Size Matters: Macro vs Micro Finance in Africa

Tale of Two TED Talks

First by young entrepreneur Sangu Delle on how large-scale finance would lead to large-scale impact across the African continent. Second one by Joy Sun, who advocates for microfinancing as a means of allocating funds efficiently.

Going Big

Think the Marshall Plan … for Africa. After the devastation following World War II, Europe was not rebuilt using small microloans. Delle discusses this by first dispelling the misconception that every African is an entrepreneur – or at least a subsistence farmer.

This is a powerful idea, one I’ve discussed with friends at length; that most people in fact just want jobs. They become entrepreneurs in the absence of industries which could provide decent work.

So why wasn’t there a Marshall Plan in Africa?

I’m not going to get into the nuances of our complicated relationship as a continent with the West ; See The Internet for More. However one thing that made the difference between the success or failure of the Marshall Plan was the presence of strong institutions.

The Marshall Plan saw the formation of the Organisation for European Economic Co-operation, which was the predecessor to the OECD and the European Union. This body allocated financial aid from the United States to countries across the region. Loans were made to private businesses and the repayments were used by governments to in turn fund infrastructure projects.

A favourite factoid in the area of development is how the economies of South Korea and Ghana were roughly the same size in the 70s, but the Korean economy powered ahead while Ghana faltered. Korea had the Marshall Plan-type aid programme, Ghana did not. If you need to grow quickly, you need to think a bit bigger than giving every household just enough money to buy a goat. You need to build industries and nurture the industrial titans that come with them.

Something for Everyone

Microfinance is about financial inclusion. Many people in developing countries who would otherwise not have access to financing are now able to gain access to financial services. Microloans have been a powerful tool in alleviating poverty across the developing world.Like macro-finance, the success of micro itself lies within disproving another popular fallacy; “Poor people are poor because they can’t make good decisions”

In this talk Joy Sun goes out to dispel the myth, with some interesting insights.

She explains that empirical evidence shows that in many cases, individuals had repurposed aid given to them; that is, sold donated goods for cash. This cash was used to actually improve their lives. It’s sometimes a cruel thing we do by taking away the autonomy of those we seek to help.

Sun showed that people who received cash were able to work harder while the costs of cash transfers were much lower than regular aid.

The success of microfinance in Africa, and the perhaps the failure of macro, could be attributable again to state of institutions on the continent. It is in a way going around many governments who have been known to misappropriate foreign financial aid. It this achieves a significant degree of efficiency in the developing world. Mobile technology on the continent has also made it a lot cheaper and easier make funds available to individuals.

Sangu Delle and Joy Sun weigh in on how to best provide financial assistance in Africa

Sangu Delle and Joy Sun weigh in on how to best provide financial assistance in Africa

I saY we go big

I am one for the grandiose. I’m an idealist who believes we could clean up our act and push towards macro-finance as Delle suggests. I think that small transfers are only palliative, and a reaction to a failed system. We need a Samsung, VW or Airbus. We need a Marshall Plan for Africa.

I cannot discount the good microfinance has done across the world. What’s your take on the issue?

Part II: Moer en Soek

Where are we?

In the first edition to our “Is South Africa Great?” series we unpacked the makings of the basic state, we agreed that what would then define whether or not South Africa had the makings of a great nation-state would be its performance in those areas. Our analysis came down to two definitions of the state, as a provider of security (which broadly encapsulates both social welfare and defence capabilities) and the constitutional democracy ( as defined in our constitution).

In this second episode we’ll dissect the state of security in South Africa. We will merge both Charles Tilly’s notion of a state and the UN Research Institute for Social Development (UNRISD) basic state. The power of the state to carry out its mandate is very relevant to how great at being a state ours is.

Let the Pissing Contest Begin

All in all, the states ability to defend and secure its peoples and its borders from both internal and external threats. If we were to integrate both Tilly and the UNRISD’s activities of the state we could form the security state definition, I’ve identified three common threads:

Defence Capability (State’s ability to defend against foreign and internal rivals through a capable military and political agreements; the latter seeks to legitimise the authority of the states amongst the international community and its subject)

Rule of Law as a principle, ensures the protection of its subjects including foreigners through legislation, human and property rights and law enforcement.

Economic Capacity. Whether or not a state is able to extract the means to make war and provide protection to its subjects, there has to be something to collect in the first place. Economic vitality has become increasingly important in a more integrated world economy as countries will be less likely to attack a nation with which it trades heavily with. Furthermore, growth in the state’s tax base would increase funding for public programmes.

How does south africa stack up?

Now for our piece de resistance. The Republic of South Africa.

Many still consider South Africa, at the very least, a regional power. The country is however in a very obscure middle passage; I won’t be quick to posit whether it is a country on the rise or facing a downward spiral. The rest of the world and the continent still considers Africa’s most industrialised economy as a significant cog in many of their plans to enter a continent recovering from the hangover that came with weak institutions and looting by ruling elites. Below is an infographic depicting where the fifth most populous country in Africa stands:

Infographic of SA Power

If you’re rather the erudite fellow who read all the Game of Thrones books so far (or at least the jackass who reads plot summaries on Wikipedia)  and hate the TV version for leaving out bits you’d like to think were fun, then here’s my breakdown of the graphic for your sagacious pleasure:

(Otherwise skip to The End of the Article for sloth is also my favourite sin)

Defence

The 2014 Defence Review said that the military was in “critical decline“. This document proved to be a competent analysis on state defence. Years of under spending and a lack of long-term strategic planning has brought the South African Defence Force (SANDF) to the brink. Incidence of terrorism seem to be moving southward as other governments become more adept at dealing with insurgency and terrorism within their own borders. It is becoming increasingly apparent that defending our borders and protecting South Africans doesn’t begin at the Limpopo River.

The military has been a victim of a stable Southern African region, inefficient use of resources in other public programmes has led to cuts in defence spending as a reaction to political pressure.

The nature of combat is quickly changing, the state security apparatus has been slow to transform, and if the recent revelations by the leaked SSA Cables are anything to go by, the security of this country has been hampered by political meddling.

Its not all bad, the Global Firepower Survey ranked South Africa as the third strongest power on the continent after Egypt and Algeria. While slowing population growth is going to mean a smaller cohort of people able to serve the military, the changing technological landscape means the armies of the future will be leaner. The only snag is that they will also be smarter, operating the equipment would need a strong emphasis on STEM (Science, Technology, Engineering and Mathematics).

The Institute for Security Studies  (ISS) named South Africa one of five regional powers on the continent ( a list which included Nigeria, Egypt, Algeria and Ethiopia). The ISS report continued to say that South Africa’s influence was expected to decline as other African countries begin to stabilise and actively participate in the international community. It felt that the southernmost nation was punching above its weight in that much of its influence was conferred through a worldview that it was a proxy state for the entire continent; being one of few governments in the past with political legitimacy. Our place in the G20, BRICS and the UN Security Council is really as good as our influence on the continent. Diplomacy has been our best policy.

The country isn’t under any immediate threat. However, if we aren’t investing in our defence we should look towards closing more bilateral defence pacts with much stronger nations.

Law & Order

I once discussed the idea of the “civil society bubble” we are in, being fortunate enough to be middle class citizens. At some level the country runs like any developed country in the world. The bias towards one end of the wealth spectrum is enough to give South Africa a high ranking on many  good governance indices in Africa.

Signs that it isn’t always the case when you move towards the opposite end of the spectrum is evident in high instances of crime, increase in civil unrest and corruption. Law and Order doesn’t only extend to citizens but every individual within the bounds of the realm. Recent xenophobic attacks, on mostly poor African immigrants has been a telling account of how state’s enforcement of legislation has not been responsive enough. Rome did well to take notice of the mob.

Economy

To get straight to the point: Africa’s most industrialised economy isn’t growing fast enough. Majority of the tax revenue originates from personal income tax, which is an unsustainable position; coupled with high unemployment and inequality this may jeopardise the state’s ability to exact the means of carrying out its functions.

There’s enough literature on the economy of South Africa, so I won’t go into much depth. The focus would be how its economic performance may effect its overall performance as a great state; if you’ve powered through the article to this point you have some idea of how.  Poor output may very well lead to lower tax revenue, which would put pressure on public spending. Slow growth would often affect lower income individuals more severely and in the absence of adequate state intervention lead to a breakdown in civil compliance. Slippery slope much? But it only takes looking at history to see how many times states collapsed as a result of too many empty stomachs.

the end of the article

So how does South Africa stack up as a safe and secure state? It really is a toss up. Looking at some of the data one may be led to believe that the country is really overachieving; overachieving like a car still chugging on despite the fuel light’s furious flickering. All the resources to get it to the next petrol station are available, it is well within our sights – but will we fall short?

I’ll see you in the next installment

No Filter : Cadre Consumption (Collaborative Consumption in SA)

  No Filter” is a new feature in my blog that I want to use as a platform for unfettered, flow state articles. I want to publish ideas off-the-cuff and hopefully spark a conversation or flesh them out at a later stage.

South Africans by in large love to consume, spend, with individual borrowing pegged at around 86% and a persistently low saving rate. We love having things, and nobody is going to tell us we can’t flourish. In our politely cynical way we never forget to say “thank you ANC.”

If we are going to consume our way to our grave or debt counseling, should we perhaps consider a better, more economically efficient way to go about our country’s favourite pastime? There is a way to consume productively, and that is consuming through collaboration.

Collaborative consumption isn’t a new concept and was first discussed by Felson and Spaeth in a 1978 paper titled “Community Structure and Collaborative Consumption. A Routine Activity”. Simply put, it’s the notion of socializing and consuming; having a night out with friends, hitting on the girl at the bar while your wingman leads her “We-need-to-leave”, arm-jerking friend into the fires of Mordor; sharing bed & breakfast with your new lady friend; raising the baby together, or finding out after this long winded sentence that your wingman played frontman a few times and you weren’t just sharing economic goods. Anyway, if you’re still here, it’s the idea that the very selfish desire to consume can be counterweighted by collectivism.

“It will never work” they said before Al Gore invented the internet. The idea of sharing is met with much resistance, it is quite objectionable that a value we spend years instilling into children would work for adults who understand its value – luckily you aren’t really sharing. I prefer the term collaborative consumption to describe business models like Uber or Airbnb designed for what others may call the “Sharing Economy”, because you aren’t really sharing are you? In fact, Airbnb gives you the perfect reason not to let your good mate crash in your spare bedroom “for a week tops” – while a tourist can free up some extra money to take an Uber to the local craft market. The access to the internet has made this new model a reality.

I propose South Africans adopt the term “Cadre Consumption” – the substitute being synonymous to what has been the savvy politician’s way of staying on the gravy train. The collaborative economy has less sinister intention, it rather moves us towards a resource-saving mode of consumption which also creates a collective ownership of the product. There are two things which are distinctly different to how we currently consume, and where the millennial winds are blowing:

  1. Things and Us need to get a divorce : studies show now more than ever, young people don’t like to commit – to jobs that may be disrupted into obsolence nor a smartphone they will be embarrassed to use in public in a year’s time. The hallmark of our time is flux, facilitated by the Internet pervasion and emergence of Big Data. To own is to commit, to a debt and a future of being ineligible for new software upgrades. This isn’t doing away with property rights, but spreading your exposure to disruption across the market for goods. It’s freelancing and being able to do what you love without reciting the corporate six pillar or filing for vacation days.
  2. “Target Marketing” is no longer an excuse to leave people behind: I plan to write a piece on inclusive innovation later. But more businesses have realised the danger in excluding the Bottom-of-the-Pyramid (BoP) when planning a new product. If they must, BoP consumers move up. When they move higher  they don’t suddenly acquire a taste for lobster, they’ll carry that prior rejection with them to the till. Besides that, leaving behind the BoP means deepening the gap between rich and poor – a precursor to economic and political instability.

We won’t be sharing girlfriends, unless that’s what you’re into, but we will be using our resources more efficiently and sustainably. Looking at the state of our country and the planet, something has to change. What’s a little consumption among friends?