Opinion by Professor Leward Jeke, economist in the Faculty of Business and Economic Sciences, Nelson Mandela University.
Note: The Opinion is based on my inaugural lecture on 22 July 2026.
Has financial liberalisation delivered on its developmental promise in Africa – in particular to the Southern African Development Community (SADC)? And what is the future of financial reform in the region?
To answer this, we need to first look at the origins, of financial liberalisation which has been one of the most influential, and most contested policy programmes of the past half-century.
Built on the seminal contributions in 1973 of prominent development and monetary economists, Ronald McKinnon and Edward Shaw, the process has broadly involved liberalising interest rates, removing credit controls and directed-credit obligations, reducing state ownership of banks, easing restrictions on the entry of foreign banks, and opening the economy to international capital flows.
In the context of southern Africa, it was supposed to be an avenue through which the poor, who form the bulk of the SADC population, might gain access to financial resources and so escape the pockets of poverty in which they are trapped.
If we look at African financial systems before liberalisation - roughly until the 1980s and early 1990s – these were characterised by pervasive financial repression: government-dominated banking, artificially low interest rates, and shallow, fragmented and inefficient markets. Governments frequently owned the banks and used them to allocate credit, producing poor performance and inefficiency.
Negative real interest rates discouraged saving and distorted incentives; central banks had limited supervisory capacity; few foreign banks operated; and stock and capital markets were virtually non-existent. African financial systems were designed to serve public debt and state-led development rather than market-based commercial activity, and by the 1980s their weaknesses were manifest.
An important component in addressing this was banking liberalisation - the deliberate reduction of state ownership, control and regulation of banking so as to foster a more market-driven and competitive sector. But have these processes benefitted the SADC region or Africa in general?
To answer this, we need to pit McKinnnon and Shaw’s assertion that liberalisation raises growth against the neo-structuralist, post-Keynesian argue that liberalised finance is inherently prone to instability. Feed from constraints, banks compete by taking on risk, credit booms inflate asset prices, and the eventual reversal produces crisis. The recurrence of liberalisation-related banking crises across Latin America, East Asia and Africa lends weight to this view.
Liberalisation only succeeds where macroeconomic stability, prudential supervision, legal infrastructure and institutional quality are in place, and where reforms are sequenced so that the domestic financial system is strengthened before it is exposed to open capital flows. Where these conditions are absent, the same reforms that deepen finance in one setting destabilise it in another.
This frames the African experience and the pressing need to improve Africa's financial architecture.
The continent's first priority problem is less an absence of capital than a shortage of appropriate structures to mobilise it: an estimated several trillion dollars of domestic capital, in bank assets, pension funds and reserves, is largely locked in short-term, low-risk instruments such as government bonds rather than in long-term, productive investment, while African projects pay an inflated risk premium and the supply of well-structured, investment-ready projects is thin (African Business, 2026; OECD, 2025).
The second priority is to reduce debt and rebuild policy autonomy. A large number of African countries now spend more on servicing debt than on public health, and the combination of high debt with constrained autonomy makes liberalisation precarious: open capital accounts on a foundation of high debt invite volatile inflows and outflows, currency instability and reliance on risky short-term financing, while higher interest rates raise non-performing loans and weaken bank balance sheets.
The third priority is to deepen regional integration. Africa's financial sector remains bank-dominated, with only a few countries, such as South Africa and Kenya, possessing deep and liquid securities markets; weak regional integration leaves markets fragmented and exposed. Integration must be deliberately designed to provide protection against financial crises.
The fourth priority concerns the classic preconditions. Achieving low and stable inflation is necessary to keep real deposit rates positive without extreme nominal rates, to allow banks to price risk and to make bond and equity markets attractive. Strong prudential regulation must be put in place before liberalisation, not after a crisis has forced it.
From here, my forward agenda centres on newer requirements:
The first is actionable climate finance. Actionable climate finance includes grants, loans and private investment that are immediately usable for bankable, scalable mitigation and adaptation projects with transparent, results-based outcomes, supported by green and blended-finance structures that crowd in private capital (FSD Africa, 2025; Global Center on Adaptation, 2022).
The second issue concerns resilience to shocks. The COVID-19 pandemic sharply increased inequality, straining the resilience of financial systems and underscoring that the capacity to save is central to financial resilience; without a buffer, households are tipped into vulnerability and exposed to predatory lending. We need mechanisms that can insulate financial reform from future pandemics and comparable shocks.
The third issue is the competition–stability–growth trilemma: how to foster banking competition, preserve stability and drive growth simultaneously, amid digital transformation and heightened geopolitical uncertainty.
This requires examining how digital innovation can break down high market concentration, how barriers to new, foreign and niche banks can be lowered while risk-based supervision is strengthened, and how the 'too-big-to-fail' problem can be addressed through credible resolution mechanisms.
The fourth issue concerns the financing of Africa's natural wealth. Converting the continent's resources into sustainable development requires moving from raw commodity exports towards domestic beneficiation, industrialisation and better governance, and designing sustainable financing so that African countries fully benefit from their endowments.
Conclusively, the conundrum of financial liberalisation resolves not into a verdict of success or failure but into a question of conditions. Across the SADC region, credit, bank stability, financial inclusion, institutional quality and the management of illicit financial flows jointly determine whether liberalisation reduces or reproduces the poverty of the African majority.
For the SADC region, this points to a clear conclusion. The continent's problem is not principally a shortage of capital but a shortage of the architecture, the institutions and the prudential strength needed to mobilise capital safely and to direct it towards the productive, the inclusive and the sustainable.
Reform must, inter alia, strengthen supervision before opening capital accounts, embed financial inclusion alongside financial literacy, and stem the illicit outflows that drain the continent's resources.
The future of financial reform in Africa lies not in the simple choice between more or less liberalisation, but in reform that is better sequenced, better supervised, more inclusive, and, increasingly, aligned with the imperatives of climate and sustainable development. This is the task to which my research has been, and will remain, dedicated.
This article was published in the Sunday Times of 16 August 2026