Deepening The Financial Sector in Africa

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Deepening The Financial Sector in Africa

• Workshop On Africa Capital Markets Development
• 27-29 October 2003
• By Simon Rutega

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Deepening the Financial SectorThe Big Picture

• Growth and Economic Transformation
• Domestic Capital Formation

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Financial Sector Composition

• Banking systems,
• Rural and Microfinance,
• Non Bank Financial Institutions,
• Insurance,
• Capital Markets,
• Social Security/Pension schemes,
• Housing Finance
• Leasing.

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Objective-Transformation

• A Domestic Financial Sector that is strong,
  diverse, deep, liquid and one that is able to
  mobilize savings wherever they are created in
  whatever size and deploy them to support
  investment and productive activities that create
  growth. The sector must address the needs of the
  population both large and small to enable
  Economic Transformation.

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Economic Policies

• Bold and Comprehensive Macroeconomic and
  Structural Policies
• Support Domestic Capital Formation
• Attract Private Capital Flow/FDI
• Prudent Government expenditure control
• Resilient, well regulated financial systems

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Policy Required (contd)

• Financial Sector Deepening. Advocating for
  policies to stem from economic analysis and
  observation on the ground and policy to become
  more responsive to the needs of our
  economy-improving productivity and enabling
  transformation.

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Cash Economy

• Cash Economy
• Policy shifting savings to financial assets
• Rural African population requires guidance and
  mobilization.
• Payment system reform

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Rural Finance Strategy

• Increasing access to financials services
• Micro finance should have savings linked to
  credit
• Promotion of Micro Leasing
• Governments should promote regulated
  cooperatives/associations-productivity
• Agricultural Finance-ware house receipts

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Missing Middle?

• Access to credit
• High cost of funding
• Equity-bankable private sector projects
• Training-increasing business capacity
• Economics of information and transparency
• Housing Finance-crucial

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Equity Culture

• Promotion of profit-dividend culture-tax
• Government must guide well managed entities to
  Stock Exchange-to promote country investment
  destinations
• Advertising Africas high rates of return
• Stock Exchange-promotion of secondary markets for
  financial instruments.
• Promotion of equity funds, mutual funds

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Long Term Financial Instruments

• Government Support for the Issuance of Long Term
  Paper
• Promotion of Mortgage backed securities
• Promotion of Municipal bonds
• Housing-is the key
• Financial instruments impact long view on the
  domestic economy

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Social Security/Pension Reform

• A value added reform of social security/pension
  sector to engineer a revival of public/private
  partnerships
• Independent Regulator
• Funded Schemes
• Mandatory schemes-Employer/Employee
• Informal Sector-Suitable voluntary Schemes

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Insurance

• Promotion of Long Term Insurance-Life, annuities,
  disability etc
• Create strong Regional Re insurance Companies
• Explore Deposit insurance rather than Deposit
  protection fund
• Agriculture insurance-price

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Taxation

• Tax policy-review tax structures to encourage
  domestic savings and therefore domestic capital
  formation
• Tax policy-encourage profits and dividends
• Level playing field-if some pay all should pay.
• Efficient and friendly tax administration.

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Strategic Investment Promotion

• Sovereign Ratings For African Countries To Get
  known As Competitive Business Destinations And Be
  Able To Attract Substantial Long Term Investment.

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IT-Financial Services Export

• IT Revolution-Financial Services-E-Finance
• Governments must mobilise and train manpower and
  provide infrastructure.
• Borderless World-Greater possibilities for
  fraud-managing risks and protect digital assets
• Alexander Gerschenkrons classic essay-Economic
  Backwardness in Historical perspective-leap frog
  without having to assume costs or risks of
  innovating.

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Economics of self regulation

• Good Governance for competitiveness and
  developing and implementing a national code of
  ethics for sector specific operating standards.
• Charters
• Enforcement
• Performance Standards-reduce corruption
• Are you Credit Worthy?

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Ingredients

• Holistic integrated approach to financial sector
  deepening
• Promote manpower development
• Regulatory Framework
• Fast Track-Passing/amendments of business laws

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Financial Sector-20 years

• Africa will have a domestic financial sector
  that is stable, with liquidity, a diversity of
  financial instruments, a diversity of financial
  institutions, efficient financial services, a
  sector that is responsive and is able to mobilize
  savings wherever they are created in whatever
  size and deploy them to support investment and
  productive activities that will create growth and
  economic transformation.

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African Capital Markets Development

• THANK YOU

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End