Two months ago, sub-Saharan Africa's financial markets, led by the banks and corroborated by institutional experts, were confidently stating that they would escape the worst effects of the current global credit crash-now they're not so sure. World Bank's International Finance Corporation (IFC) suggested that the rogue credit-crisis winds buffeting developed markets would have limited effect on the African region because of its relative isolation from the global economy. "I don't think it will have that much effect on Africa because the region is not that much integrated," said Jean-Philippe Prosper, the IFC's director for southern and eastern Africa.
"Investors will have a shortage of cash and there will be an issue in attracting investors, but the impact will be less than in the rest of the world."
Prosper noted that, in the past few years, most governments in the region had begun to implement better macroeconomic programmes that would help them maintain healthy growth and keep inflation in check. There was good reason for Prosper's confidence, Not only has Africa's banking system survived other near-crashes, but it remains in good shape as others melt down.
In South Africa, Hilary Joffe, senior associate editor at Business Day newspaper, finds a certain irony in the situation. "First," she says, "one might have expected that South Africa, of all places, would have had a sub-prime crisis, given the political pressure for banks to lend more to low-income earners.
"But South Africa has prided itself on having a world-class banking system. And that's the other irony - our banking, system wasn't nearly first world enough to allow for the more exotic and excessive derivative trade that ended up by destabilising the global financial system."
Will SA's insulation hold?
South Africa's banking system is, so far, immune from any of the direct effects of the global credit crunch, thanks to regulation in the broad sense, including credit regulation.
The history in South Africa of home loans for low-income earners goes back to the 1980s when The Perm building society took the progressive step of pioneering home loans to black people-and lost so much money it had to be rescued by one of the Big Four banks.
The upshot of The Perm's experience was a deep wariness from early on of lending to people who could not afford it. Caution was further embedded with the crash of two major microlenders five years ago, due to sloppy risk management and ineffective borrower profiling.
"The post-apartheid government has always been keen to preserve the sophisticated financial system that was seen as one of South Africa's great assets," says Joffe, "but, in the wake of the microbanking crisis, regulators became ultra-cautious and even more determined to be more first world than the first world."
Although South Africa's banking sector seems insulated from what is happening else-where, the dread...