Sub-Saharan credit growth rates halve in two years: ODI report

Private credit growth across sub-Saharan Africa has more than halved over the past two years and ground to a halt in oil exporting countries following low oil prices and the economic slowdown in China, weighing heavily on regional growth prospects, a report said on Friday.

With international finance having become ever scarcer and costlier, private credit in sub-Saharan Africa increased by just 7 percent in the first six months of 2016, down from a 15 percent peak in 2014, according to estimates in a working paper from the Overseas Development Institute (ODI).

Across African oil exporting countries the credit growth rate was 0.5 percent, meaning effectively no new private lending was taking place, added the ODI, a London-based think tank focused on development and humanitarian issues.

"The collapse in oil prices and the slowdown in China that has driven the economic downturn in sub-Saharan Africa is now having a significant impact on financial markets in the region," said ODI research fellow and author of the report, Judith Tyson.

"We are seeing private finance for development in sub-Saharan Africa becoming more scarce and expensive which will have a negative effect on both short- and long-term growth."

In April the International Monetary Fund cut its economic growth forecast for sub-Saharan Africa to 3 percent - the lowest rate since 1999 - from 3.4 percent in 2015, citing a slump in commodity prices, drought and the after-effects of the Ebola outbreak.

The ODI report added that much of the scarce financing available is being used in sectors that have little or no transformational effect, such as extractive industries or middle class consumer finance.

This came at the expense of other sectors such as trade, manufacturing and the processing of agricultural goods, which could help diversify economies and create jobs, it added.

The situation had been made worse by governance problems, such as Mozambique's undisclosed government borrowing and the diversion of funds earmarked for a tuna fishing fleet.

Other examples cited by the report include the Kenyan central bank's takeover of three lenders in a nine-month period over concerns flagged by auditors, and investigations into illegal transactions at some of Nigeria's biggest lenders.

"Sub-Saharan Africa has made remarkable and unprecedented progress in economic growth and poverty alleviation in the last decade," Tyson said.

"Tackling these issues in the financial system is needed if this progress is to be maintained."