Analyzing financial and private sector linkages in Africa

This paper contributes to improving financial sector analysis in Africa by developing a framework for analyzing financial and private sector linkages in the Region. Analyzing such linkages has become more important given the central role assigned to the private sector in most Poverty Reduction Strategy Papers (PRSPs) in Africa and the need to foster financial sectors supportive of private sector activities and real sector development. In developing this analytical framework, the paper uses a case study of a fictional African country named Sahara Republic to provide a practical illustration of the most important aspects of the relationships between the financial and private sectors. This analysis is done primarily from the perspective of the financial sector, with the ultimate aim of identifying relevant interventions to increase the contribution of the financial sector to private sector development and economic growth. It is however recognized explicitly that some private sector interventions will also be necessary in order to make the private sector more attractive to financial intermediaries and markets. It is expected that this proposed analytical framework will serve as a useful diagnostic tool for World Bank-IMF staff and consultants involved in the evaluation of financial and private sector linkages in Africa, either as part of the Bank-Fund Financial Sector Assessment Program (FSAP) or as Task Team Leaders involved in designing and implementing financial sector development projects in the Region. Private sector specialists working on private sector development assignments in Africa could also find this useful. Most importantly, we expect this exercise to stimulate other efforts to develop appropriate frameworks and tools to support sound financial sector analysis in Africa. Authors’ Affiliation and Sponsorship Abayomi A. Alawode, Senior Financial Economist Financial Sector Division, Africa Region, The World Bank E-mail: Aalawode@worldbank.org The Africa Region Working Paper Series expedites dissemination of applied research and policy studies with potential for improving economic performance and social conditions in Sub-Saharan Africa. The Series publishes papers at preliminary stages to stimulate timely discussion within the Region and among client countries, donors, and the policy research community. The editorial board for the Series consists of representatives from professional families appointed by the Region’s Sector Directors. For additional information, please contact Paula White, managing editor of the series, (81131), Email: pwhite2@worldbank.org or visit the Web site: http://www.worldbank.org/afr/wps/index.htm. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s), they do not necessarily represent the vi ews of the World Bank Group, its Executive Directors, or the countries they represent and should not be attributed to them. Analyzing Financial and Private Sector Linkages in Africa