African Banking & Economic Growth

The Economist published an article on the 15th entitled “On the Frontier of Finance” which discusses the increased banking opportunities allowed by the continued boost in African economic growth. A main focus of the article was on the fact that most Africans do not have access to what we would consider basic and essential financial services. To better illustrate this point, The Economist lists some staggering yet somewhat unsurprising statistics…

• Only 20% of families in Africa have bank accounts.
• Private credit accounts for 18% of GDP in Africa
• Opening a bank account in Cameroon requires a minimum of $700 (more than many Cameroonians earn in a year)
• In Swaziland, a woman needs consent of her father, husband or brother to open an account or take out a loan.
• 75% of adults do not have a verifiable address
• Even in South Africa, where the financial sector is far more sophisticated, almost half of adults do not have bank accounts

The sustained increase in economic growth can be attributed in part to better economic management and also to an increase in overall political stability. This increase in stability in some African countries has also lead to more stable policies. The Economist reasons that these new policies are forcing banks to reach out to more customers while promoting access to financial services. In the mean time, technology has already helped to improve access. Recently, financial services have been offered over mobile phones in Kenya, Congo, and South Africa. “Subscribers can open accounts, check their balances, pay their bills or transfer money by typing a few commands on their mobile phones”. For more on mobile banking, check out the article, "A bank in every pocket".

Despite new technology and the new opportunities for Africa that come with sustained economic growth, African banking still has a long way to go. Africans lack confidence in local banks explaining why most private African finance is short-term or money is kept abroad. In addition, “Many African countries still have to develop and enforce policies and laws allowing banks to compete and operate more easily, while making sure they are financially solid—and customers are protected. In time, regional integration may help ease the problem of scale”.

Although it will be awhile before millions of Africans will stop 'storing their money under their mattresses,’ the economic growth in Africa has attracted a lot of foreign interest. “The Industrial and Commercial Bank of China, in the largest ever single investment in Africa, has offered $5.6 billion for a 20% stake in Standard Bank, of South Africa, which has operations in 18 African countries.” For more information on the Chinese involvement in Africa, try another article by the Economist: “Still Scrambling”.