Is concessionary finance an appropriate instrument for South Africa? This report assesses whether South Africa should adopt Brazil’s strategy of providing loans at below market rates to favoured industries and to infrastructure projects.
In Brazil, concessionary finance is a large component of total credit accounting for almost 30% of total Brazilian credit for the period between 1997 and 2007, thus equating it to 17 percent of Brazil’s GDP.
A critical issue in light of South Africa’s interest in expanding concessionary finance is whether we are learning the right lessons from Brazil considering that the two countries have enormous differences in population size and economy context.
The development of the Brazilian economy, which is anchored by the rate of investment and the productivity of the economy, is largely unaffected by concessionary finance meaning South Africa, with a deep and sturdy financial sector and cash-rich companies reluctant to increasing their investments, would be learning the wrong lessons from Brazil if they would expand concessionary finance.