The African Development Bank (AfDB) has invoked the spectre of the Arab Spring to caution underperforming countries against the dangers of the financial exclusion of some citizens.
“Africa is now the world’s second fastest growing region after Asia, with annual GDP growth rates in excess of 5 percent over the last decade. Despite this growth, the “Arab Spring” events showed that good economic growth in the continent had not translated into shared prosperity and better livelihoods for the majority. Growth has to be inclusive to be socially and politically sustainable. One key component of inclusive development is financial inclusion, an area in which Africa has been lagging behind other continents. Less than one adult out of four in Africa has access to an account at a formal financial institution,” the bank says in its “Financial Inclusion in Africa” report.
In the report’s foreword, Mthuli Ncube, Chief Economist and Vice-President African Development Bank Group says that while many African countries have achieved high growth rates over the past decade, and aspire to structural transformation, “the good performance has not translated into significant poverty reduction and shared prosperity.”
According to the report, 70 percent of adults in Botswana do not have an account at a formal financial institution and to the International Monetary Fund, Botswana’s income inequality is one of the highest in the world, especially when compared with other high middle-income countries. An extrapolation of what Ncube says suggests that Botswana would do well to steer clear of the path that Tunisia had embarked when it caught fire in late 2010.
“In terms of economic indicators, North Africa was performing well, but the young, low-income earners, and other vulnerable groups had been excluded from employment opportunities and other means of generating livelihoods to enable them to exit poverty. The civil unrest and social and political tensions of the so-called “Arab Spring” were a reality check to many countries in North Africa to be more inclusive. The challenge of inclusion is not new, but the social explosion in North Africa has been an eye-opener for policymakers everywhere, and for the development community as whole,” he says.
The so-called “Arab Spring” is a term for the revolutionary wave of demonstrations and protests that engulfed the Arab world beginning December 2010 and resulted in the ouster of the leaders of Tunisia, Libya, Egypt and Yemen. AfDB says that in order to prevent situations such as these, there should be financial inclusion that would ensure that economic growth performance is inclusive and sustained. Such inclusion refers to all initiatives that make formal financial services available, accessible and affordable to all segments of the population.
“This requires particular attention to specific portions of the population that have been historically excluded from the formal financial sector either because of their income level and volatility, gender, location, type of activity, or level of financial literacy,” the banks says.
The bank further recommends the appointment of “Financial Inclusion Champions” who could be “providing for a dedicated unit or staff member in the central bank, ministry of finance, national statistics office, or other organisation.” These champions would coordinate research efforts and advocate for more financial inclusion data.