How development banks can save virus-hit African economies

The new coronavirus outbreak has harmed communities and disrupted economic activity in many countries, affecting global financial conditions among many other things. As the disease continues to spread rapidly around the world, experts predict that Sub-Saharan Africa could be hardest hit in terms of health and wider socioeconomic impacts. An initial analysis of COVID-19’s economic impact by McKinsey finds that Africa’s GDP growth rate for 2020 is likely to slow by three to eight percentage points. As countries devise strategies and governments implement stimuli programmes, Development Finance Institutions (DFIs) are looked as key players in the recovery of shuttered economies in Africa. Such institutions range from the biggest banks like the World Bank Group to regional banks like the African Development and to national banks such as Rwanda Development Bank. They are important because they are not entirely driven by profitability but rather by the development mandate. While development banks working at national, regional or global level have not attracted the attention of many in this period, experts suggest their role should not be overlooked. This is true for the most part because development banks across the world take huge risks to invest large sums of money in mega projects that traditional commercial banks cannot necessarily invest in. For instance, there are more than 400 of them, globally, with combined assets of more than $11 trillion, according to the French Development Agency (AFD). This is equivalent to roughly 70 per cent of the assets of the entire US banking sector. However, their role in responding to the new coronavirus pandemic is yet to be felt. Kampeta Sayinzoga, the Chief Executive of the Rwanda Development Bank (BRD), says their plans currently revolve around facilitating customers and negotiating with lenders to get new facilities. “We have intervened to support many of our clients who have applied for moratorium – deferment of principal interest, which we have assessed case by case basis,” she says. “We are also talking to our lenders to get capacity to support our clients,” she added. The current state In a webinar organised by Making Finance Work for Africa (MFW4A) – an initiative of the G8 – experts from different development banks indicated that they are coming out to prove that they can play a critical role in responding to the crisis. Stefan Nalletamby, the Acting Vice President for Private Sector of Infrastructure and Industrialization at the African Development Bank (AfDB) said DFIs like AfDB are already planning to direct funds to sectors that play a big role in Africa. AfDB will provide a flexible range of support within the $10 billion envelope which the bank announced a few weeks ago, and this will go to support sectors like agriculture and industrialisation. “We are supporting them to respond to COVID-19 by investing in sectors that may have been hit like the transport sector, agriculture, industry, manufacturing and energy,” Nalletamby said on Tuesday. The bank has allocated $8.7 billion for sovereign and regional operations in support of regional member countries, as well as $1.3 billion for non-sovereign operations in all African countries. Rwanda is among the beneficiaries of the facility. The African Export Import Bank (Afreximbank) has also set up a pandemic trade impact mitigation facility worth $3 billion to assist countries in managing the economic impact and health shocks caused by COVID-19. “We have a development responsibility, this is why we have moved to set aside a facility to respond to the pandemic,” Eric Monchu Intong, the Bank’s Senior Manager for Trade Finance noted. The Bank has previously invested in Rwanda through funding to local banks to support the construction of infrastructure activities like the Kigali Convention Centre. Two years ago, the bank committed to invest some $500 million in Rwanda. Intong said the latest funds are a result of the decision by the bank to play a more proactive role to respond to pandemics like the new coronavirus beyond the normal development activities. Xavier Muron, the Head of Financial Systems at the Agence Française de Développement, highlighted that his institution has put in place facilities to support members that have been hit by the pandemic. “We shall provide additional financing to existing partners up to 500 million euros,” he noted. Most of these facilities are accessed by countries through their development banks, central banks, and other finance institutions. Without revealing details, Kampeta confirmed that BRD has already applied for some of these funds in order to support Rwanda’s quick economic recovery. “We have applied to make sure that we have enough liquidity to support the Rwandan business sector,” she noted. Once available, such funds will be invested in export facilitation and manufacturing, tourism, transport and real estate to shield the economy against the fallout from the pandemic.

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How development banks can save virus-hit African economies