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We are trying to play a counter-cyclical role to avoid a credit crunch, says AfDB Private Sector Department Director, Tim Turner
At a time when international banks that have been active in the continent are either fully or partially withdrawing from Africa, contributing therefore to a credit crunch, the African Development Bank (AfDB) Group private sector operations are trying to play a counter-cyclical role, AfDB Private Sector Department Director, Tim Turner.
"The expected overall effect of the credit crisis is a general contraction of private sector activity. No sector will be spared and the weak may not survive. The AfDB and other Development Finance Institutions (DFIs) have witnessed a sudden surge in demand for financing from both the financial and real sectors to fill the void created by the market withdrawal of international commercial banks. However, the DFIs are unlikely to be able to compensate for even a fraction of the missing financing and this will undoubtedly lead to tough choices about which projects to finance."
To compensate for this financing gap, DFIs will be called to play a counter-cyclical role. For AfDB, it would be a first.
"The AfDB enters this crisis, arguably, with the strongest financial condition since its existence. Despite the health of its current portfolio, inevitably, there will be casualties as Africa’s economies slow-down. Although basic economic structures of most projects remain strong, many projects will face cash flows constraints that will be exacerbated by restricted credit," says Mr. Turner.
To avoid unnecessary project collapses, the Bank will have to intensify its portfolio oversight and prepare for rapid and flexible responses to its client needs. It must exercise a new degree of selectivity for new operations focusing on projects that demonstrate strong development relevance.