South Africa has been relatively unaffected by the recent crisis that shook the financial system and banking world, due to restrictive regulation on international exposures and in foreign currencies and also thanks to the strength of its banking system. However, the South African economy is indirectly impacted by the global financial crisis and its economic players are facing a reduction in the provision of loans and a desiccation of the dollar market.
In this context, the role of the South African bank of development (Industrial Development Corporation of South Africa Limited, "IDC") is to alleviate the shortage of banks in providing liquidity to South Africa. The financial institution is highly sought by South African exporters, but also by other African actors for the granting of lines in USD with a maturity of at least 5 years (this period corresponds to the average term in export financing).
Project description
Proparco and IDC signed on May 28th of this year, in Johannesburg, an agreement, under which Proparco aprovided IDC with a loan in dollars equivalent to €30 millions, as a contribution to the funding of exporting companies in South Africa.
The main mission of this institution whose capital is owned 100% by the State of South Africa is to support industry initiatives and local businesses and thus to contribute to the emergence of a stable economy in South Africa. IDC is playing a leading role in the development of the South African economy through strategic initiatives and active involvement in strategic sectors such as steel, mining and agriculture.
Objectives
This public institution, highly rated by rating agencies because of its status and its very good fundamentals is able to, even in a turbulent financial market, continue to grant loans in local currency. Today, despite the financial crisis IDC is still capable of raising funds in USD but the lines are reduced both in amount and duration and are obviously more expensive. However, with the line of credit awarded, IDC is still able to maintain the level of its dollar credits on good conditions (in terms of time and margin) and thus, the activity of South African exporters is not obstructed.
Impacts
Companies whose business stands on the dollar market are frequently major exporters but also SMEs, present in all areas of the South African economy. The difficulties they encounter in financing their needs in USD weaken the overall economy of South Africa. In keeping with its mission, IDC plays a counter-cyclical role in financing exporting companies.
Date and amounts
Startup: 2009
Financing: USD credit line equivalent to €30 millions