November 13, 2008 / 1:31 PM / 9 years ago

Credit crisis threatens Africa's development

TUNIS, Nov 13 (Reuters) - The global credit crisis has come just as African economies were turning the corner, forcing governments to delay or scale back projects to stimulate growth and fight poverty, government officials and economists said at a gathering in Tunis.

Many African countries have spent decades gearing economic policies to attract more private capital and dispel a reputation as unreliable investment destinations.

The continent’s economic growth has accelerated as inward investment grows and foreign capital takes a bigger role in road, power and utility projects.

But turmoil on world markets has cut the supply of money as the world’s biggest banks shift funds from new projects to shoring up balance sheets, leaving African governments wondering how their infrastructure will get built.

“A number of African policy makers feel doubly sad about this situation,” the World Bank’s Vice President for Africa, Obiageli Ezekwesili, told Reuters at the Tunis conference.

“Many have been steadfast in pursuing sound policies and gone to second and third-generation reforms to diversify their economies and now they are saying: ‘What is this?'”

Economists and central bank officials said African banks were mostly decoupled from the financial crisis but delegates at the conference said Africa was already suffering from gathering recessions in rich countries.

“The information we are getting on the ground is that promised funding is declining,” said Leonce Ndikumana, head of research at the African Development Bank.

Kenya’s government planned to issue bonds on the international market and must now hold back as the risks are too high. Tanzania is also delaying a move to seek capital, he said.

“This crisis could not have come at a worse time for the African continent; it constitutes a major setback at a time when African economies were turning the corner,” African finance ministers and central bank heads said in a statement at the Tunis conference.


Ezekwesili of the World Bank said remittances to the continent by Africans working abroad -- a lifeline for poor relatives back home -- are falling and trade finance, which is essential for export-reliant countries, is drying up.

Goals for poverty reduction, already compromised by the food crisis, will see another setback, she said, especially if cash strapped donor countries fail to send promised development aid.

“I listened to the ministers of Liberia and Sierra Leone and you can clearly see a feeling of vulnerability at its deepest,” Ezekwesili said.

Delegates from Zambia, Uganda and other countries reported investors selling securities and pushing down local currencies.

Tumbling prices of commodities such as copper meant investment by exporting states could collapse, said Ezekwesili.

Ndikumana of the ADB said there was growing pressure for loans from African banks to make up the lack of foreign financing and those banks had begun seeking assistance as they are unable to find enough resources.

More African states have turned to western banks in recent years to help build ports and bring power to their populations.

Guinea and Ethiopia were preparing to raise finance for electricity networks when the crisis struck, said Gilbert Mbesherubusa, the ADB’s head of infrastructure development.

“Projects which are ready to go may suffer just as a consequence of what is going on,” he said.

Road projects needed to boost regional integration were also threatened, he said, even though they tend to be funded by foreign governments, not banks.

"We are talking about a 700 billion dollar (U.S.) bank bailout using public funds. Is America willing to continue its public funding of Africa at the same pace? We are afraid it is not," he said. (Editing by Giles Elgood) (For full Reuters Africa coverage and to have your say on the top issues, visit: )

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