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Africa’s volatile economic situation affects housing delivery

When an African country’s economy shows signs of growing, financiers from all sectors of tend to keep an eye on that country, waiting for the right moment to invest their capital in exchange for higher returns.

But sometimes the ‘gold rush’ can quickly turn into a deep nightmare if in the middle of an investment, the economic growth starts to suddenly decline, leading to a series of recessions.

In the housing sector, an area Africa seems to be lagging behind the rest of the world, Habitat for Humanity (HH) and the MasterCard Foundation learned a valuable and unforgettable lesson three years ago in Ghana (West Africa).

In 2013, the two partners teamed up to help Ghana’s micro-finance institutions (MFIs) develop new housing loans, as Ghana looked like a good country to begin with.

In December 2011, the Financial Times reported that Ghana’s economy was growing faster than any other country in the world, going as far as expanding at a forecast 13.6%.

The discovery of new oil wells buoyed the country’s economy when production kicked off in 2010.

Unfortunately, the economic sunlight suddenly changed from green to red, characterised by freefalling currency, increasing interest rates, and fiscal and growing current account deficits, which led to a major crisis by the end of 2014.

“MFIs scaled back expansion, new products and inclusion. The housing microfinance product then stalled and the project closed,” Patrick McAllister, senior advisor for Habitat for Humanity, recounted.

McAllister was one of the speakers at the annual housing finance summit recently hosted in Durban, South Africa, by the African Union for Housing Finance (AUHF) and Banking Association South Africa.

As the situation got from bad to worse, Ghana requested a bail out from the International Monetary Fund (IMF) in August 2014, McAllister said, adding that the US$1 billion loan was eventually granted in February 2015.

An emotional McAllister, who visibly seemed to have been disappointed by the project’s debacle, said: “Struggling economies and high-inflation environments pose several direct threats to housing microfinance.”

The consequences being the increased construction costs, lower or less stable incomes among the poor, and the heightened cost of capital to microfinance institutions, he explained.

McAllister also said that where microfinance markets were mature, fundamentals are sound, and lending was conducted responsibly, housing microfinance could thrive.”

New products are extremely sensitive to the business cycle, he said, adding that programs to introduce new products should be flexible enough to compensate for downturns.

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