Economic Recovery Post-COVID-19: A case for Africa’s version of Bretton Woods System

I am a concerned  African youth. Worry would have been my word of choice, but it sounds depressing so let me just stick to concern. The dilemma of the economic consequence of a pandemic and the public health evidence necessary to decide on a lockdown or otherwise is a choice between the devil and the deep blue sea.  I know, fellow Ghanaians, that being a president of any country in these times is about the most difficult job anybody can bargain for, especially, when your countrymen are like the people in the Exodus stories of the Bible. I intend to reflect on this dilemma and as a follow up to my last article about the need to prioritize the African Continental Free Trade Area, make yet another suggestion (hopefully not to the wind) for an African agenda for economic liberation. I write today about long-term structural changes and monetary policy management changes that must enable African countries to be truly independent, empowering Africa to fully recover post-COVID-19.

The decision to lift the lockdown appears premature, at least, that is what the experts and evidence from a public health perspective show. But why will the decision become the only choice seemingly available for the leaders of the nation? The economic costs appear a much compelling cost to lives and livelihood such that risking human lives for economic enterprise is reasonable, so let us interrogate the economics a bit more.

The tradeoff between blood and money has always been real but during crises, blood money seems the only choice. The question is, what world economic system narrows the possibilities such that, usually blood money is the only choice left to countries like Ghana? The Finance Minister in his recent article, ‘What does an African finance minister do now?’ made a rather profound statement: “I am green with envy. To be honest, there is a lump in my throat as I think of Africa’s predicament. I question the unbalanced nature of the global architecture.” 

The obvious question is, what is this global architecture and how unbalanced is it? The tales of the global economic order goes something like this; World War II is coming to an end. July 1944 is the date, the consensus is almost universal, political stability is only possible when there is economic liberty and creating a system of rules that enable international trade will bring wealth. United States of America was the obvious dominant nation, call it the beginning of US hegemony.

In the words of the famous economist John Keynes, “It has been our task to find a common measure, a common standard, a common rule acceptable to each and not irksome to any.” Note the time sequence however, at this time when the ‘developed’ world sought a mutually beneficial means to be more prosperous and an order not bothersome to any, Africa was still being colonized. It was therefore the colonizers building a global architecture whiles Africa was the colonies supplying raw materials for the economic survival of the powers that were. Let us be fair without reading race into the conversation, parties can only think about their interest and if you are not on the table or you happen to be incompetent on the table, it will be your responsibility and not the other party’s fault if you come up short at the end of the deal. Fair enough right? Well, not exactly.

The only problem is that, the ability to sit on the table as a worthy counterpart, even a forceful powerhouse seemed to have been robbed some hundred years before this July 1944 date. The Berlin Conference had taken place from November 1884 to February 1885. It was the official scramble for Africa which left us small, partitioned and without a sense as a union. The fathers of the United States of America had fought some twenty years before the Berlin Conference to preserve their union, a United States of America, and it was this Union of States in America that was setting the agenda for the new economic order in 1944.

Long story short, United States dollars became the reserve currency directly convertible to gold until Nixon’s shock in August 1971 made the paper dollar as good as gold. The International Monetary Fund (aka. IMF) and the International Bank for Reconstruction and Development (aka. World Bank Group) became the institutional vestiges to protect the reserve currency and the ongoing interest of its shareholders. America is of course the controlling shareholder, and yes other developed nations. Pax Americana had been born, a golden age of a prosperous dollar, and a trend of devaluation of developing countries’ currency because of deficits in trade balances, flow of capital and multinationals who speculate on currencies for quick profits not necessarily backed by economic activity. 

The basic understanding was that, if a country produced more and exports its products and technology to other countries, that value of good or service will be measurable in USD and that ‘gain’ becomes a surplus in their current account. That gain for contributing to the world will be netted against all imports received. The net deficit balance of payment like a gap in a balance sheet must be financed. Because the currency of trade is the dollar, any countries gap has to be financed with the almighty dollar and it is only the United States who has the sovereignty to print the paper called dollar and dispatch it through these institutional vestiges.

A country that runs a deficit must finance that gap with the dollar loan from the Bretton Woods system or currently, China is the destination but they must pay back with tangible assets valued by a ‘Standard’ agreeable to the system and priced in agreement with the ‘forces of the market’. So fiat money which is nothing but paper printed by one country is sent to another and the other is required to payback with gold, oil, etc. in quantities deemed equivalent in amounts by this printing nation and payable by government taxes and revenue from the toils of its people, festering nothing more than the old age agenda of raw materials gained at the cheapest possible means. Worst off, a talented youth who sees the power of the dollar will value it and go hustle giving raw talent to the developed country widening the knowledge and technology gap with the developing world.

The argument usually then is to stop the deficit, produce and create a surplus and increase demand for your currency. The irony is that your currency does not provide liquidity for trade as much as the dollar will which means that in a floating rate regime as we have, free-market will mean I can convert my cedi to the dollar so that when I go to even China, the dollar is more acceptable rather than a cedi which may not be that acceptable. The bigger problem with trading with the reserve currency is that, the speculative enterprise becomes only one way; the true north will always be the direction of the reserve currency. Devaluation however has real consequences, falling disposable income for ordinary people.

Since deficits are financed in dollars and the home country’s currency is almost certain to devalue, the loan balloons and can rarely be repaid, resources then become available for cheap if not for free just by an exercise in printing cash. According to Professor of Economics and Public Policy at Harvard University, Kenneth Rogoff, “The world's need for dollars has allowed the United States government as well as Americans to borrow at lower costs, giving the United States an advantage in excess of $100 billion per year.”

So let us bring the conversation home, there is a pandemic, lives are at stake, but there is a budget deficit that needs to be financed in dollars. No economic activity means no cedi to convert to dollars for trade which will lead to further depreciation of the cedi and increasing deficit then more borrowing in dollars for pandemic interventions and the cycle goes on, deepening the poverty. The government must intervene but must he do so by printing cash? Maybe but even that, the problem is, printing will require borrowing dollars since you do not print cedi in cedi, so someone will have to give Ghana paper in dollars to exchange for paper called cedi so we may pay with tangible assets in reserve.

Perhaps in the short term the conversation about debt forgiveness is right but in the long term we must sustain the conversation about why the dollar is the reserve currency and why African countries should not agree to invoice each other in a common tradable unit not the dollar or a currency pegged to Euro? Whatever the long term perspective may be, our eyes must be fixed on an African conversation that creates in the words of John Keynes a “common standard”, “common measure” and “common rules acceptable to each and not irksome to any.”

Let me conclude yet again in the words of Mr. Ken Ofori-Atta, “Where is the leadership and global task force that would mirror the 1944 Bretton Woods monetary conference?” I will only wish to modify that and ask, “Where is the African leadership willing and able to mobilize the global task force to create a new monetary system that does not impoverish Africa?”. By all means let us not forget the history that, after Bretton Woods, there was a Marshall plan where $12 billion foreign aid was given to Western Europe to develop because they were significantly affected by World War II. This journey to economic freedom is the real battle and it shall not be won except by knowledge and unity. So let us forget the petty partisanship and for once, let us focus on something truly extraordinary, building an economic system that does not perpetuate poverty for our people.

My name is Yaw Sompa, I believe for lack of knowledge the African will perish but through knowledge and superior discernment he shall be delivered and so I represent learning for the New African. I am an author of two books ‘Fate of System Thinking’ and ‘Be The Difference’. 

Post COVID-19, Resurrection and the Continent Free to Trade

The Akans in Ghana have a sacred story about sacrifice, a story which made it possible for the Asante Kingdom to be formed. This tale of sacrifice was inspired by a dream of unity Nana Obiri Yeboah had. A dream that all the Akan states will be one, advancing their common interest in harmony, but that dream was not to be so until there was voluntary bloodshed of royals. Three chiefs laid down their lives so the people may prosper and be in good health. There was no inspired significance for the people, until leadership was summed up in the word, sacrifice.

Sacrifice as a word has an interesting origin; from the Latin, 'sacra' from which we get "sacred" and 'facere' which means "to make or to do". Sacrifice is therefore not a linguistic sport but daring to do that which may only be considered sacred. This implies that one cannot do that which is ordinarily required and be deemed to have sacrificed, it therefore only matters to say sacrifice, if it is an act and fit for the 'gods'.

It thus seems right to remind ourselves of a necessary sacrifice we must make as Africans, a reminder especially fit on a day like this, when we commemorate God Himself having sacrificed everything for humanity. This is an article about the necessary sacrifice we must make to ensure that the African Continental Free Trade Area (AfCFTA) becomes a successful reality post-COVID-19.

The objective of the AfCFTA is unambiguous, to bring together all 55 member states of the African Union, covering a market of more than 1.2 billion people and an estimated gross domestic product (GDP) of more than US$3.4 trillion. It is almost without question that a single continental market for goods and services, with free movement of business persons and investments whiles we harmonize and well-coordinate trade liberalization and facilitation across Africa is a wealth creation strategy and not one only rooted in poverty alleviation. It breaks away from the gradualist reducing poverty narrative to an African collaborative landscape, an arena full of possibility and from where, I believe, comes our salvation.

The question however remains, if the AfCFTA is that important and so critical for the liberalization and growth of the continent, why has it taken us 57 years to get here? Why does it not even appear to be priority one for the continent? And why are we told only 28 countries have deposited its instrument of ratification with the African Union Commission? There were glimmers of hope as the office in Ghana became legally operationalized on 31^st March 2020, but that was just when the coronavirus pandemic threatened us. Will this virus set us forward or backward? Will trading be effective on 1 July 2020 or will the virus be used to derail our growth agenda yet again?

These are questions we must answer but today’s article intends to highlight areas the African youth must focus on as a strategic direction, harnessing the stay at home because of COVID-19 as a strategic planning opportunity. I will emphasize opportunities we must prepare to take advantage of as the continent is changing and perhaps COVID-19 was the necessary reset necessary for planning and strategizing. 

1. It is a fact that the coronavirus will set many economies into recession. This is not good news but the opportunity therein is that; skill, labour, prudence and investment will be necessary for the rebuilding. The African youth will have to learn to collaborate beyond its imaginary borders and becomes the solution that builds the continent. The young entrepreneur must envisage a market of 1.2 billion in planning post-COVID-19 and not a population of about 30 million people as the case may be in Ghana. This requires new thinking and envisioning; one we must teach ourselves in these times. 
2. Payment system solutions and E-Business will continue to become relevant and with increasing scale post-COVID-19. The question of how do we pay people intra-Africa will require answers. Enabling business over the internet will become much more relevant after the pandemic. The young African can therefore not choose to be techy, he or she must explore the possibilities. The fields of payment systems and electronic business offer multiple unchartered disruptions and we must learn and enable our societies to grow. Digital can only grow and building skills set that understands these conversations will serve one well.
3. Pursing cross boarder value chains must become an agenda. It is perhaps time to make LinkedIn, Instagram and Facebook friends transcend one’s country. It is also time to build social capital and depth that can transform into business partnerships. African economies are built on raw material export and an informal commerce but it is time to think of integrating value across Africa with structured, replicable models.
4. Standards and Certifications. These are the opportunity to define what is trustworthy. The narrative over the years of slavery and colonialism seems to have shifted the view of what is standard to what is western. The economies may be informal but it is not without wisdom and the young must build businesses around institutionalizing our way of life and business. The African youth needs to enter the fight at redefining standards and authenticity, bearing in mind context and good culture without following blindly, leapfrogging to nowhere.
5. Education that is collaborative and intends to solve African problems must become our way of life. I am big on education and I represent a movement called, AfricaLearn. I truly believe development and growth are limited without a progressive meaningful education. It is time for the African youth to learn his history, understand her culture, the continent’s most pressing problems without assuming foreigners will be the little gifts from above wiping the tears off our eyes.
6. Harmonizing Laws and Regulations. It is time for the young lawyer to focus on comparative legal study and how to harmonize at least the Lex Mercatoria. How do we aid merchants to trade in a common market must be a thinking in the mind of our jurist and legal minds.

The solution for African problems must be viewed differently. The young African is the factor that has been marginalized for years because the culture treasures age, maybe rightly so, but it is time for the continent to call on the youth to sacrifice and to build a grand future without taking lightly their youth. It is time to depend on the smartness of the African youth because the wealth of nations is no mystery; raw material dependency leads to poverty. It is learning and value-added economy that generates wealth.

The continent is brimming with a young population and that is a gift we must harness. The big structural questions of currency of trade (reserve currency and valuation of goods and services), physical movement across the borders, infrastructure constraints, financing and all are real but it is my prayer that as COVID-19 holds us siege we will think and plan of what we can do and not worry about what other people must do.

Let me end by reminding us once again, the task ahead is truly great and will require some bold acts, acts for which without sacrifice, ‘sacrifice’ would have found itself nowhere near this article. The wolf is not spoken of with much glory in any African story, but even for the wolves their strength is not is the speed or agility of the individual but in the unity of the pack. I conclude in the words of H.E. Mahamadou Issoufou, President of the Republic of Niger and Leader on AfCFTA, “Your Excellencies, the AfCFTA baby is eleven months old, healthy and growing. We need to ensure that the baby continues to grow. The decisions that we make are very critical in this regard.” I wish everyone a happy Easter, praying that, like Jesus we may become aware of the abundant life hidden in sacrifice.

My name is Yaw Sompa, I am an author of two books, the first on Financial Services challenges in Africa and the second on the Leadership Challenges in Africa. I believe in the continental free trade and only pray COVID-19 is a call from above, indicating: ‘ON YOUR MARKS, GET SET, GO!”

Pandemics and Economics: A trade between Blood and Paper?

https://www.worldometers.info/coronavirus/

I woke up this morning and indulging my usual curiosity, I decided to read a November 2007 publication by one Thomas A. Garret on “Economic Effects of the 1918 Influenza Pandemic: Implications for a Modern-day Pandemic”. For the avoidance of doubt Thomas, at the time was, the Assistant Vice President and Economist at the Federal Reserve Bank of St. Louis, he must be praised for his near prophetic write-up some 13 years ago. I read his work wondering if the world did not pay attention to voices like his because the probabilities of such an event occurring was too low? 

Today I regurgitate important parts of his report drawing specific lessons relevant for us, bearing in mind the Ghanaian context and also with the view that we may reduce the impact since we have been less hit (at least so far) and certainly assuming the UN advise for African Countries to prepare for a worst possible scenario in two weeks to three weeks is no April Fool’s prank.

1.    The first thing that stuck with me from Thomas’s publication was; “Health care is irrelevant unless there are systems in place to ensure that an influenza pandemic will not knock out health-care provision and prevent the rapid disposal of the dead in the cities… If medical staff succumbs to the influenza and facilities are overwhelmed, the duration and severity of the pandemic will be increased.” The first question then for me this morning was, if the forecast of a worst case scenario for African countries, more than Italy or Spain, is anything to go by, can our health systems withstand the stress? I guess we will let the medics answer that but our collective observations as non-medical professionals may need some faith. The discussion for the health system should be how are we preparing for a worst possible scenario? The questions in these times should not be wash your hand, use sanitizer and so forth, although extremely important, the conversation at this stage should be, assuming a worst possible viral exposure and how do we deal with it? And please bear in mind as covid-19 escalates other illness have not reduced, the already overstretched facilities with death in simple things like maternal mortality still exists and may also escalate. So let us refocus the conversation now to a what will we do if these infections get worst.
2.  The second thing in the report that caught my attention was; “Local quarantines would likely hurt businesses in the short run. Employees would likely be laid off. Families with no contact to the influenza may too experience financial hardships. To prevent spread, quarantines would have to be complete (ie. No activity allowed outside of the home). Partial quarantines, such as closing schools and churches but not public transportation or restaurants (as done in Philadelphia, St. Louis and Washington D.C.) would do little to stop the spread of the influenza.” I know the trade off is between bloods and money but for a people who say, ‘Sika y3 mogya’ we will still hope a partial lock down has the blessing of God, in contradiction to what the evidence shows. The bigger question then will be how long should a lockdown be anticipated and with what increasing strictness will the lockdown be with the passing days? Ghana did implement a movement restriction and a partial lockdown. The stampedes in our markets and travelling two days prior to the effective date of the Restriction notice made my heart skip a beat and cringe with the words, lead us not into temptations, for thine is the Kingdom.
3.  “Some businesses could suffer revenue losses in excess of 50 percent. Others, such as those providing health services and products, may experience an increase in business (unless a full quarantine exits). If the pandemic causes a shortage of employees, there could be a temporary increase in wages for the remaining employees in some industries…” Businesses such as financial institutions which already have assets in some of the worst hit industries will see the effect in their asset quality. Industries who fund these assets with deposits are expected to see cash flow squeezes and the economic effect will be significant. Money will be lost but must we trade that for lives? The moral answer is obvious but the economics is not an easy choice for any business person at this time. We have seen some mortgage banks in Ghana already making prudent decision to suspend repayments (bad for the profitability but certainly great for the optics). And yet speaking about the trade of profit for optics, I have personally had a regrettably painful experience with GHL Bank and think if all of the dust settles, we should interrogate the complete disregard for client’s right with institutions like theirs and all the other greedy traders selling things like ‘gari’ for ridiculous sums (My crime was I opted to reduce my principal, give them back their money earlier than expected, yes! And the options they gave me for penalty for paying earlier were completely outlandish, disregard for the contract because of ‘New Regulations without Notice’, prepayment fees wahala. I have never been a fun of boycott of an economic entity but if I ever become one, it will be because of the terrible customer experiences and unpardonable greed. No one else should experience an inhumane profiteering business enterprise especially during these times. But again can you blame an institution that seeks profit over a humane optics?) Many economic entities will be faced with this blood-money dilemma; I hope my mother was right when she said, “human beings are sweet, we just don’t eat their flesh” or at least we should choose to let companies without values know they can’t be all about the money, at least not now. My view is that, after this pandemic, the business organisations that are organized for value and not only profit should have our loyalty. Good values will therefore sustain the economics in the long run. 
4.  I cannot overemphasize the need for personal responsibility enough, especially at this time, because as the data indicates, “Government has shown its inability to handle disasters in the past” and private institution may frame disasters in the light of profitability. Hard as we want godfathers to solve all our problems for us so we can blame everybody but ourselves for outcomes, please note that, your blood is yours and yours alone to determine how you spill it.

My concluding thoughts will be, society in itself may recover rather quickly but a loss of a loved one will be an eternal scare. I pay tribute to Senior Samuel Waterberg, a man I met twice and had great conversations with and respect for. Preventing a pandemic of this nature from happening would have been the best risk management approach but at last we are here. Complete Quarantine is known to be the most effective risk mitigation technique but will the money let us choose that?

It is not all gloom, however, (at least again not yet). Let our attitude and inclination in these really uncertain times be one of survival first. It is blood that prints papers and builds the productive sector to sustain its economics. But as we choose life may we build stronger communities and effective support systems in anticipation of the values of unity, cooperation and one mindedness by which even the gods could not stop the tower of Babel except to cause disunity. And for institutions like GHL and the greedy market women who give us experiences we wish we never had to talk about, let us be bold to remind them that the world after this pandemic will be much bolder, freer and humanity will be at the center of our economics.

Of course, we must all learn at all cost in these times with anticipation of what a post COVID-19 world will look like so we may advance society forward. Let me end with an African proverb, “when the chief’s palace is destroyed by the raging market day fire, it gives  the community the opportunity to build a much loftier palace by the next market day.” So stay safe, stay at home, learn all you can and let’s look forward to a great Ghana and a much prosperous Africa after this is over. My name is Yaw Sompa, May God bless our homeland Ghana and Make Africa great.