There is something dismally familiar about the tide of news reports concerning Africa’s increased suffering — more poverty, malnutrition, civil strife and death — in the face of the recent global financial crisis. Almost everywhere, the media translates academic conclusions into graphic illustrations of brutality and despair in places such as Guinea and the Democratic Republic of Congo.
However, there is another, woefully under-reported, side to the story. African countries that were locked out of international capital markets for most of the past five decades have largely been spared the twin woes of financial turmoil and economic downturn. The continent’s economies experienced a slowdown, but not a recession. Indeed, McKinsey & Company says Africa was the third-largest contributor to world economic growth last year, after China and India.
Moreover, several African countries have received ratings from credit agencies, which has opened up global financial centers to them. In some cases, these ratings have proved equivalent to or higher than those of countries such as Turkey or Argentina. Stock exchanges are being established across the continent.
Furthermore, countries such as China, India and Brazil have provided a platform for increased exports and the inception of a model of cooperation based on trade, investment and technology transfer, rather than “aid.” China-Africa trade alone increased from US$10 billion in 2000 to US$107 billion in 2008, and billions of dollars are being invested in oil production, mining, transportation, electricity generation and transmission, telecommunications and other infrastructure.
These developments have combined to improve African countries’ macroeconomic performance dramatically. Inflation has been halved since the 1990s, and foreign-exchange reserves have increased 30 percent. Public finances showed a surplus in 2008 that was 2.8 percent of GDP, compared to 1.4 percent of GDP deficit in 2000 to 2005. Savings rates are between 10 percent and 20 percent, and external debt has decreased from 110 percent of GDP in 2005 to 21 percent in 2008.
Many factors have contributed to this upturn. Emerging-market demand has pushed up commodity prices. Urbanization has given rise to a dynamic informal sector. Improved governance, higher food production, increased inter-regional trade, debt cancellation, better use of official development assistance (ODA) and thriving telecommunications and housing markets have helped as well.
However, transfers from the African diaspora stand out as the most significant contributing factor. A study commissioned by the Rome-based International Fund for Agricultural Development indicates that more than 30 million individuals living outside their countries of origin contribute more than US$40 billion annually in remittances to their families and communities back home. For sub-Saharan African countries, remittances increased from US$3.1 billion in 1995 to US$18.5 billion in 2007, the World Bank says, representing between 9 percent and 24 percent of GDP and between 80 percent and 750 percent of ODA.
Migrants’ remittance behavior is dictated by the regulatory environment and the quality — in terms of speed, cost, security and accessibility — of products and services offered by banks, money-transfer companies, micro-finance institutions and informal operators. There are three different strategies in place in Africa.
The Anglophone strategy focuses on freeing up the remittance market by encouraging competition, relaxing regulatory constraints for non-bank operators, offering financial incentives, encouraging technical and financial innovation and stimulating collaboration among market players. This approach, also adopted by Italy, contributes to reducing costs and increasing the overall volume of funds for beneficiaries.
The Hispanic approach emphasizes migrants’ involvement in banking by offering a range of banking services in both the country of origin and the host country, products of specific interest to migrants and low commissions on foreign transfers. This approach, widely developed by Morocco and the Portuguese-speaking world, is epitomized by the zero-commission policy initiated by the Spanish bank Santander and its Moroccan counterpart, Attijariwafa Bank.
Finally, the Francophone approach relies on two types of monopoly. The first is enjoyed by Western Union, which controls up to 90 percent of the total formal transfer volume within Africa’s 16-member Franc Zone. Western Union charges fees as high as 25 percent on transfers to these countries, compared to an average global benchmark of 5 percent, and has required that Franc Zone countries sign exclusivity agreements, thereby preventing foreign-exchange bureaus, post offices and micro-finance institutions from carrying out money transfers.
The second monopoly is exercised in the banking sector. France has a veto within the boards of directors of the Franc Zone’s two central banks, while two French commercial banks, BNP-Paribas and Societe Generale, exercise a quasi-monopoly on lending programs, mainly centered on short-term trade financing and the needs of governments, public and private companies as well as the elite. All other local banks have adopted the same approach, severely restricting access to financial services for households and entrepreneurs.
Despite the increasing importance of remittances from Italy, Spain and the US, the largest share in absolute terms still originates from France. There is thus a real need in the Franc Zone for a financing institution that would convert migrant remittances into productive investments, thereby generating jobs and wealth, and that would broaden access to banking services, mortgages, insurance products, pension plans and technical assistance.
Sanou Mbaye, a former member of the senior management team of the African Development Bank, is a Senegalese banker and author.
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