Financial sector development - Sida

Several investment funds focusing on African stock markets have been established over
the past few years in Europe and North America. The amounts, although small so far,
are increasing rapidly. This may indicate that inflows of foreign private capital can
potentially play a more important role in Africa's development.
7.2.4 The role of the state in financial markets
In virtually all countries in Sub-Saharan Africa, the state has looked upon the financial
sector as part of -- and an instrument in -- a centrally planned economic policy.
Governments have assumed ownership of large banks, sometimes the whole financial
system (e.g. Tanzania), and have directed credit flows to "priority" sectors, in particular to
the public sector. This role is now being reassessed and most countries are in the
process of reforming the financial sectors and policies.
The reform processes under way in most countries in Sub-Saharan Africa have revealed
weaknesses in financial legislation, supervision of banks and other agents in the market,
and in the regulatory competence and procedures. It is in these areas that governments
have an important role to play, rather than in owning and operating financial institutions.
This new role of the state in the financial field is being increasingly appreciated in African
countries.
7.3 Financial systems and policies in Africa and East Asia: a comparison
In assessing the financial systems in Sub-Saharan Africa economies, their weaknesses
and their need for support, it may be of interest to identify some of the differences
between the financial systems and policies in Africa and those in the rapidly expanding
economies in East Asia.
There are many reasons for the vastly differing economic records of the African and East
Asian economies. They concern questions such as political stability, education
(investment in human capital), savings and investment, the role of foreign trade (global
integration), and the respective roles of the public and private sectors.
Some of these differences are illustrated in the following chart (called a "Development
Diamond"), which measures four development indicators for Ghana, Thailand and
Malaysia.
Chart 1.
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(Figure 1. Insert figure, blown up, from
Chhibber and Leechor, p 87)
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