Wednesday, February 25, 2009

Financial Headaches

Today’s post is about money. I know it is the subject that everyone around the world is talking about, so here is what is happening in Ghana.

For starters, the government is more interested with the spectacle of Parliament vetting the President’s ministerial nominees than actually running the country. During the Presidential election, the two main contenders kept arguing whether industrialized manufacturing was a plus or a minus on the economy here. That basically sums up the macroeconomic situation: No one knows. They really do not even know if the country is solvent.

Now, what the people on the street see are rapidly rising prices. Our currency here is called the cedi, pronounced “seedy”. It is falling faster than the Dow Jones, Nikkei, and DAX all combined.

Here is what the currency looks like:

I hope you think they are pretty notes. I may be able to wallpaper my room with them soon.

When I arrived in July 2008, the new cedi was just 1 year old and was basically equal to $1. Today, one cedi will get about $0.65. I have heard predictions that it will fall by up to 30% this year. And my stupid butt is sitting on a pile of cedis to buy my return air flight. Since I do not know when I am returning, I have no choice but to spend the cedis. Every day I hold them they become worth less.

What prompted this realization were two events just this past weekend. In taking a normal taxi route, I sent away 3 drivers who all were demanding what I knew to be an unfair amount. Finally, when the 4th driver also insisted on that same inflated amount, I gave in. The next day, Jessie and I went to the mall (ahhhhhh the cool cool Air Conditioning of the Accra Mall). I was starting to get a feel for the prices of things because I had been hanging out there as a meeting place with friends.

In the month since I was last there EVERYTHING had been re-priced about 20% higher.

Adding to this dismal exchange rate situation, we have an internal inflation rate of about 18% here, so holding cedis is just not an option. That figure comes from the World Bank, because obviously the government of Ghana would not have any idea.
The salary you negotiate at the start of the year is only holds 80% of its purchasing power by the end of one year.

How does one live in such a financial climate? Well, if you want cedis, the saving accounts at banks pay about %25 interest. For the longest time I could not figure out these signs in the bank windows advertising rates. Hahahaha.

Most people with any money at all would rather keep their savings in a foreign currency account that all banks offer. And forget about taking a loan. Interest on a loan is 30%. Yes, that is 30%.

You can also get loans that are US dollar-based. These loans are at the bargain rate of 12%. Anybody got any money you want to loan in Ghana?

I know I have some good economic scientist friends out there, so I am open to any suggesting on how to live in an inflationary economy with a falling currency. I almost want to take my pile of cedis and go buy a car or a house or just buy something that will hold some value.

But the housing market has not crashed here yet. Houses are still way overvalued, so I think I am 6 months to a year before being serious about looking for a house. I believe remittances (money send to Ghana by ordinary people) have dropped dramatically, and that was driving a lot of the housing and property speculation. People outside of Ghana (whether Ghanaian or not) were pumping a lot of money into Ghana to build retirement homes.

Houses can be built over the course of years here. Everywhere in the country you see half-built houses. It is the most secure bank there is. If you have some extra money, put it into a non-liquid asset that will hopefully one day come to fruition. The Ghanaians understand this and will sit tight. I think some of the Westerners will soon start looking to sell. I will let you know about the 2nd dream retirement home that I find. I’m taking the first one I find.

So I am going to end this now and go spend some cedis! I’ve lost money just writing this post! LOL

Hope to see you in Ghana soon!


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