The current global economic climate sees China and India presenting themselves as two major emerging markets that are, collectively, averaging in excess of 7% economic growth per annum. In analysing potential unrealised risk, I feel it is important to consider factors that played an important role towards the successful growth of the aforementioned economies in an attempt to spot similarities and extrapolate areas of focus given Africa’s socio-political and economic climate.
China owes much of its economic success to the creation of a diversified banking sector and effectively opening up markets to foreign trade and investment. India, with more than half of its workforce involved in agricultural production, owes much of its economic success to the creation of a thriving services sector accounting for more than half of the country’s output with only a third of its workforce.
Africa has a population of roughly 1 billion people, similar to both China and India, and is the fastest growing region on earth, expected to grow to two billion people by 2050. Although this is the case, the continent faces serious social problems such as low life expectancy (Sierra Leone: 34 years, Zambia: 37 years, other countries: 40–49 years), shortages of food and water, and low literacy rates. Cross-referencing factors which attributed to China and India’s economic successes, Africa must strive to effectively open up an ‘integrated African’ market to foreign trade and investment and improve quality of education and literacy rates for the creation of a thriving services sector. The creation of a diversified banking sector seems to be an unrealised opportunity related to the banking sector.
Given that banks serve as financial intermediaries that create their wealth through the interest differential between that received on loans to that paid on deposits, an affluent African would increase the population’s ability to pay increased interest on loans, making more money for banks in Africa. Following this logical flow of thought and the suggestion for the advancement of Africa provided above, the greatest unrealised risks facing the banking sector include deteriorating education standards and the lack of an integrated African market equipped to galvanise Africa’s resources in their entirety for mutually beneficial trade with the rest of the world.
In my opinion, the African banking sector ought to allocate a greater proportion of their sponsorship and corporate social responsibility funding towards the addressing the low education standards and literacy rate in Africa. This, in conjunction with improved efforts towards lowering intra-African trade barriers for the creation of an integrated African market, will increase living standards on the continent resulting in a more affluent society that can afford to pay a higher interest rate on loans ultimately more money for banks.
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