Togo’s public contracts and banking sector: fostering shared risk for economic stability
Local entrepreneurs engaged in public works in Togo frequently voice a critical concern: “Banks are no longer supporting us.” This sentiment highlights a significant hurdle for the nation’s private sector. Small and medium-sized enterprises (SMEs) and other companies fulfilling government contracts report increasingly stringent criteria for obtaining bank credits and pre-financing. This tightening of financial access is notably impeding the progress of numerous infrastructure projects and public tenders across the country.
The spiral of unpaid debts
The core reason behind this reluctance from financial institutions stems from a systemic issue: the mounting backlog of unpaid invoices following the completion of public contracts. To undertake projects commissioned by state administrations, businesses routinely depend on substantial bank loans. Yet, when the treasury or other public entities delay payments, the entire repayment cycle is disrupted. This leaves companies unable to meet their financial obligations to banks promptly, creating a ripple effect that impacts the broader `society Africa`.
Analysis by Dr. LANDOZI Saharou: ‘A direct impact on bank profitability’
Dr. LANDOZI Saharou, a distinguished corporate finance specialist and economist, has shed light on the banking mechanisms currently impeding credit access. He explains that when a public contract faces payment delays, the corresponding bank credit progressively deteriorates, eventually categorizing as a doubtful or non-performing loan (NPL). In adherence to the prudential mandates set by the Central Bank of West African States (BCEAO), banks are then compelled to tie up significant portions of their capital by setting aside substantial provisions. This requirement severely curtails their liquidity and, consequently, their capacity to extend new financing. This trend has been evident in the sector’s overall performance; the Togolese financial market, within the UMOA zone, reported cumulative net losses by the end of the 2025 fiscal year, primarily attributable to the substantial provisions mandated for NPLs linked to public procurement initiatives. This situation directly affects the `governance Africa` landscape in the financial sector.
On the ground, construction SME managers describe daily operational blockages
On the ground, managers of construction SMEs describe a pervasive operational gridlock. They articulate their predicament: “We find ourselves caught between conflicting demands. On one side, the State insists that work proceeds strictly according to specifications. On the other, banks freeze our overdraft facilities the moment a payment certificate is delayed. We effectively act as a buffer, absorbing cash flow shocks using our own funds, which rapidly depletes our working capital.” Furthermore, they highlight a critical barrier: “Banks are now requesting tangible collateral that is almost impossible for us to provide for basic market pre-financings. Without a public guarantee or endorsement mechanism, local small businesses simply cannot compete with larger corporations for these vital `Togo public procurement finance` opportunities.” This situation underscores challenges in `African politics` and economic development.
Recommendations: moving towards equitable risk sharing
In light of this stalemate, Dr. LANDOZI Saharou, alongside several financial experts, advocates for a fundamental re-evaluation of public procurement `governance Africa`. They propose implementing a comprehensive risk-sharing model, which includes several key initiatives:
- Establishment of a dedicated guarantee fund: This fund would secure the commitments made by SMEs to banks, thereby lowering the required provisioning rates for financial institutions.
- Implementation of escrow accounts: Such accounts would ensure transparency and the direct allocation of public payments towards the repayment of granted bank loans.
- Securitization of arrears: This involves converting accumulated public debts into tradable securities, which would help clean up bank balance sheets and inject much-needed liquidity back into the system.
Dr. LANDOZI Saharou asserts that the adoption of these reforms would enable commercial banks to reclaim their essential role as economic drivers. He concludes that these measures would allow banks to “remain profitable while securely continuing to finance national development and public procurement.” This is critical for `Africa news English` on economic stability.
