed to send warriors to avert this calamity sowed the seeds of discord between the two gates most easily recognised in its modern form.

When the Germans arrived on the scene in 1888, they found a kingdom wracked by princely distrust. Less than a decade later, in 1896, tired of the endless political machinations and intrigue, and the Gbewaa Palace’s preference for British policy, the German Askari overpowered the royal armies and razed Yendi to the ground. It was a great calamity. On Yaa Naa Andani’s deathbed in 1899 he watched in anguish as his kingdom was torn asunder into a German half and a British enclave to the West joined up with British possessions in Gonjaland.

This began the first of the specific lines of succession struggles that led directly to the coup d’etat and assassination of Yaa Naa Yakubu Andani in 2002.

For the British-imposed Yaa Naa, Darimani, also a son of Yaa Naa Yakubu, was chased out of the great Palace by German Askari. Whilst this history is amply documented by the written records of the era, the drum-histories of Andanis and Abudus give competing accounts, of the treachery of the other side, and discounts the rule of Darimani completely in order to sanctify the doctrine of alternating succession.

What is without doubt is that two years after these events, British power gradually outstripped German power in much of the geographical North of Ghana and removed lingering French influence. We have all heard of the escapades of a certain Ekem Fergusson. It would take World War I however for Britain to seal its dominion completely. In fact, when Yaa Naa Alhassan died in 1917, the British simply constituted a cabal of local bureaucrats and favoured elders into a kingmaking committee – in total defiance of Dagbon custom, and convinced the Andani frontrunner to hand over the Namship to a favoured Abudu Royal, Abdulai II, perpetuating nearly 40 years of Abudu rule. British dominion was now absolute to the point where several subordinate skins were appointed directly through the intervention of district commissioners.

So much so that three decades – or barely a generation – later, the Yaa Naa had been placed on British Government payroll (about £15 a month – roughly 10,000 GHS in today’s money) and his Kingdom in all but name conjoined with Gonjaland.

But then independence came, and the consequences of all this succession politics in the colonial era had to be managed by the new Power in the Land, Osagyefo Kwame Nkrumah. After trying to accommodate the infinite intrigues, cultural intricasies, and machinations of Dagbon gate politics, Osagyefo resorted to fiat. He had his Parliament pass legislative instrument 59 codifying the succession rules by imposing the contested notion of “alternation between the two gates”; the rule established by the Nayiri that only princes who occupy the great Gate skins can succeed to the Namship of Yani; and also the prescription that the Gate Skins must be permanently split among the two grand Gates of Dagbon.

A year after Osagyefo’s overthrow, in 1967, the reigning Yaa Naa passed away and the Military Government moved in to declare the enskinned successor an usurper, which point was moot as the successor passed away barely four months after his ascension to the Great Nam.

A succession dispute then arose until the Progress Party Government decided to more or less impose Yaa Naa Mahamadu Abdulai through its influence over the kingmaking committee established pursuant to the 1948 grand compromise. And, of course, by virtue of its control of the security situation in Dagbon.

The return of a CPP-affiliated military government swung the mood back in favour of Andani hegemony, and Yaa Naa Mahamadu Abdulai was deposed. Yaa Naa Yakubu Andani found favour with the oracles and his much-contested reign began.

In 1986, the Supreme Court attempted a creative resolution by recognising Yaa Naa Yakubu Andani as the reigning Yaa Naa, delegimising the rule of Yaa Naa Mahamadu Abdulai (now deceased), and then inventing the concept of an “emeritus Yaa Naa” for the deposed monarch, which entitled him to a royal funeral, but which the reigning Yaa Naa, Yakubu Andani, could not countenance as it could trigger a succession crisis of its own.

The schism between the House of Abudu and the House of Andani now seemed complete, a degeneration considerably deeper than historic Gate politics. The Bolin Lana and major Abudu princes had begun to resort to honouring divisions not seen in Dagbon since the days of the Anglo-German struggle for control.

It was in this context of competition for royal legitimacy that the Fire Festival created the spark that in March 2002 led to the invasion of the Gbewaa Palace, the decimation of the Katin’duu, the violation of the sacred regalia and shrines, and the regicide of Yaa Naa Yakubu Andani.

It was without doubt the failure of the Rawlings and Kufour governments to recognise that leaving Dagbon politics to court intrigue and the legalistic argumentation of Dagbon court scholars have never resolved the vexed and ancient quarrels of the royal succession among the Dagbamba. The ascension to the Namship in Dagbon has always been through the operation of the steel of realpolitik tempered only judiciously by the velvety diplomacy of princely interests.

To emphasise, since 1700, the succession to the Nam of Yani has always been determined by realpolitik, never by scholarly disputations nor court intrigue. By leaving matters to fester for so long, the Rawlings administration, but also the Kufour administration (following the regicide), broke with the clear record of history by not intervening more forcefully, and more artfully.

The Committee of Eminent Kings, in the first decade of its existence, tried to let court intrigue and the arcane methods of ritualistic arbitration drive the outcomes. Then it slowly began to see the light: it is not really about native jurisprudence, the longwinding recantations of customary law and procedure. By 2017, the Otumfou now saw clearly the true nature of Dagbon succession and recognised the importance of realpolitik.

He moved to more decisively sideline the Kampakuya-Naa, and to begin the process of managing a decisive political outcome.

Firstly, it was clear that the vaunted rotation between the two gates was unlikely to be palatable. Considering, however, that it is Abudu royal jurisprudence that is most receptive to the idea of non-rotation, it is likely that the use of a kingmaking committee in line with 1948-settlement principles would have to disfavour the Abudus. That is to say, the Abudus could be granted their preferred process whilst the Andanis get their preferred outcome.

Secondly, the Eminent Kings shrewdly recognised that for the above mechanism to be viable, the more elderly claimant on the Andani side had to win. And certainly not the Kampakuya Naa, the Andani Regent. This leaves the possibility of an Abudu succession through the Bolin Lana open whether by recourse to the rotation principle or another managed political outcome.

But to set any of the above schemes in motion, it was essential that the Yoo Naa, also clothed with additional capacity as Head of the Andani Gate, be comfortable with the strategy to isolate the Kampakuya Naa.

More sensitive was the question of the Kuga Naa, Lord of the Bagisi, Custodian of the Dagbon constitution, a non-royal courtesan of particular distinction in kingmaking matters. To the extent that non-rotation was to be viable, the only alternative would be a mixture of oracular divination entrusted to a kingmaking committee along the lines of the 1948 compromise, which Abudus tend to tolerate and Andanis tend to despise. The complication is that the Kuga Naa, whose pedigree is unmatched in this particular line of custom, has been keeping his cards very close to his chest, and in recent times had been heavily courted by the Kampakuya Naa, the Andani Regent.

To isolate the Kampakuya Naa, a rift between him and the Kuga Naa had to be cleverly engineered by publicly reminding the Kuga Naa that he, not the Regent, is titular head of the two Gates in an interregnum.

This was the political masterstroke that sealed the realpolitik. When the Otumfou publicly criticised the Andani Regent and forced the latter to overplay his hand by refusing to come to Manhyia to endorse the roadmap, the trap had already been laid.

The Asantehene intentionally invoked the ancient tributary treaty by referring to certain Dagbon royals as his “children”. This was obviously provocative, considering that Dagbon is nearly 300 years older than Asante, but it was meant to play back Manhyia’s ancient pact with Naa Ziblim and send coded messages to key actors within the Dagbon establishment: the steel axe is falling; realpolitik is here.

In the end, the Regent was forced to make a cringeworthy climbdown and all but disqualify himself from the succession, after the Kuga Naa abandoned him. The latter would in fact proceed to oversee and endorse the process by which the Yoo Naa would emerge victorious. Realpolitik once again had prevailed in a Dagbon succession.

What now? The biggest challenges ahead are in two main forms: a. The transfer of all substantive and titular powers from the Regent to the new Yaa Naa, including custodianship of lands and various privileges that are now in limbo; and b. The enskinment of Chiefs to occupy several vital vacant skins. In fact, some recent enskinments done by the Regent without sufficient consultations may even have to be reversed.

Ensuring that the spoils of great and lesser skins are shared amicably between the Abudu and Andani gates would be critical given the nature of Dagbon’s highly regimented aristocratic system, whereby Princes either progress through the ranks or see their entire line of the royal tree atrophy and die.

In such a system, aristocratic progression is a matter of life and death. If the Yaa Naa wishes to reimpose total royal oversight over the accession to sub-sovereign Nams in Dagbon, and to reduce the temptation for the likes of the Bolin Lana and other grand aristocrats to continue appointing successors to certain vacant skins within their jurisdiction, without the consent of the Gbewaa Palace, he must show the right combination of accommodation to diverse interests and the iron mastery of realpolitik.

But that is for next week, next month, and the year hereafter. For now, beasts and birds and men and gifted lunsi cry out in unison: Long may Dagbon flourish; long may Yaa Naa reign!

A leopard and a hyena do not combine to create a Lion. There is but one Yaa Naa. And his name is Abukari Mahama, Naa Nyagse’s successor, ruler over all Dagbamba. Till Faako Naa himself calls him unto his bosom.

*This irreverent blogpost draws shamelessly from Ibrahim Mahama’s The History & Traditions of Dagbon and Emmanuel Forster Tamakloe’s A Brief History of the Dagbamba People.

When Dr. Addision’s administration at the Bank of Ghana commenced with their plans to force Ghanaian banks to increase their equity whether or not their business model supported such an expansion or not, some of us argued vehemently against it.

We argued that this decision to force banks to expand even if they were not in a segment of the market that will support such forced growth was dangerous.

Dr Addision ignored his critics and told bank owners to go and find money and ensure that the amount of money they have invested overall in the bank was at least $84 or pack their bags and leave. Before then, folks who wanted to own a bank in Ghana only had to leverage $24 million of their own money.

His argument was that big banks are safer and more useful for Ghana’s economy. This was of course palpably untrue since Unibank was a very big bank. It ranked among Ghana’s seven largest banks consecutively.

Not surprisingly, when the troubles came, its failure had the worst impact on the financial sector, requiring $1.5 billion to plug the capital deficit hole it left behind.

Capital Bank and UT were bigger than Bank of Baroda and Sahel Sahara, and yet it was the former and not the latter that have cost the Ghanaian taxpayers large amounts of money following their collapse. There is absolutely no basis to the logic that size corresponds to bank stability.

In our opposing arguments, we pointed to countries like the UAE and Mauritius where minimum capital are $14 million and $6 million respectively, and yet with thriving financial sectors.

Countries like Nigeria that underwent the same forced recapitalisation introduced to Ghana have continued to see big banks fail. Many of the contrived creations that emerged as a result of the forced capitalisation “reforms” in Nigeria have been shown in recent acid tests to suffer from severe “capital adequacy” (NOT “minimum equity”) deficiency. Among these banks, Skye has already collapsed, and Diamond is being managed for acquisition.

The banks that were doing well before the recapitalisation – like Zenith, GT and Access – are, in the face of reduced competition, doing even better to the joy of their shareholders. But the Nigerian finance sector as a whole continues to remain largely unresponsive to the needs of the business community.

The country has one of the lowest digital finance penetration among Africa’s big economies. Its mobile money penetration is less than 2%. Compare this to Kenya’s, at 70%, even though the East African country has a minimum capital requirement of $12 million, because Parliament, sensibly, refused to agree to attempts by the Kenyan Central Bank to increase minimum capital to $50 million.

Today, Kenya’s banking sector has an average “return on equity” of nearly 25% (up from the 14% prevailing at the time of the attempted forced recapitalisation) compared to less than 16% for Nigeria.

We have been quite persistent in trying to get people to stop confusing “capital adequacy” (whether a bank has the capacity to manage its financial risks, absorb shocks, and meet its liabilities) with “minimum capital” (whether a bank is big enough). We have tried to explain that capital adequacy is far more important globally, and, judging by our history, in Ghana too. “Bigness” is a useless criterion in judging whether a bank is well run, moderating its risk appetite, making good profits and giving out loans that are likely to be paid back on time.

The real problem in Ghana has been that weaknesses in regulation and poor research capacity have made it difficult to assess whether banks are actually being well run, taking sensible risks and giving out profitable loans.

We have spent a lot of time copying and pasting ideas from the so called “Basel process” that need a lot of “localisation” before they can improve our regulatory situation.

On paper, many of the “global standards” being promoted in this whole Basel process and even in IFRS 9 (which is supplanting IAS 39 as a global source of guidance for accounting procedures at banks) are already being adhered to by Ghanaian banks, but in practice there is a lot of fudging and evasion. “More standards and rules” are not what would address this fudging and evasion. More skills and clever implementation and supervision, however, would.

Some commentators in support of the governor argued that we need big banks because they will then invest bigger amounts in the economy, so closing small banks down is the way to do that. Strange logic of this nature was usually coated in a lot of jargon, but carefully analysed they are wholly meaningless.

If you have 100 banks and they have 10,000 GHS each to lend, the total amount available for credit is 1 million GHS. If, on the other hand, you have 5 banks and they have 100,000 each, that’s 500,000 GHS. The latter situation is clearly not necessarily better for investment. Nothing stops small banks from “syndicating” to tackle big transactions. Even the biggest European and American banks do it all the time, for even relatively small projects, because syndication reduces risks.

Nor is the argument that Ghana has “too many banks” any more sensible than the others. There are many small economies around the world that have many banks, playing in different niches. And the same is true of big economies.

So whilst Canada, for instance, has only 91 schedule I, II, and III banks, it also has 2000 “savings mutual” banks with a wholly different focus.

Switzerland has 260 banks, only four of which are big by global standards. Many others focus on wealth management for clients with very specialised needs; some are cantonal-based and cater to SMEs; and yet more others prefer to specialise in trading.

Here in Africa, Egypt has 40 banks, but only five are large by continental standards, and they control half the market.  Of Kenya’s 44 banks, seven are truly big banks, dominating 80% of the market, yet the intense competition from the niche players keep them on their toes, injecting much dynamism in the sector.

Stripped of its jargon, the so-called minimum capital requirement was a logically deficient approach from the start, and was wholly unnecessary.

True, some banks had serious governance issues and had to go. We applaud Dr. Addision and the new administration of the Bank of Ghana for seeing this and acting in a determined fashion to address the problems. But as we have already shown, both big and small banks can be dubiously managed, so the process should have continued to focus on governance and solvency without the distraction of minimum equity.

As the Akans say, what the termites have chewed is already chewed; what needs protection is what is left behind. So we are where we are. The recapitalisation has been shown for the sham it is. The Bank of Ghana could only be bold up to a point. After the market proved to the regulator that it knows more than he does and refused to inject capital to inflate banks just because he says so, even when the economic opportunities for banking today does not warrant such expansion, the Bank of Ghana hurriedly came up with a compromise where Government will try to seduce or arm-twist the same market that has refused to pump more money into banks because they don’t see the opportunities for immediate expansion.This is what led to GAT.

I grudgingly admit that the GAT model was clever. But “clever” in a “twisted genius” kind of way.

The question however is: will GAT do more harm than good, or will it be neutral in its effect?

At the outset we must point out that because the artificial inflation of bank sizes is itself a bad idea, because it is not in line with clear market needs, if GAT succeeds it will only be providing steroids to keep a bad idea afloat. But this would not be a problem with GAT itself, and by reducing uncertainty, it may ameliorate the harshness of the recapitalisation directive on the locally owned banks, and by extension the broader industry, which cannot be a bad thing.

The only serious question then is whether GAT shall be handing out poisoned chalices to the remaining locally owned banks who could not convince sceptical investors to pump in more money to artificially inflate them.

Would GAT money affect their competitiveness and business models and thereby create more problems down the line for the financial sector as a whole even as reduced competition lead to windfall profits for the few shareholders of survivor banks?

That question can be addressed by focus on a single variable: “cost of funds”. Will GAT increase the cost of capital for the “beneficiary” banks? If it does, then those banks shall become less profitable, and start to weigh down major portions of the industry.

In this blogpost, we have decided to investigate this by focusing on one bank – UMB. UMB is one of the five beneficiary banks in the yet to be completed GAT strategy.

It currently has just a little above half of the $84 million equity that the Bank of Ghana, in their high and mighty wisdom, says they need to be considered a decently sized bank in Ghana and allowed to continue to operate.

It costs UMB about $38 million to raise the funds, including from depositors, it needs in a year to respond to opportunities it sees in the market (i.e. est. 2018 “interest expense”). With these funds in hand, it generates about $87 million in income from its borrowers and other market counterparties. After taking care of the various other costs of operations, it is left with about $16 million of total profit.

To strengthen its solvency, and likely also as a reaction to the ongoing liquidity challenges in the broader market, UMB has in fact been reducing both its loan portfolio and its depositor base. Between 2017 and 2018, deposits declined by nearly 5% (this is in stock terms; in flow terms, the decline amounted to about $53 million) whilst lending retracted by about 6.5%. At the same time that UMB has been reducing its liabilities and reining in credit growth, its profitability has been growing commendably (20%-plus in 2018 over 2017 levels).

The sudden injection of between $45 million and $50 million of equity into UMB would require a rethinking of this increasing conservatism and focus on profitability. Here, briefly, is why.

As explained in my previous blogpost, GAT seeks to borrow money from pension funds (all the “corporate bond” talk comes to this in the end) to invest in the likes of UMB. For GAT itself to be sustainable it would need to add on its margin in the on-lending transaction. GAT would then own shares in UMB and the other banks, and would be reliant on dividends paid by these banks to service the loans it would have taken from the Pension Funds.

The simple question then is: should UMB receive $50 million of the GAT money, would it be able to: a) generate the cashflows needed to pay GAT regular dividends so that GAT, in turn, can service its debts to the pension funds; and b) would the size of the dividends be sufficient for GAT to fully settle the debts as they come due?

In the simplest of terms, GAT has a “required rate of return” for the $50 million it shall be investing in UMB. In my previous blogpost I floated the figure of 32%. If that was to be correct, it would mean that UMB needs to be paying GAT $16 million in returns every year for the transaction to make sense (considering that GAT needs to start paying the coupons on the corporate bond as soon as the proceeds are realised).

Because equity is a residual claim, dividends are paid after interest and tax. In 2018, UMB was on course to make about $12 million after tax. The question this crude analysis prompts is whether an injection of $50 million into UMB shall raise the absolute quantity of profits the Bank makes to the sum needed to pay GAT a reasonable return, whilst keeping existing shareholders happy. That’s the question.

UMB’s recent-historical return on equity of about 18.5% give us an idea of its capital efficiency. Should shareholder funds increase, as a result of GAT investment, to $100 million, we expect absolute returns to hit about $18 million. For that to happen, however, UMB would need to reverse current strategy and aggressively expand credit again, which means more deposit mobilisation as the $50 million injection adds less than 10% to the Bank’s existing asset base. To appreciate this carefully, note that UMB has deposits of about $340 million and has given out loans to businesses and the government totaling about $400 million.

So it is not the injection of equity itself that leads to credit expansion directly, it is the need to pay back investors which does so by requiring that the Bank creates more assets out of more liabilities in the search for higher profits. This is at the heart of the leverage equation that drives banks. Understanding this diligently puts paid to the nonsense that recapitalisation on its own can expand credit available in the economy. Recapitalisation simply forces banks to expand, but the resources for the expansion must still be found within the economy.

This point is best driven home by putting the concrete results of the recapitalisation directive into perspective. By the time the exercise concludes, assuming all goes well with GAT, about $750 million would have been attracted into the banking sector in total. This is a sector that already has an asset base of $20 billion. The concrete impact of recapitalisation is thus the less than 5% increase in resources available for credit expansion (even when one ignores the reserve requirements). And yet the impact in terms of uncertainty and dislocations has been outsized.

But back to UMB’s cost of capital issues. As a 50% shareholder, and assuming no retention of profit for further investment, unencumbered cashflows available to GAT from UMB post-investment shall be in the region of $9 million. The clear conclusion then is that at any hurdle rate above 18%, the marriage between GAT and UMB begins to look very shaky, even untenable.

Of course, in practice, things are even less rosy. UMB has not paid a dividend for three consecutive years as the new management are still cleaning up the losses accumulated by the old managers (the bank’s income deficit is currently at $21 million, and this amount would have to be paid off before GAT will see a pesewa). In essence, UMB would need a three-year breathing period after GAT’s investment to start contributing to GAT’s liquidity pool for servicing the corporate bond sold to the pension funds. A corporate bond, like what GAT aims to issue, thus represents a mismatch between time-sensitive needs and payback dynamics.

But lowering GAT’s expectations from 32% to an 18% required return benchmark means that GAT must convince the pension funds to accept a yield of 15% on the planned corporate bond at a time when the risk-free Government of Ghana two-year note is generating 19.75%, implying that the one-year note, when available, should yield about 17.5%. In simple terms, the pension funds can buy safer Government debt at nearly the same rate that GAT is offering. This is clearly a no-deal situation. Any rate below 27% (a spread lower than the current primetier two benchmark within the Ghanaian financial industry today, mind you) for such a risky venture seems therefore unlikely to fly in the funds management industry.

Any rate above 20% passed through GAT to the beneficiary banks would, however, be highly problematic in a banking industry with a 16% average return on equity. A mighty gulf has thus opened between the participants in this three-way transaction.

What this crude analysis has sought to demonstrate is the hard negotiations between GAT, on the one hand, and the pension funds and beneficiary banks, on the other hand, that lie ahead.

We could of course have opted to calculate the weighted average cost of capital for UMB, held the cost of debt constant, and shown the impact of a 100% expansion of equity on this weighted average by varying the GAT discount rate on that equity portion (see figure below). Whilst the rigour would certainly have been appreciated by the professionals reading this blog, we would have lost 95% of the audience.

umb_wacc_cost_of_capital_formula_banks_ghana

In the circumstances, we believe that this elementary analysis is a reasonable compromise to assist the main objective: show that GAT, as presently designed, cannot address the problems bequeathed by the poorly thought through minimum capital directive, unless it becomes sovereign-backed. Such a move would however impact on Ghana’s sovereign credit rating thereby undoing the cleverness of GAT in its “twisted genius” attempt to deflect the burden of paying for the Bank of Ghana’s misguided recapitalisation policy to the private sector.

That the targeted pensions industry is a part of the private sector that rides on mandatory social pensions contributions has also not been lost on observers.

 

 

The approach of the Ghanaian government and its regulators to “managing” struggling banks in Ghana has evolved yet again.

From majority state-owned banks doing “purchase and assumption”, we moved to “resolution and consolidation”, and now we are on the cusp of state-directed, privately financed, transactions to “save” solvent but capital non-compliant banks.

Instead of the Government bearing the full brunt of the financial cost of salvaging or supporting struggling local banks, it is trying to induce the private pensions industry to see the locally owned segment of the Ghanaian financial industry as a worthy investment prospect, and go to its rescue.

It is curious that private pension schemes on their own could not see the ripe opportunities in the financial sector, if indeed they exist, on their own, and that it had to take the Finance Ministry to impel them to band together for this $420 million shopping spree for banking assets. Is this impulse buying or serious strategic thinking?

If $420 million is required to ensure that the 5 locally owned banks meet the minimum capital directive of $84 million per bank, then it is reasonable, without more specific information, to assume that the Special Purpose Vehicle being set up to enable the pension funds invest in the industry is likely to own the majority stakes in these banks, and also that capitalisation shall exceed the minimum regulatory threshold. Of course, some of the money being raised will probably go into margin reserves to service the debt itself.

First question: can the private pension schemes afford to bankroll these banks? Do they have the muscle?

With roughly $2 billion assets under management, and annual growth exceeding 15% over the last three years, the private pensions industry as a whole in Ghana looks rather muscly.

The OECD Global Pension Statistics database suggests that cash and deposits constitute nearly 20% of holdings, which would suggest deployable resources of nearly $400 million, just about the amount needed to execute this transaction the Finance Ministry is trying to foist on the industry. The only problem is that the OECD database covers public pensions as well, making it less useful for this analysis. What about local databases?

Sadly, in the usual spirit with which public agencies do their jobs, the current NPRA is barely on its feet. After an inexplicable delay of 20 months, the Board of the main pension regulator was finally constituted in late August of last year. The Agency has failed to release even its annual report to the public since 2015. In short, local statistics are hardly of any help.

Thus, for me to attempt to contribute my small morsel of analysis to help answer the questions about the industry’s strength, I had to pull up the latest annual reports of the top 5 pension schemes in Ghana (with 80% plus of market share) and try to piece together the picture for myself! The price inquisitive people have to pay in Ghana!

From my analysis, the most liquid assets of the private pension schemes make up about 2% of total holdings. This would suggest that the industry’s ability to provide actual liquidity immediately is limited to about $40 million! Luckily, I am engaged in what is obviously poor interpretation. To properly come to grips with the issue, I do have to take into account relatively iliquid assets that can still be brought to bear on the situation if necessary.

I refer to the holdings, of these private pension trusts, of short-term securities (money market instruments and treasury bills, in particular). Due to the strictness of the pensions law, and its subsidiary regulations, Ghanaian pension funds are heavily invested in moderately liquid assets of this nature. Roughly 80% of their assets are in this class. What this means in short is that if push comes to shove, they can sell these assets and raise up to $1.5 billion in a few months, if not weeks.

But that would require a change in the law, which forces them to maintain their current investment posture. At present, the law does not allow them to invest more than 5% of their funds in “collective investment schemes”. And, strictly analysed, the Ghana Amalgamated Trust (GAT) concept IS INDEED a collective investment scheme in the meaning intended clearly under Ghanaian securities law.

If this conservative posture were to be adopted, the pensions industry would be barred from investing more than $100 million in the banks through direct participation in the GAT. But I think I see the “trick” the Finance Ministry wants to use.

I suspect, from parsing its terse press release, that the Ministry wants to force-fit the GAT arrangement into the current statutes by fabricating a “corporate bond” on behalf of the GAT entity to the tune of $420 million and then inviting the pension funds to subscribe. Because the law allows the schemes to invest up to 30% of their funds in corporate bonds, this could, in theory, immediately make $600 million available for this GAT venture!

It is a sly move. But risks remain.

The pensions funds would have to divest a significant portion of their current investment in their main asset categories in order to invest in this bond issued by this amorphous GAT vehicle, trusting the government of Ghana to constitute the entity properly with truly independent and competent directors and managers. At any rate, the investment regulations also bar pension schemes from assuming ownership of companies in which they invest (it is unlikely then that the law would permit collusive ownership by a group of pension funds) so full trust in Government’s best intentions is critical. What would be the impact on the securities industry broadly as a result of such a divestment anyway?

The above analysis focuses purely on technical and legal feasibility, but what about commercial sense? Should pension schemes increase their allocation to corporate bonds by a multiple of more than five (i.e. 500%+) simply because the government says they should? And even if liquidity is being promised through a primary listing of the bond on the 3 year old, presently underwhelming, Ghana Fixed Income Market (a Ghana Stock Exchange platform), should the Trusts be so trusting?

The commercial decision to place more than 20% of current tier one and two pension funds in local bank equity as an asset class is likely to be taken with extreme care as it represents a radical departure from how pension funds have been managed in Ghana to date.

Currently the best performing pension scheme managers are receiving compensation (fee income) of less than 1% of total funds under management. These fees are being generated on the back of investment returns in some key investment vehicles exceeding 20% per annum. The appetite of pension fund managers for risky, low yielding, instruments must be very low.

Would the GAT bonds offer yields far exceeding 20%? If not, why would any pension scheme want to invest in these relatively riskier assets for a modest spread when their current conservative investing strategy (allocating 80% or more of their funds to short term government and money market securities) is already returning 20% plus per annum?

The government’s press release on the transaction appears to suggest that GAT shall offer the $420 million to these banks as equity, not as convertible debt (it is unclear that convertible debt would meet the regulatory requirement anyway), and that the subscribers of the GAT bond (the ultimate investors that is) – the pension funds – would be aiming to derive their returns through capital gains on the Ghana Fixed Income Market as opposed to a reliance on the yields on the bonds. Unfortunately, trading on the GFIM has been much too thin to really provide any serious comfort, though I should probably dig deeper into this.

Clearly, then, we are back to the yields on these bonds, which, on the surface analysis of the risks, should be yielding about 30% to really make sense. But if GAT shall be issuing such a high-yield bond as its source of capital to invest in these banks, and capital gains appreciation on the country’s anaemic fixed income bourse is infeasible as a strategy, then the question becomes: will the five local banks show the Return-on-Equity (ROE) needed to support the dividends the GAT shall require to pay the coupons and finally redeem the bonds? Recall that for most of them their asset base shall be expanding by roughly 4x post-investment. Traditionally, higher ROE on an expanded asset base is very hard to pull off even for seasoned managers, especially in the short term, which is precisely the reason why some of us were so critical about the minimum capital directive in the first place.

Or is all this, as the clever Patrick Stephenson insists, “balance sheet transactions” with very little actual liquidity expected to move around?

It is disappointing that, once again, debate on this whole process is so stifled, and official information so bereft of depth. As with many things in Ghana we are forced to leave everything to time.

 

In President Akufo-Addo’s latest interaction with the press, he did not miss the opportunity to announce to the world what he thought of the criticisms of his policies by Ghana’s “think tanks”. He believes the criticisms are “bombs” with “little substance to them”. He also made it clear that he would not allow such criticisms to influence the direction of his government in any way.

Considering that the primary goal of most think tanks around the world is to persuade Governments to take their analysis and critiques seriously, the President’s comments amount to a virtual dismissal of the role of think tanks in Ghana. In my brief visit to Ghana this month, I learnt from conversations with some think tank leaders how dimly these high-level political sentiments are viewed by the policy community.

This is surprising since President Akufo-Addo and his aides seem very keen on showing his openness to ideas from all sections of society. Visits by all manner of “influencers” are prominently promoted in the press by the Presidential PR team.

By my count, more show artists – from Wisa Gried and D-Black to Stonebwoy and Shatta Wale – have been granted televised audiences with this President in his first two years in office than any other President in Ghana’s history. Clearly, the President seeks to portray his administration as an “open” one, a “listening government”.

Just recently, Ghanaian music star, Sarkodie, warned darkly about economic developments in the country, and requested another audience with the President.

Other artists have been equally uncharitable about developments in Ghana. Yet, we haven’t seen the President greet their comments with the sweeping contempt that he recently showed to think tanks in Ghana.

This is surprising; after all think tanks spend their professional time examining government policy in order to enrich public debate about the correctness of the course politicians are taking the nation. Is there not room to argue that politicians ought to be even more tolerant of them, since this is their primary role in society?

The President’s words have emboldened his followers to mobilise ill feelings towards think tanks, their work and the motives that guide that work. The resulting climate breeds misguided attitudes about the nature of government policies and projects.

Government policies and projects are not really “products” bearing the “brands” of political parties, with the President being the chief brand ambassador.

By choosing to treat them as such and frequently seeking “exclusive ownership” of these public policies enacted in the collective interest of Ghanaians, the President and his Administration have been led down the path of treating every critique, not as an opportunity to refine these policies and projects, but as attacks that must be repelled if possible, or otherwise dismissed.

Policies and projects are actually processes – means to the ends of broad, inclusive, development. They are techniques that must be calibrated and adjusted continuously to get us to where we deserve to be as a nation.

Thus, any criticism that offers suggestions for improved methods of recalibrating these processes must be examined carefully, openly, and rigorously, and discarded only if upon scrutiny it is obvious that the promised improvement is ephemeral or unlikely.

Only a climate that encourages deep, rigorous, and rich debate can allow such attitudes to flourish. The media certainly has a role to play, and I pray that in 2019 they go to even greater length to encourage discussion on flaws and potential improvements of all Government policies, no matter how much politicians try to brand them as sensitive and vital to their re-election efforts.

Policies are not props for re-election, even if political marketing is made much easier if we treat policies as the exclusive intellectual property of ruling parties, to be defended at all cost in order to score political points, without regard to whether the policies can be made much better than they are through fearless exposure of their flaws.

And flaws are the natural features of all political instruments, since they reflect compromises across competing interests. Every government policy is likely to be full of flaws, some of them due to the way our institutions are set up and others due to competition among factions in government and society leading to contradictions held up as compromises. There is also the fact of principal-agent discord, which results in civil servants and politicians advancing the interests of tiny elites instead of the broader public interest.

For all these reasons, it is wise and prudent to automatically assume flaws in any new government policy and project, and aggressively expose them whilst proposing improvements. In the process of open, rich, debate, some of the improvements could hopefully be realised, and the whole system moved up a notch to generate policies with fewer flaws than before.

It is only through such an iterative, constant-improvement, culture that Ghanaian governments will get to a point where new policies show an improvement over past ones, thereby transforming the very quality of the system. Right now, we often see policies that are worse than the ones they are ostensibly replacing.

Many people nowadays look at the Asian economic success stories and completely miss the point. They argue that authoritarian state-led development models have shown that democratic debate can be stifled even at the same time as bureaucratic efficiency grows, leading to better overall development outcomes. This is a gross vulgarisation of what has happened in places like South Korea, Taiwan, China, Singapore and Vietnam.

True, all these countries during their development have had taboo topics over which public debate has been suppressed at one stage of their state evolution or the other. But all of them, once they commenced the process of economic reform and transformative development, emphasised strong policy debate.

They became learning states. Post – Deng Xiaoping China is most instructive in this regard. Anyone who pays any serious attention to actual Chinese policy discourse (as opposed to caricatures refracted through Western lenses) is immediately struck by the degree of depth and breadth of the scope of Chinese debate.

Chinese analysts compete for attention by pointing out flaws in grand government policy, and they benefit from an atmosphere of general reverence for intellectual hard work and heavy lifting. China’s government is teeming with committees upon committees that interact with non-Government analysts. Nor is it true that such debate is restricted to government-sanctioned Academia. Voices range from newspaper pundits to those rising up from the fast-emerging risk consulting landscape.

Of course, there are taboo topics, from Xinjiang to Tibet to Falun Gong, but restrictions almost always apply to attempts to mobilise actual political action in respect of these subjects and almost never to intellectual debate.

The Learning State is one where leaders take pride in being perpetual policy students, constantly refining their methods of problem-solving as they learn more from a broad array of sources. The state sector may itself become an apprentice to more dynamic sectors in order to hone its capacity, especially in emerging areas like digital technologies, where states everywhere are usually backward.

In Part II of this article, I provide examples to back my arguments that flaws are the natural features of Government policy, for which reason the automatic posture of every citizen should be to probe every Government policy for flaws, treating them as processes in search of solutions instead of as branded products of the ruling government, and then, to the limit of such citizens’ capacity, to offer suggestions for improvement.

Such a climate, far from creating obstruction to much needed progress, should rather encourage the growth of a Learning State that makes fewer mistakes over time, and solves social problems much more effectively with every new try.