Helping Africa Brace for the Fallout

December 18, 2008—Grim economic news in the richest countries is spreading to the developing world through the threat of falling exports, reduced tourism receipts, and a drop in remittances. In sub-Saharan Africa, where half the population lives on less than $1.25 a day, the downturn threatens to increase the number of people in poverty.

IFC is building on its substantial commitments to sub-Saharan Africa as governments, businesses, and millions of people across the world's poorest continent brace for the fallout from the financial crisis. We are working closely with clients, especially in Africa's poorest and most vulnerable countries, to help them identify risks and prepare for any contingency. Rather than reduce investments in risky markets during the crisis, we are devising new strategies to better support these markets.

"IFC will stand by our partners and clients in Africa to help them weather the storm and build strong economies. IFC's capital position is strong, and our long-term investment horizon allows us to invest more when private markets pull back." —Lars Thunell, IFC Executive Vice President & CEO

Addressing the Financial Crisis

To address problems of liquidity, the hallmark of the recent crisis, we are helping with short-term and trade finance funding to meet immediate needs in the marketplace and keep trade flows moving. IFC plans to double its Global Trade Finance Program from $1.5 billion to $3 billion. The trade guarantees issued under the program will have an average tenor of six months, thereby supporting up to $18 billion for short-term trade finance over the next three years.

The trade finance program has been most popular in Africa, where about half of the guarantees have been issued. The expanded facility would benefit participating banks based in 66 countries, including many of Africa's poorest economies. The program offers banks partial or full guarantees covering the payment risk in trade related transactions.

Over the last few months, IFC has agreed to provide trade-finance guarantees to several financial institutions in the region, including $15 million in guarantees to Bank of Africa-Madagascar and $10 million in guarantees to Malawi's First Merchant Bank. We also have worked to make sure that financing remains available for important development initiatives, including education in Rwanda and housing in Ghana.

IFC has also proposed a recapitalization fund of around $3 billion to help smaller developing countries that lack resources to shore up their banking systems. Subject to Board approval, the fund would launch with as much as $1 billion from IFC and at least $2 billion from governments, private banks, and other partners. Japan announced that it will contribute $2 billion to this fund.

IFC's Regional Strategy

Our strategy for Africa is built on improving the investment climate, supporting the growth of smaller businesses, and proactively developing large private investment projects. The emphasis is on assisting the poorest countries and those recovering from conflict.

In fiscal 2008, which ended June 30, IFC committed about $1.4 billion to more than 60 projects in 25 sub-Saharan African countries. We are delivering advisory services programs to 36 countries in the region, supporting efforts by governments and business to build strong, including private sectors that will help create employment and reduce poverty.

Our work has improved lives in Africa. In 2007, for example, IFC projects supported more than 120,000 jobs—nearly four times as many as in 2006. Our investments helped bring power to 13 million people, and we helped provide new telephone connections for about 7 million people. IFC advisory services implemented in the region led to the reform of 15 laws or regulations to improve the business environment and allowed 4,500 employees of small firms to develop new skills.

For more information contact:
Jason Hopps
Johannesburg, South Africa
Phone: +27 11 731 3120
E-mail: jhopps@ifc.org