Last week, Bob Diamond, a former Barclays bank boss and Ashish Thakkar founder of Mara Group, together with the Government of Rwanda, kick-started an exercise that is likely to end up with the duo obtaining controlling stake in the commercial banking subsidiary of the Development Bank of Rwanda (BRD).
The two co-founders of Atlas Mara, a London-listed entity with a long-term vision to establish a leading financial services group in sub-Saharan Africa, are envisaged to acquire a 77 per cent stake in BRD’s commercial arm.
In their first joint statement regarding this deal, American Bob Diamond and Ugandan Ashish Thakkar stated that what attracted them most about Rwanda were the favourable economic policies that have been put in place over the last two decades.
In fact, Diamond said that Rwanda’s model economy will continue to benefit from the engagement of the private sector, while his partner, Thakkar, explained that he was proud to play a role in providing access to capital for the millions of young aspiring Rwandan entrepreneurs like him.
This is reason to pause and reflect on what such a deal with clear elements of financial globalisation means to an ordinary Rwandan citizen, seeking to set up a small-to-medium enterprise with ambitions to raise own living standards, create jobs, and improve the country’s ability to export to advanced industrial countries.
Before considering what this deal means for those eager to access financial capital and those keen to see more competition introduced in the Rwandan financial sector, I want to elaborate on the context of the globalisation I want to talk about.
I want to talk about globalisation in relation to multinational companies.
Globalisation is not a new concept, in fact in the 19th century, the rise of cheap sea transport and the telegram all contributed to globalisation.
Today, although the same principles still apply, globalisation has become quite simply a process by which the whole world becomes a single market. This single market in an ideal world means that goods and services, capital, and even labour can be traded on a worldwide basis.
For the purpose of this article, however, I will concentrate on the importance of multinational companies as agents of this trade, particularly as agents of capital.
Multinational financial companies are capable of bringing the benefits of globalisation to a country of final destination.
Such benefits may include the ability to enable local services to be available to international consumers, the ability to transfer technology from advanced countries to the local economy, the ability to contribute to low inflation and low interest rates, and the ability to create jobs and contribute to local economic growth.
Given all these potential benefits, it is no wonder that multinational companies are often welcomed with open arms, not to mention, encouraged to explore the entire economy for viable business opportunities, and rightly so.
That said, it is worthy to note that multinationals always scout the globe to take advantage of the best deals available, deals that are first and foremost profitable for shareholders.
Such banking institutions invest largely in major projects with potential for huge returns. Also, although such projects have the potential to benefit society at large; for example, energy related projects; their financial rewards are often limited to the lucky few – those with direct links to the projects and the lucky few with shares in those institutions.
Indeed, Joseph Stiglitz, a recipient of the Nobel Memorial Prize in Economic Sciences, reminds us that corporations are in the business of making money, not to provide charity.
The challenge, therefore, is that multinational companies have often abused the principles upon which globalisation is expected to operate under – fairness.
Stiglitz explains that the fundamental principle that multinationals are in the business of making money and not providing charity underlines both their strength and their weakness. Indeed, it is this quest to satisfy their shareholders at any cost that worries me.
Adam Smith argued that individuals, in pursuing their self-interest, would advance the broader interests of society; that incentives to outcompete rivals would lead to lower costs.
However, that argument has often been misrepresented by some economists who go as far as saying that the sole responsibility of corporations is to their shareholders and no one else – to make them money at any cost.
Therefore, if this new venture between Bob Diamond and Ashish Thakkar is set to follow the misrepresentation of Adam Smith’s theory where the interests of shareholders have to be met at any cost, that is to say, by expecting instantaneous and substantial returns, we can safely assert that this venture will only benefit the upper-class, a class that already has access to financial capital through existing avenues with the ability to apply for substantial loans.
In such a world, those dreaming of starting a small or medium venture have no room. They do not possess the necessary collateral or the means to raise it.
But, then again, this is hypothetically speaking. I see no reason why Mr Diamond and Mr Thakkar cannot make globalisation work for Rwanda by marshalling in enormous resources, spread the most advanced technology, and increase exponentially access to finance for Rwandan businesses, both small and large, while understanding that their venture is a long-term investment.
Similarly, I see no reason why the two co-founders of Atlas Mara would not replicate what Muhammad Yunus introduced in Bangladesh through Grameen Bank where he revolutionised the thinking on how to lend to the poorest and most rural segments of society.
The writer is a UK Parliamentary Intern and holds a Master of Science in Public Service Policy.