Financial Infrastructure Development for Inclusive Growth

Introduction

Africa’s economic performance in the last fifteen years or so has been classified as “impressive” due to improved real gross domestic product (GDP) and per capita GDP income growth trends (Chitonge, 2015; Haas, et al., 2023). However, the apparently optimistic growth outlook has failed to translate into less inequality, reduced poverty, improved diversity of these economies, enhanced job creation, structural transformations and technological progress in the continent (Opoku & Yan, 2019). Arguably, the impressive economic performance has not led to advancements in the publics’ economic well-being, social inclusion and environmental sustainability which are co-dependent and central pillars of sustainable and inclusive growth (Cerra, 2022). For example between 1990 and 2010, in sub-Saharan Africa, whereas there was some poverty reduction, it was accompanied by a sharp increase in inequality with the top 20% of the population increasing their share of income by more than half (Li, Y., 2015). Arguably what is missing is inclusive growth, a development concept which refers to strong economic growth that is inclusive and sustainable (Arezki et al., 2012; Grossmann, et al., 2011). Inclusive growth is growth that creates decent jobs, gives opportunities for all sections of the society, particularly the socially excluded groups, and distributes both the income and non-income gains from prosperity more equally across the society (Li, Y., 2015). Inclusion in this context implies broadly sharing development gains in uplifting the general living standards among all social groups; providing access to basic services, ensuring broad participation in economic life and empowerment in social and political life through stronger governance and public sector accountability (Cerra, 2022). According to Arezki et al. (2012), the main instrument for achieving sustainable and inclusive growth is arguably productive employment. This perspective is necessary as inclusive growth emphasises improving the productive capacity of individuals and creation of a conducive environment for employment rather than income redistribution as a means of increasing incomes for excluded groups (Li, Y., 2015). Conceptually, a sustainable and an inclusive broad based growth process would ordinarily involve simultaneous improvements targeting three dimensions of the macro economy, viz., production, income generation and income distribution (Suryanarayana, 2013). Similarly, accelerating inclusive and sustainable economic growth also resonates with a broad set of national level policies covering four broad thematic areas: Building productive capacity, technology and innovation, infrastructure development, besides supportive financial and social inclusion policies (Lee et al., 2016). Unfortunately, in sub-Saharan African countries, developing and protecting the real sector has historically received a greater emphasis with the financial sector having only an ancillary role (Mlachila, et al., 2013). This situation could be responsible for the underdevelopment of financial markets in the sub-continent due to factors such as the small size of the domestic economies, unstable macroeconomic and business environment, quality of institutions, unsupportive financial infrastructures, etc. (Soumaré et al., 2021). Sustainable growth needs long-term predictable funding mechanisms as it focuses majorly on expanding productive investments, enhancing capital formation, supporting infrastructure development and fostering innovations. Such financial policies additionally need to focus on three broad operating areas reflecting adequate supply of long-term funding, effective financial intermediation, and enhanced credit for SMEs among others (Li, Y., 2015, Randa & Atiku, 2021). Therefore, the overarching purpose of this chapter is to explore the modalities how financial infrastructure development can facilitate the realisation of inclusive and sustainable growth in sub-Sahara Africa.