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BEHIND
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THE
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BORDER
” CONSTRAINTS ON AFRICAN
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ASIAN TRADE AND INVESTMENT FLOWS
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Efficiency and Accessibility of Factor MarketsAccess to FinanceAnother serious bottleneck for firms operating in Africa is the lack of access to reliable and inexpensive financing (see box 4.3). The demand for trade finance in Africa far exceeds supply from commercial or noncommercial sources, foreign or local. Paradoxically,
in many African markets, capital is not in short supply. For example, in the single-currency, eight-nation West
African Economic and Monetary Union more than $2 billion in excess liquidity lies dormant in the central bank.
When compared with firms
operating in China and India, firms operating in Africa have less access to loans and overdrafts, use more internal funds and retained earnings to fund investments and operating costs, pay much higher interest rates, and are required to register much more assets as collateral. Market failures are rampant. Small firms
are less likely to get loans;
relationships and ethnic connections are very important in access to credit;
and outstanding debt is positively related to obtaining future lending.
Figure 4.23 consistently shows that, in each country, access to finance improves with firm size.
South African, Tanzanian, and Senegalese firms reported relatively high access to financial creditor overdraft facility (at, 70, and 60 percent, respectively. Access to financial services is the lowest in Ghana (at only 30 percent. In addition, the financial divide is
Source: World Bank d, e, and a for Senegal, South Africa, and Tanzania.
Note: Ghana is not included in the figures owing to lack of comparable data.
FIGURE 4.22
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