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 per cent 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 one-year deal will see CDC and Standard Chartered share the default risk on up to US$50 million of new loans originated by Standard Chartered in the West African state.
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.
Rt Hon Justine Greening MP, Secretary of State for International Development said: "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. 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."
Diana Noble, Chief Executive Officer, CDC said: "The exceptional circumstances presented by the Ebola crisis require 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."
Diana Layfield, Chief Executive Officer, Africa Region, Standard Chartered 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."
