Saturday, August 15, 2009

Investment and Banking

Banking in Africa has long been problematic. Because local banks are often unstable and corrupt, governments and industry rely on international banks. South Africa and Egypt alone have a thriving banking sector, aided by the international sanctions of the apartheid era, which forced out the once-dominant British banks for the former. In the years after independence, African governments heavily regulated the banking sector and placed strict limits on international competition.

In recent decades, banking reform has been a priority of the IMF and World Bank. One important reform was obtaining permission for increased penetration by foreign banks. South Africa and Egypt have been the most successful in attracting local operation of foreign banks. In 2007, Egypt surpassed South Africa as the biggest recipient of FDI recording $11.1 bn. This trend continued in 2008, where Egypt attracted $13.2 bn in FDI.


Encouraging foreign investment in Africa has been difficult. Even Africans are reluctant to invest locally; about forty percent of sub-Saharan African savings are invested in other markets. The IMF and World Bank only lend money after imposing stringent and controversial conditions such as austerity policies.

However, China and India[34] have showed exponentially increasing interest in emerging African economies in the 21st century. Investment in Africa by China and African trade with China has increased dramatically in recent years[35][36], even regardless of the current world financial crisis.[37] The increased investment in Africa by China has attracted the attention of the European Union and has provoked talks of competitive investment by the EU.[38] Members of the African diaspora abroad, especially in the EU and the United States, have increased efforts to use their businesses to invest in Africa and encourage African investment abroad in the European economy.[39] Remittances from the African diaspora and rising interest in investment from the West will especially be helpful for Africa's least developed and most devastated economies, such as Burundi, Togo and Comoros.[40]

Angola has announced interests in investing in the EU, Portugal in particular.[23] South Africa has attracted increasing attention from the United States as a new frontier of investment in manufacture, financial markets and small business[41], as has Liberia in recent years with new leadership.[42]

There are two African currency unions: the West African Banque Centrale des États de l'Afrique de l'Ouest (BCEAO) and the Central African Banque des États de l'Afrique Centrale (BEAC). Both use the CFA franc as their legal tender.

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