Robert Guest, US Editor - The Economist, in conversation with: Maria Ramos, Chief Executive - Barclays Africa Group.

RG: In your speech at the forum, you mentioned that investments in infrastructure were a vital precondition for improving living standards in Africa. You said that such investments would not be adequate unless more capital flows into Africa and between African countries. However, not all capital is the same, and some forms of it may cause harm. What do you see as the risks and benefits of the capital currently flowing into Africa?

MR: Investment in infrastructure is key to maintaining current economic growth rates as well as unlocking further improvements in living standards. Studies regularly show that infrastructure provision in Africa falls far behind that of other low-income parts of the world and the data suggest that the gap is widening. Power consumption per capita in Africa is just one-tenth of the developing-country average and has been falling. Economic simulations by the African Development Bank suggest that if all of Africa had infrastructure as good as Mauritius (the regional leader) has, per capita GDP growth could be 2.2 per cent higher. This figure rises to 2.6 per cent higher if Africa’s roads, ports and telecoms were as good as South Korea’s. This would imply a huge boost to the standard of living and a palpable step towards Africa meeting the Millennium Development Goals.

Infrastructure affects every aspect of people’s lives. It is estimated that only one rural African in three has access to an all-season road, yet road networks are critical to providing links to local and global markets. Information technology provides greater access to information and can help encourage efficiency-building remote transactions. (A farmer with a mobile phone can do a deal with a buyer hundreds of miles away, rather than having to accept whatever price the middleman on his doorstep is offering.) 

Electricity makes it easier to cook food and light your home. For many poor people that makes a huge difference: it is far cleaner and less time-consuming than gathering sticks to light a fire. It also powers health and education services and boosts business productivity. And access to safe water and sanitation profoundly changes peoples’ lives, saving time and preventing the spread of diseases and malnutrition.

An estimated $93 billion a year is needed to build Africa’s infrastructure to a reasonable level. Currently, about half that sum is being found, of which about two-thirds comes from domestic sources (the taxpayer, user fees, etc) and the other third comes from foreign sources. As a financial-services company Barclays Africa has a vital role to play, which is why we are doing deals that lubricate the flow of capital, provide finance for infrastructure development and deepen capital markets.

However, the amount of capital being raised on the continent is simply not enough; more money needs to be found somewhere. In many African countries it is hard to raise more tax revenue. Domestic savings are modest and pools of money of the sort often used to fund infrastructure in rich countries (like domestic pension funds) are often in their infancy. Even though multilateral assistance to the continent, particularly from the various regional and global development banks, looks set to rise, the $93-billion target is still likely to be out of reach. That means that more capital needs to come from the private sector.

The good news is that, as the world’s second fastest growing economic region, Africa is increasingly a focus for global investment. Foreign companies, including financial institutions such as Barclays, are paying much more attention to Africa and its potential. And with African consumers paying, on average, about double for infrastructure access compared with consumers in other emerging markets, the financial returns can look attractive to prospective investors.

There are, of course, risks to these increased capital flows. The most obvious fear is that they will create a boom/bust cycle, with big inflows during periods of high global liquidity followed by sudden outflows when the tide turns. These tidal flows fit poorly with the long lead-times needed for infrastructure projects. They also risk putting undue pressure on exchange rates and associated policy tools, particularly in smaller open economies. For many emerging markets, this fear of fickle investment flows has a particular relevance given the global conditions of recent years. On the whole, however, Africa’s domestic financial markets are too small and illiquid to promote these sorts of flows.

Instead, we see private sector financial investors in Africa seeking out individual projects to finance, recognising the long-term (and illiquid) nature of the investment. Data show that Africa was the only region in the world to see an increase in foreign direct investment (FDI) flows in 2012. These private sector foreign flows may not be at the same concessionary financing levels as some official assistance, but the economic and social returns still make them a very attractive proposition.

The other risk is that the terms and conditions attached to deals might be against a country’s long-term interests. China’s role in Africa has stirred just such a debate. The riposte from African governments is that they are not about to turn their backs on such an important source of finance and infrastructure expertise, particularly given the long investment drought in Africa as well as the massive social and economic advances these services can bring. Negotiated on transparent and commercial terms, China’s interest in Africa can be a large net positive for the continent.

RG: At the Forum, you mentioned that you were piloting a microfinance scheme which gives small loans to female fruit sellers, as well as introducing them to mobile banking. How well, in your experience, do such schemes work? (Please give examples.) In general, do you see microfinance as a sustainable and scalable way of improving the lives of the poor? What are the problems that such schemes face, and how can they be overcome?

MR: I believe that banks can and do play a key role in economic development. Our approach at Barclays Africa is to make a contribution both through our commercial activities and by supporting community-based and not-for-profit initiatives.

We want to extend the frontiers of financial inclusion: to help more poor people open their first bank accounts and participate more fully in the modern economy. The challenge—for us and for other banks trying to do the same thing—is to find ways to meet the needs of poor customers while remaining profitable.

This requires creative thinking. We have done an enormous amount of work on this, with a focus on the innovative use of technology to deliver basic banking services. The success of M-Pesa in Kenya demonstrates how technology-based financial services such as mobile banking can dramatically increase financial inclusion.

At Barclays Africa we have pioneered a branchless banking model. To begin with, we let new customers open accounts remotely. We have also rolled out in-store banking, where we provide a range of services (cash in, cash out and the selling of value-added services). We work with leading retailers to deliver a money-transfer service.

We have to know our customers in order to serve them. We have put a lot of work into understanding the complex array of financial instruments used by people with low incomes. We have also come to realise that we need good partners; as a bank we do not have all the necessary skills.

Our flagship project is the Barclays Banking on Change programme. It is delivered in partnership with CARE International UK and Plan UK across six of our African markets - Uganda, Kenya, Ghana, Tanzania, Zambia and Egypt. To date we have committed £20 million to this programme and reached over 500,000 people to help them save and manage their money more effectively.

The programme focuses on savings-led microfinance. It supports the establishment of savings groups, such as Village Savings and Loans Associations (VSLAs), in poor communities. These groups encourage communal saving and enable members to earn interest and secure disposable income for their families. We think this is a sustainable approach, and will improve people’s lives.

As a bank, we can also learn from it. Based on what we have discovered about the financial needs of these groups, we have designed a number of Barclays group accounts (savings and an overdraft) and have begun linking savings groups to our branches where possible. In doing so we are the first global bank to have helped informal savings groups join the formal financial sector. Members of these schemes, mostly women, are extremely good at managing their money. For them, every penny counts and nothing is wasted.

We have also learnt some hard but invaluable lessons about how to implement programmes like this. These include:

  • Do not make assumptions about what people need—ask them. It is critical to involve communities and broader stakeholders in shaping and implementing your approach
  • Collaboration is key. No one organisation can tackle a problem as complex as financial exclusion on its own. We need to work together with a range of partners
  • Take a holistic approach – the challenges that people face in their lives tend to be interrelated. Programmes need to take account of the many problems people face.
  • Be willing to challenge the way you do business.

RG: How do you see technology shaping finance and development in Africa?

MR: A report of the Oxford Martin Commission for Future Generations, ‘Now for the Long Term’i, makes the point that technology can enhance educational opportunities, dramatically improve health outcomes, promote free speech and democracy, and allow more people access to global markets. Global connectivity will enrich many lives. But, as the report warns, not everyone will benefit equally. Some people have limited access to the internet, or too little bandwidth, or live in societies that are not very open. In some cases the internet may exacerbate inequality rather than alleviating it.

I think it is important to be aware of this and, as a financial institution, to make sure that we harness technology in a way that reduces economic exclusion. We are in a strong position to do that in Africa. The same report notes that Africa is home to twice as many mobile phones as the United States and is the most advanced continent when it comes to ‘mobile money’.

There is tremendous potential to extend the frontiers of financial inclusion through mobile technology. This is particularly true in Africa given the rate of economic growth in many countries on the continent as well as improvements in broadband capacity. M-Pesa in Kenya has really set the pace and shown that mobile technology can be used to overcome issues of access and affordability, two of the biggest barriers to financial inclusion.

But costs still need to come down further. This technology is still too expensive for almost half of the continent’s population. For now, relatively few Africans have access to smartphones and the full spectrum of data services and applications.

At Barclays Africa we are acutely aware that, like other businesses, we must adapt to the customer’s world. That requires harnessing new technologies and building new capabilities. A priority for us is to be on top of trends in technology innovation and to leverage these to increase mobility. We want to give more people the chance to bank online or via self-service machines. We want to get better at handling mobile payments.

We see strategic partnerships as vital to exploiting the power of new technology. We have entered into joint ventures with mobile-telephone operators as well as retailers because we recognise the value of collaboration. It allows us to combine our skills with those of smart firms in other industries, which helps us provide better services and more convenience to customers. These partnerships have increased customer mobility and made mobile payments more pervasive, eliminating the risks and costs of using cash.

RG: You talked about the importance of engaging local communities and young people to press for more transparency and better regulation in countries which have lots of natural resources but weak institutions. How can this be done?

MR: The question highlights two key areas that we should all be focusing on in Africa: the first is the development of strong institutional capacity, and the second is investment in human capital.

Let me deal with institutional capacity first. Better regulation is necessary, but not sufficient, to build strong and equitable democracies. Strong institutional capacity is needed to ensure that laws and regulations are adopted, and can be enforced. Sustainable economic development needs strong institutional capacity to ensure that markets are regulated and can be stabilised. Good institutions also legitimise markets, by providing people with protection and managing conflict.

Giant strides have been made in Africa to strengthen institutional capacity in all these areas. A good example is the fact that inflation has fallen dramatically over the past ten years. This is directly as a result of stronger monetary policies that are being implemented by much stronger central banks. But there is still a great deal of work to be done, both to protect the progress that has been made and to build on it.

This brings me to the second major area we should focus on: investment in human capital. People are the most valuable resource we have. Any investments we make now we will continue to pay dividends for future generations.

Developing the capabilities of our people, particularly young people, requires different measures in different contexts. Obviously people need education and skills to achieve their full potential. But they also need health care and public transport, as well as social security and safety nets.

Capabilities lie at the heart of the connection between active citizenship and development. They drive sustainable growth because they give individuals the wherewithal to better their own lives.

Although the state has a responsibility to help citizens develop their capabilities, we all have a role to play. That is why at Barclays Africa we spend a great deal of time, effort and money on nurturing the skills of our colleagues, with a particular focus on younger new entrants through our graduate trainee programme. Our citizenship agenda is focused on developing the capabilities of communities in which we live and work. All our efforts are geared to promoting economic growth and well-being.

i ‘Now for the Long Term: The Report of the Oxford Martin Commission for Future Generations’, October 2013, (Oxford: University of Oxford, Oxford Martin School).