13 November 2012
Investment in Africa must not only be for the benefit of the rich, South African Finance Minister Pravin Gordhan said at the Institute of International Finance’s inaugural Africa Financial Summit in Cape Town on Monday.
Gordhan said lessons could be learnt from the “dark side” of the global financial crisis of 2008-09, and that there were several principles that Africaq should consider when looking at financial development.
“The financial crisis has illustrated the destruction that can occur when underlying incentives are misaligned and risky behaviour is encouraged. We have seen that economic gains are often privatised, accruing to the wealthy, while losses are socialised, and must be carried by all,” Gordhan said.
“This is particularly important within the context of deep inequality on our continent. It is important to ensure the gains brought about by the financial sector and financial development accrues not only to the privileged few, but to the majority.”
Gordhan said the continent should avoid spill-overs associated with financial crises, with European banks withdrawing capital from their African operations leading to reduced lending and economic activity.
There was a need for a shift in how banks operated and behaved, he said. “This value shift is a not only needed for banking, but for society generally. Rapid profit maximisation at the expense of society ultimately harms everyone and, as the crisis has shown, leaves us all poorer.”
Gordhan said most people on the continent did not apply for or were denied credit due to insufficient collateral. “Collateral requirements in Africa are extremely high compared with other regions. As a consequence of these challenges, banks tend to favour large enterprises and government assets to minimise risk.
“A determined effort will have to be made to increase competition in the financial sector.”
Gordhan said that high levels of concentration led to excess liquidity and risk aversion. The World Bank estimates that the average market share of the three largest banks in Africa is about 73%.
“These oligopolistic banking sectors have a number of negative consequences, including high interest rate spreads and banking fees which crowd out credit to the private sector by making loans too costly.”
Gordhan added, however, that the continent was one of hope.
“Africans have a new determination to leverage their recent economic success into sustained growth and development, which must result in a better life for a billion Africans.”