THE world economic downturn and financial-market tremors have strained budgets across Africa. In 2009, most African countries’ fiscal balances deteriorated. Aggregate GDP averaged 1.6%, down from about 5.7% during the 2002-2008 period.
Now that international trade and global industrial production are on the mend, sub-Saharan economies look set for more robust growth, as demand for and prices of oil and other minerals rebound and general economic activity resumes.
Of course, numerous downside risks – adverse weather shocks, military conflict, and political turmoil – still can undermine the hard-earned benefits of this social and economic record. Two Africa’s are emerging: a modern economy and a cash-based economy.
Across Africa, almost all governments praise economic modernisation as the cornerstone of prosperity and the yardstick by which their effectiveness should be measured.
Many boast of the modernity of the financial infrastructure of their economies, which is based on an entire set of legal, regulatory, accounting, credit reporting, and payment and settlement systems.
National payment systems operate electronic-based payment products and services. A high-value inter-bank funds-transfer system settles transactions in real time, eliminates credit risk between system participants, increases circulation of funds, and enhances monetary-policy implementation.
Banks are provided with a facility to monitor their positions in real time and hence make cost-effective investment decisions.
So far, only a few registered financial institutions have access to such payment-system facilities.
Non-banking financial institutions such as foreign exchange bureaus, post offices, and micro-finance lenders are not admitted.
The effects of banks’ hijacking of national payment systems to service only the modern economy are compounded by the exclusive agreements that banks and money-transfer companies such as Western Union have signed with African countries.
These agreements lock out non-banking entities from the highly lucrative market for migrant remittances from the diaspora, which is a key engine of growth.
Yet rapid urbanisation everywhere in Africa has given rise to a dynamic informal sector unconnected to the modern economy.
Although marginalized by African officials, this cash-based economy is a major contributor to the continent’s productive capacity. It employs more than 90% of the workforce and is home to 75% of the retailers.
But, despite the pivotal economic role that the informal sector plays, it has no access to conventional bank loans.
