News / Africa

African Banks Decrease Lending to Private Sector

Multimedia

Audio

In the early stages of the global recession, many African bankers and analysts dismissed the decline as a western issue.  Their assumptions were based on the fact that most African financial institutions, especially in sub-Saharan Africa, were not part of the larger network of the global financial structure.  A few others cautiously monitored it.  A few banks in developing countries like South Africa have successfully integrated into the global financial system, but even so, the impact was expected to be minimal or non-existent.

But with time, many African bank executives and economic analysts were proven wrong in their initial assessments.  They acknowledge that they had failed to take into consideration the fact that in the past decade African banks have been working hard to be integrated into the international financial system.  Integration has its economic benefits, but it has also made the continent more susceptible to the ebbs and flows of global financial institutions.

Most African countries were relatively “insulated” from the shock of the financial collapse “because African banks don’t deal in these derivatives and credit default swaps,” says Professor Shantayanan Devarajan, the chief economist of the World Bank's Africa Region. 
   
But that is not enough to guarantee a firewall against a global collapse.  What we are seeing in Africa, he says, is the second- or third-round effects of the financial collapse.
   
Africa was the recipient of over 50 billion dollars of private capital flow from the West, says Devarajan, but most important was the decline in commodity prices.  So when western private investors lose money as a result of the financial crisis, there’s less to lend or invest in Africa.
   
“Africa was also receiving over 20 billion dollars in remittances” He says. The amount of remittances has considerably fallen since 2007.  Lastly he says, there has been a fall in tourism revenue since most westerners have cut back on travel.
   
Local banks affected
   
In Rwanda’s commercial bank, Cherno Gaye works as the chief financial officer. He uses the analogy of the “chicken and 3gg” when asked why banks have cut down on lending.  “The players in the real sector are complaining that the banks are not giving us money, then the banks are saying that business is actually slow…. it is a conundrum.”  He says once the export sector was affected, it had a knock-on effect on other sectors.

The slowdown has made it hard for businesses to service existing loans and access new ones.  Most importantly however, long-term depositors like the Rwanda Social Security Fund are undertaking major real estate investments.  This requires huge amounts of cash on hand to complete projects, which explains fewer deposits and huge withdrawals of millions of francs -- the same money that a commercial bank often uses as rotating funds.
   
“Our assets at the end of last year was over a one hundred billion francs; by June this year it had gone down to just over 900 billion francs.”  But some companies have been able to show strong growth despite the downturn. “… the financial crisis is proving some economic theories wrong”. He gives an example of the telecoms and utility companies. Reports show that Africa has the fastest-growing telecommunications market in the world. Urbanization has led to ever increasing demand for electricity and other power supplies.

Jack Kayonga is the director of the Rwanda Development Bank.  Even though he acknowledges the effects the global crisis has had on local banks, he downplays the impact on the private sector specifically the real estate market “There is still room to grow” He says.
   
Bosco Mugabe is a small business owner in Kigali. He imports products from neighboring Kenya. For the past year it has been hard for him to access loans to pay his suppliers. Local banks are less willing to give him loans and so he was forced to decrease his business.

You May Like

IS Militants Release 49 Turkish Hostages

Turkey's state-run Anadolu news agency reports that no ransom was paid and no conditions accepted for the hostages' release; few details of the release are known More

Photogallery IS Attacks Send Thousands of Syrian Kurds Fleeing to Turkey

Syrian Observatory for Human Rights says more than 300 Kurdish fighters crossed into Syria from Turkey to defend a Kurdish area from attack by the Islamic militants More

Video Sierra Leone's Ebola Lockdown Continues

Thousands of health workers are going door to door in the West African country of 6 million, informing people of how to avoid Ebola, handing out soap More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Fears Ebola Outbreak ‘Beyond Our Capability to Contain’i
X
Jeff Seldin
September 20, 2014 10:28 PM
Each day brings with it new warnings about the deadly Ebola outbreak already blamed for killing more than 2,600 people across West Africa. And while countries and international organizations like the United Nations are starting to come through on promises of help for those most affected, the unprecedented speed with which the virus has spread is raising questions about the international response. VOA's Jeff Seldin has more from Washington.
Video

Video Fears Ebola Outbreak ‘Beyond Our Capability to Contain’

Each day brings with it new warnings about the deadly Ebola outbreak already blamed for killing more than 2,600 people across West Africa. And while countries and international organizations like the United Nations are starting to come through on promises of help for those most affected, the unprecedented speed with which the virus has spread is raising questions about the international response. VOA's Jeff Seldin has more from Washington.
Video

Video Iran, World Powers Seek Progress in Nuclear Talks

Iran and the five permanent members of the U.N. Security Council plus Germany, known as the P5 + 1, have started a new round of talks on Iran's nuclear program. VOA State Department correspondent Pam Dockins reports that as the negotiations take place in New York, a U.S. envoy is questioning Iran's commitment to peaceful nuclear activity.
Video

Video Obama Goes to UN With Islamic State, Ebola on Agenda

President Obama goes to the United Nations General Assembly to rally nations to support a coalition against Islamic State militants in Iraq and Syria. He also will look for nations to back his plan to fight the Ebola virus in West Africa. As VOA White House correspondent Luis Ramirez reports, Obama’s efforts reflect new moves by the U.S. administration to take a leading role in addressing world crises.
Video

Video Migrants Caught in No-Man's Land Called Calais

The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Westgate Siege Anniversary Brings Back Painful Memories

One year after it happened, the survivors of the terror attack on Nairobi's Westgate Shopping Mall still cannot shake the images of that tragic incident. For VOA, Mohammed Yusuf tells the story of victims still waiting for the answer to the question 'how could this happen?'
Video

Video Militant Assault in Syria Displaces Thousands of Kurds

A major assault by Islamic State militants on Kurds in Syria has sent a wave of new refugees to the Turkish border, where they were stopped by Turkish border security. Turkey is already hosting about 700,000 Syrian refugees who fled the civil war between the government and the opposition. But the government in Ankara has a history of strained relations with Turkey's Kurdish minority. Zlatica Hoke reports Turkey is asking for international help.
Video

Video Whaling Summit Votes to Uphold Ban on Japan Whale Hunt

The International Whaling Commission, meeting in Slovenia, has voted to uphold a court ruling banning Japan from hunting whales in the Antarctic Ocean. Conservationists hailed the ruling as a victory, but Tokyo says it will submit revised plans for a whale hunt in 2015. Henry Ridgwell reports from London.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video Iraqi Kurdistan Church Helps Christian Children Cope find shelter in churches in the Kurdish capital, Irbil

In the past six weeks, tens of thousands of Iraqi Christians have been forced to flee their homes by Islamic State militants and find shelter in churches in the Kurdish capital, Irbil. Despite U.S. airstrikes in the region, the prospect of people returning home is still very low and concerns are starting to grow over the impact this is having on the displaced youth. Sebastian Meyer reports from Irbil on how one church is coping.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid