Mobilization of savings and the efficiency with which these are located depends on the width and depth of the country’s financial system and markets that are responsible for the provision of such intermediaries as can accomplish this role to the degree that can promote economic growth and thus economic development.

The development of financial markets in Africa (where on average, less than 20% of the population have bank accounts) reflects the present reality with regard to global financial crisis which has not hit these markets like it has on commodity markets.

Compared to developed countries which are highly monetized, and almost 98% of the population keep bank accounts (typical cash economy) African populations remain heavily subsistence and credit a preserve of the urban elite, which by default has shielded many African populations from direct effects of the current crisis.

80% of African populations are rural folks who hardly use cash for their day to day transactions, and such can not be affected directly by the current global crisis. But this is in itself an indication of policy failure that such large part of Africans are not part and parcel of a monetary system and benefits attendant from it, which could have lifted most of these people from the poverty trap.

As pointed out in earlier articles, financial development in Africa, and indeed in Rwanda, was shaped and influenced by its colonial past. And in case of our East-African neighbours, their financial systems were set up and modeled a long the lines of British financial systems.

Post colonial governments have not done much to reverse this. Colonial banking took shape in the early 19th century as a result of the need to finance trade and between Britain and its colonies.

London was the financial centre (still is albeit in a different capacity), thus the overseas banks depended more on London to facilitate their transactions. This also meant that, The Bank of England was the reserve bank for entire colonial empire.

Greaves (1957:28-29) argues that, "it is evident that no clear line of demarcation could be drawn between the banking resources of colonial territories and those in The United Kingdom. Colonial monetary conditions are in fact more closely integrated with money and banking in London than colonial raw materials are with industries in The United Kingdom…”

The structure of banking systems among African economies was therefore not designed to foster the development of African economies, but was rather constituted by classical exchange banks which concentrated on financing of export trade, this being the central objective of colonial governments, and by extension their established financial systems.

Whereas financial systems in western countries played a vital role in their development through industrialization which saw these countries developed over 200 years period, and Asian economies through capital accumulation and technological advancement which also saw these countries developed in a record half century, Africa’s growth models if any, seem to have settled for development through aid and grants.

That current financial crisis has not affected Africa’s financial systems as much as it has in other developed economies is not surprising considering that, they lack the necessary structures of a broad-based and an all embracing financial system, that could be expected to spur her development.

This has affected the general monetization of African economies (‘a blessing during such a crisis’) which by and large was over looked by such colonial designed financial systems and structures.

The problem of monetization of African economies has persisted so much so that post colonial Africa’s financial systems have followed colonial trends to the extent that the development of financial assets has followed patterns in large towns and cities.

As such, the majority of African peasantry hold and keep their assets in kind today, a situation that has rather frustrated the mobilization of domestic savings in Africa.

Lapses in financial development in Africa have not only hampered the monetization of African economies which could by extension feel the weight of the current financial crisis, but has also promoted the development of  large scale curb/informal markets with their attendant market imperfections.

Such curb/informal financial markets in Africa control up to 40% of financial services in Africa and manifest themselves by way of Micro Finances and Saccos (Savings and Credit Cooperative Unions) which are not integrated in the mainstream financial systems so as to feel forward and backward shocks in such systems.

Such is the situation that we find ourselves in, that the term ‘by standers’ in the current financial crisis is, but an understatement of reality in African economies.

Unfortunately, as pointed out in the earlier articles, Africa’s political economy hold key to its development generally, and of its financial systems in particular.

That the present financial crisis has been withstood by our rudimentary financial systems is not any thing to celebrate. On the contrary, it should signal the polity that, failure in this critical area of our development has been proven beyond any empirical works can ever do.

Nonetheless, as we were ‘by standers’ to the on set of the crisis, we are even ‘by standers’ in the recovery process, for we can hardly do any thing to influence the same, except to wait for the recovery in the west, so that ours comes as a by the way.

This is by no means the way a countries/economies are run/managed. Development has to be planned, and managed to ensure that, common good of peoples are optimized.

Short of this renders governments illegitimate as custodians of the country’s well being, which is essentially the growth of their economies and promoting high standards of living of their people.

Unfortunately, many African countries are run on models that negates the principles of a development state in the sense that, they lack tenets of such state except in well documented development plans which are also political rhetoric that are never assessed as to their success of failure.

One then wonders what has happened to many development plans (some African countries are preparing their 34th… development plan) African countries have drawn (assisted by foreign consultants who least understand environmental setting) as these have not been translated into tangible development deliverables.

This again puts the ball into the court of our political economy, which has failed to translate good statement of intentions in these plans, into actual intentions over the period these countries have been ‘independent’. 

Nevertheless, few of our countries have identified critical sectors (economic triggers) that may push such economies to their next level of growth which is dubbed sustainable. There is no single model of development that can be replicated in other countries as political, environmental, societal and economic factors negates one size fits all approach to development.

This development paradigm pursued by Bretton Wood institutions with devastating results and no wonders that, these institutions will be judged harshly by economic historians.

The problems with these institutions is that, they pretended to know better countries they were prescribing all sorts of economic solutions, that had many centuries worked in other countries.

Given that any refusal to follow their prescriptions meant a freeze in financing of these economies meant that, most of them under took the same as a matter of last resort.

Managers of economies must know what is good for their economies and request assistance to complement this, but this should by no means be its substitute as has been the case in Africa.

Our countries need to identify (home grown solutions to local development challenges)  economic triggers and develop policies that would place these at the centre of their development.

However, whichever strategies are used, such countries will need to address limitations in their financial systems which may can not finance any meaningful agenda in its current form.

Thus, in case of Rwanda, total deposit liabilities in financial systems tell a story of a very shallow systems we have to address as a matter of urgency.

As pointed out in the previous article, The Government of Rwanda’s performance as measure by GDP (increase in out put of goods and services in one financial period) of 11.2% is by all standards a great achievement. But for us to maintain and perhaps increase it, we will need more resources which our financial system can hardly provide.

This will be difficult during this financial crisis where our financial systems may not easily access foreign funds in the short-run, but as the crisis weathers out, our financial system will have to be well positioned to finance our ambitious development agenda.

In the medium term aid and grants from multilateral and bilateral sources could assist as long as this funding is aligned to our development agenda, but we should in the process develop our own capacity (financial) to finance this development agenda.

The insinuation that, Rwanda is a small country and thus deserves a small financial systems is simplistic. Countries are no longer defined by their sheer geographical area/ size, but by the strength of their economies, so that countries such as Singapore, Switzerland, and Mauritius just to name a few, are economic giants when their size is many times smaller than the size of Rwanda.

Development literature has no trace of size being a variable for growth and development of a country, as it has no significance to that end.

What is important is the model of development selected and which fits in the setting the country finds herself in, that ultimately defines and determines her growth path and thus development.

Ends