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Michel Gonnet - “African nations need new public-sector stakeholders to guarantee long-term investments”



           

Author of the report entitled “Financing VSE/SMEs and safeguarding investments”, published by the Institut de Prospective Economique du Monde Méditerranéen (IPEMED), Michel Gonnet* provides clues to overcoming the challenges for Africa’s development and its integration into the wider Africa-Mediterranean-Europe region. Version française



Michel Gonnet - “African nations need new public-sector stakeholders to guarantee long-term investments”

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(photo : Thomas Cogny)
(photo : Thomas Cogny)
econostrum.info: What are the main difficulties in financing VSE/SMEs in Africa?
 
Michel Gonnet: The widely-accepted analysis revolves around three main points: the size of the informal economy, people’s lack of confidence in the financial system and bankers’ lack of knowledge when it comes to servicing the VSE/SME market.
This has three consequences: a lack of balance sheets that would allow banks to lend, a strong inclination to hoard, which explains the very low savings ratios, and a tendency for bankers to prefer large corporations.
 
Yet, given the intense demographic pressure, developing VSE/SMEs is a strategic matter. Only they can have a decisive effect on job creation -25% of graduates are unemployed-, which remains one of the challenges facing Africa and a critical issue for society.

What does your report recommend with regard to removing these obstacles?

M.G.: The IPEMED is very pragmatic. The first requirement is a good business environment and therefore a stable regulatory framework. It’s an essential element. Africa also needs investment in infrastructure and logistics. Things are improving constantly on the continent but the job isn’t finished yet.

The market and the banks would also need to lend more to businesses, at a time when regulatory requirements are becoming stricter. But there’s also a need for disintermediated financing in addition to the financing of businesses through the financial markets and stock exchange.
 
The solution has to involve a guarantee scheme. But it can’t just be decreed. Operating and good governance rules need to be followed to provide all stakeholders with assurance of the scheme’s sustainability. Involving the banks and taking into account their needs seems essential if it is to become an established system. The bank lends and the national guarantee scheme covers part of the risk together with the financial institution, 50/50, 60/40 or 70/30 depending on the sector’s priority. We have to stay within an economic framework. The bank submits the application and the client is the bank’s client, otherwise it won’t work.
 
An innovative guarantee system could also be set up (there isn’t one) for investment capital across the entire VSE/SME creation and development chain. Stakeholders want it and it would bolster and foster this type of long-term structural financing.

Needs of a general-interest long term investor

What still needs to be done to ensure better investment safeguards?
 
M.G.: To create and develop businesses, Africa also needs a new public-sector stakeholder at national level that will work alongside and with international funding agencies as a general-interest, long-term investor, something like France’s Caisse des Dépôts. But we can call it something different: sovereign fund or public investment bank.

These don’t always exist in Africa. A word of caution, however: public financing must not take the place of the market, but support it, acting in addition to it. The fund should take part in operations to safeguard investments in the form of a public-private partnership, with an obligatory return on investment (financial, but including CSR criteria).


Read the report “Financing VSE/SMEs and safeguarding investments”, published by the Institut de Prospective Economique du Monde Méditerranéen (IPEMED)


* Chairman of GB2A Finance, partner of Priscus France and IPEMED expert for the past ten years.


Interviewed by Frédéric Dubessy


Monday, January 28th 2019



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