Credit Suisse CEO Thiam Warns on African Debt -- 3rd Update
October 06 2015 - 10:40AM
Dow Jones News
By Simon Clark
Credit Suisse Group AG Chief Executive Tidjane Thiam says it is
"madness" for African nations to rely on loans in foreign
currencies to fund vital infrastructure including roads, power and
clean water.
Lenders in African nations must instead find domestic savings to
invest in local projects, said the Ivory Coast-born banker who took
charge of Zurich-based Credit Suisse in June.
Mr. Thiam's warning comes after countries on the continent where
he was born sold $11 billion of foreign-currency bonds in 2013 and
a further $8 billion last year, raising concerns among some
analysts that a new debt crisis may be developing.
The International Monetary Fund and the U.K.'s Overseas
Development Institute, an independent research group, have written
about the risks of African governments taking on too much debt.
Borrowing costs "could increase unexpectedly during periods of
uncertainty," the IMF said earlier this year. "In particular,
sub-Saharan African borrowing costs are expected to increase as
yields in U.S. bond markets start to climb."
"I did a lot of infrastructure development in my life," Mr.
Thiam said in a dinner speech at Claridge's hotel in London on
Monday evening. "To fund them with foreign currency is madness. OK?
Madness."
Mr. Thiam worked on infrastructure and privatization projects
for the Ivory Coast government in the 1990s, where his final job
was minister of planning and development. His time in government
occurred between two stints at consulting company McKinsey &
Co.
The 53-year-old banker said there are "many reasons for being
bullish about Africa," as investment, economic growth, and
education rates improve. Africa is "absolutely strategic" and "at
the heart of the future of the world economy," he said. He cited
the peaceful presidential election in Nigeria earlier this year as
a significant positive step, before stating the importance of
funding development in a balanced way.
"We are not going to reach the kind of growth trend that we need
if we are unable to do this successfully. You can't just borrow
internationally," he said at the dinner organized by the Financial
Times newspaper to conclude a conference on African business. "You
have to be ready to discriminate between those who have reasonable
funding strategies and those who have just borrowed in
dollars."
" Warren Buffett joked when the tide goes down you see who has
been swimming without trunks. Some of those economies will fall on
their face because of that, that currency mismatch," he said.
"You cannot control your economic destiny if you are not able to
mobilize savings and then turn them into productive investment,"
Mr. Thiam said. "If you can't develop infrastructure, if you can't
develop the energy, if you can't provide clean water, if you don't
have roads, there is absolutely no future possible."
Mr. Thiam made his argument as an appeal for well-functioning
financial institutions to assist the economic development of
African nations.
"My usual pitch is life insurance companies are very
important--but banks too," the former CEO of London-based insurer
Prudential PLC said, prompting laughter from the audience.
Write to Simon Clark at simon.clark@wsj.com
(END) Dow Jones Newswires
October 06, 2015 10:25 ET (14:25 GMT)
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