Why Financing Govt Is More Rewarding In Africa Than Financing Enterprise And The Threat To Economic Integration

The gradual implementation of the African Continental Free Trade Area (AfCFTA) has highlighted the potential benefits of increasing intra-African trade, currently at 16%–17%. Africa's integration promises to boost growth, job creation and shared prosperity for its 1.5 billion population. Key drivers of intra-African trade, such as visa-free travel and connected payment systems, can potentially raise intra-African trade to over 25% within five years.

These measures aim to simplify commerce and attract investors and financiers who can fund the transport and logistics necessary for cross-border African trade. Ghana's President, John Dramani Mahama, recently called for local-currency trade settlements and integrated digital payments, emphasizing the importance of producing more value in Africa and making it easier to trade African value across the continent.

However, financing government can sometimes be more rewarding than financing enterprise due to high interest rates on treasury bills and bonds, which offer attractive returns with fewer operational demands than investing in the real economy. This creates an incentive for governments to borrow heavily, potentially eroding the need for private sector investment.

America's relative decline in manufacturing may be partly attributed to financialisation, where financial returns and shareholder valuations take precedence over business decisions, a danger that Africa should avoid. Affordable finance should be at the heart of Africa's integration agenda, as a functioning single market would strengthen the commercial case for industries like factories, agricultural processing, and regional supply chains.

To achieve this, Africa needs a connected economic system that includes low, stable inflation, credible public finances, reliable electricity, predictable taxation, and enforceable contracts to support productive enterprise.