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Is Africa the Future of Finance?

Posted By E. Alex Floate, Friday, October 11, 2019

Alex Floate, a member of our Emerging Fellows program envisions the financial system of Africa by next three decades. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

2019 – There is a small isolated village in Africa. In this village is a small one-room schoolhouse built by a foreign aid society in the early 1970s and still used for its intended purpose. This school, like the rest of the village, is not electrified, but it does have large windows that allow light to shine on the large slate blackboard at the front of the room. Sticks of chalk fill the tray, and the board is clean except for a small note in the upper right corner; “Please silence your cell phones.”

 

2049 – A prefabricated multi-purpose building has replaced the one-room schoolhouse. An array of solar panels and small satellite dishes powers the air conditioning and connects the village with the outside world. In one part of the building, students engage in small groups or interact with holographic images. In another, villagers take advantage of the cool air to lounge and discuss village politics, or conduct business over their various networks. A message flashes across the glasses of one of the villagers; FedEx drone inbound, ETA 5 mins.

 

Even though the ancestors of all of us originated in Africa, the continent was the last place to achieve the post-colonial dream of self-rule and determination. In many places, local strongmen took advantage of colonial structures and culture to exert control over the people and the economy. The promises of freedom and economic prosperity fell mainly to those involved in the corrupt governments or local representatives of foreign resource extraction firms.

 

There was an advantage for Africa as the 21st Century began. Without large scale legacy infrastructure or deeply entrenched economic systems, Africans were free to begin creating new ones. For electricity generation that meant there were fewer coal plants or outdated nuclear reactors creating environmental and safety issues. For finance, that meant fewer established institutions to dominate the commercial and political landscape.

 

The first step came with the build-out of cell phone capability. In many places, mobile phone penetration exceeded access to electricity, with users dependent on gas generators or solar panels for recharge. As networks increased in broadband capability, the population became adept users of phone apps. They used local networks focused on creating and marketing businesses, sharing information on resources, banking, education, and news.

 

New financial products to meet the needs of the population began appearing. With over 50% of the population sub-Saharan Africa previously excluded from the financial system, these new products began offering new opportunities. The ability to save and invest allowed for an accumulation of wealth. Mobile payments allowed for participation in markets outside their local ones. Micro-lending and new insurance products provided farmers and entrepreneurs with increased opportunities. The companies providing these products prospered as well, extending their reach throughout the continent.

 

African entrepreneurs understood they did not need to industrialize, but to innovate in today's finance and technology markets. The impetus to build finance hubs throughout Africa, and in the process marshal both homegrown and foreign funding, increased both the quantity and quality of financial companies. Initially done at a city level, as the results began to show promise and profits, national governments began to examine how to duplicate the results through investment and policy.

 

By the 2040s, Africa had built a modern consumer and entrepreneur focused financial system, while creating and tapping new local and global markets. An expanding financial system built for purpose served as an example for the world on how a finance system can serve the needs of people while, in the process, unite a continent.

 

© E Alex Floate 2019

Tags:  Africa  finance  fintech 

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What visions of society from the Global South can we learn from?

Posted By Administration, Friday, October 12, 2018
Updated: Tuesday, February 26, 2019

Daniel Riveong has written his sixth post in our Emerging Fellows program. He examines globalization through African and Islamic approaches to social values and economic thought. The views expressed are those of the author and not necessarily those of the APF or its other members.

While globalization recalibrates the relationship between the West and the Rest, our discussions of socio-economic systems are too often dominated by Western sources. More specifically, our choices seem to be either neoliberal capitalism or socialism. This both marginalizes the full diversity of human thought and also deprives us of new ways of imagining socio-economic systems. We should look towards other traditions and consider what we can learn from African and Islamic approach to social values and economic thought, as a way expand our options on building new socio-economic systems and also helping us revisit Western thought.

African social-economic concepts are deeply rooted in communalism, such as in ujaama (familyhood), ubuntu (“I am because we are”), masakhane (“let us build together”), and others. Tanzania’s first president promoted ujaama is an African approach to socio-economics. Ujaama draws upon the idea of an extended family. The individual is deemphasized in favor of communal land ownership, communal labor, and village self-sufficiency. The primary difference from socialism and capitalism is that ujaama, as an economic plan, sought to regenerate the socio-economic systems of communal African villages.

While the ujamaa socio-economic plan ultimately failed, the idea of a more communal system of governance and economics continues in Africa, as represented by Desmond Tutu’s promotion of ubuntu and Tony Elumelu’s Afri-Capitalism. These African concepts emphasize reciprocity over selfishness, collaboration over competition, and reconciliation over punishment. While these concepts arise from the African context, they share similarities with the ideas of conscious capitalism and inclusive capitalism.

In contrast to African guiding socio-economic philosophies, Islamic thought has long sought specific guidelines over wealth and trade. Islamic jurisprudence on economics, called muamalat, encourages trade and wealth. Yet in Islam wealth and trade comes with its limits: profits must be earned responsibility and spending must have a social benefit. There are guidelines on how wealth can be earned, how much profit can be attained, and how it is to be used.

Islamic economic guidelines state that profits must come from being productive, fair, and socially responsible. For this reason, making money from money is prohibited; thus, charging interest, selling uncertainties, and gambling is off-limits. The absolute prohibition on interest was common in the Christian tradition as well, until debates in the 15th century helped to differentiate between interest and usury.

Eleventh-century Islamic scholar Al-Ghazali prohibited excessive profits, warning against attaining more than 10% profit margins or more than 5% for essential goods. (In comparison, in 2016 companies like Apple achieved margins of 21% and John & Johnson 23%.) Echoing today’s socially responsible investing movement (SRI), Shariah-compliant funds have long prohibited investing in socially harmful companies, such as in tobacco, defense industry, etc.

While there is much to learn from rethinking socio-economic systems within the context of communitarian values (such as in ujamaa) or social responsibilities (as outlined in muamalat), such thinking does also exist in the West. We should revisit these similarities in traditions and reinterpret older Western concepts such as “liberté, égalité, fraternité” (what does brotherhood mean today?) and the Roman law of res communis (how can we rethink the Roman concept of the commons?). We should treat these times of uncertainty about capitalism and neoliberalism as an opportunity to revisit the moral basics. Even Adam Smith, the figurehead of capitalism, warned against selfishness and ignoring the poor. What would he say about where we are today?


© Daniel Riveong 2018

Tags:  Africa  globalization  social value 

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