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.

Last week's news highlights

‘Reformulate African development trajectory’

Those were the words of Pravin Gordhan, the South African finance minister speaking at the recent Climate Investment Funds partnership forum hosted by the African development Bank.  Gordhan went on to say that there is need for transformation in the traditional paradigms of development and funding  in the continent for it be a key player in global growth and development.    
Times South Africa

Conference attacts commitments for stable water supply for development and peace in Darfur

At the recently completed International Water Conference, the government of Sudan and major donors expressed their intention to make significant pledges to the global appeal launched at the conference. The United Nations and the Sudan Ministry of Irrigation and Water Resources introduced the appeal for some $1 billion for six years of 65 inter-related water system projects to meet the rapidly increasing demand for water across Darfur and in doing so to tackle one of the major factors contributing to the ongoing conflict as well as threatening the livelihoods of ordinary Darfuris.

Star Africa

Decline in women voters in South Africa’s municipal elections

According to Gender Links , a South African research and advocacy organisation, which analysed representation at the May local government elections, in 1995 representation of women in local government was at 19% overall; 29% in 2000; 40% in 2006 and then dropped two percentage points to 38% for May 2011. The South African department of Women, Children and People with Disabilties, reported that the drop in the representation of women in local governments confirm the need for laws on increasing the number of women in decision-making positions

News 24

Youth Development to be the focus of the African Union meeting in Guinea this week

Youth empowerment will be the focus of the 17^th Ordinary Session of the African Union Assembly, scheduled to take place this Thursday and Friday in Malabo, Equatorial Guinea. The meeting is to be held under the theme “Accelerating Youth Empowerment for Sustainable Development”.

Bernama

The ADB and AFDB to cooperate

The AFDB recently reported that it would be partnering with the Asian Development Bank to set up a trade finance program to boost African trade and, more broadly, South-South trade. These agreement comes at a time when the AFDB is scaling up its trade finance activities to channel critical trade support to companies across the African continent.

Accra Mail

New mobile technology to help patients in Africa

Experts gathered for Africa's first mobile health summit on Tuesday hailed the use of phone technology as a new frontier in improving patient care in poor countries. But a government minister in South Africa, which is hosting the summit, called for caution over issues of regulation, confidentiality and cost to patients. The debate came as the World Health Organisation released a major report (pdf) charting the worldwide use of mobile phone technology in healthcare. It finds that 83% out of 122 countries surveyed use mobile phone technology for services that include free emergency calls, text messaging with pill reminders and health information and transmission of tests and lab results.

Guardian UK

Making the most of the African opportunity

In a report by the managing consulting firm – Accenture on the future on Africa’s banking sector, the firm introduced a market entry model for companies (in any sector) planning on setting up shop in Africa:

·         Scan the landscape. Create a dedicated Africa task force to identify and understand the relative attractiveness of different markets and sectors, and the specialist skills and competitive advantages the company can bring to those it chooses to enter.

·         Establish beachheads. Take small positions in local institutions as a base from which to seize emerging growth opportunities.

·         Develop local models. Design, build and operate models that reflect, and are focused on meeting, specific local market needs.

·         Build ecosystems. Seek out and establish partnerships, alliances and networks to help develop the local community and to support the chosen strategy going forward.

As the report reiterated, the diversity and complexity of individual country markets mean that a single pan-African strategy will likely fall short, however, the above mentioned strategy is a general idea of how to make the most of the African opportunity

Last week's news highlights

The level of acute hunger in Mozambique is worsening

Several regions in the country are said to be experiencing challenges with food security, which has led families to resort to eating wild fruits and roots. The government of Belgium recently donated 17 million Euros to two districts (Gaza and Manica) to help solve the problem.  The government hopes to use the investment mainly on food security but also on water supply, infrastructure and sanitation. (Business Day)

Humanitarian Crisis in Southern Sudan requires $200m

The UN recently reported that it needs $200m urgently to respond to the growing humanitarian crisis being experienced in the soon-to-be independent Southern Sudan.  About half a million people are now ‘on the move’ in the region,  including at least 300,000 who have returned ahead of the independence, and about 200,000 who have fled violence. It is reported that the South’s Sudan People’s Liberation Army (SPLA) is fighting a minimum of seven rebel militias, and tribal clashes constantly erupt over the country’s resources. (Trust.org)

World Bank’s decision over a $60million irrigation project in Ethiopia expected this week

The Ethiopian government this week reported that it expects the World Bank to decide whether they will be receiving an additional funding for its Nile Basin irrigation project. The Bank had previously provided $100m to this project in 2008. An official from the World Bank states that countries like Ethiopia are no longer looking at food security, poverty, and climate change separately, but that climate-smart agriculture and irrigation practices are key to solving food security issues and increasing crop yields. (Bloomberg)

South Africa’s big task ahead of hosting the Climate Change Summit

The South African minister of International Relations and Cooperation states that the onus rests on South Africa to deliver a climate change outcome at the summit, which would take place at the end of the year. The summit is regarded as one of the largest UN meetings on climate change, and is expected to draw heads of state from more than 100 countries. The South African government is said to be holding ‘open-ended’ informal consultations in Bonn (Germany) with all parties and stakeholders to get their views and expectations on the outcome of the Durban conference.  (Bernama)

SADC makes Women Empowerment a top priority

Half of the 15 Southern Africa Development Community (SADC) member states have already ratified the Protocol on Gender and Development. The objective of the protocol is to provide for the empowerment of women, to eliminate discrimination and to achieve gender equality.  The first protocol was signed in 2008, where most SADC leaders signed except Botswana and Mauritius who continue to refuse to sign as they have reservation or doubt that they might not be able to meet the targets. (Southern Times)

'To Eradicate Hunger, Treat Small Farms as Business'

A recent IFAD (International Fund for Agricultural Development) report says world food production must be increased by 70% within the next 30 years in order to feed a projected nine billion people worldwide. As most communities in Africa are rural communities where a huge  portion of its income and employments are derived from the agricultural sector, there is a need for stakeholders in the sector to pay closer attention to the subsistence farmers, treating them as businesses that can have an impact on each country’s economy.

Africa gets new Echoing Green Fellows

Last month Echoing Green, a nonprofit that focuses on accelerating social change by identifying and investing in visionaries, announced its fellows for 2011.  A significant number of these fellows would be working on projects in Africa. Below are their ideas:

David Auerbach and Ani Vallabhaneni: Resolve the massive sanitation problems in the world’s slums, starting in Kenya, with an economically sustainable micro-entrepreneurial network of clean, containerized toilets and service to convert the waste to electricity and fertilizer.

Deborah Ahenkorah : Stimulate literacy and cultural understanding by inspiring a new generation of African authors to write children’s literature to which African youth can relate.

Joel Jackson:  Empower Africans to gain socioeconomic prosperity by designing and manufacturing highly functional and affordable vehicles designed explicitly for the needs of the African market

Mohamed Ali Niang and Salif Niang: Fight extreme poverty and malnutrition in Mali by encouraging farmers to fortify rice with vital minerals and vitamins and connecting them with production, processing and markets.

Rajesh Panjabi and Peter Luckow: Pioneer a comprehensive approach to reconstruct the rural health care system in war-torn Liberia with an efficient and effective training and outreach model for community health workers

Yusuf Randera-Rees: Activate an entrepreneurship revolution in under-resourced communities across South Africa.

We wish them luck on their projects!