To answer this, we need to first look at the origins offinancial liberalisation, which has been one ofthe most influential and most contested policy programmes of the past half-century. Built on the seminal contributions in 1973 of prominent development and monetary economists Ronald McKinnon and Edward Shaw, the process has broadly involved liberalising interest rates, removing credit controls and directed-credit obligations, reducing state ownership of banks, easing restrictions on the entry of foreign banks, and opening the economy to international capital flows. In Southern Africa, it was supposed to be an avenue through which the poor, who form the bulk of the Sadc population, might gain access to financial resources and so escape the pockets of poverty in which they are trapped.
But have these processes benefited Sadc or Africa? We need to pit McKinnnon and Shaw’s assertion that liberalisation raises growth against the neo-structuralist, post-Keynesian argument that liberalised finance is inherently prone to instability. The recurrence of liberalisation-related banking crises across Latin America, East Asia and Africa lends weight to this view. Liberalisation only succeeds where macroeconomic stability, prudential supervision, legal infrastructure and institutional quality are in place, and where reforms are sequenced so that the domestic financial system is strengthened before it is exposed to open capital flows. This frames the pressing need to improve Africa’s financial architecture.
Its first-priority problem is less an absence of capital than a shortage of appropriate structures to mobilise it: an estimated several trillion dollars of domestic capital, in bank assets, pension funds and reserves, is largely locked in short-term, low-risk instruments such as government bonds rather than in long-term, productive investment. The second priority is to reduce debt and rebuild policy autonomy. A large number of African countries now spend more on servicing debt than on public health, and the combination of high debt with constrained autonomy makes liberalisation precarious: open capital accounts on a foundation of high debt invite volatile inflows and outflows, currency instability and reliance on risky short-term financing, while higher interest rates raise non-performing loans and weaken bank balance sheets.
The third priority is to deepen regional integration. Africa ’s financial sector remains bank-dominated, with only a few countries, such as South Africa and Kenya, possessing deep and liquid securities markets; weak regional integration leaves markets fragmented and exposed. The fourth priority concerns the classic preconditions. Achieving low and stable inflation is necessary to keep real deposit rates positive without extreme nominal rates, to allow banks to price risk and to make bond and equity markets attractive. Strong prudential regulation must be put in place before liberalisation, not after a crisis has forced it. My forward agenda centres on newer requirements. The first is actionable climate finance, including grants, loans and private investments that are immediately usable for bankable, scalable mitigation and adaptation projects. The second concerns resilience to shocks. The Covid pandemic sharply increased inequality, straining the resilience of financial systems and underscoring that the capacity to save is central to financial resilience.
The third is the competition–stability –growth trilemma: how to foster banking competition, preserve stability and drive growth simultaneously. The fourth concerns the financing of Africa’s natural
wealth. Converting its resources into sustainable development requires moving from raw commodity exports to beneficiation, industrialisation and better governance. Conclusively, the conundrum of financial liberalisation resolves not into a verdict of success or failure but into a question of conditions. In Sadc, credit, bank stability, financial inclusion, institutional quality and management of illicit financial flows jointly determine whether liberalisation reduces or reproduces the majority ’s poverty.
Africa ’s problem is not principally a shortage of capital but a shortage of the architecture, the institutions and the prudential strength needed to mobilise capital safely and to
direct it towards the productive, inclusive and sustainable. Reform must, inter alia, strengthen supervision before opening capital accounts, embed financial inclusion alongside financial literacy and stem the illicit outflows that drain the continent’s resources. The future of financial reform in Africa lies not in the simple choice between more or less liberalisation, but in reform that is better sequenced, better supervised, more inclusive, and, increasingly, aligned with the imperatives of climate and sustainable development.