Africa is at the crossroads. Economic growth has consolidated across much of the continent, and in many countries exports are booming, foreign investment is rising, and the need for foreign aid is diminishing. Governance reforms are transforming the political landscape. Democracy, transparency, and accountability are advancing, giving people in the region a greater say in decisions that affect their daily lives.

Useful resources: Banking jobs in Africa

At the same time, despite the wealth created by growth, governments are failing to provide all their citizens with the opportunities they need to build a better future. Inequalities are growing. Poverty is not declining at the expected rate, and Africa is paying a higher price for malnutrition and child mortality than other regions of the world.

The region needs long-term growth that benefits all its people. This requires nothing less than economic transformation, with sustainable and inclusive financial mechanisms as a prerequisite.

Lack of access to financial services

Lack of access to formal financial services is a major constraint to transformative growth on the continent. Africa has the lowest level of access to financial services in the world. One in five Africans has an account with a formal financial institution; the poor, rural residents, and women are the most disadvantaged. Such financial exclusion undermines the potential to reduce poverty and stimulate growth that benefits all.

Agriculture is the sector most affected by financial exclusion. According to the 2014 Africa Progress Report, Agriculture, Fisheries and Capital: How to Finance Africa’s Green and Blue Revolutions, providing access to financial services (credit, savings, insurance) to farmers is critical to ensure that they can insure themselves against risks (drought or otherwise) and invest more effectively in better quality seeds, fertilizers and crop protection products. Without the option of insurance, farmers save their meager savings for contingencies and are unable to use their savings for investments that could increase their productivity. Similarly, because they cannot take out loans or entrust their savings to a specialized institution, they are often unable to seize business opportunities.

There is a need to transform the financial environment in Africa. Ten years ago, African countries were just emerging from the Heavily Indebted Poor Countries Initiative. Today, most of these same countries have entered the sovereign bond markets. However, Africa cannot meet its financial needs for infrastructure and skills development through aid and debt financing in official markets alone. Therefore, there is no substitute for domestic financing. Unfortunately, economic growth has done little to increase the savings rate or the proportion of GDP derived from domestic tax revenues, and both underscore the need for institutional reforms.

A need for greater financial inclusion

Greater financial inclusion allows Africa to tap into the enormous potential of its domestic resources to finance its huge infrastructure and energy deficit. As Kofi Annan, Chairman of the Africa Progress Panel, has repeatedly stated, “One of the biggest obstacles to energy sector transformation is inadequate tax collection and the inability of governments to establish a sound tax system. Taxes can cover nearly half of sub-Saharan Africa’s financing needs. ”The 2015 edition of the Africa Progress Report: Energy, Population and the Planet describes the energy financing gap in Africa in more detail.

Some countries are leveraging pension funds to finance the energy sector, such as Ghana, Mozambique, and Nigeria, which have chosen a more active financing strategy for their respective energy sectors. Generally, the amount of investment from pension funds is still limited, but it reflects the possibility of tapping into a large pool of savings.

At the last World Economic Forum in Davos in January 2016, Tidjane Thiam, a member of our panel and CEO of Credit Suisse, aptly pointed out that “the capital exists in Africa; the non-existence of pension funds is an aberration. Because of the region’s booming demographics, it is time to set up such funds. ”

The banking and financial sector in Africa needs to be rethought. Fortunately, there is momentum. Already, peer-to-peer and cell phone banking is flourishing. More and more Africans are convinced of the virtues of domestic savings, which will soon be captured by the insurance markets.

To meet the needs of the 80% of Africans excluded from the financial system, mobile technology (a) is a key factor. Local banks need to start functioning as banks worthy of the name in order to meet the demands of SMEs, many of which are run by dynamic agribusiness owners. Pension funds will increasingly be seen as an essential and exciting source of sustainable capital.

If Africa’s potential is to be fully unleashed for the benefit of all Africans and future generations, its financial environment must be transformed. And we need to start now.