The good news for Africa when the global financial meltdown began was that its financial markets were generally so far behind the rest of the world that groups such as the World Economic Forum reckoned that there was little or no danger. A new paper, posted on the economic research website VoxEU, suggests that that might be a bit too optimistic.
Tilburg University economist and former World Bank official Thorsten Beck – along with the World Bank’s Michael Fuchs and Marilou Uy — write that despite shallow financial markets, sub-Saharan Africa is unlikely to escape the repercussions of the financial crisis.
Indeed, they argue that the crisis is threatening what little progress has been made to reverse what they call the alarming superficiality of African finance.
African financial systems are small, both in absolute and relative terms . In addition, Africa’s financial systems are characterised by very limited outreach, with less than one in five households having access to any formal banking service. Banking is inefficient and expensive in Africa, as reflected by high interest spreads and margins and high overhead costs. Banking is also very expensive for deposit customers, as reflected by very high minimum balance requirements and annual fees in many African countries. High documentation requirements to open an account – that is, the need to present several documents of identification – also represent significant barriers given that large parts of the population live and work in the informal sector. Similarly, physical access is limited, as the low bank branch and ATM penetration numbers for Africa illustrate.
Perhaps the most worrying aspect of the report for the region, however, is that the authors reckon Africa is more or less on its own when it comes to fixing this.
