There are numerous reasons for this, many of which are related to investor perception of risk, but a major contributory factor is also excessive recurrent expenditure in the public sector. which indirectly acts as a brake on domestic investment. Africa is home to about one billion people, divided among a remarkable 53 separate countries, governed by 53 separate administrations, most of them burdened with overblown and inefficient post-colonial structures sucking in domestic savings to finance short term budget deficits.
This situation is good for bank shareholders and managers. Accept deposits at 0-2% and lend to Government at 12-15% (or more), but is otherwise disastrous for domestic investment and economic growth. Rates for the private sector, with the exception of the largest corporate borrowers, are in the high teens or worse, and loans are seldom made for periods exceeding three years. In this case, it is, for once, impossible to point an accusing finger at bankers - whose job has always been first and foremost to safeguard customer deposits and, consequently, take as little risk as possible. There is an old banking maxim “You are never wrong not to invest” which encapsulates the banking industry's traditional aversion to risk, best illustrated at the beginning of Monty Python’s satirical sketch of the banker who has forgotten his own name but remembers that he is “very, very, very…. rich”.
I quote: "I'm glad to say that I've got the go-ahead to lend you the money you require. Yes, of course we will want as security the deeds of your house, of your aunt's house, of your second cousin's house, of your wife's parents' house, and of your granny's bungalow, and we will in addition need a controlling interest in your new company, unrestricted access to your private bank account, the deposit in our vaults of your three children as hostages and a full legal indemnity against any acts of embezzlement carried out against you by any members of our staff during the normal course of their duties... "
While my friends and colleagues in African banking will refute this comparison, at least from my perspective the caricature is alarmingly close to the truth. 150% asset collateral plus personal guarantees are the norm - not the exception. And of course the derisory returns to depositors lead to inequitably high returns to bank shareholders and managers.
A secondary but additional problem is that it is extremely difficult to invest in long term assets (infrastructure, agriculture, plant and machinery) using short term finance. By definition, long term assets take time to construct, instal and commission. Short term finance needs regular servicing and repayment - which can seldom be met from cash flows generated by new assets. As a result, expanding businesses which already carry high business risk become saddled with high financial risk - often a fatal combination. There is a dire shortage of affordable long term capital - both debt and equity - which matches high business risk with low financial risk..
In practice, therefore, in the absence of a banking industry willing and able to invest at rates of interest which permit long term private sector investment, or the ready availability of equity capital carrying realistic return expectations, most African countries are still reliant on foreign direct investment and aid flows to finance development expenditure. This dependency on foreign investment and assistance creates a subtle form of re-colonisation which, due to the protean nature of money, is both far more insidious than its precursor and infinitely more difficult to resist.