Stable financial systems are pivotal for economic growth and development and therefore governments and the private sector should work together to manage them.

This was one of the viewpoints of Prof Meshach Aziakpono of Stellenbosch University (SU) Business School in his inaugural lecture on Thursday (8 Sept 2016). The event took place in the Schumann Building on SU's main campus.

Aziakpono said financial systems perform crucial functions that include, among others, "the provision and facilitation of payments systems, mobilisation of savings, allocation of capital, and monitoring and exerting of corporate governance."

"For instance, an efficient payment system helps to reduce transaction and information costs and financial risks, as well as increasing reliability and speed of exchanges. This, in turn, saves individuals time and energy that would have been wasted under a barter system with all its coordination problems. This promotes specialisation and innovation, which lead to increased productivity and, in turn, economic growth."

Aziakpono said stable financial systems are particularly important in Africa, where economic development seems to have eluded many countries, especially those in sub-Saharan Africa where poverty has remained very resilient.

He added that African countries largely remain very poor and underdeveloped.

According to Aziakpono, the financial sector policies adopted by African countries since independence in the 1960s and 1970s have failed to address the developments challenges these independent states have been confronted with.

"For African countries to catch up with developed countries, they still need to invest massively in both social and economic infrastructures such as transportation systems (roads, railway lines, airports and seaports), electricity generation and distribution, education and training institutions (especially technical education to training the masses of the youthful population), hospitals and so on."

"There is also a need to provide market-friendly institutions such as information bureaus, well-functioning courts at different levels and types, and a national identification system for all citizens."

"Businesses need to be financed, especially smallholder farmers, Agribusinesses, Micro, Small and Medium Enterprises, and first generation enterprises that are currently neglected because of risks and transaction costs."

Aziakpono said both the state and the private sector have a role to play to achieve the desired economic growth and development and both of them must and should be allowed to play their roles effectively.

"All available resources (the state, private financial markets and institutions, international investors and donor resources, etc.) need to be harnessed to confront these developmental challenges."

He said the regulation and supervision of the banks and other financial markets and institutions by governments, the creation of appropriate market incentives and environment for private financial firms, and innovative technology-driven methods such as ATMs, card devices and internet kiosks are just some of ways to address development challenges and ensure stable financial systems.

• Photo 1: Pixabay
  
• Photo 2: Proff Meshach Aziakpono (middle), Eugene Cloete, Vice-Rector: Research, Innovation and Postgraduate Studies, and Stan du Plessis, Dean of the Faculty of Economic and Management Sciences at the inaugural lecture. Photographer: Justin Alberts