Help – I am being overwhelmed by all these new economic terms!

Tue, 28 Jun 2011 Source: Amenyo, Kofi

The global financial crisis started sometime in 2007. No Ghanaian living abroad could have failed to notice its effects. Even though there are still some jitters here and there in the developed world (what with the crises in Portugal and Ireland and Greece on the tipping edge?) it is generally agreed that the worst is over, globally. The US, still by far the biggest economy in the world, China notwithstanding, has weathered the storm. Some advanced economies, like Australia, came out almost unscathed. The scores of the winners and losers are still being tallied. Learned papers and books have been published and more are still coming. Some people will get their academic breakthroughs that are linked with the crisis and many a journalist will make a name for himself analysing the events.

The worst effects may be over but some of us are still reeling under one leftover of the crisis. It is not economic. It is simply the plethora of terms, some of them old but many new that we encountered during the crisis and must now live with. Nobody who kept abreast of the news would escape them. They were all over the place but, naturally, most concentrated in the top economic and business papers – The Wall Street Journal, The Financial Times, The Economist (a favourite of Ghanaians) and others. And this is not to talk of the more specialist academic journals.

All of a sudden, we started hearing of terms which we may have heard of before but cared little about. Many people now know about prime and sub-prime loans, hedge funds, toxic loans, Ponzi schemes/finances, foreclosures, home owners under water, securitized loans, and some more. Many of these terms have found their ways into daily usage.

But by far the largest confusion comes if you tend to tap into the more specialist terms. Those who are deeply immersed in the world of finance and business are at home with these terms. The rest of us are still paddling in unknown waters. What are Collaterised Debt Obligations that are now said to be infamous? What is meant by Sovereign Wealth Funds, Structured investment vehicles, Adjustive Mortgage Rates, Exchange Traded Funds, Quantitative easing, Irrational exuberance, Deleveraging, Quant investing, Special Purpose Vehicles, Credit-Default Swaps, Asset or Mortgage Backed Securities?

One thing that strikes you about these “new” terms is the easy manner in which they became nice sounding acronyms. I guess this reflects their American origins with that country’s love of acronyms. You will hear talk simply of CDOs, SIVs (don’t confuse that with SUVs), AMRs, ETFs, SPVs, CDSs, or MBRs (see the paragraph above for the full forms). Then there are others that may be more easily accessible for Everyman: Mergers and Acquisitions (M&As), Initial Public Offering (IPO), State Owned Enterprises (SOEs), Small and Middle-sized Enterprises (SMEs), National Oil Companies (NOCs), Government Sponsored Enterprises (GSEs), Corporate Social Responsibility (CSR), Venture Capital (VC) or, a somewhat tricky one, Return on Equity (R on E). The Americans even have some that are specifically theirs: TARP is a direct result of the crisis. If you cannot figure out these simpler ones on your own without having to go to business school, you have absolutely no business even browsing through the financial pages of any quality newspaper. Other terms which you must know simply to keep your head steady in today’s world include: “agflation”, “crowd-sourcing”, “proprietary trading”, “sovereign debt”, or “activist funds”. If you don’t know these, then there is probably something wrong with you (rather than the world around you). You may think they don’t affect you but they do in the end in as much as the economic events of the country in which you reside affect you. And there is hardly an economic event that has no political (and social) angle to it. You ignore them at your own peril.

It is not often that you see articles dealing with such terms on ghanaweb or other Ghanaian internet portals which are dominated by articles on political issues (which politician said this or that or what Rawlings has been up to of late) probably because political issues are easy for everybody to write about and discuss. You can hardly see learned discussions about the nitty-gritty of economic policy in our country on these pages. People won’t even read such articles. And that is a big pity! But many of the issues brought about by these economic terms are relevant for Ghanaians abroad. This is especially so for our countrymen and women in the U.S. where many of them live in their own purchased homes and drive cars they bought with borrowed money. It is less so in “old” Europe where most of our countrymen still live in rented apartments and do not need cars. I have wondered how many Ghanaians were in the queues at Northern Rock’s branches in the UK to withdraw their life’s savings during the run on that bank. Perhaps readers from the US may tell us how the crisis affected their personal lives as Ghanaian immigrants.

It looks like the effects of the crisis on the homeland were minimal. It is not because the two governments that were in power during the time had prudent economic policies. Our puny economy has little, if any, influence on the rest of the world. The nature of the crisis was such that the effects were felt more in the advanced economies than on one as hapless as our own. Even South Africa, the largest economy in Africa, is, by the standards of the rich world, a Lilliput which may be why it also did well during the crisis. South Africa has recently been formally admitted into the BRIC (that term predated the crisis) group of nations but its economy is by far the smallest of the lot and it probably does not deserve to be there even if it adds a fitting S to the end of the acronym. I have wondered how many hedge fund managers there are in Ghana and which bank managers found themselves in a funk during the heat of the crisis. How many Ghanaian companies went into “receivership”? And did members of Ghana’s middle class wake up every day worrying about interest rates or pension funds?

I am sure all the terms I mentioned above are now staples in the Economics Department and the Business School at Legon. We never encountered these terms when I studied Economics in Legon in the mid-1970s. That Legon was a hectic one. (Gentle reader, please, allow me some self-indulgent diversion here.) It was the time of the aluta against the Acheampong regime. The economy was getting worse by the day. There were still a few heavyweights left in the Economics Department like Dr. Erbyn. Dr. Jones Ofori-Attah was a wonderful teacher who taught the introductory class at FUE. Dr. Akpan, newly arrived from the US with his PhD, taught us first year Statistics for Economists and was handling Econometrics in the final year. We were so impressed with Dr. Akpan – a guy who went through Training College, did his “O” and “A” Levels on his own, attended Legon, went to the US and came back with a PhD in the more difficult end of Economics (the one with all the Mathematics!). But he left us in the chaos that was rocking the university and the country. The Mathematics was tough for those of us who were doing Economics with “only” our “O” Level Mathematics. In fact, some of us should have been studying English but coming from an all-boys secondary school, we cavalierly regarded English as something which only women studied. “Real men” did not go to university to study English. Now, I know better. Mr. Baah-Nuakoh was teaching with a second degree. Messrs Tutu, and Jebuni were doing their masters and doubling as tutorial leaders and, later, lecturers. Then, Dr. Erbyn was called up for national duty by Acheampong.

Mr. Jebuni would handle the very tail end of the Econometrics class in my final year and was responsible for grading the exams. In that class was a young man (one of the youngest) who combined Economics with Statistics. He was resident in Mensah Sarbah Hall Annex 2, Okponglo. (Yours truly was in Annex 1, the Chinese Republic, with the ladies taking up the first floor at a time when there were only two students to a room.) The young man’s “guy name”, which his friends had called him since his PreSec days, was “Blackman”. But his real name is Ernest Ayeetey. Today, Prof. Ernest Aryeetey is the Vice-Chancellor of our premier university. When we entered Legon in the autumn of 75, Prof. Adjei-Bekoe was taking over from Prof. Kwapong as Vice-Chancellor. Thirty five years later, the little boy who Adjei-Bekoe matriculated in his first such ceremony, would take his place as Vice-Chancellor and perform the ceremony for others too. Isn’t life wonderful?

Kofi Amenyo, (kofi.amenyo@yahoo.com)

Columnist: Amenyo, Kofi