Africa desperately needs capital, but only the sort that can't easily leave. Speculative investors and yield-hunters will eventually do more harm than good. Former Barclays CEO Bob Diamond, who has raised $325 million to invest in African banks, should take note.
Sub-Saharan Africa is poor, with average 2012 GDP per capita of $1,400 at market exchange rates, according to the World Bank. The region also saves too little to pay for the investments that will make it richer. Net savings were only 7.5 per cent of income in 2010, compared with 23.4 per cent for all low and middle income countries.
Outside capital can do far more than aid to propel Africa's economic growth, but the continent's inadequate savings make it exceptionally vulnerable. A sudden loss of investor confidence or a global credit crunch can crush otherwise viable local businesses and projects.
With this chronic weakness, African countries and companies should seek safe and permanent capital. Best are direct, long-term equity investments of the sort Diamond is planning - the investor can only get money out by selling out. Multilateral bank funding is also good - not subject to global credit crunches and only partly subject to a local loss of confidence. Portfolio equity investments can be helpful, but panicky foreign sales can crush local stock markets and confidence.
Debt is more dangerous. Debt denominated in foreign currency, whether short-term or long-term, is an invitation to disaster. Rwanda, South Africa and Nigeria have all issued some in 2013. Short-term bank financing in local currency is equally dangerous. The money could just vanish in a credit crunch. Trade credit has the advantage of being self-liquidating, although exporters suffer when foreign banks suddenly withdraw lines of credit.
In other words, the standard operating procedure of developed world investment banks - like Barclays - is totally inappropriate for Africa. The stated goal of Diamond's Atlas Mara is perfectly reasonable: to develop banking in a continent which needs more financial services. But all too many of the skills he acquired in his old job are more likely to do harm than good.
Sub-Saharan Africa is poor, with average 2012 GDP per capita of $1,400 at market exchange rates, according to the World Bank. The region also saves too little to pay for the investments that will make it richer. Net savings were only 7.5 per cent of income in 2010, compared with 23.4 per cent for all low and middle income countries.
Outside capital can do far more than aid to propel Africa's economic growth, but the continent's inadequate savings make it exceptionally vulnerable. A sudden loss of investor confidence or a global credit crunch can crush otherwise viable local businesses and projects.
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Debt is more dangerous. Debt denominated in foreign currency, whether short-term or long-term, is an invitation to disaster. Rwanda, South Africa and Nigeria have all issued some in 2013. Short-term bank financing in local currency is equally dangerous. The money could just vanish in a credit crunch. Trade credit has the advantage of being self-liquidating, although exporters suffer when foreign banks suddenly withdraw lines of credit.
In other words, the standard operating procedure of developed world investment banks - like Barclays - is totally inappropriate for Africa. The stated goal of Diamond's Atlas Mara is perfectly reasonable: to develop banking in a continent which needs more financial services. But all too many of the skills he acquired in his old job are more likely to do harm than good.