Financial Sector Development in Africa: Opportunities ... - World Bank

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particularly important factor in the African context. Although private
sector development has increased the political clout of the private sector
in financial policy making in most African countries, the success of ongoing
financial reform efforts across countries continues to vary. Some states
reform relatively eagerly; others fail to respond to the pressures both
from private bankers to improve the investment climate and from donors
and financially excluded businesses to make the financial sector more
development oriented. Such a variation suggests that technical capacity is
a major mediating factor in explaining and predicting successful activism
or policy choice more generally.
Table 6.3 summarizes the ideas presented in this chapter in an analytical
framework, indicating key issues in the different arenas of the political
economy analysis. Future research could analyze these arenas in the proposed
sequence, and it might be useful to revisit, reassess, and reinterpret
earlier information during the research process.
The framework also takes into account two more general issues: First,
history plays an important role in policy choice through its effect on the
organizational structure of the private economy as well as on the financial
incentives of various private and public agents. Second, the state varies,
and there are intra-state variations in state capacity. 21
While it should not be seen as an inventory, this preliminary framework
offers some starting points for thinking about which elements
might be important to consider in an analysis of the potential of activism
as a tool to increase finance for development in a particular country. The
framework could also more generally inform research seeking to explore
the political economy in developing countries faced with the task of governing
finance in a way that supports national development and, at the
same time, responds to pressures from international markets to limit the
role of the state in financial markets.
Implications of the Approach
Supporting an activist strategy—a strategy of deliberate government
interventions in the financial sector to promote the outreach of financial
services to segments of the private sector that have been underserved—
requires an understanding of the political environment, particularly of the
financial interests and the political clout of key actors. If the political
conditions suggest that government entities have governance that is good
enough to pursue activist policies effectively, then, in line with welfare
economic theory, there are convincing arguments for development