Financial Liberalization: The African Experience

Almost a decade after their initiation, financial reforms appear to have had little effect on the economies of Sub-Sahara Africa. Whether the blame is to fall on their initial design itself, or on the partial nature of their implementation, liberalization policies have not mobilized savings, deepened intermediation or raised investment. Yet, Africa needs properly functioning financial markets for a more efficient allocation of resources for growth and risk diversification. How can African governments “correct’ their approach towards financial policy reform? A first step towards refining future policy choices requires an assessment of the short African experience with financial reform. How has progress in institutional and policy reform affected the financial depth of these economies? How have the gains in financial depth, if any, affected saving, consumption and investment? How does the African reform experience compare with that of other developing countries? How do the countries that during the period of reforms experienced substantial increases in aggregate saving compare to those that experienced substantial declines? These are some of the key issues we address in this paper.