No Data, Addresses, and Weak Banking System

Lately, I’ve been steeped in trying to identify value stocks and to figure out how to automate some technical analysis tools that I use.  I’m also trying to finally write an investment memorandum for my company.  The first two items require assembling data then using Excel to evaluate that data.  In contrast, the third item will involve trying to collect data in Ghana and trying to build a forecast from it.

Unfortunately, one of the first things I learned about Ghana was that useful data is hard to find.  Most of what is available is high level macro data.  The Ghana Statistical Service does an admirable job with census, economic, some demographic, and social data.  The Bank of Ghana provides monetary information as well.

Nonetheless, there are some things that I wonder if I will be able to ever get.  For instance, what is the income distribution across the country and/or Accra is?  Or, how many people live in Accra?  How many cars are there in Accra?  How frequently do people get sick?  What are the causes of death?

Unlike in the US with the EDGAR service, publicly listed companies do not have their financial information in one central place, e.g. SEC of Ghana website.  They are required to publish their results on a quarterly or annual basis.  Most choose the local newspaper.  Thus, you have to be buying the Business & Financial Times and/or the Daily Graphic every day just to be sure you don’t miss any reported results.  (Many company websites seem to lack an investor relations page.)  Of course, you can ask your broker or visit the companies’ offices to get this information.

Keep in mind that TIA (This is Africa) not the US when reviewing financial information.

Lastly, what bothers me the most about developing Ghana is the lack of an address system.  There are no street names! (The Mahama administration is addressing this issue but it is slow in coming.)

Can’t Find People/Businesses Wastes Time and Creates Distrust

First, no addresses mean it is difficult for people to find businesses.  If you want to find someone or something in Ghana, then the directions sound like, “Take the Shiashie road past the Galaxy International School; when you get to Starbites, make a left and continue all the way until you get to the Total filling station where you make a right;  when you get to the plaintain seller, then make a left.  It’s the fifth house on your right.”  Those are actually relatively easy to follow because there are several prominent landmarks.  Of course, what if the plaintain seller is not working that day? Trying to find something in a remote area or a zongo area is more challenging.

No addresses mean it’s difficult to find people.  This creates distrust in the banking sector.  In order to open a bank account, you must provide a passport photo, your government ID, and a directional map to your house/business.  The account officer then has to visit you to make sure you actually live there.

To be fair, Ghana’s recent history contributes to Ghanaian distrust for sharing information.  In the 1980s, military dictator Jerry John Rawlings’s administration sought out and killed over 300 people thought to be contributing to the corruption of Ghanaian society.  Many of those disappeared were from the wealthier classes and those who outwardly displayed their wealth.  During this period, many parents sent their children abroad to study in the UK and US.

A young Jerry Rawlings

A young Jerry Rawlings

I think knowing that there is no system for finding people/businesses and recent history contribute to distrust in the system and discourages people and institutions from sharing information.  Unfortunately, this results in a weak banking sector.

No Universal Credit Scoring System

Credit scoring systems, e.g. FICO provided by Experian, TransUnion, and Equifax in the US, rely on data collected from several sources including banks, mortgage companies, credit cards companies, and merchants.  Your credit score is determined by your payment history, credit utilization, length of credit history, types of credit used, and your recent searches for credit to calculate their credit score.

XDS Data is admirably trying to be the pioneer for such a system.  Other factors that must be at play is that the Bank of Ghana does not require or allow loan data to be shared with XDS or any third party.  A credit scoring system seems essential for an effective banking sector because it streamlines the ability of a loan officer to determine whether someone is a good credit or not.  If banks are not sharing this data, then a clever person could go from bank to bank using the same assets as collateral with impunity.

Checks of Limited Use

Most transactions in Ghana are handled in cash.  People carry checks but when someone tries to cash a check at a bank, the bank will call the check writer and confirm whether to release the money.  Unfortunately, if you have exchanged goods for a check, you could be left holding a worthless check if the check writer doesn’t confirm the release of the money.

Furthermore, you have to cash the check at the bank its from.  Thus, if you have many customers paying with checks, you might be running around town cashing checks at different banks.  A complete waste of time! Except for one customer, our business has stopped accepting checks.

No Deposit Insurance

Currently, there is no deposit insurance at banks in Ghana.  (The Bank of Ghana is looking to introduce it in 2014.)  That means that if there is a sudden run on your bank — too many customers withdrawing their deposits at the same time — and your bank goes under, then too bad.  You have lost your (life) savings.  Similarly, if an armed robber empties the vault at your local bank, then you run the risk that you may not recover all your money.

Preferred Method of Savings

Thus, it is little wonder that Ghanaians prefer real estate as a savings plan.  Typically, Ghanaians will build a house in stages.   If they get a little bit of money, then they will buy a plot of land.  If they get a little more, then they will pour the foundation.  As they get money, they will put up the walls, the roof, paint the house, buy appliances, and finally move in.  A house is an inflation-protected savings plan because the house always holds its value and eventually you can sell it or live in it.

When you consider how long it takes for banks to clear a check, determine the credit-worthiness of a person, and the inflation environment, I do not find it that surprising that lending rates can exceed 60 percent to individuals.

Mobile Money

While I’m on the topic of money, several people have asked if our company would like to use a mobile money platform to allow customers to make payments.  “No,” is the short answer.  I have not found mobile money platforms to be popular because none of them are cross platform.  This means that if you are using Airtel’s platform and your friend is using MTN, then you cannot send money to your friend.  In contrast, I believe mobile money is popular in Kenya because most of the country is on one platform.

Summary

No credit cards and no credit scoring system means that people must rely only on cash to pay their bills.  Despite the chance of abuse, credit cards provide holders a way to smooth out the payments for every day needs. One large payment to a hospital or for an appliance can stifle spending on every day items or dependents.

“No money in the system” is a common refrain these days.  Developing the systems that would enable banks to monitor and check their customers’ creditworthiness would provide greater access to credit.  In so doing, the country could move forward more smoothly because it would not be interrupted by the lumpiness of cash.

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