A PERSPECTIVE on
FINANCE, ACCUMULATION & GROWTH
IN AFRICA
Gyekye Tanoh
TWN AFRICA
IDEAs International Conference on Financial
Instability & Inequality
Sanya, February 2016
What the Mainstream View Says

Since sub Saharan Africa (SSA)’s Financial Systems are underdeveloped and barely
integrated into Global Financial markets (with some exceptions, esp RSA), so
largely immune to the kinds of turbulence manifested in the Global Financial
Crises

The effects on Africa are only transmitted through Trade channels and the Business
cycle

SSA Financial Systems remain Bank centred – the main challenge is liberalization
and regulatory reforms through enabling institutions, policy, incentives and
competition to increase supply of Global Flows & the best practices for reversing
Domestic Financial Repression & Mis-management (Government over-borrowing &
over-spending) to Finance Africa’s Development and dynamise incremental win-win
integration

Financial Deepening will also ‘crowd in’ the domestic private sector and enable
Financial Inclusion of the poor, thereby be poverty-reducing as well

Orthodox Public Financial management + Liberalisation already self-evident
success – rising FDI, increased access/participation in international private
financial markets including sovereign bond issues, rising credit to private
borrowers, IMFs “New Frontier of Finance”, part of the story of economic growth
and the Africa Rising narrative
BUT Beneath the headlines….

While FDI has grown enormously (albeit still a fraction of Global FDI), more than
70% to less than 20% of SSA economies; overwhelmingly concentrated in Natural
Resource Extractive sectors (Energy & Metals), with the rest going to agricultural
commodities including NTEs such as horticulture and tourism (UNCTAD & others) &
Service sectors especially Telecommunications, Finance, Retail

Mostly M& As, very little is Greenfield investment, although that is somewhat
evident in some more recent Infrastructure investment and some manufacturing,
most evident in Chinese & recent Indian investment

Increasing flow of portfolio investments & ‘hot money’ although trends have
changed since 2008 Financial Crisis – withdrawal of SPVs in real
activity/resurfacing more strongly into sovereign debt, carry trade, arbitrage, and
latterly asset management activity – IMF REO 2009 onwards.

Private Sector lending grown five-fold, real estate & consumption – now NPLs on
the rise; long-term down turn in lending to real sectors

Also Rising Debt, Interest Rates, Reserves Run Down, Currency Instability, Capital
Flight & IFF

Current Account – remained in deficit (except Botswana & Nigeria for a while),
Structural Deficit

Yet increasing reliance on Financialised Circuits and Activities to maintain &
‘diversify’ growth – PPPs
ISSUES ARISING – The Revenge of History?

Growth Not Due to Financial Liberalisation & Neo-liberal Macro policy
fundamentals – Primary Commodity Price Boom, Deepening
Commodity Dependency increased by 7% since 2009, 94% of SSA
economies now characterized as severely primary commodity
dependent (UNCTAD 2010, 2014)

Up to a point, Need to differentiate the China Factor, As seen in
current Commodity Price Down Turn – Trade & Business Cycle
reinforce morbidities of SSA CDDCs

SAPs and De-Industrialisation, Agrarian Stagnation amid Growth of
Finance – Manufacturing from 22% to 9%, exacerbate excess liquidity,
speculation, even SWFs (World Bank, 2014) no National Champions

Jobless Growth, Urbanisation, Informal Sector, Artisanal linkages such
as ASM – acute distortions in capacity under-utilization
FINANCIALISATION – New & Unprecedented
Threat to Development in SSA

Liberalisation/Financialisation of Commodities – Volatility,
Vulnerability, Regressive Distribution, Value Capture –

TNCs, Financialisation and Fiscal Crisis: Lonmin Sierra Leone;
GS Ghana

Financial Liberalisation, Intermediation & Growth (FT 2009
Banking in Africa study) – (Highest foreign ownership &
concentration in Developing World) NB cross-border intraAfrican Finance RSA, Nigeria. Trade Finance, fees &
commissions, Investment Banking

Financial Inclusion/Household Debt/Reproduction Crisis –

Financialisation – Land Grabs – e.g. West Texas Hedge
Fund/South Sudan
Where Now after the ‘Super Cycle’? The Case
of PPPs

Issues of the underlying paradigm
 Fundamental
guiding concepts, problematic
assumptions and values (undefined and left for
implementation stage)
 e.g.:
Viability Gap Scheme; Value for Money; Risk
Sharing; Value Added
 Roles
of Transaction Adviser
 Primacy
 E.g.
of the Foreign Investor
the Ministry of Trade’s Role: define SME
involvement in terms of local content
Role of External Donors: Case of Power Sector

Ghana’s challenge: Severe Electricity Shortfalls

Pressures for Fragmentation of Volta River Authority, the
National Power Generator to Make way for Independent Power
Producers

Emerging Policy to Use Pension Funds to support PPPs with the
Independent Power Generators

Pressures for Privatisation of Ghana Electricity Company, the
National Power Distributor

Role of USA- linked to Obama’s Power Africa and General
Electric’s planned Energy investment
Privatisation of GEC

GEC will hand over its lucrative consumer base to Private
Participation

The Private Participants are assured all outstanding debts owed
to ECG (40% of which by government institutions will be paid);
and automatic tariff structure adopted to guarantee future
returns

All in return for Aid from the US’s Millennium Challenge Account
over five years

$469,300,000.00 of which $133, 891, 250 goes to back to American
supplier as tax and tariff exemptions.

Aid is less than debt owed to GEC by Ghana Government
Drivers of PPPs

Concern About Budget-Deficit



Excessive, One-sided, and In the Case of Ghana, often externally-driven,
or imposed
Foreign Investment:

Not simply FDI

But importantly foreign participation in finance markets (and connected
issues of interest rates)
External Donors Interest and Ideological Preferences of World
Bank, IMF and other IFIs – AfdB Africa Infrastructure Fund,
record $700m in one month
PPPs and Public Finance

Recovery of Investment in PPP in Ghana:

User Charges or Service Tariffs

From Government budget, fixed or partially fixed

Or Combination
As User charges, it comes back in certain circumstances to
government, in form of subsidies due to public interest
 As government charge its like a loan taken by government, but
worse


Private sector loan higher, which translates into higher charge on government.

Private sector charges less definitive end-date

Also note. In Africa, private sector expectation of returns on investment are
higher due to so-called risks. e.g. World Bank estimates for early 2000’s. 2430%
PPP and Net Resource Outflows
Unlike in advanced countries, PPPs in Africa are overwhelmingly
Foreign Investment
 A mechanism for net outflows (cf: David Woodward and Ha-Joon
Chang)







Profit repatriation, without incentive for re-investment, esp. in
infrastructure;
High level of returns, not fixed as loans.
Problems of exchange rates, currency reserves, etc
Especially since not invested in areas with capacity with immediate
generation of foreign earnings
Build-up of foreign debt (when linked to government payment)
Problems for domestic capital formation; source financial
weakness in Africa
In sum


Regulation

Institutional capacity is even more critical than regulatory form.

Africa’s experience of institutional collapse over past 30 years of World
Bank reforms is relevant.
Transparency.

Form and space for participation of citizens and civil society formations

More important, capacity to engage.

But there are prior questions of paradigm and development
strategy.

From FFD3, SDGs- COP 21 Africa Renewable Energy Initiative
another “new frontier”? PIDA? China Silk Road?
Finally…..

Production Structures & Relations fundamental so Structural
Transformation not dressed up Structural Reforms

Real Assets & Capacity utilization provide an objective basis for
re-orientation & real alternatives

Inequality must be made radically subversive

Engaged Organic Intellectuals working in Solidarity

All our IDEAs needed now more than ever!