Exactly one year ago, KfW launched its coronavirus aid programmes. During the spring of 2020, the economy contracted by 9.7 per cent – a slump that is unparalleled in all of Germany’s post-war history. Large sections of the economy were affected and depended on help from the Federal Government, which tasked KfW with providing liquidity aid to companies of all sizes.
One year of KfW coronavirus aid
Dr Günther Bräunig (CEO of KfW Group) and Dr Ingrid Hengster (Executive Board Member) take stock (video in German) (KfW Group/Begisheva/Schuch)..
During the year, the aid measures grew into a suite of products which encompassed additional target groups in Germany and abroad, including students, start-ups, non-profit organisations, as well as the partner countries of Financial Cooperation. It became the largest assistance programme in KfW’s history. Overall, the measures achieved a commitment volume of 68.9 billion euros – or 54.3 billion euros counting repayments already made. Thanks to the stable promotional infrastructure and extensive involvement of all participants – the German Federal Government, financing partners, associations and supervisory authorities – it was possible to quickly set up the KfW Special Programme for coronavirus aid in Germany. Demand in the days that followed was huge; KfW received applications for one billion euros every day, 99 per cent of which were processed automatically. The commitment volume in the Special Programme, the core of the suite of programmes, is currently 61.8 billion euros – or 47.2 billion euros counting repayments already made. All companies in Germany can submit applications until 31 December 2021.
Alia Begisheva talks with Roland Siller, Member of KfW Development Bank’s Management Committee, about the coronavirus crisis in developing countries and emerging economies and the German aid programme that KfW is implementing on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ)
Mr Siller, Germany has not been able to get the coronavirus pandemic under control. How dire is the situation in developing countries and emerging economies?
Roland Siller: It varies greatly. Latin America was hit hard, the death rates are very high in Bolivia and Brazil. Countries dependent on tourism revenues are experiencing severe hardship. In Morocco, for example, income from handicrafts has plummeted by 95 per cent because there are no more tourists. Weak government and healthcare structures make the situation even worse. Many millions of people have been laid off in the textile industry in Bangladesh. And, of course, they don’t continue to pay wages like we do in Germany, which plunges them into poverty. Burkina Faso, for example, had only twelve intensive care beds before the coronavirus pandemic...
One year of KfW coronavirus aid
Roland Siller discusses the various aspects of KfW coronavirus aid with office directors. (KfW Group/Sperl/Schuch).
The German Federal Government has assembled the largest aid package in German history, including a special programme for developing countries and emerging economies. Where are the priorities?
The former Colombian Minister of Finance once said, referring to the European Central Bank’s aid programmes during the euro crisis in 2012: “We don’t live in a ‘whatever it takes’ region. We can do what we can do.” In other words: for us, it’s not about what’s necessary, but about what’s possible. The goal is to prevent the countries from falling too far down a hole. And this is a huge challenge. To this end, we have supported truly large-scale social programmes in some countries on behalf of the Federal Ministry for Economic Cooperation and Development: in Brazil, in India and in Indonesia. The response of these countries has been similar to Germany, and they have thought about how to continue paying wages or at least support the very poor. The measures have stabilised the situation in certain parts of the world to some extent. In countries like Burkina Faso, the aim was to provide direct support, for example with funds for hospital and laboratory equipment.
When you reflect back on one year of coronavirus aid, how did you feel about this period?
It was extremely intense because we didn’t have a lot of time. It was sometimes difficult to predict what would happen next, whether the countries and the administrations would be able to keep the situation under control. Whether there would be unrest if the people felt they had been abandoned. International aid – and Germany is the second largest donor after the USA – has certainly helped to counteract this development. And demand from our partners was immense. Both from governments seeking liquidity to support their populations and maintain their capability to act, and from public banks that sought to support small and medium-sized local businesses. Private investors have retreated en masse: no one has invested, but rather opted for security and to keep the money themselves. So it was certainly a very precarious situation. Little by little, we learned how to deal with it. In the end, it was satisfying for everyone involved, but also really tough.
And then you probably had to completely reorganise your work...
Yes, because travel was no longer possible. Our foreign offices have assumed responsibility for liaising on the ground. But we were also able to exchange ideas with our partners in video conferences. The need was so great that everyone just gave it their all. And then things also worked surprisingly well.
And why did things work so well?
Because our social capital was very high. We have extremely good relationships with partners on the ground, especially through the foreign offices and the local experts who have been working for us there for many years and enjoy a great deal of trust. We also negotiated straightforward procedures with the German Federal Government, which was very flexible and responded quickly. And then we also did everything here in the bank so that the aid could arrive quickly. In just a few short months, we made specific funding commitments of four billion euros and disbursed three billion euros of this amount before the end of the year. We’ve never seen this kind of speed before.
Are there lessons to be learned for the future?
Yes, of course. It is possible to make more of a difference digitally than you might think. But we can’t forget that it was an emergency situation. This makes things possible that would otherwise be impossible. In the long run, when a new government is formed in one of our partner countries, it is essential that we have a presence on the ground in order to build trust and a relationship with the partner. But you can also hold negotiations and smaller meetings digitally, so that we can – I hope – travel less in the future.
Can the pandemic even be defeated without developing countries and emerging economies?
The developing countries have one advantage over the western world: their populations are much younger. Which has thankfully translated into much lower death rates in some countries, even if the numbers are not always reliable. However, we cannot rely on this fact alone, which is why the COVAX vaccination alliance for developing countries and emerging economies was founded with the participation of the German Federal Government. A total of 1.5 billion euros will be contributed, which is a significant amount. In the end, everything depends on international solidarity. And I am optimistic that – when a certain number of people have been vaccinated in developed countries – we will turn our sights to other countries.
And what can we learn in Germany from developing countries?
I am sure that KfW’s Office Directors are aware of many examples. I think that, in some countries, people are already used to pandemics – unfortunately, for example in Africa. And that there are certainly governments there that react very early and quickly, shutting down the economy and initiating precautionary measures. Their ability to act is quite different from ours in terms of speed.
So there are reasons to be optimistic?
The economic slump is not as severe as in developed countries. On the other hand, a developed country can hit the ground running and invest again after the crisis. Developing countries do not have these resources and it takes them a long time to get out of depressions. And for the current coronavirus crisis, this also means that debt will ultimately rise and governments’ ability to act will diminish. And this can lead to instability and regional conflicts. These are the main risks I see.
Published on KfW Stories: 31 March 2021.