Bank credit may be tightening in the aftermath of the subprime crisis but Africa goes into the AfDB annual meetings relatively unscathed by the global credit crunch, market players say.
“Africa hasn’t suffered as much as other parts of the world” in the crisis triggered by the subprime mortgage meltdown,” AfDB treasurer Pierre Van Peteghem told Emerging Markets. “The continent has been growing at 5% plus for the past five years, and this performance is expected to continue in the near future.”
International Finance Corporation head Lars Thunell told Emerging Markets that while Europe and North America had experienced across-the-board problems following the subprime crisis, in “Asia, especially China and India, and in Africa, there are pockets of economic growth. People are projecting a slowdown in a number of markets. Africa and the Middle East are doing reasonably well. With South Africa the exception.”
Nedbank Capital’s joint head of investment banking Mark Weston, said: “South African banks are not affected per se, aside from some very minor exposures. However, the knock-on effects include widening credit spreads, and a far greater banking sector aversion to risk.”
He said Nedbank remained “very positive on the project and infrastructure finance sectors” but said that there had been a return to more traditional banking, with some of the lending covenants and tighter terms seen five to 10 years ago. Investors are “very-happy” to invest in AfDB bonds, Van Peteghem said. “The subprime crisis has affected the AfDB, but not in the way that you might imagine. About two-thirds of our borrowing programme for 2008 is already complete, and we could have done more,” he said. Moreover “we do not expect the bank’s 2007 income to be affected by the subprime crisis, possibly even the contrary.”
Development finance institutions have benefited from the lower cost of funding, Van Peteghem said, citing the AfDB’s three-year, $500 million global bond earlier in 2008, which achieved “our cheapest cost of funding ever for a public transaction”.
Some sectors seem especially robust. Weston said: “The mining and resources sector – which is the most significant for Africa – is the least affected by the global liquidity crunch.”
Standard Bank energy financier Stephen Enderle said: “The African oil and gas sector seems insulated from the worst concerns of the credit crunch. Banks still have appetite for their debt.”
But problems could arise from the higher cost of long-term dollar funding. One development financier said: “South African commercial banks have been significant providers of investment finance, but they are getting thumped by the higher cost of 10-year dollars because of their ratings — their European peers such as Barclays and HSBC, which are higher-rated, get much better terms.”