Thursday, October 9, 2008

International financiers might recall their monies

By NOMILE HLATSHWAYO on October 08,2008

MBABANE – Swaziland could be affected by the prevailing world financial crisis if financiers recall their monies.

The United States of America (USA) has been going through a ‘credit crunch’ that has affected the global financial sector.

When explaining, Executive Director of African Alliance South Africa S’thofeni Ginindza said the scarier effect would be on private equity funds.

"Private equity funds are funded by banks and with us; the majority would be international banks. The situation right now is that international banks are recalling their monies from private equities. For instance, even if a project in Swaziland received a 10-year loan from an international financier or bank, that bank could recall all the money in the second year. Imagine what this would mean to the project, to the suppliers, the people employed and other financiers of the project?" he said.

Ginindza said a classic example of private equity funds affected by the prevailing crisis would be in neighbouring South Africa, where Mvelapanda’s bid to buy a stake at Telkom has been stalled because the money to be used was from the US markets.

On another note, Ginindza said the financial crisis would also adversely affect banks with current account deficits, likewise with governments.

"Banks with current account deficits are going to suffer; banks in SA are lucky because they are strong in terms of reserves. This has more to do with the strong regulatory framework that has not changed. Governments with current account deficits as well would suffer because what they tend to do is tap on domestic reserves and/or savings to try and remedy the situation," Ginindza explained.

This was evidenced by the urgent response by US, European and Asian governments, among others, who sprang into action with bail-outs worth billions of Dollars to save the situation.

In terms of the exchange, Ginindza said a high interest rate environment tended to be good for the currency.

"However, the pressure now with this crisis is that people (who had invested in SA markets) are taking their monies out, which has a big impact on the Rand. That is why the Johannesburg Stock Exchange (JSE) has taken a 30 percent knock since the beginning of the year.