GLOBAL FINANCE AND THE CHALLENGES OF FINANCING INTEGRATION & DOMESTIC RESOURCE MOBILISATION IN AFRICA

Highlights of Evolving Interface between Global Finance

  • Economic Trends in Africa
  • Accelerating Integration of African economic activities & agents in Global Financial markets. By mid-noughties, IMF was hailing Africa as the ‘new frontier of Global Finance’; on the basis of trends e.g.
  • De-regulation & Liberalisation of Financial Sector & Financial Flows: Rising FDI, Portfolio Investments, SWFs, Sovereign Bonds, Foreign Bank and NBFI TNCs Presence, and Trade Finance
  • Growing Systemic power of Finance: Diffusion/Strengthening of linkages between international flows and domestic credit, savings, consumption & reproduction associated with above cum remittances/household reproduction/domestic consumption circuit, Finance-led narratives of development, all the way down to micro-credit & rural development/financial inclusion
  • But Structural Transformation hasn’t happened yet. Or has it??

The Finance- Transformation Nexus: key issues for Africa

  • Structural Transformation? Sectoral Re-distribution – : Rising share of FIRE in SSA economies – re-basing National Economies, Golden age of MICs & CRAs. FT Study of Banking in Africa
  • Finance & Financial Intermediation viz Real Output Sector, Households, Trade Finance etc Domestic/Regional markets as sources of growth?
  • Transforming CDDCs – Diversification:
  • Export-led Growth & Trade Dependency – 27% in 1990, 60% in 2010 (Unctad)

Commodity export dependence: grown 7% pa. Since 2009 94% of SSA economies now CDDCs.

Commodity TOT changing, TNC dominance increasing, roll back of integrated national commodity regimes, collapse of ICAs, re-distribution along commodity supply chains/GVCs. TNCs captured benefits of super-cycle, BITs paralysed re-negotiation & reforms, windfall taxes etc – all this part of the sound policy fundamentals

Financialisation and Global Financial Integration

  • Financialisation of Commodities and Global Integration
  • Vent – for – surpluses or Financial Value Capture/net resource transfer: The case of Trade Finance:

2009 Crash, European bank de-leverage: syndicated loans – minus 83%,

Pre-export loans – minus 71%, short term facilities – minus 23%. Or re-positioning? ECA up 78%. Still dominant as MLAs, maintained or increased market share in commissions, fees etc e.g. Repos, asset-backed commodity credit, Forfaiting (sell to FI & buy back at a premium at a later date before sale to final buyer), more short term than ever 90-180 day facilities now more than 80%

. In actual financing – US and Asia on the rise (more liquidity & sectoral specialization, but big ticket TF now dominant, even more so for Africa’s regional banks getting in on the game. 17% of bank revenues in Africa from TF. Big tickets – Vitol in Chad, Sonangol, Cocobod in Ghana etc

And Domestic Linkages?

  • Narrow domestic investment opportunities- beyond commodities and international sector – speculation, asset bubbles, arbitrage/bog adverts?
  • AfDB and Trade Finance – IFC, Citi – 3 facilities –

-Risk Participation Agreements, TFLOC, SCFF

Subsidising TNCs? TNC FIs e.g. SC dominant, Cocobod Ghana case

  • Restructuring IPE of Africa Trade – Structural deficits, Financial dependency, domestic deflation, price-led, finance-led, not PC-led
  • CFTA as response?

FINANCING INTEGRATION: The new turning point?

  • CFTA recognition of importance of Finance & Credit for boosting BIAT & diversification
  • For Public Finance, SMEs and livelihoods
  • For Trade Adjustment and Inclusive Integration
  • Yet no answer to Tariff Liberalisation (leads to right import/imput mix raw materials, intermediate goods, capital goods, cheapens production & reduces inflation, crowds in jobs, FDI etc etc). UNCTAD more comprehensive approach customs revenue/public finance and economic structures/trade dependency. Xtaxes debacle in EPAs- see Asia since 2009. Yet, ,lower tariffs compensated for by increased trade prices and earnings (TOT, volatility, Africa back to C19th)

Or Turning Over

  • CFTA conclusion: Flat statement- CFTA requires massive financing, Africa not in a position to undertake this.

FDI -DRM – new complementarities. FfD 3, SDGs, PIDA-PPPs Sources of DRM in Africa: Fiscal Resources, Pensions, Remittances,

Diversifying Sources of Growth – Domestic & Regional C & I. Indications – Capacity Utilisation, Excess Liquidity, IFF, Public Investment & Financial Widening

Trade Protection & Finance Controls

Re-Linking Financial Integration & Africa’s Structural Transformation

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