A credit crunch in sub-Saharan Africa is deepening the region’s on-going economic downturn, warns a new report by the Overseas Development Institute.
The ODI has estimated that private credit growth in the region has fallen to 7% in 2016, less than half of the 2014 peak of 15%. This is worse for oil exporters where, the report estimates, 2016 credit growth is 0.5%. This means that there is effectively no new private lending taking place in real terms.
The report, ‘The sub-Saharan Africa economic downturn and its impact on financial development’, also highlights how private international finance has become scarce and expensive. It warns Brexit is likely to make this worse by causing risk aversion in international financial markets. Savings are also being rapidly used up.
Report author Judith Tyson, Research Fellow at the Overseas Development Institute, said: ‘The collapse in oil prices and the slowdown in China that has driven the economic downturn in sub-Saharan Africa is now having a significant impact on financial markets in the region.
'We are seeing private finance for development in sub-Saharan Africa becoming more scarce and expensive which will have a negative effect on both short and long term growth.’
The report details how these trends have been strongest in oil-exporting countries, including Nigeria, and how failures in governance at public and private institutions in Kenya, Ghana and Mozambique added to the poor financial conditions.
The report goes on to warn that finance that is available is being used in sectors which have little impact on growth including extractives and middle-class consumer finance.
This is depriving manufacturing, trade and agriculture – the key sectors for economic growth and job creation – of the finance they need to grow.
Dr Tyson said: ‘There is a need for stronger policy to direct the scarce finance that is available into the priority sectors for economic growth rather than allow it to be frittered away.’
As well as improved credit policy, the report outlines a number of recommendations for policy-makers to in order to address the difficult financial conditions including:
- Greater anti-cyclical financing by governments and international financial institutions
- Improved macro prudential policy which is tailored for the sub-Saharan African context; and
- International co-operation to tackle illicit capital flows
Notes to editors
- The report ‘The sub-Saharan African economic downturn and its impact on financial development’ is to be published on Friday, July 15
- ODI estimates of 2016 credit growth figures are based on central bank or other regulator figures available for March-June 2016 including financial stability reports, periodic statements and one-off press statements and internal data from supervisory reports
- The figure for SSA credit growth in 2014 comes from the IMF’s World Economic Outlook database
For more information, to request a copy of the report or to interview the author Judith Tyson please contact James Rush on 07808 791265 or email [email protected]