“Making Finance Work for Africa” after the Financial Crisis

Making Finance Work for Africa after the Financial Crisis The importance of finance for Africa and South Africas chances in the post-crisis era An African case study by Moritz Hessler Master Thesis, Erasmus Mundus Global Studies 11 Faculty of Social Science and Philosophy, University of Leipzig Supervisor: Ulf Engel | Turned in on August 1, 2011 Making Finance Work for Africa after the Financial CrisisMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 2011i I.Table of Contents I.Table of Contents ................................................................................................................. i II.Table of Figures................................................................................................................... iii III.Abbreviations ....................................................................................................................... v 1Introduction .......................................................................................................................... 1 1.1State of the Art .......................................................................................................................................................................................................... 3 1.2Methodology ............................................................................................................................................................................................................. 5 2South Africa Needs an Own Financial Ideology ............................................................ 8 2.1Definition, Goals, and Requirements of a Financial System....................................................................................................... 12 2.1.1Challenges of the global financial system ................................................................................................................................. 15 2.1.2The financial market as a complex, global bio-cybernetic system ................................................................................. 17 2.1.3The South African financial system 1994 2007/8 ................................................................................................................ 19 2.2Identity and Individualism .............................................................................................................................................................................. 22 2.3Democratization and Socio-economics................................................................................................................................................. 26 2.4Economic Productivity, Predictability and Stability ........................................................................................................................ 28 2.4.1Macro-level opportunities and risks ............................................................................................................................................. 30 2.4.2Micro-level necessities ......................................................................................................................................................................... 33 2.5Future Oriented Policing ................................................................................................................................................................................. 34 2.5.1Towards an information society? .................................................................................................................................................. 34 2.5.2Regional aspirations and integration into the global economy ..................................................................................... 36 3Taking Africa Beyond Aid ................................................................................................. 38 3.1Partnership for Making Finance Work for Africa ............................................................................................................................... 41 4A Crisis as Catalyst for Development ............................................................................. 43 4.1The Crisis Impact on Africa ............................................................................................................................................................................. 46 4.2South African Reaction to the Global Recession of 2008 ............................................................................................................ 48 5African Financial System Idea & Infrastructure ........................................................ 50 5.1People and Ideology: Financial Infrastructure, Literacy, and Inclusion ............................................................................... 52 5.1.1Market ideology and capacity ........................................................................................................................................................ 53 5.1.2Information and communication technologies and innovation ................................................................................... 55 Making Finance Work for Africa after the Financial CrisisMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 2011ii 5.2Institutions: Agents, Legal and Regulatory Infrastructure ........................................................................................................... 56 5.2.1Restructuring the banking sector .................................................................................................................................................. 57 5.2.2Legal and regulatory institutions................................................................................................................................................... 60 5.2.3Preventing an African-born crisis................................................................................................................................................... 64 5.3Rules and Agreements: Policy-Framework........................................................................................................................................... 64 5.3.1The New Growth Path program ..................................................................................................................................................... 65 5.3.2Challenges of monetary policing................................................................................................................................................... 67 5.3.3Reshaping fiscal aspects .................................................................................................................................................................... 69 5.3.4Acknowledging a broader perspective ........................................................................................................................................ 69 5.4Regional Financial Integration ..................................................................................................................................................................... 70 6Conclusion: Evaluation and Outlook ............................................................................. 72 IV.References ........................................................................................................................... 74 V.Appendix ............................................................................................................................. 86 i.Further figures ........................................................................................................................................................................................................ 86 ii.New Friends for Development .................................................................................................................................................................... 96 VI.Statutory Declaration .................................................................................................... 106 Making Finance Work for Africa after the Financial CrisisMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 2011iii II.Table of Figures Figure 1: Clusters of African economies ........................................................................................................................................................................ 9 Figure 2: Money and substitutes of money ("swell money") ......................................................................................................................... 14 Figure 3: Consequences of an inequation in the balance of accounts .................................................................................................. 31 Figure 4: The pattern of savings over a life cycle .................................................................................................................................................. 34 Figure 5: Total intra-SADC exports 1992 and 2002 .............................................................................................................................................. 37 Figure 6: Who has to do what to support African development (excerpt) .......................................................................................... 39 Figure 7: Swell or leverage money, shadow banking and risk trading .................................................................................................... 44 Figure 8: SA macroeconomic variables under the shock scenario ............................................................................................................ 48 Figure 9: The major goals of the NGP as reaction to the crisis ..................................................................................................................... 49 Figure 10: Financial development and selected determinants, 1995-2007 ......................................................................................... 50 Figure 11: The relationship between inflation and real wages .................................................................................................................... 51 Figure 12: Key aspects and challenges of a financial ideology .................................................................................................................... 54 Figure 13: Macro-framework for development banks ....................................................................................................................................... 57 Figure 14: Barriers for the access to bank services in Africa ........................................................................................................................... 58 Figure 15: Remote banking services have not kept pace with spread of cell phones .................................................................. 59 Figure 16: Active, unbanked clients of eight branchless banking pioneers and largest MFI in same country .............. 60 Figure 17: SA's financial regulatory structure .......................................................................................................................................................... 63 Figure 18: NGP packages to solve macro- and microeconomic tradeoffs............................................................................................ 67 Figure 19: Effects of currency dynamics on growth, employment, and price level stability ..................................................... 68 Figure 20: Net capital inflows, net private and official inflows to SSA 2001-2009 ............................................................................ 86 Figure 21: Economic growth in the First, Second, and Third Economic World ................................................................................. 86 Figure 22: Number of deposit accounts in banks and regulated non-bank financial ................................................................... 87 Making Finance Work for Africa after the Financial CrisisMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 2011iv Figure 23: Number of bank loans per thousand adults in commercial banks ................................................................................... 87 Figure 24: Savings accounts in % of the population. Household survey sources, years and countries. ............................ 88 Figure 25: SADCs member states and sectoral coordination units (excluding Madagascar and Seychelles) ............... 89 Figure 26: Different action plans (next to MDGs, Stiglitz and Sachs) to overcome the African malaise .......................... 90 Figure 27: South Africa: market risks stress tests for the Banks..................................................................................................................... 91 Figure 28: South Africa: selected household indicators ................................................................................................................................... 92 Figure 29: Financial system development ................................................................................................................................................................ 93 Figure 30: Financial system development indicators ......................................................................................................................................... 94 Figure 31: AFMI framework ................................................................................................................................................................................................. 95 Making Finance Work for Africa after the Financial CrisisMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 2011v III.Abbreviations AfDBAfrican Development BankAFMIAfrican Financial Market InitiativeANCAfrican National CongressAPRMAfrican Peer Review MechanismAUAfrican Union BEEBlack Economic EmpowermentBISBank of International SettlementsBRICSGroup of Brazil, Russia, India, China, South AfricaCeSTIICentre for Science, Technology and Innovation IndicatorsCOSATUConference of South African Trade UnionsECBEuropean Central BankFDIForeign Direct InvestmentG20Group of the 20 most powerful (industrialized and emerging) economies worldwideGDPGross Domestic ProductGIZGesellschaft fr International ZusammenarbeitIBSAGroup of emerging democracies India, Brazil, and South Africa ICTInformation and Communication TechnologiesILOInternational Labor OrganizationIMFInternational Monetary FundMDGMillennium Development GoalMFIMicrofinance InstituteMFWfAPartnership for Making Finance Work for AfricaNEPADAfrican Unions New Partnership for Africa's DevelopmentNGONon-Governmental OrganizationNGPNew Growth Path ODAOfficial Development AidR&DResearch and DevelopmentMaking Finance Work for Africa after the Financial CrisisMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 2011vi SASouth Africa SACUSouth Africa Customs UnionSADCSouthern Africa Development CommunitySAPStructural Adjustment ProgramSARBSouth African Reserve FundSMESmall and Medium EnterprisesSSASub-Saharan AfricaTNCTransnational CorporationUSUnited States (of America)USDUS Dollar WTOWorld Trade OrganizationIntroductionMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20111 1Introduction "Pour ce qui est de l'avenir, il ne s'agit pas de le prvoir, mais de le rendre possible."1

Therecentfinancialcrisisiswidelyconsideredastheworstglobaleconomicmeltdownsincetheworldcrisisof the 1920s. In a future retrospective it might be seen as a milestone for African self-determination like the crises of 1997/8wereturningpointsforSouth-EastAsia.Givenquicklychangingpowerrelationsintheglobalarena, especially South Africa (SA), as one of the most globally integrated economies, is likely required to transform to a newmindset,balancingpartnersfrom East and Westand theirowninterestrespectively.Thechange towards a multipolarWorldSystemisnotonlypredictedbymanyeconomistslikeStiglitzandexplainedbyKondratieff cycles,2itis,amongothers,tangiblebyeconomicpower,technologiesandculturalexchange,butespeciallyin changingpoliticalrelationsintheglobalarena.HowdoSAsregionalandglobalaspirationsasregionalleader complywithanincreasinglymultipolarenvironment,whichseemstosubordinatetheAfricancontinentonce more? RoughlyadecadeaftertheAsiancrisisaWestern-triggeredglobalfinancialandtheneconomiccollapsehitthe globalized economies of almost every country. Only South-East Asia, which developed an own financial ideology inresponsetotheirearliercrisis,appearedtoweathertheglobalturmoilquitewell.Post-crisisdebateshence mainlycomparedthetwotrajectoriesofthetraditionalWesternmodel,whichinthecourseofeconomic globalization and fueled by the fall of communism had been exported to almost the entire world, and the region-basednewcomermodelfromSouth-EastAsia.Mostprominentlyonewouldfindglobalimbalancesand antagonistic ideologies of regulation and liberalization at the core of the discourses, which are not only disputed intheWestern-dominatedBrettonWoodsinstitutionsbutalsoincreasinglyinthenewclubsofSouth-South cooperation.Atthesametime,theoftenasforgottenorlostcontinentneglectedAfricaseemstoremaininits inheritedroleassolerecipientofdynamicsofglobalizationeconomicandfinancialaswellaspoliticaland culturalglobalization,ideationalandideologicalglobalization,globalizationofsecurity,butalsoglobalizationof damage.WiththefocusonSub-SaharanAfrica(SSA)onehastostatethateventhegloballymostintegrated countryofthesubcontinent,SA,representsinmanyareasnotmuchmorethanareproducerfollowingthe Westernblueprint.Thecapabilitiestomanageinternalorimportedcrisesonaregionalbasisarelimited,asthe Development Emergency3 in Botswana during the crisis demonstrates.An increasing level of interconnectedness and interdependency in the global economy, even for countries which didntparticipateintheprocessesofeconomicglobalization,pairedwiththecondensingstructuresofever growingglobalconglomeratesthereinandthedegreeofcontinuouslyself-surpassingsophisticationof 1 (Antoine de Saint-Exupry) 2 Global politics has thus moved from the bipolar system of the cold war through a unipolar moment . And now is passing through one or two uni-multipolar decades before it enters a truly multipolar 21st century. (Kondratieff, 1926) 3Thepre-crisiseconomicallyprosperouscountrywasduetoitseconomicsuccessrankedlowintheIMF/WorldBanktableofindigently states.WhenpricesanddemandforBotswanasexportorientedcommoditiescollapsedandthreatenednationaldevelopment,itcouldnt access international institutions capital funds due to its low priority in the ranking. The imbalanced support for other world regions such as EasternEurope,whichreceived79%oftheemergencyfunds3%forAfricancountries,aggravatedtheemergency.Cf.(Woods,Global Governance after the Financial Crisis: A New Multilateralism or the Last Gasp of the Great Powers?, 2010, p. 52) IntroductionMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20112 information-andcommunicationtechnologies(ICT)enabledacontractionoftimeandspaceininteractional processes like doing business. Modern markets develop more dynamic than its regulating institutions. Crises are widelyconsideredasaninherentlycyclicalprocessofself-cleaningofthemarkets.Yet,thefactthatfinancial crisesareendemictofinancialsystemsthataredynamicandinnovative4shouldntbeasufficientexcusefor passivity. Rather one should ask how the severity and frequency of such crises can be reduced or even how some maybeavoided.Therecenteconomiccrisiswithitsglobaloutreach,interconnectednessandcomplexity revealed the deep systemic definition potential reformers are facing. Unfortunately, early reform efforts under the immediate impression of the crisis ebbed. Activism for global approaches and fundamental reforms of the system were first replaced by a more pragmatic focus on national counter-measures fighting the symptoms of the crisis. Withthefastrecoveryofsomeeconomies,thecoursingofthebankingsector,superficialreformsand restructuring,andrestorednationalinterestasmainimpetusinglobalcommittees,themainactorsof internationalpoliticsseemtoreturntobusiness-as-usual.ReformrecommendationsfromStiglitztotheUN,5 SenbettotheAfricanDevelopmentBankandtheG20,6aswellasfrommanyotherinstitutionalandnon-institutional scholars are currently fading out of the public discourse, falling for pragmatism7 and following the big scholars Kondratieff, Schumpeter, and Nefiodof in their assessment of crises as highly innovative periods. The fact thatleapfrogginginnovationisonlythepositivesideofself-cleaningmarketsseemstobeneglected.Global markets do not correct themselves in an even manner. To enable innovation the great scholars agree that there first have to be fought stagnation, because the desired effects would be only applied with delay. A reorganization of thinking and society only sets in when crises are peaking, because in periods of prosperity and relative welfare thereisnourgentneedforreform.Notallcountriesareevenlycapableoffightingacrisis.EspeciallyAfrican countries belong to the group whose prospects for restart arent that promising.Similar to the discourses on the global level, mainly represented by the G20, reform activism in Africa is fading in favorofpragmatism. Thishasseveralreasons.Onewould bethatsuchcyclesofcrisesandboom alternatewith increasing speed. As result, contemporary discourses are more concerned with today and future prognoses than with a retrospective or future simulations on basis of historic data. Despite its high degree of integration into the worldmarketsSAweatheredtheglobalcrisismuchbetterthanmostothercountriesonthecontinent. Nevertheless,itappreciatedtheneedforreformsgivenincreasinglystructuralsimilaritiesbetweenthecape countryandthecollapsingWesterneconomies.SArecognizedwithoutreformsitmightbeaffectedmore intenselybyapossiblefuturecrisis.Yet,beyondtheparticipationinglobalrestructuringbyforexamplenew regulatory frameworks such as Basel III, SAshould revise its own position in the global arena, but foremost in its region.TheAsianBRICSpartnerswereableusetheAsiancrisis1997/8ascatalystforatransformationoftheir economiesintoindependentanddynamicmarkets.8EspeciallyChinaandIndiawerenotonlyabletodevelop owneconomicandfinancialideologies,butalsotobecomerenownedasthefutureglobalpowers.Itcanbe questionedwhethertheirpathwouldhavebeensimilarlysuccessfulwithoutthedeploymentofaregional approachandthemodificationofthegreatdoctrinesandideologiesintotailoredlocalandregional 4 (Senbet L. W., 2009, p. 46) 5 Cf. (Stiglitz, The Stiglitz Report: Reforming the International Monetary and Financial System in the Wake of the Global Crisis, 2010) 6 Cf. (Senbet & Otchere, 2006; Senbet L. W., 2009) 7Eventhoughsomecountriesarestillheavilyaffectedbythedepression,likeGreece,butalsotheUnitedStates,thewillingnessfor fundamentalreformsisebbingfacingstrongmarketlobbies,constraintsforconsensualandharmonizedglobalagreements,andthequick recovery of some economies which are fueling competitive rather than cooperative settings in the global arena. 8 Cf. (Senbet L. W., 2009, p. 107) IntroductionMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20113 interpretations.ConsideringSAsaspirationsofI)beingapermanentmemberandequalpartnerintheNew Clubs like BRICS as well as in global institutions, II) representing its region as leader as well as being the agenda settertherein,andIII)developingtheregioninordertofuelitsowngrowthdemands,anemancipationofthe region similar to that in Asia would be the obvious next step.ConsideringthefactthatthecrisisoriginatedintheWestandthatAsiaseemedtohaveweatheredtheglobal turmoil quite well it is close to ask whether it is time for Africa to follow the Asian example and emancipate from Western domination and dependency from its former colonizers. Especially SA would have to take a leading role insuchanemancipatoryprocessclaimingtobetheregionalleaderforatleastathirdofSSA,beingthe outstandingeconomicpowerhouse,aswellasbeingmoreintenselyintegratedintotheglobaleconomythan any other country of the region. Hence, in evaluating whether there could and should be an own African financial ideology it should be firstly assessed whether SA would be capable to start developing an independent ideology, which is ready to be transmitted through regional institutions and serve as blueprint respectively. The question is how necessary SA considers an ideological shift to be. Representative for other emerging countries it could rightly ask why it shouldnt bypass the challenges of developing domestic financial systems and just attempt to access globalfinancialmarketstomeet[]financinggap?9Whichendogenousandexogenousparameterswouldor didleadtothepressureforreforms?Evenasimplestatementtothesequestionsinvolvesadeeperargument about Africas role in a globalized world and as such doesnt allow an isolated examination of only the SA case. Instead, it is important to elaborate the forces and stakeholders shaping agenda-setting and policy-making on the subcontinent.HowstrongaretheloansofeitherfromEasternorWesternideologiesanddependencies respectively? Which elements would distinct an African ideology from pure reproduction of Western and Eastern ones?IsitpossibleatallforAfricancountriestoimplementown,regionallyintegrated,financialpoliciesina sustainable manner considering the superior position from which the West and, assumedly also in near future, the Eastregulateorliberateglobalmarketsinthemultilateralinstitutions?Howandwhatshouldbeaimedto implement?Whataretheresultsofachievementsalreadymade?Whatdoesanownfinancialsystemmean? Whataretheinfluences,whereshoulditlearnfrom?Andinadeeplyintegratedandglobalizedworld:inwhich frameworks have these policies to be embedded? 1.1State of the Art TheideaofindividualAfricanideologiesisnothingnew.Postcolonialpan-Africanismmainlypushedforwardby NkrumahandNyerereaswellaspost-Cold-WarAfricanRenaissanceconceptualizedbyThaboMbekihighlights the desire of Africa, if you at all can generalize such a diverse continent, for self-determination and independence. Whilepoliticalself-determinationvariedovertime,spaceandcontext,thecontinentmainlyremainstobe economicallypatronizedbyexternalactors.Thenatureoftheglobalizedeconomicsystemwithitsfinancial subsystemperpetuatedcolonialandpost-colonialpatterns,inwhichthecoreofaWorldSystemkeepsthe peripheryina dependencytosustainexploitativewaysof production.10Whereasthefinancialsystemsomehow became a self-sustaining and almost distinct system in the core and some emerging countries, in SSA it is still an 9 (Senbet L. W., 2009, p. 42) 10 Cf. (Silver, 2003; Frank, 1998; Dedering, 2002; Easterly, 2006; Vries, 2010) IntroductionMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20114 integralpartoftheeconomicsystems.Accordingly,inelaboratingrequirementsandgoalsofapossibleAfrican ideology it is inevitable to not only examine the SA financial system but to engage in a much broader perspective. Theinternalcomplexityandinterconnectednessofthelocalfinancialsystemwiththeglobalcounterpartand othersystemsrespectivelydemandstonotonlyextendtheresearchtotheeconomicsystem,butalsoto incorporate social, political, historical and cultural issues as well as a basic analysis of complexity and manipulation ofclosedsystems,asfarasasystemcanbeclosed.Therearefewscholarswhoattemptedtotakesuchan approach.Stiglitz,whostrivestoprovidesolutionsforabetterfinancialsystem,wouldbeoneofthemost prominentexamples.Nevertheless,thosewhotriedstillincorporateacertainset,ifnotlargeparts,ofother systemsintotheiranalysisandthusappendawholesetofassociatedideologiesandvalues.Furthermorethey mostlyaimatdesigninguniversalone-fits-it-allsolutionsandthusarentabletoelaboratespecific recommendations for specific countries in a sufficiently inter-disciplinary manner. A focus on an isolated financial systeminanisolatedcountrydoesntreflectthereality.Ratherthelocalfinancialsystemhastoberegardedas interconnectedsystemofinteractingactorsandaspectsatacertainlocationandacertainplaceintimeand historyembeddedinaregionalandglobalframeworkoffurthersystems.ThishardlyhappenedforanAfrican country so far. SA,bymanyscholarsandtheUSNationalIntelligenceCouncilrankedamongthesixemergingpowersuntil 2020,11urgesto beanalyzedinsuch wayinordertoset the agenda forgrowthafter theglobaleconomiccrisis. Indian-USscholarFareedZakaria,whoacknowledgestheSAclaimforextendedregionalleadership,doesnt predictafurtherpositivedevelopmenttowardsadiversificationoftheeconomyandincreasedglobalweight12 unlesstherearefundamentalreforms.Severalglobalinitiativesandpolicyrecommendationsareindicatingthe financial as first system to be reformed. Already before the crisis the UN designated 2005 the International Year of Microcredit,adoptingthegoalofbuildinginclusivefinancialsystems.13Financialinclusioncannotonlymakea positive difference in the lives of the poor and thus contribute to the fulfillment of the Millennium Development Goals; it also creates an atmosphere of capital accumulation and investment incentives, which again benefits local economic development and at best declining Gini-coefficients. The initiative for Making Finance Work for Africa (MFWfA) represents a multilateral partnership with the claim that efficient and innovative domestic systems could putAfricaonastrongerandsustainablegrowthpath.CategorizingitsagendaintoI)largescale:financefor growthandemployment,andII)smallscale:financeforall14itaimsatopeningupbusinessopportunitiestoa wider clientele and channeling larger resources more effectively. For MFWfA finance could be the leading sector in transforming economies. Similarly, the SA New Growth Path NGP, a recently drafted roadmap for future socio-economic development in the cape country, states that its major goal of job creation is closely correlated with the soundness, stability and inclusiveness of the financial system.15 Thedebatearoundissuesofglobalimbalancesanddifferentideologiesaswellastherecentfinancialcrisis demonstrate how much the stability of a global and local financial system rests on the pillars of cultural identity andeconomicbehavior. Morethaneverbeforeacrisiscanbelinkedtoonespecificsocioeconomicsetting:the 11Measuredbyeconomicgrowth,sizeofthepopulation,accesstosophisticatedtechnology,militaryresourcesandrelativepower.Cf. (National Intelligence Council, 2004) 12 Cf. (Zakaria, 2009, p. 72) 13 Cf. (Kendall, Mylenko, & Ponce, 2010, p. 2) 14 Cf. (World Bank Group, 2006, p. 1; Demirg-Kunt, Beck, & Honohan, 2008) 15 Cf. (South African Department of Economic Development, 2010) IntroductionMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20115 excessive risk taking of a consumption-oriented Western society created a credit bubble which bursted with the chain-reactinglossofconfidenceintothe(neo-)liberalmarkets.Hence,asMFWfApostulatesit,Africanfinancial system reforms shouldnt dwell on widely agreed goals and building blocs, which are not Africa-specific. Instead reform efforts should focus on distinctive needs of the continent. What policy response can help guarantee that modern technology, organizational innovation and internationalization are exploited to the maximum?16 A critical issue in the development of an individual African financial ideology will be in how to balance local and regionalrequirementswiththeglobal,stillWestern-centricglobaleconomy,especiallywiththestillimportant roleoftheBrettonWoodsinstitutionsinSSA.Thechallengewillbefirsttodevelopandsecondtoslipan ideationalsetofAfricanvaluesforanindividuallyAfricanmodernizationprocessinfinancialsystemreform packages.CitingHuntington,modernization,speakingofindustrialization,urbanization,education,andsocietal sets of values, does not equal Westernization in the sense of secularization, the legal state, a vivid civil society, and reproducingtheRomanandGreekheritage.17TheideaofanAfricanRenaissance18borrowsitsnamefromthe Westerncounterpart,whichiswidelyperceivedastheearliestcatalystforamodernizationprocessintheWest, basedonantiquesocietalstructuresandvalues.Theintentionistobaseasimilardevelopmentonthepillarsof African cultural and historical identity and diversity 1.2Methodology AspartoftheErasmusMundusGlobalStudiesprogramtheidentificationofrelevantdynamicstowardsa potentialdevelopmentofanAfricanfinancialideologyexaminestheSAreactiontotheexpositiontodifferent aspects and characteristics of globalization. The theories of Great Divergence,19 Dependency and World System,20 RegionalPowers,21aswellasModernity22andPan-Africanism23arepositionedrightatthecoreofthesocio-political aspects in chapters two and three. Financial Systems, System and Complexity24 theories complement the researchwiththemethodologicalandeconomicalperspective.Withoutincorporatingtheentiretheoriesitis furthermoreinevitabletorefertoelementsofKondratieffs,Malthus',Keynes,andFriedman's25works.Aspecial attention is given to the selection of sources in so far as to avoid a biased perspective reproducing stereotypical elementsofWestern-centrism.Onthatscorethethesisisbasedonananalysisoffivepillarsofsourcesand authors respectively:i)thenon-governmentalSAperspectiverepresentedbya.o.Moses,Gentle,MoeletsiMbeki,andthe insights gained at a semester abroad at the University of Stellenbosch as well as the participation in several public dialogue seminars at the Centre for Conflict Resolution in Cape Town; ii)the governmental SA perspective comprising official policy documents and speeches; 16 Cf. (World Bank Group, 2006, p. 10) 17 Cf.(Huntington S. P., 1996) 18 Cf. (Dedering, 2002) 19 Cf. (Frank, 1998; Vries, 2010; Diamond, 1999; Landes, 1999) 20Cf.(Wallerstein,2004;Zakaria,2009;Vries,2010;Collier,TheBottomBillion:WhythePoorestCountriesareFailingandWhatCanBeDone About It, 2007; Huntington S. P., 1996; Easterly, 2006; Stiglitz, Making Globalization Work, 2007) 21 Cf. (Nolte, 2006) 22 Cf. (Lerner, 1958; Singer, 1970; Taylor, 1996) 23 Cf. (Maalouf, 2000; Mbeki, 2009; Collier & Gunning, Why Has Africa Grown So Slowly?, 1999) 24 Cf. (Vester, 1999 / 2008; Meadows, Randers, & Meadows, 2008; Herbst, 2004) 25 Cf. (Friedman, 2004; Keynes, 1997; Kondratieff, 1926; Vries, 2010) IntroductionMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20116 iii)the perspective of regional institutions like the African Development Bank (AfDB) and the Southern Africa Development Community (SADC);iv)traditionalglobalagendasettersandthediscourse-dominatingBrettonWoodsinstitutionsasthe World Bank (WB), the IMF, the United Nations Economic Council, the Basel Committee and the G20 represented by its former and current employees Stiglitz, Sen, Sachs, Calderisi, etc.; v)andacomplementaryselectionofleadingscholarsintheirrespectiveareassuchasEichhorn, Friedman,Keynes,andKondratieffforfinancialandeconomicissues,MeadowsandVesterofthe Club of Rome for system and complexity theories, and Frank, Meredith, Wallerstein, and Zakaria for the discussion of global power relations and dependency. ExtractingthemostessentialimagesofAfricaoverthelasttwentyyearsintheglobalpublicdiscoursesitis protrudingthatproblemsolutionforthecontinentismainlyconductedfromoutside.Politiciansandscholars talkedmoreaboutthanwithAfrica,iftheydiditatall.26Beingamostlypassiveactorandsimplyrecipientof amongothersmarginalizationandexploitationAfricanscholarsbegantorethinktheirpost-colonialpositionfor anothertimeandaskwhyisitsupposedthatAfricanscancontributesolittleintheirowncause?27SAasthe mostindustrializedandbyWesterntermsmodernizedcountryoftheSub-Saharancontinentapproachedthis questionthemostproactively.BeingtheonlyAfricanmemberinmanyglobalinstitutions,panelsandclubs requireditontheothersidetotakeaction.Thisleadstothequestion,who,ifnottheformerapartheidstate, should kick-off financial system reforms in post-crisis Africa? ConsequentlythehypothesisSouthAfricahastoreformitsfinancialsystemandtherewithkick-offthe development of an individual, African financial ideology in order to reach its micro- and macroeconomic goals and to fuel its regional aspirations is aimed at examining why and how SA can reform what in order to reach its internal and external goals. Furthermore I will assess the impact the global financial and economic crisis had and has on such a development and whether it served as facilitator or rather obstacle to reforms. IwillstartwiththesecondhypothesisSouthAfricaneedsanownfinancialideology,headingchaptertwo,by elaboratingtheimportanceofanindividualideologyforSA.Combinedwithchaptersthreeandfour,inwhichI will examine the impact of different stakeholders as well as the impact of the economic crisis, I aim to explore why SA would need an own financial ideology. Considering the post-colonial history and the post-apartheid era since 1994 I am going to discuss whether there is a fertile ground for genuine reforms in SA at all. Which role does an emancipated, African identity play in the struggle to find an own, individual position in a globalized world? Which elementsofwhichinterconnectedsystemsanddisciplinescouldplayacrucialroleinreformingwhichfinancial system? In chapter three I will then analyze in how far the Western imposition of ideologies as byproduct of aid limittheabilitytoemancipate,andwhethertherearesignsforashiftintraditionalandneo-traditional28 approaches of the respective partners in the post-crisis era. Does SAs historically grown triple status as part of the 26 Africa reached a low point of international attention at the beginning of the 21st century when it was stamped by an Economist article as the hopeless continent. Cf. (Anon., 2002) 27 (Lonsdale, 2005, p. 380) 28 Referring to the Elephant and the Dragon, India and China, which claim to pursue a cooperative approach of foreign policy with Africa but in realityareonlyreproducingknownpatternsofexploitationinadifferentrhetoricsetting.Cf.(MeredithR.,2007;Lihua,2006;O'Brien,2010; Sethi, 2010; Sharma, 2007; Tull, 2006; Woods, Whose aid? Whose influence? China, emerging donors and the silent revolution in development assistance, 2008) IntroductionMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20117 Western world, the new clubs of emerging countries, as well as of the African continent affect its maneuverability? In the fourth chapter I will try to answer whether we are going through one of those natural cyclical downturns, or [whether it] is something far more important, something epoch-making taking place29 in Africa and specifically SA.BeforeconcludingwithanevaluationandanoutlookIwilltrytoanswerinchapterfivewhatreformsSA shouldimplementhow.BasedontheresultsofthepreviouschaptersIaimatpresentingcoreissuesand solutionsforSAfinancialsystemreforms.Howcaninoneofthemostglobalizedindustries,likethefinancial sector,localizedpoliciesbeachievedandimplementedinwhichglobalframework?Dividingthequestionsin four areas for reform, I) People and Ideology: Financial Infrastructure, Literacy, and Inclusion, II) Institutions: Agents, LegalandRegulatoryInfrastructure,III)RulesandAgreements:Policy-Framework,andIV)RegionalFinancial Integration,Itrytoadequatelyillustratethenecessityforandqualityofinterdisciplinaryapproachesratherthan recommend a specific policy road map for SA. Theinterconnectednessofthefinancialsystemwithotherdisciplinesandregionswillrequirecontinuous zooming activity in terms of a permanent alternation of a closer and broader perspective on SA. Still, this thesis is aboutSA.Eventhoughitmightberelevant,becauseitwouldallowaprognosisorevenmoreprecisea simulationofpossibledevelopmentsontheAfricancontinentcomparingsimilaritiesoftheregionsand incorporatingAsianexperiences,IwillexcludeacomparativeanalysisofthedevelopmentoftheAsianglobal financialhubsandpotentialAfricanonesforthefuture.Iwillfurthermoredeferadeeperhistoriccomparisonof Western, Eastern and domestic approaches to development of the financial sector before 1994 and outside of SA. Also,Iwillratherdiscussthemostrelevantactorsandinstrumentsforapotentialindividualfinancialsystem instead of elaborating the entire depth and complexity of financial products and agents. 29 (Kampfner, 2010, p. 268) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20118 2South Africa Needs an Own Financial Ideology Unlike the externally dictated structural-adjustment programs of the 1980s, the key struggles over economic policy will be internal to African societies. [] To date, Africa has lacked the spectacular regional role models of economic success that so benefited Asia.30 Abroadvarietyofauthorsiscurrentlyreportingontheneedforcomprehensivereformsoftheglobalfinancial system, starting from a global scale and adopting top-down coordination and localization respectively.31 Essential arguments are based on the main evidences for the recent collapse of the global financial system. Beyond pure market-based and institutional explanations, like they are still to be discussed in chapter four, Stiglitz exposes the lackofglobalcoordinationasmajorcause.Globalimbalancesandinequalitiesandthefactthateconomic globalizationoutpacedpoliticalglobalizationarewidelyacceptedissuesfortheglobalagenda.Nevertheless,it can only be questioned whether large parts of Africa would be that much affected by the crisis if they werent so much dependent on the West. As such the call for a global response to fight the crisis should be countered by a callforAfricatoemancipate.South-EastAsiandevelopmentbefore,in,andaftertheircrisis1997/8shouldbe closely examined to identify tools and practices which could help compiling an agenda for national and regional emancipation. As in Asia, successes will have profound influence on neighbors and can thus be realized on a regional basis only. ForAfricasfragmentedsocio-economicandpoliticalenvironmentthisopensawholeseriesofissues.Themost prominentonewouldbetheareaoftensionbetweendevelopmentanddemocracyorwhatshouldcomefirst. TherearecountrieslikeKagamesRwanda,MusevenisUgandaandfurtheratthefringesofSAinfluenceMeles Ethiopia,which,atleastatfirstsight,seemtohavechosenadifferentpathtodevelopmentthantheMandela country.Themosttangibleissuewouldbethebroadgapbetweensomeeconomicallystrongandindustrially diversifiedeconomiesandtherest.ThefourcountriesofAngola,Botswana,MauritiusandSAareontermsof geography relative close together. But even though they belong to the top layer of exports per capita in Africa, as figure 1 shows, they strongly differ in their diversification. Angola and Botswana mainly rely on the pure extraction of their rich natural resource base and are thus heavily dependent on exports of a few specific commodities. But whereasBotswanahasatraditionofgoodgovernanceandstabilityanddefieditslandlockedness,Angola experiencedseveralturmoilsandstillismoreofatroubledthanhopefulcountry.Althoughtheyfirstappearto have no similarities, SA and Mauritius succeeded in diversifying their economies. They are both often referred to as the role models for African development. Mauritius prospered by importing Asian skills and labor, opening the political system, stabilizing the government by implementing rules of good governance and encouraging private investment. SA with its specific geographical location, colonial and postcolonial history,32 economic and political role on the continent and integration into the global economy always occupied an outstanding position in Africa. 30 Cf. (Collier, The case for investing in Africa, 2010) 31 Cf. (Stiglitz, The Stiglitz Report: Reforming the International Monetary and Financial System in the Wake of the Global Crisis, 2010, pp. 9, 19) 32TheSouthAfricaneconomywasalreadyinthelate19thcenturylargerthantheotherAfricaneconomiescombined.Furthermorethe societywasmorepenetratedbyWesternsettlersthanmostotherAfricancountries,whichinfluencedadifferentcolonialandpostcolonial trajectory. South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 20119 Figure 1 illustrates the role of the economic powerhouse of the continent. It is among the biggest exporters,33 the second most diversified economy, with the highest GDP per capita. And although this only measures superficial economicpoweranddoesntreflectaspectslikeGiniinequalityandsocio-politicalissues,itdemonstratesthe special position of SA on the African continent. Figure 1: Clusters of African economies34

The challenge for SA used to be to balance the implications of being an African country on one side and being a Western country on the other side. With the increasing presence of Eastern powers theres a new component in theseconsiderations,whichalsohastobeacknowledged.ThequestionwouldbewhetherSAshouldusea strengthenedregionalapproachforitspoliticalandeconomicaspirationsorratherrelyontheglobaleconomy andthebalancingofitsmajorpartners.WiththelatterstrategySAcouldriskdamagingitsimageonthe continent and much of its weight in the global arena, interrupt the inflow of resources to the industrial hubs and thusthreatendomesticprosperityandgrowth.Theregionalapproachwouldrequireanevenenhanced balancingcapacitybetweentheworldsystemsandideologies.Followingdefinitionsandrequirementsfor

33SouthAfricaproducesaquarterofAfricasGrossDomesticProduct(GDP)bymainlyexportingrowmaterials(199040%,200560%of exports), but is facing a downward trend due to increasing competition from Asian countries. Cf. (Mbeki, 2009, p. 166) 34 (Africa Progress Panel, 2011, p. 16) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201110 regional powerhood of Joseph Nye and Detlef Nolte,35 SA would furthermore invest more in erecting strong and soundregionalorganizations,whichfosterregionalgrowth.Thisinstitutionalizationhastobebasedonalegal system, relative equality, and profits for all members. Legitimated regional leadership not only guarantees power intheregion,butalsobeyond.Accordingly,SAshouldratheradopttheimageofacooperativehegemony, campaigningforpartnershipratherasafellowdevelopingcountrythanasanemergingpower.Referringtoits economicstrength,whoelseinAfricacouldfacilitateregionalcooperationandthedevelopmentofregional governance?SAdeputypresidentMotlanthereinforcesthisclaimbystatingthatthecountryhasawell regulated banking system [a]nd [] a stable democracy. Theres predictability; investors can invest in South Africa and useitasaspringboard totherestofthesistercountriesonthecontinent.36Atthesametime,the country shouldbeattentiveofdynamicstowardsbeinganeo-neo-patrimonialpowerinaNewScrambleforAfrica.37 Underitsaegisithastodeveloptheregioneconomicallyandfinanciallyinordertobeabletoestablisha sustainable regional leadership and to profit of reforms transmitted through the subcontinent. Therefore reforms, which are firstly aimed for domestic use, should already incorporate aspects to improve the situation of the whole continent. According to most analysts, scholars, and Africanists the main problem of the poor situation in large parts of Africa can be found in poor governance and policies.38 From the internal perspective and excluding SA, only a tenth of black Africas exports are manufactured. As such, most commodities leave the continent even before the proper value-addingprocessstarted.Multinational,oftenforeigncorporationsexploitAfricanresourcesinan unsustainable and least responsible manner. The countries political elites [] transfer vast amounts of economic surplusesgeneratedbyagricultureandextractiveindustries,suchasoil,diamonds,metalsandtimber,to developed countries as capital flight, while simultaneously obtaining vast loans from developed countries.39 The continents main industry, agriculture, had been dragged down by mismanagement of every kind.40 Africa hasnt beenavictimofglobalization,buthasrefusedtoconcernitselfwithforeignmarkets,asformerWBemployee Calderisiputsit.CollierandGunning,rightlyaskingwhetherpolicyordestinyhaslimitedAfricasgrowth,41state withthesameconclusion,thatlackofpolicyhastoberegardedascauseofthecontinentspoorcondition. Althoughcolonialismplayedakeyroleinpreparingtheground42the2000bytheEconomisttitledhopeless continent,afterearlypost-colonialglimmersofhope,gotlostincorruption,patronage,militaryregimes, subordination, proxy actor, and anti-ideologies. The provision of public services and goods collapsed, inequalities grew fundamentally. The neo-patrimonial system reproduced archaic images in which the head of the state was expectedtodemonstrateitsqualificationtotakecareforthecountrybyshowingoffhisamassedwealth.From theexternalperspectiveCalderisisummarizesitquitewellwithstatingthatuntillate2000Africangovernments hadbeencontenttoletotherworryaboutinternational(trade)policy.43Duetohighexchangerates,44dizzying 35 Cf. (Nolte, 2006) 36 (Motlanthe, 2010) 37 Cf. (Mbeki, 2009, p. 140; Bhebhe, 2011) 38 Cf. (Calderisi, 2006, p. 141; Collier & Gunning, Why Has Africa Grown So Slowly?, 1999; Sachs J. D., 2005) 39 (Mbeki, 2009, p. 9) 40 Cf. (Calderisi, 2006, p. 143) 41 Cf. (Collier & Gunning, Why Has Africa Grown So Slowly?, 1999) 42Byarbitrarydrawingofborders,deliberatedegradationofintellectualandpoliticalcapacities,impositionofinadequatestructures, racialization, 43 Cf. (Calderisi, 2006, p. 142) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201111 taxes,adverseandarbitraryregulations,anon-existentlegalsystem,nationalizedmonopoliesandmarketing boards, corruption, and fraud Africa was largely bypassed by private investments.45 Macroeconomic and political instability46 lead to high volatility on financial markets, best illustrated by the endemic currency exchange volatility formostoftheAfricancurrencies.Theresultinglackofconfidenceandconcernaboutadversechangesin government policies47 represent a dramatic impediment to foreign investments. Instead of the so important flow offoreigndirectinvestment,whichfacilitatedtheChineseeconomicboom,Africabecameincreasingly dependent on foreign aid flows and its donors respectively. The other elements of the Asian miracle, urbanization andcentralizationcouldntbetransformedintotangibledevelopmentinAfrica.Oppositely,pairedwiththe patronage system and extensive nationalization processes it caused the final breakdown of any incentive-culture for capital and knowledge accumulation. Free market awareness was only kept alive in the informal sectors. And even though the political and economic environment began to change with the last decade of the 20th century48 40%ofAfricasprivatesavingsare,stilltoday,heldabroadbecausepeopledonottrusttheirowngovernments andbankstotreatthemfairly.49Thiscontinuousoutflowofcapitalnotonlycausesstringencyofliquidityinthe African markets, but also, as discussed in the following chapters, strongly affects financial sector development and therewith the general capacities to alleviate poverty, stimulate investment and create employment. ThesheeramountofinterlinkedissuescouldanddidfillreformersontheAfricancontinentwithconsternation. Theincreasingimportanceofthe financial marketsaswellastherecent crisisinducescontemporaryscholarsto list the financial system on top of their reform agenda. Still, they remind of incorporating underlying causes of the economic crisis like the debt, climate, inequality, poverty, and food crises,50 but also acknowledged the necessity ofasimplificationandfocusononesystemtostartwith.Multiplecomplexandinterconnectedsystemscannot beoptimizedinasingleprocess,buthavetobesimplifiedandasmuch aspossibleisolatedinordertoidentify proper adjustment screws and interfaces to a broader framework of interlinked systems, in which the processed one has to be re-embedded after optimization. The main goal should be to improve the systems robustness and ability for quick recovery after external and internal shocks as well as to reduce its vulnerability at all. But how to developawell-functioningfinancialsystemandbuilditscapacitytoexploititspotentialcontributionto economic development?51 How far should and must a new SA financial system be embedded into which existing environment?WhichdegreeofindividualityintermsofregulationsandprotectionistbehaviorwouldriskSAs economicgoalsintheglobaleconomy?Anexaminationofthefourpillarsofpeopleandideology,institutions and agents, policies and agreements, and regional integration requires to reduce the interdisciplinary complexity andfuzzinessaprioribyclearlyidentifyingthedefinitionandgoalsofa,andspecificallytheSAfinancialsystem. The second step is to then align the four pillars with relevant issues and requirements of financial systems and its reform needs.

44 This made imports cheaper. 45 Cf. (Calderisi, 2006, p. 144) 46Politicalrisknotjustassociatedwithpoliticalturmoil;itoftenarisesfromlackofqualityinstitutionssuchaslawandorderanddemocratic accountability which then contribute to increased risk premia in financial markets. 47 Cf. (Senbet & Otchere, 2006, p. 104) 48 Compare net equity inflows of Figure 20, p. 86 49 Cf. (Calderisi, 2006, p. 151) 50 Cf. (Eichhorn & Solte, 2009; Stiglitz, The Stiglitz Report: Reforming the International Monetary and Financial System in the Wake of the Global Crisis,2010,p.52);Foodcrisisduetodepreciationofnationalcurrenciesandrisingcostoffoodimports(CommitteeofAfricanFinance Ministers and Central Bank Governors, 2009) 51 Cf. (Senbet & Otchere, 2006, p. 84) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201112 2.1Definition, Goals, and Requirements of a Financial System da die Vermittlung von Werten durch ein Finanzsystem im Allgemeinen eine effizientere Verwendung der Ressourcen ermglicht als etwa der Feudalismus oder die Planwirtschaft. Dehalb kann es kaum berraschen, dass sich das westliche Finanzmodell rund um den Globus verbreitete, zuerst in Gestalt des Imperialismus, dann in Formen der Globalisierung.52 Aswithmostcomplexandglobalsystems,theresnoaccurateanddistinctdefinitionofthefinancialsystem. Modern financial systems are complex and feature a great variety of regulated and unregulated financial service providers. In most countries there is no single central supervisor or coordinating entity for all financial institutions. However,themainfinancialauthority,usuallyacentralbank53orbanksupervisoryagency,regulatessomenon-bank financial institutions along with banks in about half the countries of the world.54 More precisely a financial systemcanbeconsideredtorepresenttheframeworkinwhichfinancialintermediariesandeconomicactors performtransactionsunderarespectivemarketideologyaswellasunderavaryingdegreeofregulationand supervision.Inaholisticapproachthefinancialsystemhastofulfillmultiplefunctions,ofwhichthemostbasic tasks would be the mobilization of capital, the risk allocation as well as the sharing of risk. These three functions strongly determine the capacities of financial economics as link between the financial system and real economic development.55Underuncertaintyandvolatilityininterconnectedsystems,riskallocationandsharingarevital functionsoffinancialmarketsinsofarastosustainhealthylevelsofinvestmentinratherrisky,innovativeand high return projects. Consequently, the financial system not only mobilizes and influences the saving rate and its allocation,italsodirectlyaffectscapitalaccumulationandtherewithtechnologicalchange,innovation,and subsequently enables general endogenous growth by means of the Schumpeterian approach.56 It constitutes the nexus between finance, innovation, and growth, and is responsible for the quantity and quality of capital. Senbet identifies Africas simplistic understanding of the financial system as solely mobilizer of capital, neglecting its risk associated functions, as one of the main reasons for relative economic stagnation of the continent. Inanenvironmentcharacterizedbyimperfectinformationandagencyproblemsawell-functioningandliquid financialsystemfurthermoreservesasvehicleforefficientcontractingamongconflictingparties.Therecent financialcrisis,whichwascausedbynotonlyimperfectbutexcessivelyopaqueinformationandincentive problems57amongeconomicsubjectsandagentstoactinasustainablerisk-adjustedmanner,endorsesthe importance for reforms. For Africa, these reform should be mainly aiming at improving the most central and vital services of a financial system: to raise the effectiveness of financial intermediation, establish and improve banking regulation and supervision, foster diversity of financial instruments, and facilitate an increased depth and capacity of the stock markets.58 Thefinancialasemancipatedsubsystemtotheeconomicsystembecameasomehowself-justifyingandself-sustainingsysteminthecourseofeconomicandfinancialglobalization.Basedonamonetarybubblethemain 52 (Ferguson, 2010, pp. 302,303) 53Centralbanksasstructuralinterfacebetweenregulatorypolicyfieldandregulatorystructurewithapoliticallyindependentaswellas political regulation function. Cf. (Mayntz, 2010, p. 9) 54 (Kendall, Mylenko, & Ponce, 2010, pp. 11 - 13) 55 Cf. (Senbet & Otchere, 2006, p. 84) 56 Cf. (Paganetto, 2005, p. 121) 57 Cf. (Senbet & Otchere, 2006, p. 86) 58 Cf. (Senbet & Otchere, 2006, pp. 92, 93) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201113 doctrineistokeepthemoneyflow,meaningmobilizeandliaiseliquidcapital.Anearlierguidingprincipleto avoidaburstingofthefinancialbubble59seemstohavelostsufficientincentivestocomplyto.Oppositelyto traditional, resource-backed60 systems, the modern monetary system consists of hardly any real assets but mostly of confidence and promises. Central bank money therein represents the still tangible image of a real value, as it is backedbyrealvaluesandinstitutionalandgovernmentalpromisesrespectively.Assuch,andthatisonecore prerequisiteofmodernmoneysystems,centralbankmoneyhasbyguaranteealwaysandanywhereinthe respective currency area to be convertible into real assets. It is a money promise backed by the issuer. To explain the second kind of money, which mainly constitutes for the built-up of a bubble, it is inevitable to elaborate the basicinfrastructureofafinancialsystem.61Thesourceofmoneyinmodernfinancialsystemsisacentralbank.62 State apparatus arent allowed to print money, because they could abuse their dual monopoly of money creation andpublicspendingtorefinancetheirdebts.Historicaldatademonstrateshowthisinstitutionalconcentration causesuncontrollableinflationanddestabilizationofallinterlinkedsystems.Acentralbankasindependent institutionprintsmoney63andallowsbanksandotherfinancialintermediariesfurtherborrowingfacilities. Financialintermediariescanborrowaswellasdepositmoneyatthecentralbankatdefinedbaseinterestrates. Promising to the central bank to repay this loan in a certain period of time and at a certain interest rate, the bank receivessocalledswellmoneyasmaterializedconfidenceinfuturerealreturns.64Thisswellmoneyenablesthe banktodobusinessbeyondthelimitedmaneuverabilityofreloaningcustomerdepositsandactingasbroker between customers. To be able to I) refinance the loan from the central bank, including interest rate, II) to sustain theorganizationandpayinterestratesondeposits,andIII)togenerateprofitsandexpand,thebankhasto charge a higher interest rate for borrowing money than the central banks base rate. Another layer of swell money is created. Central and commercial bank are now hoping for the final debtor to realize their anticipated returns by economicactivityandrealcapitalaccumulation.Aslongasthepolitical,economic,social,andecological environmentremainsstableandfinancialagentsactinarisk-adjustedmanner,swellmoneyislikelytobe transformedintorealmoney,facilitatinggrowthoftheeconomy,thefinancialsector,andincreasesinthe quantityandqualityofliquidcapital.Butalreadysmallsignsofinstabilityinoneinterconnectedsystemcould cause a toppling of confidence, the most important asset of modern financial systems. Loss of confidence leads in contraction of liquidity, because market subjects stop trusting in each others ability to repay loans. The stringency of liquidity forces market agents to raise interest rates which in turn reduces the likelihood of repayment of swell money again. Finally, like it could be observed during the recent economic crisis, but also ten years ago in the so calledNewEconomy,thebubbleofmoneypromisesburstwithtopplingratesofconfidenceintotheother economic subjects and institutions. 59 Cf. (Eichhorn & Solte, 2009, p. 60) 60 By gold, silver, 61 Cf. (Ferguson, 2010; Eichhorn & Solte, 2009) 62 Hierarchy of money and credit: central banks (international reserves), banks (deposits at central bank), economic subjects (deposits at bank). Higher layers can create more elasticity or discipline. (Mehrling, 2011) 63 Mostly it allows the printing of certain amounts of money by special authorities and institutions, often governmental bodies. 64 Beyond the incremental increase and anticipative nature swell money mainly receives its wording from the fact that a commercial bank can grant loans amounting a multiple of their central bank money and is only required to fulfill minimal capital requirements of liquidity. Given a rate of 10% as minimum reserve level a bank can grant loans being worth 180 billion out of 20 billion central bank money. South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201114 Forthisreasonitisimportanttokeepthegrowthandamountofcentralbankandswellmoneyinadecent relation to growth and amount of real added value65 as measured by GDP. The fact that there was 50 times more swell money than real money in 2007 and clear tendencies towards an ever increasing imbalance to real added value, illustrated in figure 2, lets Eichhorn predict that by 2030 the entire global GDP has to be used to pay credit costsuchasinterestanddividends.66Thisimplicates,thatthereisnoreturnofswellmoneyanymore.Itneither generatesinvestmentopportunitiestorealizereturnsfromeconomicactivitynordoesitallowemployment, maintenanceoforganizationalandtechnologicalstructures,noranykindofcapitalaccumulation.Inanarrow definition even the subsistence mode of production will be destroyed. Figure 2: Money and substitutes of money ("swell money")67 The global financial system based on Western ideologies and concepts of modernity and individuality is tangibly reachingitslimitsofgrowth.68Regulatoryandsupervisorybodies,whichweredesignedtoconstrainsuchan unsustainabledevelopment,appeartohavefailedtoasimilarextendlikethemarketideologiesandincentives have proven to be counter-productive. As it will be discussed in chapter four, the designers of this system begin to turn away from neoliberal rhetorics of self-cleaning markets69 and increasingly (re)turn to neo-Keynesianism.70 TheproblemforlargepartsofAfrica,alignedtoneoliberalismbyconcessionalaidandstructuraladjustment programs, is the lack of resources and capacities to pursue similar corrections. FromAfricaitisthusnotonlynecessitatedtoeducatepeopletodevelopownideasforinnovativeand groundbreakinglocalfinancialsolutions,butespeciallytodevelopsomethingown.Thisrequiresavividpublic

65 Cf. (Eichhorn & Solte, 2009, p. 76) 66 Cf. (Eichhorn & Solte, 2009, p. 190) 67 (Eichhorn & Solte, 2009, p. 193) 68 Cf. (Meadows, Randers, & Meadows, 2008; Vester, 1999 / 2008; Eichhorn & Solte, 2009) 69 Based on the capitalist mindset of private property, individualism, supply and demand, maximization of profits and extended by the aim at reducing the role of the state. 70 Cf. (Schmid, Buhr, Roth, & Steffen, 2006, pp. 170, 171) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201115 discourseandtop-downdeploymentofI)anideology,II)appropriatelegal,regulatory,andsupervisory institutionsaswellasthelocaldevelopmentofmarketsolutionssuchasregulatedcooperatives,III)abalanced policyframeworkfightinginequality,braindrain,capitalflight,expositiontoexternalshocksaswellasfostering economic growth, and IV) regional integration to build a strong and harmonized region which can act as catalyst for economic and social development internally as well as for a stronger African voice in global affairs. 2.1.1Challenges of the global financial system Therearemyriadchallengesoftheglobalfinancialsystem.Likeonthemicroeconomiclevel,moneyhastobe keptflowingonthemacroeconomiclevel.Theincreasinglyfasterandeasierflowacrossnationalandregional borderschallengesthecontroloftheamountandvelocityofmoney.Itimposesaseriouslimitationtothe capacityofdesigningsustainableandstablefinancialpoliciesonanationalorregionalbasis.Giventhecaseof lack of market liquidity and confidence due to for example the collapse of a commercial bank: as routine counter measure to encourage borrowing and increase the speed of money circulation the respective national or regional centralbankwouldprovidemoremoneyatalowinterestratestothemarkets,maybesupportedbythe respectivegovernmentwhichissuesdepositinsurances.Fromalocalperspectivethiscouldrestoreconfidence andwillingnesstoaccepthigherlevelofriskinborrowing.Yet,inanunbalancedglobaleconomylarge international conglomerates enter local markets and take use of cheap money provided by central banks through buying assets. An alternative preying of cheap money is international currency speculation in which investors buy central bank money only to bunker and sell it in the future at a higher exchange rate. Both strategies raise another de-liquidation of the market, decelerate the velocity of money, and finally lead to deflation.Beyond the internal focus of the four pillars a financial system has thus to be designed by additionally considering externalfactorsandevenacknowledgeglobalexternalities.Oneofthemaininstrumentswouldbethefiscal system, in which taxes and tariffs have to be regularly reviewed and adjusted in order to accomplish the optimal balancebetweenprotectionistandliberalmeasures.Yet,atthecoreofheateddebatesonewouldratherfind monetarypolicing.Differentstrategiesforthequantityandqualityofmoneyachievedifferentmicro-and macroeconomicgoals,butalsoimplyvariouskindsofrisk.Asdiscussedbelow,SApursuesastrategyofhigh interestratesandastrongcurrency.ThewillingnessofinternationalmarketagentstoinvestinSAbonds,the Rand, and the general economy by for example foreign direct investment is very high. The large inflow of capital raisestheavailabilityofforeigncurrenciesandthustheforeignexchangerateoftheRand.ImportsintoSA become cheaper. On the other side of the coin SA exports become more expensive and trading partners may find cheaperlocationstoimportfrom.Anotherrisk,whichcloselycorrelateswiththebunkeringofcentralbank money,wouldbethespeculationwithforeigncurrenciesincountrieswithahighinterestbaserate.Insteadof investing capital inflows into I) either importing and therewith clearing the external account balance and allowing a sustainable balance with other foreign exchanges, or II) the domestic economy and public services respectively, large foreign exchange reserves are hold for speculative reasons. The circular flow of money is interrupted. Large reserves of the own currency in foreign hands impose a major risk to the monetary maneuverability and stability of a national and regional economy respectively. Ontheotherendofthespectrumaweakcurrencyentailstheopportunitytoexportcheaply.Export-driven economieslikeChinaarethusinterestedinkeepingtheircurrencyartificiallylowbybuyingforeignexchanges, South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201116 mainlyUSdollar,intotheirreserves.Thisneutralizationoftheinternationalaccountbalance,whichisstarkly positiveforChinaduetoitsexport-dominatedgrowthideology,isofessentialimportancefortheeconomyto offer products at a competitive price on the world markets.71 Turning the coin, the consumption-oriented society oftheUSAholdsamajortradedeficitintheseglobalimbalances.PurchasingUSDconstraintsChinasabilityto investinsocialmeasuresandpublicservices.Itcanbegeneralizedthatartificiallydefendingcurrency appreciation implies cost for especially emerging economies. The debate around global imbalance revealed that manycountries,andspecificallyarticulatedbytheBRICSintheirrecentSanyadeclaration,72wouldconsideran alternative to the USD-based currency system as the solution to this problem.73 At the very special moment after the crisis emerging countries arent really able to counter US quantitative easing74 because they are captured in a global financial and economic system based on the USD and dominated by USAs structural power therein. Theinterventionofgovernmentsinforeignexchangemarketsisjustoneissueofthebeggar-thy-neighbor behaviorofsomecountriesintheglobaleconomy.Ingeneral,theexternalizationofdomesticproblems,as underemployment or stagnation, by imposing barriers to imports while fueling export-led growth perverted and putpressureonglobalmarketswithunsustainablecompetitiveedges.Themercantilistbehaviortherewithnot onlysucceedsinincreasingexportsofgoods,butalsoinexportingitsproblems.Oneexampleofsuchan externalizationwouldbetheincreasingindebtednessofthepublicsector,whoseamountofcreditservicewill equal the global added value by 2030 and which will reach 100% of the global GDP by 2042.75 With a responsible and sustainable fiscal policing and global coordination to mitigate inherited and integral imbalances of the global economy,itcouldbeavoidedthatthegapbetweenrealvalues76andswellmoneycontinuestobemainly financedbypublicbudgets.Theneedofglobalcoordinationisbestillustratedbythesocoldtaxhavens.77Ina globalcompetitionamongcountriestransnationalcorporations(TNC)selectthoselocations,whichimposethe least cost to them. As such some TNC achieve a minimal payment of taxes at some locations at the same time as theyprofitofpoliciesofothercountries,whichaimatstimulatingconsumption.78Yet,howarethese consumption-stimulatingmeasuresfinanced?Usuallybytaxincome.Aslongastherearetaxhavens,which impose their externalities to other countries, the global economy is racing towards its maximum limits. Eichhorn evenestimatesthatasolutionfortheglobalissueoftaxevasioncouldalmostimmediatelyevaporateall accumulatedpublicdebts.Eitherofbothmentionedeconomiesandsocietiesprofitinasustainablemannerof thebeggar-thy-neighborbehavior,theonlyprofiteersareTNCs.Insteadofanationalizationofrisks, responsibilities and debts and privatization of profits the general political goal should return to sustain polity and infrastructurewithitsfiscalbudget.Brazilianization79furthermorelimitsacountryscapacitiestoprovide regulatory and fall-back mechanisms and thus destabilizes the domestic economy. 71 High demand of the Chinese currency to be able to import Chinese products would naturally raise its rate. In an optimal environment China wouldoffsetthisbalancesurplusbyattractingFDIs,receivingremittances,andimportingfromothercountries.Inrealityexportsarebyfar surpassing any capital imports. 72 Cf. (Bhatia, 2011) 73 Cf. (Woods, Global Governance after the Financial Crisis: A New Multilateralism or the Last Gasp of the Great Powers?, 2010) 74 Quantitative easing basically means the flooding of the markets with cheap dollars in order to stimulate domestic investment and growth in an attempt to fight depression. 75 Cf. (Eichhorn & Solte, 2009, p. 190) 76 Real added value plus central bank money 77 Cf. (Eichhorn & Solte, 2009, p. 192) 78 Beggar-thy-neighbor countries furthermore profit of, among others, public services and goods provided by other countries, which they are not able to provide domestically due to the lack in the fiscal budget. 79Indebtedcountryinwhichonlyprivilegedindividuals/communitiescansustaintheirqualityoflifeandcontinuouslycentralizeand distribute the national wealth among few elites. (Beck, 1999) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201117 Recentmarketfailuresdemonstratethepotentialriskfortheentireglobaleconomyif theregulatorypartofthe financialsystemisunabletoadequatelysetconstraintsanddesignappropriateincentivestructures.Asound financialregulationallows,ifnotthepreventionofcrises,thenatleasttheavoidanceofspilloversfromthe financialsectortotherealeconomy.Yet,aregulatorypenetrationthrough80%ofAfricancountriesduetothe increasedimportanceandformalizationofmicrofinancedidntimpedetheglobaleconomytotransmitthe financial system crisis through the real economic and globally interdependent system. The same degree to which no regulation is harmful to a financial system, an over- regulation and the imposition ofazero-riskideologyissociallysuboptimal.80FollowingSchumpetersideasefficientfinancialmarketsarethe basis for technological progress and innovation and key to long-term grow.81 Financial systems decide about the general access to capital. Especially for inherently risky research and development projects and business start-ups as well as for economically discriminated strata of the poor the level of risk-acceptance is the crucial element of a financial ideology. Risk affinity and a culture like in Anglo-Saxon countries, which regards failure as an opportunity to restart, facilitate a higher productive growth82 and rate of innovation in periods of boom. Oppositely, a culture whichratherpunishesfailureandtendstoavoidriskmayprovidelessventurecapitalbutislikelytorepresent more stability and sustainability. The questions for a potential SA financial ideology and system respectively are: I) how much risk are we, considering our stability and sustainable growth plans, willed to take; II) how much risk is needed in order to raise access to capital to a decent level which enables the alleviation of poverty and stimulates creativeandentrepreneurialforces;III)howcanthissettingbebestmappedbythefinancialsystemandits regulatoryandsupervisorybodies?AsPaganettodwellsit,goodgovernanceandadequateselectionofproject andentrepreneur83aredecisiveinrisktaking.Onlyadequatesophisticatedandcontext-tailoredstructuresof intermediaries,regulators,supervisors,andgovernancebodiesinasocio-economicandculturalenvironmentof financial literacy and risk awareness can guarantee the financial system to unfold its full potential.2.1.2The financial market as a complex, global bio-cybernetic system Oneofthecentralconceptsofmodernsystemstudiesiscybernetics.Derivedfromthekyberntes,helmsmanin English,cyberneticsaimatexamininganddevelopingcontrol-andregulation-mechanismsofrespectivelyfor systems.84Originallythedisciplinemainlyfocusedonmechanicalsystems.Withtheincreasedawarenessof perceiving our environment in systems cybernetics developed to become the link between the system theory of interconnected systems and sub-systems and the ecology.85 Since emergence of the system theory the ecological systemisregardedtobetheblueprintforanyothersystemonthisplanet.Fromaglobalperspectiveitcanbe consideredtoconstitutetheonlytop-layersystem,whichcansustainitselfinaclosedmannerandwithoutin- respectively output from and to other systems.86 As central thesis of cybernetics the helmsman, as integral part of thesystem,onlyactsassourceofinspirationforself-regulation,initiatorforinteractionsbetweentheindividual and the environment, stabilizer for systems and organisms by guaranteeing flexibility, and user of existent forces 80 Cf. (Senbet L. W., 2009, p. 30) 81 Cf. (Meyer & Ehmer, 2011) 82 Cf. (Meyer & Ehmer, 2011) 83 Cf. (Paganetto, 2005, p. 122) 84 Cf. (Vester, 1999 / 2008, p. 154) 85 Cf. (Ulrich & Probst, 1990, p. 20) 86 While including energy sources like the sun into this ecological system. South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201118 and energies and their respective interactions.87 He doesnt intervene or interfere in foreign systems. At this point systemic thinking has to be transferred to the compilation of a financial system and a financial ideology. Unsystemic thinking in the environment of a highly interdependent world leads to opaque conceptualizations in which interacting subjects are being separated by severallayers of intermediation. The important connection of transparency,accountability,andconfidencebetweentheissuerofafinancialproductandthecustomergot pollardedwithanever-increasingcomplexityofthesystemanditsproducts.88Themarketcreatedproducts, whichwerespecificallyaimedatavoidingregulation.89Thisdepersonalizationandperversenessofthe opportunitiesofthefreemarketveryspecificallyledtotheinabilityofmarketsandgovernmentstoneither sustainanykindofcontrolandregulatoryauthoritynorbeabletoantagonizetherecentcrisiswhenthefirst evidences appeared.The issue can be based on several of Vester's theses. First, regulation wasnt too lax but rather too narrow and too much focused on a certain status. Another problem is the heterogeneity of regulation on a global scale.90 Second, financialagentseconomicsubjectsthesameasorganizationalactorsandgovernmentsaimedata maximization ofprofits and growth.The neoliberalist /capitalistdoctrineledthe markets tobelievetherearent anynaturallimitsofasystem.Also,itinducedmarketagentstoneglectexternalitiesandinterlinkagestoother systemssuchastheglobaleconomysimpactonthesocialandecologicalsystems.Butthereisnothinglike limitless growth, and at the moment there doesnt seem to be growth for all. As the Club of Rome as one of the most active institutions in this discourse points it out, unsustainable behavior eventually causes a collapse of the systemandmayevenaffectothersystemsfunctionalityandstability.91Imagineforexamplethecollapseofthe ecologicalsystems,whichwouldmostlikelydestroymostoftheotherglobalsystemsincludingthehuman being.Itshouldthereforebeintheinterestoftheentireglobalcommunitytoreachacontinuousbalanceina system that is sustainable without sudden and uncontrollable collapse. How could that be achieved? The first prescription should be the systemic reduction of complexity and a thorough examination of the various systemstowardsidentifyinginterfacesanddependencies.Itwouldbewisetodis-assembleeachrespective systeminordertoenableafundamentaldiscourseaboutanappropriaterestructuringofitselementsand interactiveprocesseswithinaswellasbeyondthesystemicborders.Itshouldspecificallybeaimedatclarifying anddistinctivelydefiningthefunctioningofeachsingleprocessandelement.Thegoalshouldbetorather reduce regulatory and interventionary mechanisms by reviewing and consolidating existent ones. In the financial systemtheelementswouldbefinancialintermediaries,economicsubjects,regulatoryandsupervisorybodies, and so on. The global reaction to the recent crisis doesnt help much in so far, as policy makers and scholars only addedfurthermechanismsandactorstoanalreadyintransparentsystem.Theyareonlyfightingspecific symptomsofaspecificsystemicdiseaseinsteadoftrulyexamining,reviewing,andimprovingthesystemto eradicatethepropercauseofandtherewithmitigatethelikelihoodandimpactofafurthercrisis.Aregulatory system shouldnt be the crash barrier of a highway on which the financial intermediaries can drive as fast as they 87 Cf. (Vester, 1999 / 2008, p. 154) 88 Cf. (Balzli, et al., 2008) 89 Packages of securities of different ratings and heterogeneous compilation were incrementally and iteratively split up, re-assembled in new, even more heterogeneous packages (diversified from best to worst ratings in order to parallelly generate various revenue managements and maximize securities), and sold. It was deliberately made impossible to track a product from the issuer to the customer or the other way. 90 Cf. (Jost & Struve, 2008; Massenberg, 2008) 91 (Meadows, Randers, & Meadows, 2008) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201119 like as long as they dont leave the lanes.92 It should rather be constituted of speed limits, traffic lights, and further trafficagreements.Channelingthetrafficinonedirection,meaningimposingatoonarrowregulation, furthermorecreatesincentivesforthemarkettobypassrulesandagreements.93Totranslatethismetaphorinto the real world: before 2007, the markets, including all actors, raced towards a massive gap between deposits and credits. Increasingly higher risk was accepted while interest rates rose. Between 1997 and 2007 the depository gap of the financial institutes in the Euro zone grew from 44 to 1300 billion Euro. Between 2000 and 2005, the market withsubprimes,creditswithahighlikelihoodofdefault,increasedbystunning800%intheUSA.94Thisall happened in a regulatory environment, which was deemed to underlie a constructive, iterative and incremental improvement process. Where global financial markets are overwhelmingly the dominant, and most highly integrated, most volatile and least rational of global markets, the basis for systemic instability is laid.95 Still, it seems that contemporary reform effortsneglectabroaderperspectiveinwhichsimultaneouscrisiswithcomplexinteractionsandinter-linkages destabilizeeachother.Assuchitisimportanttorepeattheimportanceofnotfightingindividualsymptomsof thespecificfinancialmarketmalaisebuttodiagnoseanappropriatetherapyforthewholefinancialsystemand the entire global systemic setting. Some interesting questions from the cybernetics may help on this path: What is connected with what and in which broader framework? How important is an organic development of an order in living systems? Sincetheyareabletocloseasystemandtosaveresourcesbymutualrecyclingmechanisms,should symbiotic structures be preferred over mono-structures? 2.1.3The South African financial system 1994 2007/8 Asinmostlowandlowermiddle-incomecountriesbankingdominatesthebroaderAfricanfinancialsystems today.96 Other financial agents play a subordinate role. Apart from the Johannesburg stock exchange, the market capitalizationofthenextsevenexchangesonthecontinentonlyaccountsforabout25%oftheaccumulated GDP.97ThissmallsizeandilliquidityreflectlowlevelsofdomesticallyownedeconomicactivityinmanyAfrican countries. Of a global amount of 6.2 billion bank accounts, more than one per adult, only 0.9 per adult are located in the developing versus 3.2 per adult in the developed world. Still, only 38% of adults in the developing world do haveaccounts,sincetheabove-mentionedratioincludesaccounts,whicharenotownedbyindividuals.In comparisontoGermanys97%,Polands60%,andIndias47.5%theAfricancountriesrevealafairlypoor penetration of individually owned saving accounts.98 SA with 46% and Botswana with 47% still reach similar levels likeIndia,butunfortunatelyLesotho(17%),Namibia(28.4%),andUganda(19%)aremorerepresentativeforthe situation on the black continent.99 These figures not only demonstrate the need for action especially on issues of financial access, but also the permeation of neighboring countries like Botswana with expanding SA banks. 92 Cf. (Jost & Struve, 2008) 93 Cf. (Vester, 1999 / 2008, p. 60) 94 Cf. (Dibelius, 2008) 95 (Keet, 2010, p. 2) 96 Cf. (World Bank Group, 2006, pp. 5, 6; Yousuf, 2009) 97 Cf. (Wajid, 2008, p. 48) 98 See full survey results from 2003 to 2008 in Figure 24, p. 88. Compare to further illustrations of global savings accounts penetration in Figure 22 and Figure 23, p. 87 99 Cf. (Kendall, Mylenko, & Ponce, 2010, pp. 35, 36, 50) South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201120 Referring to a speech by South African Reserve Bank governor Mboweni given in 2004, SA has a well developed banking system, which compares favorably with those in many developed countries.100 A mature banking sector with moderate level of private-sector indebtedness, the respectable and first-rate regulatory and legal framework, andthewellmanagementaswellastheutilizationofsophisticatedriskmanagementsystemsandcorporate governance structures would set SA apart from many other emerging market countries. Furthermore, the country would not only be regulated in accordance with principles set by Basel Committee on Banking Supervision, banks alsocomplywithinternationalsoundpracticeandofferasophisticatedbankingsystemtothepublic,whichis available online, real-time, nationwide, and 24/7. Being the most advanced financial sector and economy of the subcontinent,theseachievementsrepresentapossibletasklistforageneralAfricanfinancialsystem.Especially SAsstructureofthefinancialsystemwiththeseparationofthedifferentregulatoryandsupervisorybodies,of which one of the oldest central banks of the world, the South African Reserve Bank (SARB), had been privatized in 1989, can considered to be state-of-the-art in a global perspective. In 2004, there were 38 registered banks of which 15 were domestically control, six were non-resident subsidiaries, 15werelocalbranchesofinternationalbanks,andtwoweremutualbanks.Fivemajorbanksdominatedthe countrysmarketwith87.4%marketshare.Smalllocalbanks,which,in1994,stillconstituted21.7%,canbe consideredofbeingthemainlosersofacentralizationprocess,whichonlyleftthemtherelativelyinfinitesimal stakeof3.1%.Especiallyintheperiodbetween1999and2003,whenmediumtosmallbanksfacedserious liquiditypressures,thelargeamountof22banksexitedthesystem.Exceptoftheacquisitionofoneofthefive majorbanks,Absa,bytheBritishBarclaysGroup101thegeneralstructureofthebankingsectordidntchanged much since then. Yet, especially post-crisis dynamics within the banking sector have to be discussed in chapters four and five. TherelaxationofexchangecontrolsandliberalizationofAfricaneconomiesresultedinSAbecomingan increasinglyimportantfinancialcenter.102Theturninwardstowardsthecontinentisfurthermoresupportedby SAsregionalclaimofbecomingafinancialandeconomichubforatleasttheSub-Saharancontinent.As explainedattheendofthischapterthiswillnotonlystrengthenSAsregionalrole,butalsofuelsiteconomic growth andglobalaspirations.Locallyregisteredbanksincreasinglyexpandedinto othercountries.At thesame timeinternationalbanksexpandedintoSA,whichbroughtfurtherdepthandsophisticationtothefinancial system. The raised degree of competition challenged local banks and put lending margins under greater pressure whatinturnmadeconsolidationtheonlywaytosurviveforsmallerandlessefficientinstitutes.Economically,it thusresultedinanoptimizedperformance.Socially,theincreasedcentralizationpotentiallydiminishedthe importanceoftheloweststrataandcertainruralregionsascustomerbase.Admittedly,banksadoptedhigher credit-risk profiles, which could be an indicator for stiffened service provision to the lowest strata. The dynamics of centralization, which pushed institutes towards becoming universal banks,103 tempt to assume that risky servicing ofthepoorhadbeenreplacedbymorespeculativeandcapital-intensivefinancialservicesintheprocessof market diversification. The fact that domestic deposits from the public remain the main source of funding could strengthen this argument. 100 (Mboweni, 2004, p. 1) 101 Cf. (SA Financial Sector Forum, 2011) 102 Cf. (Mboweni, 2004, p. 1; Wajid, 2008) 103 Universal banks, in contrast to special banks, offer the full range of financial services to their customers. South Africa Needs an Own Financial IdeologyMoritz Hessler Universitt Leipzig | Erasmus Mundus Global Studies 201121 Most external and internal analysts like Wajid or Gentle104 agree in their assessment that, since 1994, SA was able to improve an already relatively stable financial system. This prosperous path was only interrupted by a small crisis ofsmalltomediumbanksin2002whenacrisisofconfidenceduetoabottleneckinliquidityoftheseventh largest bank, Saambou, spilled over to the entire sector. The lack of confidence, that deposits would be available anytimetobewithdrawn,didsucceedinglyaffectnotonlybanksdownbutalsolargerinstitutesupthescale. Commontoallbankingsystemsisthephenomenonthattheyarebasedonconfidenceineachother.Assuch, theworstcasescenarioisdecreasingconfidenceinthemarketswhichinducescustomerstowithdrawtheir money from their financial instruments. This contraction of available liquidity further worsens the situation of the institutes and, as such, deepens the lack of confidence in a downward spiral. Facing serious threats for the overall ofthefinancialsystemtheprivatizedSARBandtheNationalTreasurywereforcedtoissueguaranteestoall depositors, that even in the case of insolvency of any institute the government and the central bank would stand in and would provide real money for their deposits. Mboweni stated in 2004, that SA has learned its lessons of this crisis.Asresultaninstitutioncannolongerbeallowedbeingregisteredwithoutconductingdeposit-taking businessordoingboutiquebankingnotallowingdepositsfromthegeneralpublic.105Furthermorethecountry establishedapolicyframeworkfordealingwithbanksindistress,notwithouthighlightingtheimportanceof soundcorporategovernanceinbanksandtheneedforasoundrelationshipandpropercoordinationbetween fiscalauthoritiesandtheregulators.Withacknowledgingthatinasoundsystem,therewillbefailures.Instead, the objective is to strive for an optimal balance between, on the one hand, the cost of controls and intervention inordertoaddressmarketfailuresand,ontheotherhand,theanticipatedbenefitsofregulationand supervision106thefocusofregulatoryauthoritiesshiftedfromdirectcontrolstoamoremarket-basedapproach accompaniedbyanemphasisonpropercapitalization,soundrisk-managementproceduresandgreater disclosure.107 This dynamics were framed by global reforms of regulation, mainly driven by the Western world. The BaselCorePrinciplesforeffectivebankingsupervision,asagreementbetweenagroupofcountrieswhich regularly met as the Basel Committee, were improved and packaged as Basel II. Each member of this committee, SAastheonlyAfricanrepresentative,committedtoimplementathreepillarbasedapproach.Furthermore membercountrieswereremindedofrequiringanadoptionoftheBaselPrinciplesfromitstra