Africa Matters is a blog that follows the news and offers analysis of African affairs. Our aim is to delve deeper into the issues of African politics and development. We don’t presume to be experts, and we don’t presume to have all the answers—we are just trying to ask the right questions.

Saturday, October 11

African banks unscathed by current crisis?

African Business reports that African banks have continued to consolidate growth and improve performance, despite the fallout in the larger finance sector, stemming from the sub-prime collapse in the West.  The total assets of the top 100 banks on the continent, according to the magazine's new rankings, grew 36% this year, to $856bn.

"The spill-over of the U.S. subprime debacle on African banks has been negligible as they had little or no involvement in structured credit products such as collateralized debt obligations that cost Western banks dearly in writedowns."

The financial crisis in the U.S. and Europe might have at least one significant effect on Africa, though: Barry Moody of Reuters speculates that the turmoil will encourage China to take advantage of the opportunity to expand its investment in the continent, while, at the same time, Africans might be even more receptive of China, which has so far been relatively unaffected by the crisis, seeing it as a more stable patron.  He adds, "This could have a lasting impact on Africa’s perceptions of East and West as they see Asian financial structures surviving better than those in Europe and America."

Moody notes, though, that some experts question the extent of this impact—China already has significant exposure throughout Africa, other emerging investors (e.g., Brazil, India, Russia, and the Middle East) are spurring diversification, and China may well eventually feel the effects of the banking crisis.

Even if their banks aren't, however, Africans themselves have been touched by the turmoil in wealthier economies, via the spike in fuel and food prices.  Barry Malone, of the International Herald Tribune cites a new World Bank report that 28 countries are "facing financial strains due to high food and fuel costs and from the credit crisis."

Laura McGinnis of Reuters also writes that the massive bailout packages being proposed might squeeze aid programs.  Steve Radelet, at the Center for Global Development, adds that, beyond the budgetary limitations, foreign assistance may also lose prominence: "Foreign assistance is not going to have the pre-eminent role that it has had in past years" at G8 meetings.