Last week's news highlights

Germany blames Chinese land buy-ups for African drought

Germany's Africa policy coordinator on Thursday blamed China's practice of buying up land in the Horn of Africa for contributing to the devastating drought ravaging the region. In the case of Ethiopia there is a suspicion that the large-scale land purchases by foreign companies, or states such as China which want to carry out industrial agriculture there, are very attractive for a small (African) elite.                                        

Times Live

 SA banks in Mugabe's sights

Zimbabwe has 26 operating banking institutions, which include 17 commercial banks, four merchant banks, four building societies and one savings bank. Most of these are, in fact, owned by locals. President Robert Mugabe and his officials accuse foreign banks of refusing to lend money to local companies and individuals. Last week Kasukuwere threatened to seize assets of foreign-owned companies within the next two months if they continued to defy the controversial expropriation laws. Times Live

Mbeki: Africa has lost faith in the UN

Former President Thabo Mbeki has accused the United Nations of destabilising peace processes in countries such as the Ivory Coast and Libya.He said Africans had lost confidence in the world governing body and that Western control over the UN would lead to the powerful nations installing leaders they preferred, to run the continent.                                                                   

Times Live

Understanding South Africa's changing Energy Landscape

As South Africa struggles with the policy challenges of meeting the ever-growing demand by business and consumers for energy to fuel development and economic growth, households are faced with the increasing cost of electricity and other forms of energy, as well as the ongoing possibility of disruptive load shedding. In order to determine what mix of the available energy sources is best for their needs, South Africans first need to understand and appreciate that the energy landscape has changed.                 

African Business Communities

What is Regional Financial Integration, and its relevance in Africa?

According to the MFW4A website, Regional Financial Integration plainly refers to efforts to broaden and deepen financial links within a region whether through a market driven or institutionalized processes. The issue of regional integration beyond the financial sector has been brewing ever since most countries in Africa started becoming politically independent.  As most countries in Africa have small and inefficient financial markets, there has been an attraction to consolidating markets through RFI. The development of this strategy has been incredibly slow, has countries find it hard to give up their national ownership to infrastructures, find it hard to adhere to cross border legislations, and the high cost of which such integration would incur. An example of a progressive regional financial integration strategy in the continent is that of the CEMAC countries

There are indeed some benefits of Regional Financial Integration:

• Bringing together scarce savings, viable investment projects and financial infrastructure;
• Increasing the numbers and types of financial institutions and instruments;
• Increasing competition and innovation;
• Reducing inefficiencies in lending given a wider pool of bankable projects; and
• Expanding opportunities for risk diversification. 

Below is an excerpt for the Making Finance Work for Africa report titled “Financing Africa: Through the Crisis and beyond”

True, regional integration has been on the agenda of African policy makers since the time when many countries achieved political independence. And, prima facie, there is an enormous potential for Africa in overcoming scale diseconomies by coming together. Not surprisingly, there have been numerous attempts at moving closer toward such cooperation. However, the results have been limited so far. One reason for the limited integration has been political; another is over ambition, as is obvious from the effort to establish a pan-African currency union; another still is weak implementation. For this reason, focusing on smaller, economically and institutionally more homogeneous sub-regions, such as East Africa, might be more promising than trying to integrate larger sub-regions containing countries at different levels of financial development and with different institutional and legal frameworks.

The State of Rural and Agricultural Finance in Africa

A recent report by the Centre for Inclusive Banking in Africa analyzed the state of rural and agricultural finance in Africa, by determining the opportunities that abound and understanding the factors that inhibit the improvement of the practice. Gaining access to rural and agricultural finance as a whole is a major inroad to developing a country’s rural sector. Governments of various countries recognize this and some have taken steps to fix the problem, but most of them have failed to achieve an effective system to achieve their rural development goals.

The study was undertaken in six SADC countries: Botswana, Malawi, Mozambique, South Africa, Zambia and Zimbabwe. To fully understand the state of rural and agricultural finance (RGF) in SSA, the authors looked at the demand and supply of RGF, as well as the enabling and disenabling factors.  Below are some of the findings from the study:

• Credit/loans, savings and transmission services are the most demanded components of rural finance.
• The services and products offered by commercial banks in the six countries are biased towards urban areas and better-off members of the population. The commercial banks have relatively few branches in rural areas and they are not geared to responding to the needs of rural people such as the higher risks of agriculture.
• Competition among commercial banks in some of the countries (e.g. Botswana, Mozambique and Zimbabwe) is limited, resulting in high and/or unaffordable costs of obtaining formal rural finance.
• In the case of agriculture, the supply of long-term finance and insurance for smallholder farmers is either limited or non-existent in most of the six countries.
• All governments in the region have a commitment, in principle, to making access to agricultural/rural financial services easier for all farmers, particularly smaller producers, but have not found this easy in practice and, consequently, have made little progress.
• Access to loans (short, medium and long term) is constrained by numerous factors, including lack of collateral security and unwillingness to lend by formal institutions due what they regard as uncertain repayment ability of rural people.
• Credit from informal sources is less difficult to obtain. However, these loans tend to be short-term, more expensive than loans from formal sources, and inadequate for the needs of smallholder farmers aiming to produce for the market. 

Centre for Inclusive Banking in Africa

Beyond Microfinance other Market Based Solutions (MBSs) come to the fore

Monitor group, a global strategy consulting firm, recently released a study on Market Based Solutions in Africa, looking at how these solutions have contributed to the eradication of poverty in Africa. This report is the second installment of the firm’s study into MBSs, the first was focused on India.

The report titled Promise and Progress found out that despite several obstacles< MBSs are proliferating in Africa. The study provided some of the promising MBSs including: Voltic Cool Pac, Jeppe College of Commerce and Computer Studies, Afro-kai and Kilimo Salama. Three major business models were identified to suit the extreme conditions of low income markets in Africa:

·         Aggregators: For example in agriculture, to ensure that smallholder farmers have guaranteed stable supply, many aggregators offer premium and forward pricing, and provide the farms with services such as credit, storage, and transport, as well as with low cost seeds and fertilizer to help improve their yields.

·         Companies organizing and upgrading informal retail operation and working with vendors to sell socially beneficial products such as clean water, healthcare goods and agricultural inputs

·         Vocational colleges that provide high quality, no frills training to a range of individuals including the very poor. These institutions also enhance employability by helping students to obtain internships and work experience.

Although it’s exciting to see new MBSs in the market, there is some uncertainty on how the development of these initiatives would pan out, as microfinance, which was once the poster child for MBSs has experienced slow growth and its impact has been called into question.

The report also identified some trends in the market. One was the insurgence of impact investors both in sub Saharan Africa and globally. The Global Impact Investing Network estimates that about $50 billion of impact capital had been invested globally by 2010. Also the Food and Agriculture Organisation of the United Nations estimates that 18 new agriculture investments funds focused on Africa were announced between 2007 and 2009 alone, some of which were impact investment vehicles.

Other observations from the research include:

·         To serve the poor sustainably, it is often necessary to target a broader segment

·         MBSs can operate by selling ‘push’ products and services

·         Government can and does plays strong supporting role in the success of market based solutions

·         Corporations facilitate progress when they customize their approach to low income markets

·         Achieving scale occurs more rapidly for ‘market joiners’ than for ‘market makers’

Though the report is 200 pages long, I recommend you all read this one, as it is very insightful and informative.