Development Finance

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Implications of Covid-19 on infrastructure finance in Africa

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Implications of Covid-19 on infrastructure finance in Africa

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(Source: anna-m. w.)

  • November 24
  • Tags Media release, Covid-19, Development finance

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There is a significant infrastructure finance gap in Africa that is likely to widen due to the Covid-19 pandemic unless countries consider alternative financing techniques, says Dr Ashenafi Fanta, senior lecturer in Development Finance at the University of Stellenbosch Business School (USB.

“Infrastructure provides useful economic benefits and we need infrastructural development to achieve economic transformation in Africa. Many African countries are now looking at transforming their economies to reduce poverty and to create jobs.

Infrastructure provides useful economic benefits and we need infrastructural development to achieve economic transformation in Africa.

“We have three major economic sectors, namely the agricultural sector, the service sector, and the industrial sector. When countries develop, the usual path would be a shift from the agricultural sector to the service and industrial sector,” he says.

If we want to grow the industrial sector in Africa, we need to invest in the energy sector, transport infrastructure, ICT infrastructure and other critical infrastructural sectors.

“Structural transformation is very critical and infrastructure provides essential input into structural transformation. If we want to grow the industrial sector in Africa, we need to invest in the energy sector, transport infrastructure, ICT infrastructure and other critical infrastructural sectors.”

Dr Fanta says economic transformation also entails increasing labour productivity in all three sectors and achieving labour productivity can be done through infrastructural development, which is critical for economic transformation and economic recovery in Africa.

Impact of the pandemic on the global economy

Economic growth across global regions has decreased. “Many African countries have been experiencing fast economic growth so for these countries experiencing a decrease of 2, 8% is a big loss. There had been positive developments in poverty reduction across the globe but with the contraction of outputs, it’s going to reverse.

Investment in infrastructure can help in job creation and in boosting private sector activities.

“The health and economic consequences of the pandemic are likely to be worse in countries with widespread informality. This is a big concern for us in Africa because we have a large segment of the economy in the informal sector. The blow is the hardest in countries that rely on global trade, tourism, commodity export, and external financing. Investment in infrastructure can help in job creation and in boosting private sector activities,” he says.

State of infrastructure in Africa

Dr Fanta says the availability of infrastructural services and access of the population to infrastructure services in Africa is very low. Looking at the state of infrastructure for each sector reveals a gloomy picture:

  • In the energy infrastructure sector, a combined power generation capacity of 44 countries of Sub-Sahara Africa with a population of about 800 million is 92,27 GW (in 2012) less than that of Spain with a population of about 45 million, which is 105,27 GW. More than 640 million Africans have no access to energy, giving an electricity access rate of just over 40% for African countries – the world’s lowest.
  • In the transport sector, only 208 kilometres of roads in Africa are available per 1000 square kilometres of land area, compared to the world average of 944 kilometres per 1000 square kilometres.
  • In the water infrastructure sector, only 61% of Africans had access to clean water and 31% to adequate sanitation (in 2010).
  • The ICT sector, which is very critical for economic transformation, only has 19 million broadband internet subscribers in the entire sub-Sahara Africa region – about 6% of the total number of telephone subscribers.

“The financing deficit in Africa is also very large and according to a report by the Africa Development Bank from 2018, Africa’s total infrastructure needs amount to $130-170 billion a year, with a financing gap in the range of $68-108 billion,” says Dr Fanta.

Public finance is the primary source of funding infrastructural development in Africa. “However, there is increased pressure on public finances due to the bigger health expenditure following Covid-19 responses; governments had to make welfare payments to vulnerable households, and there was a loss of tax revenue as governments had to provide help to businesses that are struggling to stand on their own feet during the pandemic.

“Covid-19 had an impact on both the revenue and expenditure side of public finance and money that governments were going to put forward for investment in infrastructure will no longer be available,” he says.

Alternative sources of funding

Dr Fanta says borrowing money is not the answer. “Governments have already reached their borrowing limits. There had been a concern by international financial institutions including the International Monetary Fund (IMF) and the World Bank that many African governments are facing a debt crisis. As a result of Covid-19, many countries had to borrow a massive amount of resources from international as well as local markets and this has pushed the public debt beyond what governments can handle.

Many countries had to borrow a massive amount of resources from international as well as local markets and this has pushed the public debt beyond what governments can handle.

“The IMF already identified about 17 African countries that are in high debt risk. This is a concern because any further accumulation of debt will be detrimental to the countries,” he warns

Dr Fanta suggests the following alternative funding mechanisms to provide funding to infrastructural development that will be useful for economic transformation as well as economic recovery:

  • Infrastructural bonds: This is a debt but they will be linked to specific infrastructural projects and not added to public debt. These bonds are designed to attract funding specifically to a particular infrastructure, for instance in the energy or transportation sector without placing further pressure on public finances.
  • Development impact bonds: These are bonds where private sector entities contribute funding to kick start an infrastructural activity or investment. They will agree to generate return only if a particular development goal is met. If a development goal is met then donors will pay out the private sector entities the principal plus return or principal plus
  • Commodity-backed loans: Private sector entities are invited into infrastructural investments programmes with expectations that in the event the infrastructural asset fails to generate a return, then the commodities can be used in settling.
  • Tapping into pension funds: These funds in Africa are not well-developed except in a few countries including South Africa, Nigeria, and Kenya. Pension funds are very cautious in investing in infrastructure. There are initiatives in Nigeria where credit guarantees are made available to entice pension funds to invest in infrastructural facilities.

 

***

USB is a triple-accredited business school and offers a cluster of internationally accredited Development Finance programmes – PGDip, MPhil and PhD – to implement sustainable solutions to develop Africa where it matters. All programmes are offered via its immersive, flexible Blended Learning format from 2021.

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New report launched: Bold steps to stimulate a changed economy and renewal of South Africa’s growth trajectory

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New report launched: Bold steps to stimulate a changed economy and renewal of South Africa’s growth trajectory

  • October 13
  • Tags Media release, Development Finance

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An alternative economic strategy for South Africa, proposed by Dr Nthabiseng Moleko and Prof Mark Swilling, could see GDP doubling in 10 years, 10 million people moving out of poverty, and unemployment cut by two-thirds to 12% by 2030.

South Africa’s response to the Covid-19 crisis is an opportunity to reconfigure, restructure and rebuild the economy by departing from more than two decades of post-apartheid economic policy which has seen lacklustre growth and not achieved significant gains in economic equality, says a report released by the University of Stellenbosch Business School (USB) and the Centre for Complex Systems in Transition at Stellenbosch University.

Continuing on the current path, reliant on “mainstream economic thinking and use of existing micro-economic solutions” is unlikely to deliver different outcomes in the future, while the proposed alternative strategies are geared to diversifying the economy to support inclusive economic transformation, labour-intensive growth and a globally competitive and sustainable economy.

Titled New wine into new wineskins: An alternative economic strategy for South Africa’s economic reconstruction, the report and proposed alternative economic framework are a collaborative effort by policy-makers, economists and academics from diverse public, private and research institutions convened under the Social Justice M-Plan by Prof Thuli Madonsela, the Law Trust Chair in Social Justice at Stellenbosch University.

To overcome the stagnation of the economy, which has been deepened by Covid-19 and the national lockdown, the South African government must boldly look to drafting new economic policies that can deliver on the vision set out in the National Development Plan (NDP), the report says.

Following workshops in Stellenbosch in late 2019, an economic working group led by Prof Mark Swilling, Distinguished Professor of Sustainable Development in the Stellenbosch University Centre for Complex Systems in Transition, and Dr Nthabiseng Moleko, Development Economist and Senior Lecturer: Managerial Economics and Statistics at USB, developed the proposed strategic interventions to support the emergence of an inclusive, equitable and sustainable economy.

The alternative economic framework is driven by strategic interventions in industrial policy with a target of doubling the contribution of manufacturing to GDP, prioritising labour-absorbing sectors, and boosting domestic food production and rural development. The framework envisages shifting policy on investment and mobilising domestic capital, fiscal policy aggressively targeted at higher economic growth, building state capacity for innovation and governance, and re-shaping empowerment policies to achieve real growth through redistribution.

Sluggish economic growth and the triple crisis of unemployment, poverty and inequality have worsened during the Covid-19 pandemic, but the strategic interventions proposed in the alternative economic framework have the potential to use the current crisis spending to generate inclusive growth, the report says.

Dr Moleko said Covid-19 and lockdowns around the world could trigger an economic disaster worse than the global financial crisis of 2008, with South Africa’s economy expected to contract 7.2% in 2020.

“How government chooses to allocate relief funds in efforts to support economic recovery and longer-term growth can either deepen existing systemic structures or liberate South Africa’s people and the real economy to drive transformative economic change.”

Dr Moleko said the collaborative, multi-stakeholder exercise had produced alternative solutions to South Africa’s economic challenges packaged in seven strategic policy interventions and had used economic modelling techniques to develop scenarios and analyse the potential impact of the interventions on achieving the growth targets of the NDP.

While the “business as usual” scenario for the next decade sees the economy stuck in low growth with continued high rates of unemployment, poverty and inequality; modelling of the impact of the recommended policy interventions indicates “an inclusive growth path that will deliver real and significant benefits to the private sector and working-class and poor families”, she said.

“It shows that a significant portion of the poor would be able to improve their living conditions, that unemployment would decrease significantly and that the private sector would benefit from a significant expansion of the domestic market. Direct benefits accrue to government through a declining debt-to-GDP ratio and an increasing average investment-GDP ratio. Indirect benefits include a growing sense of social cohesion that could promote stable capital accumulation.”

Strategic interventions summarised

The alternative economic framework proposes a new model of the state, “enabled by enhanced coordination and supported by domestic capital mobilisation with a reduced reliance on external capital markets and financial flows”.

Industrialisation as a key growth driver
On industrialisation as a key growth driver, the report recommends the establishment of an Industrial Council to enable coherent planning across the various institutions falling under the Department of Trade, Industry and Economic Development. Although under a single umbrella, agencies such as the Industrial Development Corporation, Small Enterprise Finance Agency and the National Empowerment Fund use different incentives and policy instruments, leading to fragmented and ineffective programmes.

The alternative framework sets a target of doubling the contribution of manufacturing to GDP by shifting from primary sector activities to high-value-added goods and processing of agricultural products.

A phased approach would initially develop highly labour-intensive sectors, adopting a more capital-intensive growth path over the longer term and transitioning to technology-based industrial development.

Labour-absorbing strategies
Arguing that South Africa’s unemployment challenges are due to ineffective interventions rather than lack of funding, labour-absorbing strategies are proposed to address the lack of unskilled and semi-skilled jobs and the mismatch between skills production and labour demand.

Sectors with potential to absorb large numbers of unemployed people – including agro-processing, plastics, metals, construction machinery and the transition to renewable energy – should be prioritised, with education and skills programmes aligned to their needs.

Sectors that do not hold the potential to absorb much more labour – chemicals, machinery and equipment, and agricultural and transport machinery, for example – but that still play a key role in value chains should be supported through employment-generation conditions in state procurement programmes.

Rural development and domestic food production strategies
Alternative rural development and domestic food production strategies are needed to address high levels of economic inactivity, unemployment, food insecurity and dependence on social grants in rural areas, and to grow the share of black farmers in the agricultural sector.

Alternative strategies would link the rural farming economy to upstream and downstream value chains, and improve access to markets, including by providing state-subsidised credit to small-scale farmers.

Investments, domestic resource mobilisation and private sector participation
A “radical shift in approach” to investments, domestic resource mobilisation and private sector participation is proposed to support expansion of manufacturing sectors and stimulate long-term economic growth.

The new approach would include reconfiguring the role of the Public Investment Corporation, development finance institutions and public and private pension funds to mobilise domestic financial resources and drive growth through redistribution and structural reform.

Enabling debt instruments that will grow industrial and productive capacity and generate positive social outcomes are recommended, along with imposing a tax on “idle capital” to encourage corporations to reinvest rather than stockpiling capital.

Strategic fiscal measures
Strategic fiscal measures should link government expenditure to economic output and the impact on poverty, inequality and unemployment, while fiscal stimulus packages would revive supply side sectors, boost industry and drive competitiveness.

Advancing economic recovery can be achieved through inflation targeting, quantitative monetary easing and lower interest rates, rather than by increasing public expenditure and tax cuts.

Fiscal stimulus should focus on sectors such as energy and those that can generate greatest socio-economic impacts over both short- and long-term, achieving poverty alleviation alongside growth. Non-debt fiscal stimulus interventions are also recommended, including redirecting the investments of the PIC and development finance institutions, zero-rating certain items, increasing grants and restructuring the tax system.

Build state capacity
A new paradigm to build state capacity is needed to reverse the “hollowing out” of already limited capacity due to state capture and create a successful developmental state. This should focus on enabling effective relationships of trust between the state and stakeholders, particularly private business and civil society, and shifting to “good enough governance” that can adapt to changing dynamics.

Government officials should be supported and rewarded for innovative risk-taking (for the right reasons) and be able to work through partnerships to achieve their mandates.

Economic growth through redistribution
State-led transformation interventions such as Broad-Based Black Economic Empowerment (B-BBEE) have failed to achieve equitable participation in the economy, and the alternative framework proposes a number of strategies for economic growth through redistribution.

An empowerment model should be driven by the Preferential Procurement Policy Framework Act to encourage and provide fiscal support to rural and township enterprises to participate in national and provincial procurement programmes.

Land transfers for agricultural and manufacturing use should be finalised in order to support the emergence of a new class of farmers and industrialists, while amendments to the Competition Act are recommended for fast-tracking to limit oligopolies and open access for locally-owned retailers in small towns, villages and townships.

“The recommended interventions aim to stimulate, stabilise and strengthen the economic framework to realise a socially just and sustainable economy. Shifting the economy will require the consistent implementation of stimulus-orientated policies that aim to expand aggregate demand and supply while growing productivity, employment levels, and income and expenditure at the business and household levels. This provides the foundation for enhanced participation in the economy, particularly by the most marginalised,” Dr Moleko said.

Click here to download the report.

The M-Plan is a Marshall Plan-like initiative aimed at catalysing progress towards ending poverty and reducing inequality by 2030, in line with the National Development Plan (NDP) and Sustainable Development Goals (SDGs).

The name is in honor of Palesa Musa, an anti-apartheid activist who at the tender age of 12 was one of the school children that were arrested, detained and tortured for challenging the apartheid government.

The M-Plan seeks to foster social accountability and social cohesion, mobilise corporate and civil society resources to fund socio-economic inclusion and foster civic responsibility.

It aims to leverage data analytics to enhance the state’s capacity to pass laws that reduce poverty and inequality and to foster a culture of data based decision-making, focusing on assessing and predicting the likely social justice impact of planned policies, legislation and plans as well as those already in operation.

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Sino-African relations: Opportunities and risks for Africa

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Sino-African relations: Opportunities and risks for Africa

  • August 24
  • Tags Africa Rising, Perspectives on African Frontiers, Sino-African relations, industrialisation

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A panel of experts on African matters discussed opportunities, risks, and the future of Africa’s vis-à-vis relationship with China. The panel agreed that the Sino-African relations are beneficial to both Africa and China, though not equally. But how exactly is Africa benefiting from the Sino-African relations and how can the continent leverage this relationship to exploit her boundless opportunities and resources?

The panel discussion, organised by the USB as part of a group assignment for the module Perspectives on African Frontiers and facilitated by Dr Nthabiseng Moleko, convened online on 5 August 2020. The panel included Dr David Monyae of the Centre for Africa-China Studies at the University of Johannesburg; Shuvai Nyoni, Managing Director of the African Leadership Centre in Kenya; Thapelo Lippe, Managing Director of The RightSource, and Fumani Mthembi, Managing Director of Knowledge Pele.

According to Dr Monyae, Africa is part of China’s strategy, and the continent needs to know what she wants from the relationship with China, given the several programmes China has for Africa. “Africa needs to generate her view and stay away from the fights between China and the West,” he said.

Looking at China’s journey to industrialisation, which is perceived as green unfriendly, can Africa incorporate China’s lessons into her growth development plans? Mthembi indicated that though Africa has abundant reserves of coal, embracing renewable energy technologies would be the best way forward because they are cost-effective and green friendly. “However, this may not be the ideal choice for most African countries, looking at the already existing coal generation capacity and the cost of importing renewable energy technologies,” she said.

She added that the continent needs to look into renewable energy as a form of industrialisation, for instance, manufacturing solar panels and wind turbines in Africa.

On the issue of risk, security and trades, Dr Monyae stated that there is a myriad of lessons Africa can glean from China in dealing with the environmental crisis and climate change. He further indicated that Africa must embrace innovation and new technologies and exploit her abundant fossil fuel reserves in an environmentally friendly manner.

“Africa needs to solve issues such as the Inga dam in the Democratic Republic of Congo and the Renaissance Dam in Ethiopia, for her to be energy sufficient. Africa must also start adding value to its raw materials before exportation; both policies and local entrepreneurship would drive such changes,” he said.

On issues of Africa’s youth bulge, and the socio-economic implication thereof, Nyoni indicated that the opportunities lie around high education as there is an increasing number of African youths studying in China. “Africa needs to find ways of harnessing such opportunities to her benefit,” she said.

Regarding digitisation, Lippe stated that technology is an enabler for economic growth and that there are massive opportunities in the information and communications technology (ICT) sector that the African continent can tap into, especially using China’s Huawei 5G technologies. Dr Monyae added that Africa needs to start developing its own ICT technology instead of supporting either the West or the East.

 

*This article was written by the 2020 full-time MBA students as part of a group assignment for the module Perspectives on African Frontiers.

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Africa's prospects

Experts on Africa’s prospects under ‘Africa Rising’ concept

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Experts on Africa’s prospects under ‘Africa Rising’ concept

Africa's prospects

  • MAY 28
  • Tags Africa, economy, African Frontiers, Africa Rising, 4IR, Entrepreneurship

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The takeaway from the panel discussion was that economic growth in Africa was incumbent on leadership.

How can Africa consolidate its resources to reap the full benefits of the Fourth Industrial Revolution (4IR)? This was the prominent theme during a recent panel discussion that was led by Dr Nthabiseng Moleko as part of the MBA module, Perspective on African Frontiers, where business leaders and academia met to deliberate on Africa’s contemporary and prospective opportunities.

It drew panellists such as Dr Louis van Pletsen (Founder and Director – InAfrica Holdings), Dr David Monyae (Co-Director – UJCI), Wilmot Magopeni (Executive Head & Business Development – Africa Insurance at FNB) and Andrew McLachlan (Managing Director Development – Hilton Group).

They also discussed strategies that the continent could pursue in order to strengthen its economic acumen including the value of leadership towards growth. China as a catalyst in African development was also discussed.

Dr Louis van Pletsen mentioned that Africa has a competitive advantage in its resource and capabilities. These include the youngest population (50% is younger than 25 years) and various mineral resources. Proper usage of these resources would enable Africa to make its economic mark in the world. However, Africa currently does not refine its raw materials and is also experiencing a brain drain of the younger innovative generation who have the capacity to increase the continent’s refining ability.

He also stated that Africa is more entrepreneurial than any other entrepreneurial society, arguing that there are millions of people involved in the informal sector. This signals a unique ability for entrepreneurship to thrive in Africa.

Dr David Monyae had strong views on trade barriers and argued that these barriers should be lifted completely. Andrew McLachlan’s view was that Africa needs connectors such as hard and soft infrastructure.

The overall view is that Africa must appeal to a broader set of commodities. Economic leaders need to open up to the global environment and African industry is underserved when it operates in isolation. There is a necessity for African economies to coordinate trade as a region so as to reap maximum benefits and for trade to be mutually beneficial. Coordination is critical towards the sharing of industry knowledge, technology, human resources and capital.

McLachlan was of the view that Africa needed to pull its resources strategically in order to usher in 4IR. Magopeni agreed with this sentiment and argued that Africa ought to consolidate capital, reliable trade partnerships as well as risk and rewards principles in order to facilitate unprecedented growth opportunities. McLachlan also highlighted that Africa has a potential to leapfrog technologies due to the lack or cost of infrastructure, meaning Africa is almost forced to leapfrog many barriers.

The panellists had a positive view that beyond COVID-19, Africa ought to take advantage on the usage of technology with Dr Moleko stating that “COVID-19 was an opportunity for us to rebuild, reconfigure and restructure Africa”.

The takeaway from the panel discussion was that economic growth in Africa was incumbent on leadership. Leadership in the 4IR need not only abide by democratic institutions of integrity and ethics but also with entrepreneurial vigour and strategisation. However, contemporary leadership on the continent is not promising on this front which means a new wave of leadership may be required to fill in this void.

USB’s MBA therefore become all the more relevant in this regards as the programme is earmarked to turn managers into entrepreneurs and 21st century leaders. These prospective leaders should be able to learn from the current mistakes and occupy the gaps that exist within the continent’s path towards harnessing the glory of 4IR.

*This article was written by MBA students as part of a group assignment for the module Perspectives on African Frontiers.

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Africa industrialisation day

The outcry for Africa to industrialise is growing louder!

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The outcry for Africa to industrialise is growing louder!

Africa industrialisation day

  • Nov 11
  • Tags UN’s Sustainable Development Goal (SDG), Africa Industrialisation Day, African Union

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This Africa Industrialisation Day we reflect on the pace at which Africa is developing. Most African nations are eager to industrialise given the associated benefits of job creation, economic resilience and technological diffusion. However, it is the agglomeration and development of industrial clusters in Africa that will ultimately lead to progress.

The UN’s Sustainable Development Goal (SDG) 9 aims to ‘build resilient infrastructure, promote sustainable industrialisation and foster innovation’. Within the development financing space – the African Development Bank has ranked industrial development as one of ‘top priorities’ whereas, the World Bank Group has sustained its promotion of ‘creating the conditions for a more competitive manufacturing sector’ in Africa as a response to dependence on commodities. Overall, how African countries push the pace of industrialisation depends on how well they address the ‘bottlenecks’ at policy, regional and continental levels. This is why it’s very important for policy makers and donors, alike to identify as well as establish appropriate development strategies and related mechanisms to accelerate Africa’s industrialisation agenda.

The African Union’s first 10 years of the implementation of the Agenda 2063 focuses on regional integration. It advocates for Regional Industrialisation Hubs through a framework that supports value chains, business development and services, innovation and incubation, entrepreneurship to create wealth and employment and strengthen informed advancement of the regions private sector; this is in line with the UN’s SDGs:

SDG Goal 8, indicator 8.2, aims at achieving higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.

An additional Goal 9, indicators 9.2 and 9.3, speak to the promotion of inclusive and sustainable industrialisation (by increasing manufacturing value added as a proportion of GDP and per capita and manufacturing employment as a proportion of total employment) and increasing the access of small-scale industrial and other enterprises to financial services, including affordable credit, and their integration into value chains and markets.

African industry generates an average of US $700 of GDP per capita, barely one-fifth of East Asia’s US $3 400.

According to the Africa Development Bank, Africa’s lack of industries is largely responsible for its low standing in global development. The continent is said to be the weakest link in an interconnected global economy.

Africa’s industrialisation strategy has followed a familiar pattern starting with inward looking policies (such as import substitution) post-independence, followed by outward policies that liberalise trade. This pattern led to a boom in state-led/ state-owned manufacturing entities and a subsequent destruction of the same as a result of liberal trade policy reforms, leading to job losses and a decline in the share of the sector to GDP in many African countries (see for instance Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Senegal, Tanzania, Uganda). Thus, while closing borders worked for the USA and China, Africa’s gains from a similar strategy were only short-lived. Moreover Africa’s development partners like the World Trade Organisation advocate for open borders. For this reason, Africa needs to accelerate its integration agenda along with the promotion of ‘Boosting Intra-African Trade’ (BIAT) priorities.

Africa needs to accelerate its integration agenda along with the promotion of ‘Boosting Intra-African Trade’ (BIAT) priorities.

So how should Africa industrialize in the new world order? African governments will need new approaches to industrial policy with regional and/ or continental dimensions in consideration of the operationalisation of an African Continental Free Trade Area (AfCFTA).

A recent study by UNU WIDER’s Manufacturing Transformation of developing and developed economies, shows that agglomerations and industrial clusters or industrial parks provide a window of opportunity towards closing Africa’s industrialisation gap.

Evidence from Cambodia, Vietnam and Tunisia suggest that African governments can foster export-oriented industrial agglomerations by concentrating investment in high-quality institutions, social services, and infrastructure in a limited physical area such as an export processing zone (EPZ).

Such an industrial agglomeration, UNU WIDER argues, would be designed to serve the global market. Thus, within the framework of trade liberalisation, countries should use trade policy to promote the international competitiveness of domestic enterprises; improve export competitiveness of such enterprises; diversify markets and increase exports; and accelerate economic integration.

As instruments to industrial development, industrial parks require long-term investments. This partly implies that the African governments must collectively strengthen and harmonise their public policies to attract long-term investors, including private sector

Current experimenters like Ethiopia and Senegal who have raised funds for their industrial parks, show that sustainable industrialisation is achievable through a strong link between infrastructure development and inclusive and sustainable industry innovation.

Evidence from Ghana points to the role of the private sector not only for sustainable financing but for industrial production that is driven by the application of science and technology. Researchers argue that the industrial policy should therefore aim at promoting agro-processing, facilitating the development of commercially viable export and domestic market-oriented enterprises in the rural areas, improving agricultural marketing and enhancing access to export markets, and improving the competitiveness of domestic industrial products. At regional level, the Costed Action Plan for SADC Industrialisation Strategy and Roadmap provides an example of possible regional value-chain clusters among countries, a model that could be replicated in other regions on the continent.

Africa can leverage its current endowment to make the industrial clusters or parks model a success. Industrial clusters usually attract ‘specialised trading firms’ – this could benefit small and medium domestic firms thus enabling the very firms’ access to regional and continental markets following the operationalisation of AfCFTA.

Africa’s rapidly growing population provides a demographic dividend for labour – the industrial cluster model allows the matching of ‘youthful’ workers to jobs, while learning on-the-job facilitates the diffusion of knowledge. Further, a consumer boom due to a growing middle class, provides a ready market in Africa – the operationalisation of the AfCFTA presents a market of 1.2 billion people.

Given the significant benefits from agglomeration, it is important that firms cluster across borders to stimulate the much-needed economic transformation.

The actualisation of this, according to UNIDO, requires that the continent strengthens its institutions, knowledge of global value chains, value-add to agriculture and mineral beneficiation through manufacture in order to participate in the global value chain, invest in skills development to leapfrog technology and, finally, leverage development finance.


Dr Lwanga Elizabeth Nanziri is a Senior Lecturer in Development Finance at the University of Stellenbosch Business School (USB). Her research interests include Development Economics, Financial Inclusion for Households and Firms, Behavioural Economics, Gender and Welfare, and Public Policy Analysis. She is the director of the Association for the Advancement of African Women Economists in South Africa, and has served as the Chief Executive Officer of the South African Savings Institute, founded by the Ministry of Finance and the Industrial Development Corporation.

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The future of banking What to expect from SA’s banking sector towards 2035

The future of banking: What to expect from SA’s banking sector towards 2035

USB News

The future of banking: What to expect from SA’s banking sector towards 2035

The future of banking What to expect from SA’s banking sector towards 2035

  • Oct 07
  • Tags Banking, South Africa, Futures, Masters, Research, Innovation, Technology, Foresight

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In comparison to 2018 the South African banking industry landscape will look vastly different towards 2035. South Africa’s banking will be characterised by digital banking solutions unimaginable today due to the continued influence of key factors and trends in future.

“We live in a world where billions of people are hyper-connected to one another as well as to everything found in the contextual environment in which they actively participate. This unprecedented global network of connectivity creates a platform for real time and seamless transfer of innovation and technology,” says Ruellyn Willemse-Snyman of the University of Stellenbosch Business School (USB).

Willemse-Snyman completed her Master of Philosophy (MPhil) degree in Futures Studies* at USB and said the banking industry is one of the many industries that will experience multiple iterations of continuous change in decades to follow.

We live in a world where billions of people are hyper-connected to one another…this unprecedented global network of connectivity creates a platform for real time and seamless transfer of innovation and technology.

“Combining the interconnectedness with the rapidly changing needs of customers, and the continuous introduction of new technology indicates that years to come will be characterised by influential disruptive transformation never experienced before,” she says.

This will have two major influences on the banking landscape; namely, causing continuous client behaviour changes and constituting the building blocks for the digitisation of the banking industry landscape.

She says the current South African banking industry is dominated by five major banks of which four (ABSA, Nedbank, FirstRand and Standard Bank) are categorised as traditional banks, whilst Capitec, the latest entrant to the market, has disrupted the South African banking industry landscape since it was established 18 years ago.

“The continued introduction of change as well as new digital-only banks, such as Thyme Bank, BankZero and Discovery Bank, will lead to an increasingly complex and competitive banking industry landscape in South Africa towards 2035,” she says.

Her research proposes four possible alternative futures scenarios for South African banks in 2035:

  1. The money machine: supporting the banking needs of a large percentage of the South African population through agile digitised information technology systems constituting the core operational platform of the banks.
  2. On the high road: banking solutions personalised for the need of the individual made possible through new inventions such as big data analytics and artificial intelligence whilst being supported by Agile Information Technology Systems.
  3. Tall order: an environment characterised by banks trying to satisfy the banking needs of the bulk of the South African population using Legacy Information Technology Systems that are lacking the required agility to be able to incorporate the change necessary to bridge the gaps.
  4. Slowly, but surely: a scenario describing a banking environment focused on serving the banking needs of the individual who expect personalised banking functionality whilst having to rely on functionality available on Legacy Information Technology Systems.

Her research found that the digitisation of the banking industry and the continued presence and application of innovative banking solutions and enabling technology, necessitates the establishment of new regulations in order to counter the increase in security risks. The continued change in client behaviour, in turn, requires banks to continuously reinvent themselves in order to continue to satisfy the need of their clients.

The influence of SA’s economy and politics

Willemse-Snyman says it is difficult to determine the future impact of the South African economic and political environments on the banking industry landscape due to the interconnected nature of the two domains.

“South Africa’s economic structure is poised to strangle growth for the foreseeable future, and as a counter, the political environment will be dominated by rhetoric and policies geared to addressing the causes of low growth, the circumstances facing the poor and means to stimulate growth.

…the banking industry will need to address its image to that of a bank for the people.

“Banks have been considered for a long time as servicing the privileged and this will be in the crosshairs as politicians compete for the populist vote. Consequently, the banking industry will need to address its image to that of a bank for the people. Against the backdrop of low economic growth, banks will need to innovate solutions that break from the normal model of risk requiring returns as this mechanism underpins the exclusion of the poor,” she says.

“Banks will have to innovate solutions that mitigate the risks associated with their clients, which may include the adoption of a digital core operation platform enabled by technology and innovation as well as innovative business models.”

She adds that the political environment will look to banks to make up for their shortcoming in stimulating growth and redistributing wealth. “The former requirement will require banks to provide loans and products to stimulate capital formation with the second requirement looking to digitisation of banks to redistribute corporate profiles to the consumer.”

Willemse-Snyman says the core operational platform of the banking industry towards 2035 is most likely to be characterised by an agile digital ecosystem of interconnected entities. The adoption of digital solutions create a complex system requiring the reinvention of security and regulatory measures.

“The key solution to combating cybersecurity is through the establishment of partnerships between banks and third parties such as RegTechs that can supply financial solutions enabling clients to have access to digital financial solutions. This will provide clients access to their banking functionality whilst providing the privilege of a strictly controlled banking environment,” she says.


 

*This year marks 21 years of Futures Studies as a portfolio of academic programmes and research field at the University of Stellenbosch Business School. Futures Studies has helped many reap the rewards of making prudent decisions through innovative sense-making, long-term planning and unique approaches. It is the first Futures Studies programme presented in Africa, and still among the only ones in the world.

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Nigerians heed the call to grow Africa using development finance

Nigerians heed the call to “grow Africa” using development finance

USB News

Nigerians heed the call to “grow Africa” using development finance

Nigerians heed the call to grow Africa using development finance

  • Oct 01
  • Tags Development, Finance, Africa, Growth

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“Six of the fastest growing global economies are African economies, with the phenomena of productive value added sectors and services being the driver of some of these non-mineral rich countries,” said Dr Nthabiseng Moleko, USB lecturer and Commissioner on the Commission for Gender Equality, at a recent Alumni Association event of the University of Stellenbosch Business School (USB).

The World Economic Forum (WEF) has shown Tanzania, Mozambique, Rwanda, Ethiopia, Democratic Republic of the Congo (DRC) and Cote d’Ivoire are among the world’s fastest growing economies since 2015.

USB held its West Africa Alumni Association Chapter with several former students who are now leaders in industry, executives and innovators. The theme for the event was titled, Grow Africa using development finance. Alumni attended and expressed their intent of making development impact on the continent.

“We are responsible for our own growth and development, we must determine our own narrative and we owe it to the next generation to restore the broken walls of Africa.”

Isa Omagu, former USB Advisory Board Member and Chairperson of the Alumni Association, said: “Nigerians are also innovating using the shared agency infrastructure framework, which drives financial inclusion and strives to empower the previously disadvantaged using microfinance, micro-pensions and micro-insurance.”

USB’s Alumni Association hosts these sessions on the continent to continue promoting networking opportunities for alumni with the intention of developing leaders that will transform the continent. Current Chairperson Shayo Imologome led the Alumni Association team, who voluntarily gather and meet to further develop their nation.

“Africans cannot afford to rest and expect their development and growth to arise from another source.”

Says Moleko: “We know that Africa is mineral rich yet most economies are not diversified showing massive reliance on a single commodity, with price fluctuations adversely affecting most of our national output. We have not focused sufficiently on growing productive and value adding sectors. We also need to drive domestic capital mark mobilisation, even using pension funds and capital markets to drive national development goals. The misnomer that development does not lead to profits must be changed and allocation to the infrastructure asset class has shown positive spinoffs and returns.

“A continent awash with underdevelopment, infrastructure shortages and high levels of unemployment should use its finance and debt for its own development and drive value adding sectors rather than merely driving consumption based growth,” she said.

The attendees engaged robustly and it was collectively confirmed that Africans must unite and commit to financing and driving their own development. The importance of innovation, ethical leadership, risk management, long term vision and resourcing our own development were key themes discussed by the attendees. Existing challenges were opportunities and it is the role of the citizens to also take charge of the economies; to drive the growth agenda.

“Africans cannot afford to rest and expect their development and growth to arise from another source,” Moleko argued. “We are responsible for our own growth and development, we must determine our own narrative and we owe it to the next generation to restore the broken walls of Africa.”

***

The Guardian Nigeria also published this article. Read more here: https://guardian.ng/news/nigerians-heed-the-call-to-grow-africa-using-development-finance/

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