A Call to Turn Inward - Keeping the West’s financial rout at bay
As the financial crisis that erupted in the United States deepened and spread to Europe and Asia, bank executives, bloggers and newspaper opinion writers throughout Africa hastened to comment on what went wrong in the system that the United States and its allies put in place in 1944 in Bretton Woods, N.H., and why African banks so far have been able to withstand the rout.
The consensus is, African countries won’t completely escape the proverbial cold that the world seems to catch when the United States coughs, but this time something must be done to keep that chills from turning to pneumonia. That “something” must come from Africans themselves.
Especially to be avoided, many say, are loans from the World Bank and International Monetary Fund, offspring of the Bretton Woods gathering.
“The global lenders have a track record of [ensnaring] underdeveloped countries that are in debt and there is little concrete evidence to suggest that this time round they will behave differently,” warns an Oct. 10 editorial in The Namibian.
By all accounts, the conservative nature of Africa’s banking system has kept it from succumbing to the credit crisis. “Over-borrowing in the name of some dubious ventures, especially in the U.S., Japan and Europe, often meet with willing and eager-to-give banks.
If you add that to the scandalous insider dealings and jumbo remunerations, entitlements and rewards of chief executive officers, CEOs of big industry players, then we should understand that the implosion at the international credit market was bound to happen. Very few of those things apply here,” one online writer in Nigeria declared.
Chris Matthee, acting managing director of Bank Windhoek, one of Namibia’s four commercial banks, could well have been describing the norm at banks throughout the continent when he recently spoke to local reporters. “Namibian banks have to comply with very strict regulations, which do not permit them to use deposits to fund foreign assets. In addition, the limited foreign assets they may hold are subject to the highly restrictive exchange control regulations of the Common Monetary Area. Bank Windhoek and its unit trust funds consequently have no direct exposure whatsoever in the subprime market or in institutions, which have exposure therein,” Matthee said.
The very isolation that limited opportunities for Namibian banks in the good times is now protecting them from the aftermath of the subprime fallout, Matthee noted. “Our banking law and prudential requirements for the banking industry, legal framework for collateral on property finance and lending policies that are far more conventional and conservative, ensure that credit risk is managed far more prudently than has been the case in the U.S.” Fallout there will be.
In its October World Economic Outlook, the IMF projects that economic growth in sub-Saharan Africa will shrink as a result of the financial turmoil in the United States, Europe and Asia, and high energy and food prices. Even with the projected contraction — to just over 6 percent between 2008 and 2009 from nearly 7 percent in 2007 — sub-Saharan Africa’s economic growth will continue its trend of outpacing overall global growth, which the IMF projects at 3.0 percent in 2008 and 3 percent in 2009 from 5 percent in 2007. Growth in the United States is projected at 1.6 percent in 2008 and 0.1 percent in 2009 from 2 percent in 2007.
Many expect reduced demand for Africa’s exports as economic growth in developed countries slows. South Africa’s Finance Minister Trevor Manuel already predicts that the slowdown will result in a “major decline” in demand for South African minerals, leading to lower export earnings.
Internal pressure is mounting to bolster the continent’s banking system and economies by promoting such practices as lower consumer spending, lower credit extension, debt reduction and savings. A strong, local capital base could fund the infrastructure overhaul the continent so badly needs, further stimulating national economies. “Africans must learn to save and slowly build up our own capital base.
We must do so individually and collectively. This is our responsibility and we have to start acting immediately,” The Namibian editorial urges.
The hope is that Africa’s growing middle class will halt its slide towards consumerism and join in this conservative agenda. “A debt-driven society, as we are rapidly becoming, will always be on a knife’s edge and every effort must be made to stem its further spread,” an online writer in Namibia warned.