MFW4A: The impact of the global financial crisis on funding needs and borrowing strategies in Africa

Transcription

1 MFW4A: The impact of the global financial crisis on funding needs and borrowing strategies in Africa Stefan Nalletamby, Coordinator

2 This presentation covers four sections 1. Impact of the financial crisis on African economies 2. Response from African authorities 3. Borrowing strategies 4. Conclusion and outlook

3 Current Account Deficit (% of GDP) US$ billions Real GDP growth (%) Making Finance Work for Africa The impact of the financial crisis is expected to be severe for African countries e 2009f Africa Oil importing countries Oil exporting countries For the first time since 2002, economic growth for Africa is expected to be below 3% e Private inflows Net FDI flows Net portfolio equity outflows Remittances Source: African Development Bank Statistics Source: UNCTAD

4 Yield spreads (basis points) Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Index Level Making Finance Work for Africa Access to international markets has become financially prohibitive Emerging market bond prices fell by 19.3% over the month of October ` Credit spreads widened, making funding in international markets more costly for African issuers -500 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 EGYPT 8.75% 07/11 GHANA 8.5% 10/17 (USD) GABON 8.2% 12/17 (USD) Source: JP Morgan, Bloomberg

5 leading to postponements of international bond issues Uganda: US$ 500 million Ghana: US$ 300 million Kenya: US$ 300 million Source: Reuters Nigeria: US$ 500 million Zambia: US$ 500 million Tanzania: US$ 500 million

6 Barclays BNP Citi Credit Agricole Credit Suisse Goldman Sachs RBS Societe General Standard Chartered UBS Unicredit Market cap (US$ billion) Making Finance Work for Africa With declining market capitalisations, the lending capacity of international banks with operations in Africa has also diminished Market cap Q Market cap Sep-09 Source: Bloomberg

7 1. Impact of the financial crisis on African economies 2. Response from African authorities 3. Borrowing strategies 4. Conclusion and outlook

8 African governments have undertaken measures to minimise the impact of the crisis, including Setting up of special monitoring units Providing stimulus packages Revising budget expenditures Targeted assistance in key sectors Strengthening of regulatory frameworks for the banking sector and financial markets Adopting expansionary monetary policy Tightening of foreign exchange controls to protect exchange rates

9 Similar to developed countries, African countries have resorted to fiscal stimulus packages to support recovery Liberia Comprehensive revision of the Revenue Code - 10% reduction in corporate & income tax from 35% to 25% to stimulate private sector activity South Africa Adjustment in personal income tax for middle to low income earners of USD 1.35bn Egypt A third fiscal stimulus package worth EGP 10bn (USD 1.8bn ) has been introduced to sustain economic growth

10 Budgetary expenditure for public investments Tunisia Public investments increased by 20% in 2009, compared to the 2008 budget to compensate for the 35% decrease in FDI South Africa Government set a counter-cyclical fiscal stimulus package amounting to R 787 mn (USD 100bn) over the next 3 years Morocco Public investment is set to increase from 3.4% of GDP to 3.6% of GDP to support economic growth, structural reforms and strengthen sectoral policies

11 Targeted sectoral assistance has been implemented for sectors considered key drivers to economic growth Nigeria Injection of N 70bn into the textile industry Uganda Write-off of public loans to companies to assist the transport sector Rwanda Support for the tea industry through direct tea sales Egypt Targeted assistance for the tourism sector, including tax exemptions for charter flights

12 Some governments have introduced rigorous banking regulation and capital account controls Tanzania Profit repatriation by subsidiary banks has been regulated to minimise the contagion Egypt Deposit insurance fund has been created to boost confidence in the banking sector Nigeria Central Bank injected Naira 600bn (USD 4bn) Introduced tighter accounting and disclosure rules on provisions for loan losses Introduction of a common financial year in December Increased capitalisation of banks and second round consolidations

13 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Interest rates (%) Making Finance Work for Africa In addition, monetary policy easing has been pursued Botswana South Africa Egypt Kenya Tunisia Source: African Central Banks

14 1. Impact of the financial crisis on African economies 2. Response from African authorities 3. Borrowing strategies 4. Conclusion and outlook

15 Borrowing requirement (US$ bn) Governement revenue (US$ bn) % y/y growth Fiscal Balance (incl. grants) (% of GDP) Making Finance Work for Africa Despite these efforts, the biggest challenge has been the availability of resources required 7.0% % % 28.4% 24.5% 22.2% % -5.3% -4.8% % e 2009f 40% 30% 20% 10% 0% -10% -20% -30% 5.0% 3.0% 1.0% -1.0% -3.0% -5.0% -7.0% 4.9% 3.4% 2.7% 2.1% 0.0% -2.3% -2.5% -1.9% -5.9% e 2009f e 2009f while the borrowing requirement will increase to US$59.8bn Source: African Development Bank Statistics

16 Total domest marketable debt outstanding (USD mn) Total domest marketable debt outstanding (USD mn) Making Finance Work for Africa Some countries have financed their budgetary needs through recourse to domestic bond markets 160,000 8, ,000 7, ,000 6, ,000 5,000 80,000 4,000 60,000 3,000 40,000 2,000 20,000 1,000 0 Egypt Morocco Nigeria South Africa 0 Botswana Ghana Kenya Tanzania Uganda * * Source: AFMI bond market data, African Central Banks

17 Botswana Egypt Ghana Kenya Morocco Nigeria South Africa Tanzania Uganda Domestic debt to GDP Making Finance Work for Africa In general, there is still scope for countries to borrow in the local markets 90% 75% 60% 75% 45% 36% 30% 15% 5% 23% 16% 23% 12% 11% 9% 0% *

18 Botswana Egypt Ghana Kenya Morocco Nigeria South Africa Tanzania Uganda Making Finance Work for Africa However, given the level of development of domestic bond markets, the debt issued has been on the short-end of the curve 100% 80% 60% 40% 20% 0% 0-5 years 6-10 years years years Source: AFMI bond market data, African Central Banks

19 Size of loan (US$ mn) Making Finance Work for Africa Other funding options have been considered to meet funding requirements Botsw ana Mauritius Egypt Guinea-Bisau Comoros Seychelles DRC Tunisia Cote d'ivoire Rw anda Loan as % of GDP Source: African Development Bank Group

20 Loan syndication (US$ mn) Making Finance Work for Africa Private sector lending has been supported by syndicated loans, albeit below the levels seen in H ,000 8,000 7,000 7,723 8,076 7,076 8,361 6,447 6,000 5,000 4,000 3,598 3,000 2,000 1,000 - Source: IMF, Dealogic, Reuters *

21 1. Impact of the financial crisis on African economies 2. Response from African authorities 3. Borrowing strategies 4. Conclusion and outlook

22 In conclusion The second round effects of the financial crisis have had a severe impact on the economic growth in Africa, with widening current account and deteriorating fiscal deficits. Financing needs have become more acute and the need to improve domestic resource mobilisation more urgent. Access to finance is high on the agenda and there is increased recourse to domestic markets. African policymakers continue to implement strategies to promote capital market development. However, the results will take a while to materialise. MDBs have reaffirmed their counter-cyclical role and have shown a responsive attitude to immediate needs..

23 Thank you Contact us: Stefan Nalletamby, Coordinator (+216) Making Finance Work for Africa Secretariat (+216)