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July 2010

The Africa of Tomorrow

Ryan Hahn's picture

Is Africa the next hotspot for international investment? That's one of the contentions of the McKinsey Global Institute in a recent report entitled Lions on the Move: The progress and potential of African economies. Collectively, African economies saw a significant uptick in growth over the last decade, with GDP growing at a 4.9 percent annual rate from 2000 through 2008.

As part of Asli's FPD Chief Economist Talk series, Susan Lund, the principal author of the report, came to the World Bank last week to discuss her findings. A video of her talk appears below the jump. The talk itself runs to the 29-minute mark, and the Q&A that follows runs another 52 minutes. Clearly, this presentation captured the attention of World Bank staff.

The Status of Bank Lending to SMEs in the Middle East and North Africa Region

Roberto Rocha's picture

Editor's Note: The following post was submitted jointly by Roberto Rocha, Senior Adviser, MENA, Rania Khouri, Director, Union of Arab Banks, Subika Farazi, Consultant, MENA, and Douglas Pearce, Senior Private Sector Development Specialist, MENA.

Small and medium-size enterprises (SMEs) are increasingly a priority for policymakers in the Middle East and North Africa (MENA) region, who see SMEs as key to solving the challenge of improving competitiveness, raising incomes, and generating employment. Data from the World Bank’s Enterprise Surveys suggest that access to finance for SMEs is more constrained in MENA than in other emerging regions, with only one in 5 SMEs having a loan or line of credit. Yet until recently there has been no comprehensive survey of the supply of SME finance in MENA. SME policymakers may therefore lack comprehensive information to design reforms, while SME finance providers may not have access to valuable market information to inform design of SME financial services and delivery channels.

To fill this knowledge gap, the Bank recently carried out a survey in cooperation with the Union of Arab Banks of SME lending in the region. We were fortunate to receive a very high response rate – we have data from 139 banks, which account for about half of MENA banks and almost two thirds of the banking system loans in 16 countries. The survey covered the following themes: i) strategic approach to SME lending, ii) main products offered to SMEs, iii) risk management techniques employed, and iv) SME lending data. This is the first dataset of its kind for this region, and builds on similar efforts in the Latin America and Caribbean region.

Lions on the Move: The Progress and Potential of African Economies

Editor’s Note: The following blog post was contributed by Susan Lund, Ph.D., Research Director of the McKinsey Global Institute, McKinsey & Company’s business and research arm. Dr. Lund will be making a presentation at the World Bank on July 20th summarizing the institute’s new report, Lions on the move: The progress and potential of African economies, which can be downloaded for free at www.mckinsey.com/mgi.

Tomorrow I will have the opportunity to present new research on Africa's economic prospects at the World Bank, home to many Africa experts and the source of so much invaluable research on the region. I have no doubt the combination of expertise from the McKinsey Global Institute and the World Bank will produce a lively discussion. As you well know, Africa continues to face many challenges, including poverty, disease and hunger. But our report shows Africa is also a land of great progress and potential. In this blog entry, I briefly summarize some of our key findings. We hope our report will provide a useful fact-base for the World Bank in its lending programs and dialogue with Africa’s policy makers and private sector.

We at McKinsey find many of our business clients are eager for insights into Africa’s recent acceleration in GDP growth. Africa’s collective economy grew at a 4.9 percent annual rate from 2000 through 2008, twice as fast as the pace of the preceding two decades. Africa is the third fastest growing economic region in the world, after emerging Asia and the Middle East. The continent’s combined economic output, valued at $1.6 trillion in 2008, is now roughly equal to Brazil’s or Russia’s. Africa offers investors the highest rate of return of any developing region.

Same All About Finance Blog, New Blog Platform

Ryan Hahn's picture

Readers of the All About Finance blog may have noticed a change in our format over the weekend. That's because we have moved to the platform that supports the World Bank Group's family of blogs, located at http://blogs.worldbank.org. We'll share a common face with the Bank's many blogs, but continue to bring you the same content from Asli and colleagues.

Can the Business Environment Explain International Differences in Entrepreneurial Finance?

Leora Klapper's picture

It is well established that financial development is necessary for the efficient allocation of capital and firm growth, yet firm-level surveys have repeatedly found access to finance to be among the biggest hurdles to starting and growing a new business. For instance, in the World Bank’s Enterprise Surveys standardized dataset for 2006-2009, 31% of firm owners around the world report access to finance as a major constraint to current operations of the firm, while this figure is 40% for firms under three years of age.

In a recent paper with Larry Chavis and Inessa Love we address two types of questions: (1) What is the relationship between firm age and sources of external financing? and (2) Is there a differential impact of the business environment on access to financing by young versus old firms? 

To summarize, we find systematic differences in the use of different financing sources for new and older firms. We find that in all countries younger firms rely less on bank financing and more on informal financing. However, we also find that young firms have relatively better access to bank finance in countries with stronger rule of law and better credit information and that the reliance of young firms on informal finance decreases with the availability of credit information.

Reforming Bank Regulations

Asli Demirgüç-Kunt's picture

It is no surprise that the recent financial crisis has sparked a new round of regulatory reform all around the world. The crisis has certainly exposed significant weaknesses in the regulatory and supervisory framework and led to a debate about the role these weaknesses may have played in causing and propagating the crisis. As a result, reform of regulation and supervision is a top priority for policymakers, and many countries are working to upgrade their frameworks. But there are more questions than answers: What constitutes good regulation and supervision? Which elements are most important for ensuring bank soundness?  What should the reforms focus on?

The Basel Committee – a forum for bank supervisors from around the world – has been trying to answer these questions since 1997. The Committee first got together that year to issue the Core Principles for Effective Bank Supervision (BCPs), a document summarizing best practices in the field. Since then many countries have endorsed the BCPs and have undertaken to comply with them, making them an almost universal standard for bank regulation. Since 1999, the IMF and the World Bank have conducted evaluations of countries’ compliance with these principles, mainly within their joint Financial Sector Assessment Program (FSAP). Hence the international community has made significant investments in developing these principles, encouraging their wide-spread adoption, and assessing progress with their compliance.

In light of the recent crisis and the resulting skepticism about the effectiveness of existing approaches to regulation and supervision, it is natural to ask if compliance with this global standard of good regulation is associated with bank soundness. This is what I have tried to do with Enrica Detragiache and Thierry Tressel, two of my colleagues from the Fund. Specifically, we test whether better compliance with BCPs is associated with safer banks. We also look at whether compliance with different elements of the BCP framework is more closely associated with bank soundness to identify if there are specific areas that would help prioritize reform efforts to improve supervision.