Advanced Capital Markets Can Drive Africa-Led Development and Innovation
The Motsepe Foundation is a proud supporter of the IFC-Milken Institute Capital Markets Programme. The programme, launched six years ago, has 170 policymakers from over 40 countries as graduates. These policymakers have been equipped with the tools and knowledge to strengthen their countries markets and explore innovative financial solutions that respond to social and economic challenges.
The capital market is a driver of prosperity. The buying and selling of bonds and stocks is how entrepreneurs are able to invest in their growth and governments access to finance for infrastructure and other larger projects.
Capital markets in sub-Saharan Africa are more matured in some countries than in others, but overall, there is space for growth in comparison to other emerging and developed economies.
By supporting the education and training of financial policymakers on the continent the Motsepe Foundation is on a mission to promote Africa-led development, improve access to finance for entrepreneurs, enable inclusivity in continental financial markets, and leapfrog financial systems to future-readiness potential.
Due to Africa’s limited capital, the focus has been on allocating available resources towards immediate and strategic aid. Without opportunity to divert capital towards development, such as infrastructure and investments that will enable equitable transformation over the long-term, the economic resilience of African countries is constrained.
A more specific feature of Africa’s development is the limited scope of financial education, which has a more technical focus at the expense of providing greater understanding of the context and development needs of a country.
By supporting financial leaders with the expansion of capital markets, the financial sector could be re-shaped to align to country-specific needs. Capital markets have the potential to finance development priorities if researchers and policymakers are given the understanding and the tools.
Proximity to Finance for Entrepreneurs
Despite an abundance of ideas and far-reaching possibilities for growth, Africa’s entrepreneurs are hindered by limited access to finance. Financial capital for businesses allows for growth, enabling small businesses to become larger players in their countries and industries.
In Africa, it is estimated that SMEs are responsible for 80% of jobs. As the population of Africa expands, the growth of these SMEs will determine the employment opportunities that are available.
For entrepreneurs operating on the continent, their good ideas find capital overseas in external markets. Developing continental capital markets will alter this status-quo by making it more effective for entrepreneurs to raise finance on the continent and match the job creation required for the next generation.
Estimates suggest that across Africa, women are more likely than men to start businesses. The reasons for this are complex and mainly due to a lack of economic opportunities available for women. Unlocking the potential of women-owned businesses, which stand to broaden economic growth areas and bring social benefits for families and communities, requires inclusive financial systems.
Exclusion from the capital market is due to misunderstood needs and incomplete information. For women in particular, limited information on their assets prevents access to finance. The collateral that women own may not be the standard accepted collateral and this is an area that where innovative thinking could offer solutions as continental capital markets expand and strengthen.
Alternatives for collateral and broader definitions of what constitutes collateral are possible and are already being implemented. By sharing this information with policymakers, more people will stand to benefit from capital markets, eliminating the dynamics of insiders and outsiders to economic opportunity.
Leapfrogging Financial Systems
Since the introduction of mobile money, Africa has taken the lead. Africa now accounts for 70% of the world’s $1 trillion mobile money value. This is an example of how Africa’s underdeveloped financial systems can hold promise for introducing innovation that disrupts the industry.
The IFC-Milken Institute Capital Markets Programme creates a network for policymakers in emerging and developed countries to come together and exchange best practices. The internship opportunity at leading financial institutions in the United States is an opportunity for continental professionals to learn from the best and translate their learnings into best practices that suit the circumstances of their country and region.
The Motsepe Foundation believes that the next big disruption can come from the continent. Africa’s twin foci on social development and growing economic value can yield innovation that is meaningful to the continent and to the rest of the world. It is important that more ideas are funded by African institutions so that the prosperity is shared and re-invested into more big ideas.