Category: Editorial

Eighteen months after resigning in the aftermath of the Libor rate-rigging scandal, Bob Diamond is plotting his comeback. Last week the former Barclays chief executive raised $325m from investors. He is now looking for an African financial services acquisition on which to spend the cash.

Yet if this fallen titan has not after all been condemned to the underworld, he appears at first sight to be heading for a relative backwater. Banking services are poorly developed in Africa. About 60 per cent of Kenyan adults are without a bank account, for example, compared with just 3 per cent in the UK.

Banks concentrate on serving parts of Africa that are home to most of its wealth but few of its people. Much of the continent is too poor to sustain costly branches and infrastructure. Dysfunctional institutions can also be a hindrance, although these have been improving lately. Property registration costs are falling, and 70 per cent of African countries now have a national system of credit records. But enforcing contracts remains difficult; legal fees amount to roughly half of the average claim.

The result is that millions must rely on cash alone, or fall back on informal arrangements for making payments and raising credit. This stunts economic activity and adds to the precariousness of many people’s livelihoods.

The pent-up demand for financial services is evident in the ingenious improvisations that Africans are devising to meet it. In many places, mobile phone airtime balances have assumed the status of unofficial currency, after customers realised they could settle personal debts by transferring credit from one phone to another. Safaricom, the Kenyan network operator, has formalised the service, in effect turning its army of phone card hawkers into a network of roving bank tellers. It now collaborates with Commercial Bank of Africa to offer interest-bearing accounts and small loans.

New technology is bringing down costs just as an era of economic growth seems finally to be dawning on Africa. Mr Diamond is not the only banker to spy opportunity in what is now the second-fastest growing region in the world. Hedge funds and private equity companies, too, have been racing to do deals.

This is an occasion on which bankers’ commercial ambitions coincide with the broader social good. But policy makers should nonetheless be alert to possible dangers. Recent history shows that a booming financial services industry can garner undue influence, even in advanced countries with robust institutions. It would be a tragedy if Africa’s rise were cut short by similar mistakes. While governments bear primary responsibility for regulating financial conduct, international organisations such as the World Bank should issue vocal warnings if they have grounds for concern.

Banking is a maligned industry but an indispensable one. It will be a mark of progress if foreign investment means that fewer Africans live beyond its reach.

– Financial Times

Three years ago, a 26-year-old fruit vendor named Mohamed Bouazizi set himself ablaze in the central Tunisian town of Sidi Bouzid after being shaken down and humiliated by corrupt local officials, setting off an outpouring of anger across the Arab world against tyrannical regimes. But what was hailed as the Arab Spring soon disintegrated into dismal and violent sequels, most notably in Libya, Egypt and Syria.

Tunisia, too, had its dark days: an Islamist government elected in 2011 proved divisive and ineffective; the assassination of two prominent opposition politicians further undermined support for the government, leading to a deepening political and economic crisis, arguments over the role of Islam in government and the threat of terrorist violence. Yet now it is Tunisia, once again, that could show the way to get the transitions to democracy back on track.

Last week, Tunisia’s ruling Islamists reached an agreement with opposition parties to put a caretaker administration in charge until new elections can be held. The current minister of industry, Mehdi Jomaa, a mechanical engineer with a background in the private sector, was named prime minister and charged with forming a technocratic government. The deal followed several weeks of negotiations brokered by labor leaders.

As Carlotta Gall described in The Times this week, two leading politicians from different political poles — former prime minister Beji Caid Essebsi and Rachid Ghannouchi, the leader of the ruling Islamist party, Ennahda — came to recognize that only a broad political compromise could halt the country’s downward spiral and entered into dialogue.

The deal could still unravel. Extremist protests were reported in Tunis and Sidi Bouzid on the anniversary of Mr. Bouazizi’s self-immolation. A constituent assembly is still working on a new Constitution; Mr. Jomaa must still select a Cabinet; and a date has to be set for new elections, which would be at least six months away. But Tunisia — the smallest of the North African countries, with a population eight times smaller than Egypt’s — has had advantages from the outset over other Arab states caught up in political tumult. It avoided excessive political score-settling against the former elite, and it kept its military under civilian control.

Now, three years after it inspired the citizens of other Arab nations to seek a better deal from their leaders, Tunisians can show that political compromise is possible. For the West, that’s something well worth supporting.

– New York Times

Until the historic ruckus between the then President Olusegun Obasanjo and his deputy, Atiku Abubakar, over the affairs of the Petroleum Technology Development Fund, PTDF, only a handful of Nigerians could claim to have heard of the PTDF, not to talk of imagining the funds said to have accrued to it. Established in 1973 to train Nigerians in the fields of engineering, geology, science and management in the petroleum and gas industry, it receives its funding from the signature bonuses and fees on oil block concessions, bidding fees and charges from acreage allocations received by the Department of Petroleum Resources, DPR, and investment income (interest and proceeds made on investments of the fund’s capital).

Although the fund had netted a whopping US$ 1.7 billion by 2000, it wasn’t until the sleaze involving hundreds of millions of dollars starring the duo of the former President and his deputy that the affairs of the fund came into public reckoning.

By the same token, Nigerians are today familiar with the nation’s pension funds story. But then, this is not so much on account of senior citizens made to stand in the hot tropical sun in the now familiar ritual of biometric capture to clear the pension house of its many ghosts; rather it is more about the scams in the pension house, particularly the scale of fraud perpetrated by officials. Nigerians are today familiar with the National Assembly Joint Committee on Public Service and Establishment’s finding of misappropriation of N273bn pension funds between 2005 and 2011.

Over the years, Nigeria appears to have evolved special purpose funds to take care of almost every purpose under the sun; from agriculture to industry, to ecology to small and medium scale industries.

We have some, like the National Automotive Council Fund, drawn from two percent levy on auto imports, originally designed to kick-start the development of the automobile sector. There is the rice funds established by the late President Umaru Yar’Adua in 2008 with N10 billion, but which only came into the news when the Minister of Agriculture and Rural Development, Akinwunmi Adesina, suspended its operation for gross abuses. The companies that were supposed to utilise the money for the development of the rice sector were said to have diverted it to bring in cheap brown rice from overseas! Not to talk of the N100 billion textile funds, whose impact on the sector’s revitalisation has been, at best, modest.

And then there is the Ecological Funds on which the Federal Government charges two percent on the federation account, whose utilisation has not surprisingly been mired in politics.

Not even the private sector seems to have been spared of the menace of loose funds with unclaimed dividends said to have reached N60 billion by the end of 2012.

While there may be nothing wrong with having different funds to address specific problems considered pivotal to the economy, the issue is whether the existence of many of the special purpose funds can be justified on the basis of their mandates. Of course, in the absence of effective oversight over their operations, many have suffered gross abuses by those charged with administering the funds.

It seems about time the National Assembly looked into their enabling laws to see which of them needs to be retained, realigned or scrapped in line with the nation’s developmental objectives. We find little merit in retaining institutions which, apart from being unable to deliver on their mandates, have grown fat and corrupt.