CDC Group (CDC), the UK’s development finance institution, and Standard Chartered Bank (Standard Chartered) have announced a risk participation agreement to support new working capital lending of up to $50 million to businesses in Sierra Leone.
The agreement comes at a time when working capital needs are increasing for businesses in the country. Economic growth in Sierra Leone is slowing as a result of the Ebola crisis, with GDP growth, which was expected to be 11.3 percent in 2014, revised downwards to 4 per cent. The revised estimates come on the back of shortages in the supply of basic essential commodities and disruptions to supply chains, as well as reduced production from the mining sector.
African banks currently face constraints on their capital bases which mean many are unable to provide as much working capital as they would like. ‘This agreement by CDC allows Standard Chartered to increase the number of loans it makes in Sierra Leone,’ the bank said in a statement earlier this week. ‘The one-year deal will see CDC and Standard Chartered share the default risk on up to $50 million of new loans originated by Standard Chartered in the West African state,’ it added.
By providing short-term loans and overdrafts to a number of businesses, the facility will support them to continue to operate, to meet their day-to-day finance needs, and to grow, despite slower economic growth and supply chain disruption.
Although the facility does not explicitly target Ebola relief efforts, a number of the companies which it is expected to support are playing a direct role in mitigating the effects of the crisis. Supporting the working capital requirements of these businesses will enable them to scale up their operations to supply consumer goods to affected zones.
For example, many of the companies that are expected to benefit from this facility are involved in the import and distribution of key food staples such as rice, flour, cooking oil and sugar, as well as non-food items such as building materials, hygiene products and petroleum products, which are critical to Ebola relief efforts.
Justine Greening, UK’s secretary of state for international development, applauded the initiative saying, ‘the UK has been at the forefront of the international effort to combat Ebola. As we start to get on top of the disease we must also help rebuild the country’s economy.’ She added: ‘Business and private enterprise are crucial to help Sierra Leone recover the rapid growth rates it was experiencing only a year ago. This new agreement will ensure businesses get the finance they need to grow and create more jobs. Sierra Leone can be one of the emerging markets of tomorrow and we all have an interest in helping it back to the path of prosperity.’
In her comments, CDC chief executive officer Diana Noble said the exceptional circumstances presented by the Ebola crisis required a unique response from the international community – both in terms of humanitarian efforts and economic support. ‘This is a good illustration of how the new CDC is putting impact at the heart of what we do. To enable us to make this agreement on an accelerated timeline, it has been important to work with a partner we know well. Standard Chartered is a trusted partner with an excellent network and understanding of the market in Sierra Leone. By working together in a risk-sharing deal we can support the working capital needs of businesses whose survival and growth is vital to the country’s economic health,’ she added.
Diana Layfield, Standard Chartered’s chief executive officer for Africa, said: ‘Mid-sized companies are essential engines of economic growth, so supporting them is key to limiting the economic impact of the Ebola crisis. By joining with an experienced and broad-reaching organisation such as CDC to address their short-term financing needs, we hope to help these businesses to continue to operate, and power Sierra Leone’s economy through these challenging times.’