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

Lost & Found: Took a Break to Get Better

It’s been exactly a month since I’ve published an entry. This isn’t due to a loss in enthusiasm. I’ve changed my process and now instead of taking a day off to put together a moderately lettered post, I’ve decide to work on multiple projects at once, and publish twice weekly. This is where we are. This post is really a letter to you who has given an ear to this experiment in idealism, and taking on my own self-doubt. The reception has been great, and I am nothing short of thankful. Here’s a preview of what’s to come. (I’ll provide a link to the relevant articles as they become available)

Count Me In: Understanding the Inclusive Innovation. This will look at how description and prescription of innovation is changing.The urbanisation and rapid growth in emerging markets has contributed to a collectively significant market segment at the bottom of the pyramid, it is increasingly opening the field to disruption as innovators are being forced to tear up the rule book.

Is South Africa Great?  I made a promise to you in the first post and you could look forward to the next installations of the series. Part II: Security; Part III: Democracy; and Part IV: The Verdict

Churchill the Disruptor, Fringe Personalities and Disruption. There’s no doubt that disruptive personalities are far from normal. A study found that incidence of mental illnesses such as depression, ADHD and anxiety are higher in Silicon Valley than in the general population, Winston Churchill himself showed signs of manic depression. Are disruptive leaders great because of these ills or despite them?

Building In Democracy into our Cities: Developing the Post-Apartheid City. The National Development Plan (NDP) described geographical spatial distribution as a problem that has persisted after the fall of apartheid. The spaces we live in were designed to segregate. As in many colonial societies, cities and spaces were designed to serve one segment of the population and specifically keep out another; many post-colonial states such as Brazil have gone as far as to build entire cities from the ground up that would be models of the new society they were constructing. I think South Africa should focus on redesigning the urban landscape by tearing down and building up a fresh concept of city-living in a new democratic dispensation.

Exciting times lie ahead. I will intermittently publish posts related to other topics as they come up. I leave you with words from Shia LeBeouf: LET’S DO IT!!! https://www.youtube.com/watch?v=nuHfVn_cfHU

Part I: The National Quagmire

As a South African I get aroused, as many of my compatriots do, at the mention of our country in any international media outlet, whether the news is good or bad [See Twitter]. We love the sound of our own name, and it goes without saying that there is some sense in how we speak about our democratic experiment that we believe this country to be an exception to the Dark Continent narrative of Africa (a view that has been overturned in recent years). We are a miracle, after avoiding the violent regime change which impeded the development of many newly liberated African states. I think this article is apt in a time where there have been too many incidents that have made us question whether the South African member is as large as what Brand South Africa says it is. From disappointing economic indicators to trouble in parliament and good governance issues our confidence has taken a knock. South Africa can still get it up at the mention of those two geographically astute words, but now more than ever it is perhaps worth asking, in a four part series, “How Great is South Africa?”

I should begin by saying that for starters, throw out the notion that there is a South African “nation”. I will begin by first differentiating a nation from a state in my very lay understanding of the two political terms, and then we would hopefully, if I still have your attention, arrive at the nation-state. If we are able to define the makings of a nation-state we may be able to objectively decide whether South Africa is one of the greats. In this part I only want to setup the parameters of our assessment.

charlesTilly_ThabiPoopedi_SouthAfricaState

Charles Tilly looked at the formation of European States in defining the Predatory State

My understanding of the literature is that the state could very loosely be defined as the centralised authority which is given a monopoly over violence. Charles Tilly’s observation found that European states participated in four key activities of the predatory state which were:

  1. war-making against foreign rivals,
  2. state-making which was violence against internal rivals,
  3. protection of citizens from their own enemies and
  4. extraction of the means to carry out the first tasks (taxation, conscription etc.).

This is the instructive, “predatory state” definition. Basically the state is there to provide security. This definition has expanded over time to include social security, the idea that if discontent will lead to violent revolt from the plebeians, then the state can avoid having to use violence later in crushing insurrection  by exacting distributive measures.

We could find a more modern take on the functions of the state from the United Nations Research Institute for Social Development (UNRISD), the “starter-pack” state should be able to:

  1. Ensure sufficient resources are directed to productive sectors
  2. Provide support in acquiring new technology
  3. Establish legislation in the form of contract law (social pacts) and criminal
  4. Enforce legislation
  5. Fund, deliver and regulate services and social programmes

In this basic state, it is expected that this entity would create the political legitimacy, resource mobilisation capacity (infrastructure) and draw up legislation aimed at regulating the mobilisation of resources by striking a balance between productive-sectors and welfare-enhancing sectors. I would like to posit that the security state is a profound description of the state, as government’s provide services in situations where self-interested private individuals would struggle to self-regulate. The chaos that may ensue could result in conflicts that would make the task of security more difficult. In the next part of the series we will go into the Security factor of our state, and whether our state has been able to discharge its duties to protect from both internal and foreign threats to its client effectively.

The nation concept is centered around identity and, from my experience and research, is often confused with the “state” or the “nation-state”. An example of when the two are often obfuscated is when many people regard Britain or the UK to be a nation, while that is in fact not the case. Britain is really a state mainly made up of the English, Scottish, Irish and Welsh nations. The Empire attempted to implant the idea of a British national in its subjects because nation-building makes it easier for the state to dispense its duties without worrying of divisive animosities amongst its clients. Nation building is indeed done by some form of state to develop this national identity – again, this could be considered a broader aim of its goal as a security-provider (merging the nation eliminates internal strife). I’d like to argue that South Africa is still trying to develop this common narrative, our constitution effectively defines us as a nation-state.

The nation-state is a sovereign state, made legitimate through a regime or a governing law – in South Africa we have a constitution which describes us as exactly that. The founding document of our democracy defines the Republic, based on the following values:

  • Human dignity, the achievement of equality and the advancement of human rights and freedoms.
  • Non-racialism and non-sexism.
  • Supremacy of the constitution and the rule of law
  • Universal adult suffrage, a national common voters roll, regular elections and a multi-party system of democratic government, to ensure accountability, responsiveness and openness.
Constitution of South Africa provides the country political legitimacy of the nation-state

Constitution of South Africa provides the country political legitimacy of the nation-state

If we (South Africans) do not agree with any other description of a sovereign state, by virtue of considering ourselves clients of this particular state we should at the very least accept the constitutional attempt at defining the makings of our republic. After we look at the main factors that make up the Security-Provider state, we will go into our performance as a constitutional democratic nation-state.

I don’t want to have a long contiguous article. In this piece I have set up the criteria for assessment of “How Great South Africa” is, I’m not going to go into how friendly our people are, or wildlife etc. These are all very relative things which we talk about when the hood’s smoking and we’d rather talk over the engine of our democracy coughing and choking until it stops (whether it gets better or finally lets up doesn’t matter because we have such friendly people, and the big five and the protea). My promise to you reader, is three more parts (following this first part where we’ve agreed on the rules of the game, this is not a body count where you’re going to call her an 8 because she is such a nice girl)

In Part Two we will look at matters relating to Security, following that Part Three will look at the Strength of our Democracy as defined in the constitution, and we will finally wrap it up in Part Four Where we decide whether or not there is anything great to this miracle on the tip of Earth’s penis (look at a map of Africa and tell me you don’t see it).

I’d like to think this satire, so I’m going to take any disagreements on the chin, and with the belief that this isn’t viewed as my absolutely unshakeable view. I’ll try keep tongue out of cheek as to not annoy tumblrers who’ve straggled onto my blog. Do make comments below on the piece, I’m a Finance student and the last thing I want to do is impinge of the science of politics.

Here’s a video from a channel everyone knows I track on YouTube daily, Testube News, in their Strength of Nations series they did an episode on South African Power, have a look and subscribe:

Part II is Now Available

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?