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Burundians Trapped in Deep Poverty as Elite Mismanage Financial Sector

Despite efforts to rebuild after decades of conflict, Burundi remains one of the poorest countries in Africa, with most citizens struggling to make ends meet. A deep-seated problem of poverty afflicts the majority of the population, with many bank executives and employees belonging to or being connected to this group.

The Plight of the Financial Sector

The financial sector in Burundi has been plagued by poor governance, which has had a devastating impact on economic growth and poverty reduction. Traditionally, the state owned or controlled most financial institutions, using them as sources of rents for its own benefit. Bank credit was often issued based on political connections rather than projects’ expected returns.

• This led to many banks being left with large amounts of bad debt, which they could not recover.
• The central bank had to bail out these institutions, transferring resources from the public to defaulting customers, bank managers, and employees.
• In some cases, management teams remained in place, continuing to extract rents from the system.

The Role of Political Patronage

Political patronage has also played a significant role in perpetuating poverty in Burundi. Economic resources have been allocated based on political considerations rather than efficiency, leading to the erosion of productivity and growth.

• Despite physical capital per capita increasing by 58 times since 1960, total factor productivity had declined by 25 times in 1997.
• The lack of investment in infrastructure has also hindered economic development.

The Lack of Investment in Infrastructure

Burundi’s gross capital formation has remained below 15 percent of GDP for most of the post-independence period, dropping to below 5 percent during the war years between 1994 and 2003. The country has also attracted little private capital and continues to rely heavily on official development assistance.

• Burundi lacks a comprehensive natural resource development plan, which must include a major scaling up of energy supply.
• The country’s failure to mobilize private finance for long-term investment has prevented it from exploiting its growth potential.

Conclusion

Burundians are trapped in deep poverty due to the mismanagement of the financial sector and lack of investment in infrastructure. The country’s economic prospects remain bleak unless it addresses these issues and adopts policies that promote transparency, accountability, and efficient allocation of resources. According to the African Development Bank, Burundi could achieve a real GDP growth rate of about 7.4 percent over the 2010-2030 period by implementing an infrastructure investment program that would allow full exploitation of its mineral resources.