It was a real pleasure listening to you, Skyy et al on the Citi Breakfast Show the other day. You were simultaneously insightful and hilarious. You became the voice of the voiceless consumer, questioning why prices almost never reduce in forward marching Ghana. Using the recent appreciation of the cedi against major currencies as an example, you literally took to the cleaners those business compatriots of ours with dollar-linked pricing schemes. As it turns out, their speed at upwardly adjusting local prices with the depreciating cedi as an excuse is never matched by similar speed at lowering prices when the cedi appreciates.
You called out names; banking and financial institutions, including micro finance schemes with literally wicked interest rates, school owners and managers, spare parts dealers, pharmaceuticals, rice importers, mortgage companies, supermarkets, landlords etc. You questioned and literally accused some Ghanaian business entities of excessive profiteering or greed or a combination of both.
The response from your listeners was massive, understandably. You had hit a raw nerve after all. I kept wondering; why will business people reduce their prices and profit margins when we are at their mercy? For sympathy, patriotism, altruism, or out of good conscience?
Of all the things highlighted, the excessively wicked interest rate regime of our banks and financial institutions has stuck with me. Did you say Ghana has the highest interest rates on the continent? Even so Bernard, I doubt that you yourself have had time to reflect on just how wicked interest rates really are within this tyranny of the banks aiming at supernormal profits. Let’s take mortgages as an example.
You may be aware that at current public salary levels, at prevailing mortgage rates, with a 1.5 million housing unit deficit, about 85 per cent of the Ghanaian workers earn below incomes that qualify them for respectable mortgages. And the latter is according to Mr. Yeboah of Housing Data Ghana Ltd.
Because mortgages are long term endeavors, they usually attract relatively low interest rates in other jurisdictions. Not in Ghana. Currently, the 30 year fixed mortgage rate in the US is reported at 4.11% and the 15 year fixed rate at 3.17%. In Ghana, cedi indexed mortgages are going for 29+% while dollar indexed mortgages are going for 12.5+%! To put these numbers in better perspective for me, I reached out to our mutual friend in the banking sector.
He conducted a trend analysis of what the overall payments would be over a 20 year period with two mortgage currencies; cedis and dollars. When the results came in, not only were our suspicions confirmed, we were literally blown away by the confirmation of scripture – to him who has, more will be added and to him who has not, even what he has will be taken away from him! Suddenly, the unsightly plethora of wooden kiosks at every street corner in the capital made sense!
In summary, if you took a dollar-indexed mortgage of 300 000 USD at an interest rate of 13%, you would have paid a total of 409,010.60 USD by the time you are done in twenty years. However, if you went in for a cedi indexed mortgage as a cedi earner, for the same amount, over the same time frame but at a higher interest of 29%, you would have paid the cedi equivalent of 897,076.56 USD. In other words, a client taking a cedi indexed mortgage pays more than twice the amount paid by another client taking the same amount as a USD indexed mortgage. Similarly, while the client taking a dollar indexed mortgage ends up paying about 1.3 times the amount of loan disbursed, his cedi mortgage colleague pays almost three times the same mortgage disbursed. The catch clearly is what currency one earns.
Why should the cedi earner not apply for a dollar loan then, one might ask. As it turns out, the fluctuations in the cedi-dollar relationship are such that those who have tried this option have ended up with the situation where they cannot find enough cocoa sacs to amass cedi equivalents of the required dollarized monthly repayments. The whole thing thus becomes a catch 22 situation. Either way, the homeless or indecently housed Ghanaian loses while the business community – real estate folks and mortgage companies— walk away full of smiles. Who will save us? Not government, and certainly not the developers or the mortgage companies! We are well and truly fried.
This is not all. Unlike other institutions outside Ghana that trade in both fixed and variable interest rates, out of five top players sampled in Ghana , only one had a fixed rate. In other words, it is entirely possible to repay substantial amounts over ten years only to have the rates revised upwards thereby leaving you with a debt greater than you started with. Despite paying back more than the total cost of the house, you could still be at risk of losing it! And as your show quite clearly demonstrated, the prices rarely come down, irrespective of the dollar behavior which is where the risk of a variable rate in Ghana lies!
My good friend, poor people also know economics. What our banker friend has computed on paper, they already know in their blood! Mr. Yeboah’s conclusion should not surprise you. The abundance of wooden kiosks and shacks as an answer for the great housing deficit should also not surprise you. Never mind that there are no toilets. After all, what are black polythenes for? These blossoming and highly successful kiosk villas are apparently their only sustainable solution which this grand collusion of the high and mighty business and political interests has spawned! Excessive profiteering? O yes, you are spot on. Meanwhile, those who engage in it will continue to pursue it while simultaneously joining the kiosk dwellers to lament about hardships which we can all readily blame on our usual convenient scape goat!
26th September, 2014