A PERSPECTIVE on FINANCE, ACCUMULATION

1
A PERSPECTIVE onFINANCE, ACCUMULATION GROWTH
IN AFRICAGyekye TanohTWN AFRICA

• IDEAs International Conference on Financial
  Instability Inequality Sanya, February 2016

2
What the Mainstream View Says

• Since sub Saharan Africa (SSA)s Financial
  Systems are underdeveloped and barely integrated
  into Global Financial markets (with some
  exceptions, esp RSA), so largely immune to the
  kinds of turbulence manifested in the Global
  Financial Crises
• The effects on Africa are only transmitted
  through Trade channels and the Business cycle
• SSA Financial Systems remain Bank centred the
  main challenge is liberalization and regulatory
  reforms through enabling institutions, policy,
  incentives and competition to increase supply of
  Global Flows the best practices for reversing
  Domestic Financial Repression Mis-management
  (Government over-borrowing over-spending) to
  Finance Africas Development and dynamise
  incremental win-win integration
• Financial Deepening will also crowd in the
  domestic private sector and enable Financial
  Inclusion of the poor, thereby be
  poverty-reducing as well
• Orthodox Public Financial management
  Liberalisation already self-evident success
  rising FDI, increased access/participation in
  international private financial markets including
  sovereign bond issues, rising credit to private
  borrowers, IMFs New Frontier of Finance, part
  of the story of economic growth and the Africa
  Rising narrative

3
BUT Beneath the headlines.

• While FDI has grown enormously (albeit still a
  fraction of Global FDI), more than 70 to less
  than 20 of SSA economies overwhelmingly
  concentrated in Natural Resource Extractive
  sectors (Energy Metals), with the rest going to
  agricultural commodities including NTEs such as
  horticulture and tourism (UNCTAD others)
  Service sectors especially Telecommunications,
  Finance, Retail
• Mostly M As, very little is Greenfield
  investment, although that is somewhat evident in
  some more recent Infrastructure investment and
  some manufacturing, most evident in Chinese
  recent Indian investment
• Increasing flow of portfolio investments hot
  money although trends have changed since 2008
  Financial Crisis withdrawal of SPVs in real
  activity/resurfacing more strongly into sovereign
  debt, carry trade, arbitrage, and latterly asset
  management activity IMF REO 2009 onwards.
• Private Sector lending grown five-fold, real
  estate consumption now NPLs on the rise
  long-term down turn in lending to real sectors
• Also Rising Debt, Interest Rates, Reserves Run
  Down, Currency Instability, Capital Flight IFF
• Current Account remained in deficit (except
  Botswana Nigeria for a while), Structural
  Deficit
• Yet increasing reliance on Financialised Circuits
  and Activities to maintain diversify growth
  PPPs

4
ISSUES ARISING The Revenge of History?

• Growth Not Due to Financial Liberalisation
  Neo-liberal Macro policy fundamentals Primary
  Commodity Price Boom, Deepening Commodity
  Dependency increased by 7 since 2009, 94 of SSA
  economies now characterized as severely primary
  commodity dependent (UNCTAD 2010, 2014)
• Up to a point, Need to differentiate the China
  Factor, As seen in current Commodity Price Down
  Turn Trade Business Cycle reinforce
  morbidities of SSA CDDCs
• SAPs and De-Industrialisation, Agrarian
  Stagnation amid Growth of Finance Manufacturing
  from 22 to 9, exacerbate excess liquidity,
  speculation, even SWFs (World Bank, 2014) no
  National Champions
• Jobless Growth, Urbanisation, Informal Sector,
  Artisanal linkages such as ASM acute
  distortions in capacity under-utilization

5
FINANCIALISATION New Unprecedented Threat to
Development in SSA

• Liberalisation/Financialisation of Commodities
  Volatility, Vulnerability, Regressive
  Distribution, Value Capture
• TNCs, Financialisation and Fiscal Crisis Lonmin
  Sierra Leone GS Ghana
• Financial Liberalisation, Intermediation Growth
  (FT 2009 Banking in Africa study) (Highest
  foreign ownership concentration in Developing
  World) NB cross-border intra-African Finance RSA,
  Nigeria. Trade Finance, fees commissions,
  Investment Banking
• Financial Inclusion/Household Debt/Reproduction
  Crisis
• Financialisation Land Grabs e.g. West Texas
  Hedge Fund/South Sudan

6
Where Now after the Super Cycle? The Case of
PPPs

• Issues of the underlying paradigm
• Fundamental guiding concepts, problematic
  assumptions and values (undefined and left for
  implementation stage)
• e.g. Viability Gap Scheme Value for Money Risk
  Sharing Value Added
• Roles of Transaction Adviser
• Primacy of the Foreign Investor
• E.g. the Ministry of Trades Role define SME
  involvement in terms of local content

7
Role of External Donors Case of Power Sector

• Ghanas challenge Severe Electricity Shortfalls
• Pressures for Fragmentation of Volta River
  Authority, the National Power Generator to Make
  way for Independent Power Producers
• Emerging Policy to Use Pension Funds to support
  PPPs with the Independent Power Generators
• Pressures for Privatisation of Ghana Electricity
  Company, the National Power Distributor
• Role of USA- linked to Obamas Power Africa and
  General Electrics planned Energy investment

8
Privatisation of GEC

• GEC will hand over its lucrative consumer base to
  Private Participation
• The Private Participants are assured all
  outstanding debts owed to ECG (40 of which by
  government institutions will be paid) and
  automatic tariff structure adopted to guarantee
  future returns
• All in return for Aid from the USs Millennium
  Challenge Account over five years
• 469,300,000.00 of which 133, 891, 250 goes to
  back to American supplier as tax and tariff
  exemptions.
• Aid is less than debt owed to GEC by Ghana
  Government

9
Drivers of PPPs

• Concern About Budget-Deficit
• Excessive, One-sided, and In the Case of Ghana,
  often externally-driven, or imposed
• Foreign Investment
• Not simply FDI
• But importantly foreign participation in finance
  markets (and connected issues of interest rates)
• External Donors Interest and Ideological
  Preferences of World Bank, IMF and other IFIs
  AfdB Africa Infrastructure Fund, record 700m in
  one month

10
PPPs and Public Finance

• Recovery of Investment in PPP in Ghana
• User Charges or Service Tariffs
• From Government budget, fixed or partially fixed
• Or Combination
• As User charges, it comes back in certain
  circumstances to government, in form of
  subsidies due to public interest
• As government charge its like a loan taken by
  government, but worse
• Private sector loan higher, which translates into
  higher charge on government.
• Private sector charges less definitive end-date
• Also note. In Africa, private sector
  expectation of returns on investment are higher
  due to so-called risks. e.g. World Bank estimates
  for early 2000s. 24-30

11
PPP and Net Resource Outflows

• Unlike in advanced countries, PPPs in Africa are
  overwhelmingly Foreign Investment
• A mechanism for net outflows (cf David Woodward
  and Ha-Joon Chang)
• Profit repatriation, without incentive for
  re-investment, esp. in infrastructure
• High level of returns, not fixed as loans.
• Problems of exchange rates, currency reserves,
  etc
• Especially since not invested in areas with
  capacity with immediate generation of foreign
  earnings
• Build-up of foreign debt (when linked to
  government payment)
• Problems for domestic capital formation source
  financial weakness in Africa

12
In sum

• Regulation
• Institutional capacity is even more critical than
  regulatory form.
• Africas experience of institutional collapse
  over past 30 years of World Bank reforms is
  relevant.
• Transparency.
• Form and space for participation of citizens and
  civil society formations
• More important, capacity to engage.
• But there are prior questions of paradigm and
  development strategy.
• From FFD3, SDGs- COP 21 Africa Renewable Energy
  Initiative another new frontier? PIDA? China
  Silk Road?

13
Finally..

• Production Structures Relations fundamental so
  Structural Transformation not dressed up
  Structural Reforms
• Real Assets Capacity utilization provide an
  objective basis for re-orientation real
  alternatives
• Inequality must be made radically subversive
• Engaged Organic Intellectuals working in
  Solidarity
• All our IDEAs needed now more than ever!