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

Photogallery Kyiv: Russian Forces Tightening Grip on East

And new United Nations report documents human rights abuses committed by both sides in conflict More

Locust Swarms Fill Antananarivo Skies

FAO-led control efforts halted plague More

South Africa’s Plan to Move Rhinos May Not Stop Poaching

Experts say international coordination needed to follow the money trail and bring down rhino horn kingpins 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.
Ebola Vaccine Trials To Begin Next Weeki
X
August 29, 2014 2:18 AM
The National Institutes of Health says it is launching early stage trials of a vaccine to prevent the Ebola virus, which has infected or killed thousands of people across West Africa. The World Health Organization says Ebola could infect more than 20,000 people across the region by the time the outbreak is over. The epidemic has health experts and governments scrambling to prevent more people from becoming infected. Zlatica Hoke has more.
Video

Video Ebola Vaccine Trials To Begin Next Week

The National Institutes of Health says it is launching early stage trials of a vaccine to prevent the Ebola virus, which has infected or killed thousands of people across West Africa. The World Health Organization says Ebola could infect more than 20,000 people across the region by the time the outbreak is over. The epidemic has health experts and governments scrambling to prevent more people from becoming infected. Zlatica Hoke has more.
Video

Video Asian Bacteria Threatens Florida Orange Trees

Florida's citrus fruit industry is facing a serious threat from a bacteria carried by the Asian insect called psyllid. The widespread infestation again highlights the danger of transferring non-native species to American soil. VOA’s George Putic reports.
Video

Video Aging Will Reduce Economic Growth Worldwide in Coming Decades

The world is getting older, fast. And as more people retire each year, fewer working-age people will be there to replace them. Bond rating agency Moody’s says that will lead to a decline in household savings; reducing global investments - which in turn, will lead to slower economic growth around the world. But experts say it’s not too late to mitigate the economic impact of the world’s aging populations. Mil Arcega has more.
Video

Video Is West Doing Enough to Tackle Islamic State?

U.S. President Barack Obama has ruled out sending ground troops to Iraq to fight militants of the so-called Islamic State, or ISIS, despite officials in Washington describing the extremist group as the biggest threat the United States has faced in years. Henry Ridgwell reports from London on the growing uncertainty over whether the West’s response to ISIS will be enough to defeat the terrorist threat.
Video

Video Pachyderms Play Polo to Raise Money for Elephants

Polo, the ancient team competition typically played on horseback, is known as the “sport of kings.” However, the royal version for one annual event in Thailand swaps the horse for the kingdom’s national symbol - the elephant. VOA Correspondent Steve Herman in Samut Prakan reports that the King’s Cup Elephant Polo tournament is all for a good cause.
Video

Video Coalition to Fight Islamic State Could Reward Assad

The United States along with European and Mideast allies are considering a broader assault against Islamic State fighters who have spread from Syria into Iraq and risk further destabilizing an already troubled region. But as VOA State Department Correspondent Scott Stearns reports, confronting those militants could end up helping the embattled Syrian President Bashar al-Assad.
Video

Video Made in America Socks Get Toehold in Online Fashion Market

Three young entrepreneurs are hoping to revolutionize the high-end sock industry by introducing all-American creations of their own. And they’re doing most of it the old-fashioned way. VOA’s Julie Taboh recently caught up with them to learn what goes into making their one-of-a-kind socks.
Video

Video Americans, Ex-Pats Send Relief Supplies to West Africa

Health organizations from around the world are sending supplies and specialists to the West African countries that are dealing with the worst Ebola outbreak in history. On a smaller scale, ordinary Americans and African expatriates living in the United States are doing the same. VOA's Carol Pearson reports.
Video

Video America's Most Popular Artworks Displayed in Public Places

Public places in cities across America were turned into open-air art galleries in August. Pictures of the nation’s most popular artworks were displayed on billboards, bus shelters, subway platforms and more. The idea behind “Art Everywhere,” a collaborative campaign by five major museums is to allow more people to enjoy art and learn about the country’s culture and history. Faiza Elmasry has more.
Video

Video Chinese Doctors Use 3-D Spinal Implant

A Chinese boy suffering from a debilitating bone disease has become the first patient with a part of his spine created in a three-dimensional printer. Doctors say he will soon regain normal mobility. VOA’s George Putic reports.
Video

Video India’s Leprosy Battle Stymied by Continuing Stigma

Medical advancements in the treatment of leprosy have greatly diminished its impact around the world, largely eliminating the disease from most countries. India made great strides in combating leprosy, but still accounts for a majority of the world’s new cases each year, and the number of newly infected Indians is rising - more than 130,000 recorded last year. Doctors there say the problem has more to do with society than science. Shaikh Azizur Rahman reports from Kolkata.
Video

Video Scientists Unlock Mystery of Bird Flocks

How can flocks of birds, schools of fish or herds of antelope suddenly change direction -- all the individuals adjusting their movement in concert, at seemingly the same time? British researchers now have some insights into this behavior, which has puzzled scientists for a long time. VOA's George Putic has more.

AppleAndroid