Privatization and liberalization the only way forward

My colleague John Gahamanyi in his last ‘Biz Comment’ seems to be implying , without particularly saying it in black and white, that the local banking sector should be capsulated from foreign competition. Gahamanyi has backed up his argument by highlighting the figures of the latest report by the Central Bank in which it could be interpreted that 8 commercial banks, a majority of them Government owned, took the lion’s share of the profitability of the Rwandan banking sector which he put at US$5 Million. Given his argument my colleague Gahamanyi seemed to be fully satisfied that a figure of US$5 Million was good enough for the national banking industry. These figures can be interpreted to mean that if we were to divide the profit of, each banking brand made US$500,000 or thereabouts per year as returns to their shareholders. This comes in the backdrop of the African banking awards nomination as a continental yardstick to measure how banking in Africa is conducted. In the nomination survey which is carried out annually only two brands from East Africa could measure up this test of being labeled as the major continental players. Gahamanyi seems to maintain that Government should maintain its holdings within the local banking brands after because the foreign players have not showed much in terms of performance. I will not dwell into the known reasons why Government has to divest from business. However I will remind my colleague about the challenges within the local banking industry. How will these local banks, in a situation where there is no liberalization of the sector, manage to service the prospects that come with the restructuring of the entire economy? How will they, for instance, service the inflows into the economy expected in the region of US$200 Million every year with the huge challenges that they currently face? How will they infuse professionalism within their working sites given the ‘business as usual’ scenario which the argument seems to champion? We have had several debates with my colleague Gahamanyi about the local banking sector. In one of these I had told him that one of the reasons the Central Bank is issuing out new banking licenses emanates from the fact that the local players are incapable of offering seamless banking services across board. In a situation where the Central Bank is convinced that there is saturation of players, then it will not see any reason of issuing new licenses. That not being the case, as we speak, means that more players have to come in. I would say that issuance is dictated by market forces. The current situation to me seems to be that local players are not able to fully satisfy the needs by the economy to have a world class banking infrastructure capable of oiling the prospects of the long term economic planning models. I cannot think of any other reason why the Central Bank has hinged it supervision on the platter of liberalization and privatization. ojiwah@gmail.com