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The development finance institutions relevance amid Covid-19 bearing

THE Covid-19 pandemic is creating significant eco- nomic challenges for industries world-wide.

The DFIs and particular long-term invest- ment business and the financ- ing architect’s ecosystem it supports are no exception.

The start of the Covid-19 pan- demic massive spread in the early 2020 leads to a major swing in investment ventures.

While it is too early to grasp an overall bearing of Covid-19 on the investment markets, and it is evident still early to form an accurate view as to the long-term impact of these modern and unfortunate events, based on analysis of reports drawn from a limited number of consistent, official sources and other general data emerging begins to indicate that investment terrain hasn’t been spared.

Amidst the shakeup brought by Covid-19, as banks, governments and Heads of States wrestles to design mea- sures i.e. fiscal and monetary and overall best stimulus pack- age to kick start the economy, the role of development finance institutions, unlike other finan- cial institution will be tested.

It is well acknowledged that in the past decade, these in- stitutions have been created and they have been allocated greater amounts of capital to help initiate development impact projects.

But amid the Covid-19 pandemic, these institutions, by their nature face the test of whether their plans will work and whether they can live up to the greater responsibility they have been given.

With a crisis that has seen economies brought to a stop, nearly 100 billion US dollars of private investment retreat from Africa, and in addition about 100 billion US dollars fall in worldwide transfer of funds, DFIs will have to find out mechanisms to grapple with and how to most effec- tively react.

DFIs not to align them- selves during the crisis aren’t an option. DFIs need to rise to these challenges.

In my opinion based on investment desire, it is an essential time for DFIs to demonstrate their value as development actors.

And in fact, while there is still a lot of ambiguity about the latitude of the pandemic’s effect, DFIs need to prepare plans and look strategically into their choice of businesses in addressing both immediate and long-term needs.

In my opinion, it’s very imperative that DFIs to con- tinue to operate when other investors are leaving or ceasing additional financing for these investment markets.

Given by nature DFIs are policy bank, they need to be countercyclical, to fill that gap and to protect what they’ve already done taking advantages of monetary measures issued by their national central banks.

To cope with challenges caused by Covid-19, and to plan the necessary economic readjustment, macro-policies of government will in my opinion play an important role.

The presence of agencies which implement these poli- cies efficiently are crucial as they provide in what can be termed as two way linkage between the ivory tower where policy makers resides and the market place where the future is actually forgone and economics really works.

Given DFIs are such agen- cies and are creatures of these strategies and at the same time agents of change that do and can influence policy making,

it is important for themselves to devise strategic planning for themselves as it is for the betterment of the national and the people they serve bearing in mind long term effect of Covid-19.

Known to have emerged through the years as a major instrument for channelling investments to productive ven- tures over years, these institu- tions have evolved a variety of schemes for inducing growth in the economy.

Given the Covid-19, the strategy for overcoming pre- vailing pandemic need to be evolved in the light of the experience of the past and the emerging new economic setting.

Growth and existence of an organisation depend, above all on the remaining relevant to the changing situation and environment.

As each institu- tion align to re-engage with effects caused by Covid-19, DFI will in my opinion carry the work of supporting small industries, bringing about re- gional balance, encouraging new entrepreneurs, converting saves into investors and carry- ing out industrial restructuring and taking up the risker aspect of project financing.

The changes that are al- ready taking place and those that are on the anvil will take into account Covid-19 bearing will differ and based on experience these differences can only be in terms of time and sequence.

DFIs, in my opinion, ir- respective of where they are located, would have to recog- nise these directions of change in their strategy to help cope with Covid-19 effects.

My envisioned strategic planning of the DFIs in the future has to be, as in the past, an exercise in reconciliation of seeming contradictions.

As DFIs cope with pandemic, have to be catalysts at the same time active agent especially in the areas of financial resource mobilisation.

DFIs in my opinion have to be ready to unleash liberal economic forces and yet guard against ravages of competition which can in the short run damage the quality of the portfolios.

As they take advice issued by central bank for instance, DFIs have to be a part of the financial systems and yet retain their status as specialised institutions or policy banks.

DFIs must play a promo- tional role in bringing about balanced development and yet remain profitable and maintain sound financial health.

Thus why, DFIs strategic approach to handle Covid-19 bearing has to be strategically planned to attain growth and yet achieve distributive justice.

A challenge that in my opinion cannot be avoided is that DFIs have been adept at walking on the razor’s edge in the past.

I have no doubt that DFIs strategic skills and above all, establishment role of DFIs will enable these designated agencies of the government to meet the challenges of the future to strategically support businesses regeneration as those responsible for monetary measures or fiscal measures continue to work on what would appear to be energizing bundle of measures to swiftly cope with sound effects caused by Covid-19.

As DFIs exhibit their worth in the wake of the pandemic, it is envisioned that the work of DFIs won’t get stress-free, since just as DFIs are contending with potential losses to their balance sheets, increased levels of NPLs, they also need to take on riskier investments, contemplate how to price their loans amidst recommendations given from central banks, and adapt to a changing business setting.

It is worth to recall, prior to the pandemic, DFIs repeatedly competed for clients and investments with commercial banks and sometimes struggles to justify not one pricing but their relevance as ideal agency of the government.

Covid-19 has changed and will continue to change financing strategy and fund sourced scenery.

To cope with these ups and downs and to design the necessary investment decision making and fine-tuning pressure point, DFIs will have to play a vital role because will likely be an amplified focus on business supply chain, operations and continuity due diligence, as well as the potential impact of Covid-19 on earnings projec- tions, the execution of business strategy, material contracts and general working capital and liquidity.

The objective of this think- ing is to inspire debate on how DFIs can strategically response to Covid-19 and help parties fill some of the information gaps on responses of the private sector to the shockwave and highpoint strategies for DFIs to be countercyclical in the present circumstance, as well as the recovery phase that will follow first wave of Covid-19.

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Author: Dr Hildebrand Shayo

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