Why Fragile States Matter
In this article, Martin Namasaka argues that while infrastructure development and peace-building efforts are key prerequisites to address fragile states vulnerability issues, building an inclusive financial sector, as part of a well-coordinated effort between development partners, offers the promise to bring fragile states back on the path of financial stability and growth.
"We have resources, perhaps more resources than any other country in the world. We are not a poor country. We can’t be a fragile country," said former Zimbabwe’s President Robert Mugabe at the World Economic Forum (WEF) in Durban.
This statement brings forth a long-standing debate on the existence of ‘fragile’, ‘failed’, and ‘collapsed’ states which have attracted attention since the incident of 9/11 and the ongoing migrant crisis, with rising concerns that these states infringe on international security.
The question is, should fragile and conflict-affected states (FCAS) be left behind to fail? In this article, I reject this assertion that such states should be left behind. Instead, I argue, while infrastructure development and peace-building efforts are key prerequisites to address fragile states vulnerability issues, building an inclusive financial sector, as part of a well-coordinated effort between development partners, offers the promise to bring fragile states back on the path of financial stability and growth. Building inclusive financial systems in FCAS can create a conducive environment for the development of infrastructure, entrepreneurship, the growth of small businesses and job creation. Below, are various reasons that support financial sector development in FCAS.
The Case for Inclusive Finance
First, while financial stability is to be distinguished from political stability, evidence suggests that "the reduction of income inequality through financial development and inclusion could lead to greater social and political stability, which in turn could contribute to greater financial system stability" (Cull et al., 2012). Hence, addressing income inequality issues, which financial inclusion can arguably help fix, could be considered as a potential means to tackle the vulnerability of African fragile states.
Second, according to a new report titled ‘Financing the Frontier: Inclusive Financial Sector Development in Fragility-Affected States’ published by the Financial Sector Deepening Africa (FSD Africa) in partnership with Mercy Corps, poverty rates in fragile states are, on average, 20% higher than in countries with comparable levels of economic development; the gap is widest for countries affected by repeated cycles of violence (Sile, 2013). As a group, fragile-affected countries lag behind in reaching the Millennium Development Goals; nearly two-thirds failed to meet the goal of halving poverty in 2015. Today, the 50 countries and economies on OECD’s 2015 fragile states list – of which 30 are African – are home to 43% of the global population who live on less than US$1.25 per day and by 2030, this figure could reach 62%. Finance plays a crucial role in poverty and conflict cycles, as lack of equitable access to financial services can lead to underdevelopment and stagnation, exacerbating social and economic unrest.
