Why is there no money in Ghana - some observations.

Ghana is a very poor place, we all know that.  It is also a place of rampant free enterprise with countless small businesses in small shops or in small stalls on sidewalks everywhere.  I struggle to figure out why there is so little money.  There is some real wealth here.  There are nicer neighborhoods in Accra.  Mercedes, Audi’s, Land Rovers and Jaguars can be seen around the city.  There are some vibrant spots in the economy, and government officials famously profit by their positions.  But for the most part, you don’t see anything other than people struggling to get by.

What I sense, is that Ghana’s wealth is very new and most people making it into the middle class come from very poor backgrounds.  They come from places where extreme poverty was the norm.  When I watch how local people act with money, it seems that no one has lost the habits formed from poverty. 

I’m now with my 2^nd family.  The host’s name is Favour and she is super nice.  On top of that, she is a great cook.  I have had some great meals in her house.   She has a business providing breakfast or lunches for local offices and making spring rolls and somosa for girls to sell on the street or at the beach.  Like my first host family, I’d say she is better off than most people around her, but she is not as well-off as my first host family.  What I’ve seen in both households is that they live extremely frugally.  Both homes are barely furnished, which is similar to other homes I’ve seen.  No one has decorations on the walls or any extra furniture other than the most basic of necessities.  A bedroom usually has a small set of drawers to hold clothes and nothing else.  Things simply go on the floor.  Shelves, wall cabinets or tables are just not used.  There is not much clutter because there is just so little in the homes.  The kitchens have the most things, but even then it is a fraction of what you see in a western home.  There is no such thing as drawers in the kitchens full of silverware, knives or various gadgets.  Almost all cooking is done with the same few pots and utensils.   The stoves in my house are portable and plug into propane tanks.  They can move from the kitchen to the outdoors where it is cooler.

At my new house, we eat from a plastic card table and sit in two plastic chairs.  My host mother buys time/credit for her phone in the smallest increments available, 1 or 2 cedis at a time, even though you get more time/credit per cedi if you buy 10 cedis worth ($4.00).  The local shops are full of single use or smallest size items.  The cheapest items are sold in the stores, and of course they break easily.  Cheap quality is rampant, i.e., everyone wears the flimsiest and cheapest flip flops.   Volunteers often buy nice looking sandals only to have them fall apart within days or weeks.  The concept of spending a little more now to save later is just unknown. 

Leisure time is not spent “going out”.  In Accra, there is very little to do, because the vast majority do not go out.  If I go to a decent night spot, it will have a large percentage of foreigners.  Locals simply hang out in their neighborhoods, sitting around talking or doing chores outside and are rarely seen drinking or smoking or anything else so wasteful.

I practically never see kids with toys.  Kids play football, but usually is an old worn out ball.  And most people wear used clothing shipped in from the west.   In a poor neighborhood you can easily find a someone with a Timberland or a Shepard Fairey shirt or some other expensive designer shirt.

Jobs with good salaries are hard to find here.  As I said, huge numbers of people sell from small stands, drive taxis or some other non-salaried work.  Small businesses are the norm.  Only in Accra can you find a few American style stores. 

So why are businesses always so small?  Borrowing money to expand a business is almost impossible and if a loan can be obtained, the interest rate will be above 20%.

Mortgages are only available to people who least need them. Almost all real estate transactions are in cash.  A host brother in my first house worked for a large bank in a junior position.   He acknowledged that they do not give personal loans or mortgages.  He was dismissive of the idea saying that people would default on loans.  I asked about mortgages back by real estate and we got around to the problem that banks cannot rely on anyone truly owning their homes. 

A lot of land outside the city is owned under customary law and I’m not sure if there are any actual records of such ownership.  In more urban areas, not everyone bothers to register their land because it is costly and confusing.  The system of land registration is a poorly run.  I hear deeds are inaccurately written so the actual parcel is difficult to ascertain.  It is very difficult to look up deeds or to find a chain of title because papers are lost or filed in a useless manner, such a chronological order.

This amazes me because private ownership of land is the basis of so many economies.  Land disputes here are common.  It leads to some strange behavior.  When traveling outside the city center, it is common to see a half finished house on a lot that has clearly been sitting unfinished for a long time.  People do this to help establish claims to land.  Empty land could easily be claimed by a third party.  But if you start to build on it, your claim is stronger.  I’ve heard stories of people selling their land multiple times to multiple buyers, and land disputes have lead to killings. 

It is not uncommon to see painted on walls or buildings, “This property is not for sale”.   I used to wonder about this and then realized that it is to avoid 3^rd parties buying the land from someone else claiming to be the owner.  Similarly, walls are often painted with “this property is not for rent”.

Since mortgages and loans are not available, houses and buildings are built in stages.  People build as far as their money takes them and then stop and then start again when they can afford to.  First floors get finished first with an unfinished frame upstairs.  This way you can live in your unfinished home and hopefully complete it later. 

Or when homes or buildings are rented, the norm is pay for 2 to 3 years rent upfront, in a lump sum.  In return, the landlord, having received some funding, builds out a bit more, so the tenant can move in, or have an improved or enlarged space.  Each time the property is rented, the landlord can build more.  One odd example of this is a building in Danqua Circle, prime real estate in the city.  It sits unfinished with a 6 story concrete frame.  (Almost all construction of homes and buildings here is with concrete and with minimal metal or wood.)  The first floor is barely finished and has a Chinese restaurant while the remaining floors above are covered by a giant Guiness beer ad.   This may not be a good example, as most large buildings are built with capital from outside the country.   But it is very common to see businesses run out of unfinished buildings.

This whole system frustrates me, because, if property could be used for loans, it would become the biggest boost to the local economy.

Another common lament is that the government has no money for infrastructure.  Ghana does rely on aid to meet its needs.  I have tried to learn a little about taxes here.  My interest came from noticing that almost all businesses have no record keeping.  Money simply exchanges hands without receipts, or cash registers, or other record of the transaction.  If you go to an official phone store you get a receipt and the transaction is on their computer.  If I buy the same products from a stall, then no transaction is recorded.  Officially the corporate (business) tax rate is 25%, but clearly this cannot be collected from businesses with no records.  The income tax rate is graduated quickly rising to 25%, but again who will pay if they have no record of work.

My last host family ran a small store on the street in front their house and I asked the son who ran it about this.  He saw no reason for records.  I asked how the government taxes his business.  He said it was based on the size of the store.  His family paid 25 cedi’s ($10.00) to a tax collector 4 times a year.  I’m sure that is less than 1% of their profits.   

I hear that outside greater Accra, it is far poorer.  So many people come to Accra from the north looking for work.  I plan to travel there in a few weeks.