A PERSPECTIVE on FINANCE, ACCUMULATION & GROWTH IN AFRICA Gyekye Tanoh TWN AFRICA

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 Africa’s 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 Trade’s Role: define SME involvement in terms of local content

7. Role of External Donors: Case of Power Sector • Ghana’s 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 Obama’s Power Africa and General Electric’s 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 US’s 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 2000’s. 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. • Africa’s 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!