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ISSUE 30 New year, new rules Banco Nacional de Angola Governor José Pedro de Morais Júnior on cleaning up banking
New year, new rules Banco Nacional de Angola Governor José Pedro de Morais Júnior on cleaning up banking A CPI Financial Publication
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OPINION
Good aims, bad outcomes
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POLICY
New chapters in Ugandan banking
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SECTOR FOCUS
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bleed guide.indd 1
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CONTENTS
ISSUE 30
Editor’s Letter Hello readers,
W
hen we planned our Country Focus features for 2016, we had no idea how relevant it would be to delve into Angola this month. First, the Central Bank released a string of new regulatory and governance procedures, which we discussed with Governor Jose Pedro de Morais Junior (pg. 20). But then just days before print, Angolan authorities met with the World Bank to discuss more potential reforms and possible aid. Though the meeting was motivated by the pressure of low oil prices, as you’ll see in the Angolan Country Focus (pg. 23) the Government is setting its sights on a number of more long-term approaches, with diversification, governance and transparency being top concerns. Lest you think this is just for show, a top official in recently Kenya told me that in January they had been visited by an Angolan delegation on these very subjects. In fact I write this editor’s letter from Kenya, where I have been in back-to-back meetings with bankers, tech providers and public officials. As always, the Kenyan banking sector puts me in awe of how consumer banking and payments technology can constantly transform. Equity Bank has just announced a new deal with tech provider Entersekt (pg. 42) that is likely to be picked up by other Kenyan banks very soon. As regional expectations for GDP growth fall, Kenya’s aggressively growing financial services and telecoms sectors look to take over in East Africa—and likely could. But other countries in the region are catching up—Uganda’s Central Bank and Parliament recently authorised Islamic banking, bancassurance and agency banking (pg. 28), all avenues of bank business that have recently surged in Kenya. Another banking sector due for big change is in Egypt, where the central bank has instructed banks to boost SME lending to 20 per cent of loan books by 2020 (pg. 36). While this will ultimately be positive for the massive SME sector, loan quality could suffer in the meantime. I’ve run out of room but there’s a lot more to see, including a discussion of sustainability in infrastructure projects (pg. 18) and Islamic debt (pg. 38). With that, I’ll let you get to reading.
20 IN THE NEWS 6 News analysis: record-breaking drought in Ethiopia
7 Essential financial news from around the continent
10 Spotlight: Liberia
http://cpifinancial.net/blog/author/78/sarah-owermohle
industrial revolution The annual World Economic Forum kicks off
13 Côte d’Ivoire ventures into
Islamic investment The country issues its first Sukuk
14 Disaster inbound?
Harvard Professor Robert Rotberg on China’s slowdown
13
THE MARKETS 16 2015 ends on a high note
A recap of M&A for the year from Thomson Reuters
OPINION 18 How a project with good aims delivered
bitter outcomes in Sierra Leone Dr. Gearoid Millar on meeting sustainability goals
COUNTRY FOCUS: ANGOLA 20 New year, new rules
18 23
Central Bank Governor José Pedro de Morais Júnior sheds light on the authorities’ transparency measures
23 Diversifying interests and closing gaps
Until next time,
Sarah Owermohle
10
HAPPENINGS 12 Preparing for the fourth
Declining oil prices have thrown a spotlight on other industries
INVESTMENTS 26 Fun(d)’s over?
Sub Saharan African sovereigns to face increasingly expensive financing, a new Standard & Poor’s report says
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CONTENTS
ISSUE 30
POLICY SPOTLIGHT 28 New chapters in Ugandan banking
The passage of several significant amendments ushers in Islamic banking, bancassurance and more
CASE STUDY 30 Tourism rising
30
Despite challenges, tourism is becoming a top sector in Africa, says AfDB
32 Imperial Bank cuts its losses
investment growth Rapid growth across the continent is attracting investors’ eyes, says Knight Frank
SECTOR FOCUS 36 Directing SME growth
New regulations in Egypt signal a significant increase in SME lending
38 Is Islamic debt a salve for the risk-averse?
40
Mohieddne Kronfol of Franklin Templeton Investments ME explores the opportunities
trust approach Internet-based threats aren’t the only ones out there, says Nicolai Solling of Help AG
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42 Equity Bank bulks up mobile security
43
Equity Bank, one of the fastest-growing banks in the region, chooses Entersekt to protect its digital channels
GOVERNANCE 43 Anti-terrorism measures
threatening remittances? Experts says that much-needed Somali remittances are being cut off by counter-terrorism measures
44 Know your needs—KYC Registry growing
46
More than 2,000 financial institutions joined SWIFT’s KYC Registry in just the first year, with steady growth in Africa
THE VIEW 46 Picture and survey of the month BA 29 cover_Final.pdf
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New year, new rules
Mozambique nets a loss
Banco Nacional de Angola Governor
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Y
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K
The SADC issue
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FDI LEADERS
China and the US
39
Non-commodities
shift
THE MARKETS
Consumer confidence nosedives again
2015 IN REVIEW A look back...
36
TRAILBLAZERS
Making contributions that matter
New yea r,
Banco Nacio nal
PLUS:
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guide.indd
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de Angola
Governor José
bad outcom
es
28
new rule s
Pedro de
OPINION
Good aims, BA bleed
Morais Júnio r on
cleaning up banking
POLICY
New chapte in Ugand rs an bankin g
38
SECTOR
Authority
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NEWS ANALYSIS Starved cattle are one symptom of Ethiopia’s harsh droughts (CREDIT: OXFAM INTERNATIONAL/FLICKR).
Record-breaking drought puts Ethiopia in dire need International organisations appeal to donors as crisis worsens
S
ome are saying that it is the worst drought in 30 years, others that it is the worst in 60. Carolyn Miles, CEO of international humanitarian organisation Save the Children, said that the Ethiopian drought is one of just two crises in its worst crisis level, category one; the other being the Syrian crisis. The Food and Agriculture Organisation (FAO) has said that the strongest El Niño weather episode in the last several decades has caused repeated crop failure, decimated livestock herds and driven some 10.2 million people across Ethiopia into food insecurity. Crop production has dropped by 50 to 90 per cent in some regions, and the latest assessments say conditions will continue to deteriorate until at least March. In mid-January, FAO presented a $50 million emergency plan for the hardest hit areas, appealing to the international community for aid. “The outlook for 2016 is very grim,” says Amadou Allahoury, FAO Representative for Ethiopia, adding that “After two consecutive seasons of failed
6 page 6 News Analysis 030.indd 6
crops, the success of the main cropping season that starts now will be critical to preventing conditions from worsening.” “Continued drought throughout the beginning of 2016 also means pasture will become even more scarce, which will negatively impact livestock keepers that rely on those grazing lands and water points for their food security,” he says. “Food overall will become harder to access if we continue to see prices rise, food stocks deplete and livestock become weaker, less productive, and perish.” John Graham, Save the Children’s Country Director in Ethiopia, noted that the Government is already stretched thin. “Humanitarian aid is coming in from the international community, but still too slowly, and the Ethiopian Government has already committed an unprecedented $297 million, as well as distributing their own limited food stocks, but this is still a race against time to meet their needs,” he said. The new FAO response plan aims to assist 1.8 million farmers and livestock keepers in 2016 to reduce food gaps and restore agricultural production and incomes. The first critical phase of the $50 million will focus on the ‘meher’ season
between January and June, helping some 121,500 households. The plan will be a mix of food and seed supply, microloans and cash-for-livestock plans to compensate farmers. The final leg of the project will be strengthening farmer resilience to further shocks. “In Ethiopia, El Niño is not just a food crisis—it’s above all a livelihood crisis. And we need to intervene now to protect and rebuild these livelihoods and people’s capacity to produce, to prevent families from becoming long-term dependent on food aid,” said Dominique Burgeon, Leader of FAO’s Strategic Programme on Reslience and Director of FAO’s Emergencies and Rehabilitation Division. “If response is delayed, recovery will be difficult and the cost of interventions will only increase.” FAO said that the El Niño phenomenon is associated with the abnormal warming of sea surface temperature in parts of the Pacific Ocean that has severe effects on global weather and climate patterns. El Niño has also lowered crop prospects in South Africa, Lesotho and Swaziland, as well as several Latin American and South Pacific countries.
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08/02/2016 15:34
IN THE NEWS
RATINGS REVIEW BANKS AND BUSINESSES Standard & Poor’s placed South African company Telcom Cell C’s ‘B-‘ rating on CreditWatch Positive following promising news of ownership and recapitalisation by Blue Label Telecoms, which plans to acquire a 35 per cent stake. Moody’s affirms Nedbank Private Wealth’s Baa3/P-3 deposit ratings and the Baa2(cr)/P2(cr) long- and short-term Counterparty Risk Assessments, with stable outlook, but noted its significant exposure to the South African Government. Moody’s revised Old Mutual’s rating outlook to negative from stable and affirmed its senior debt rating at Baa3, due to knock-on effects of South Africa’s deteriorating credit profile. Moody’s changed outlook to negative on 10 South African regional governments and two government-related entities, also due to the deterioration of the sovereign and Moody’s recent move to bump South Africa’s bond rating to negative from stable. Capital Intelligence lowered the long-term foreign currency rating of Banque de Tunisie to ‘BB’ but affirmed its financial strength rating at ‘BB+’.
SOVEREIGNS Fitch Ratings upgraded Namibia’s national rating to ‘AA+(zaf)’ from ‘AA-(zaf)’ with a stable outlook; it also upgraded Namibia’s senior unsecured bonds rated to ‘AA+(zaf)’ from ‘AA-(zaf)’. Moody’s affirmed Namibia’s Baa3 government bond and issuer ratings with a stable outlook. S&P affirmed its ‘B/B’ long- and short-term foreign and local currency sovereign credit ratings on the Uganda, citing high GDP growth but low per-capita GDP. S&P affirmed its ‘B+/B’ ratings on Senegal, projecting strong economic growth, and noting fairly strong governance but low income levels in the medium-term.
ON THE RECORD
The opportunity to raise the quality of life is the biggest business opportunity. – Paul Kagame, President of the Republic of Rwanda, speaking at the World Economic Forum’s Annual Meeting in Davos, Switzerland
ADFD loans AED 77 million to Lesotho dam project Abu Dhabi Fund for Development (ADFD) has extended AED 77 million ($21 million) in concessionary loan towards the construction of the Metolong Dam in the landlocked kingdom of Lesotho in South Africa ADFD’s loan was used to finance construction work of the concrete dam and The dam will service the capital and surrounding areas. its outbuildings, as well as for pumping and purifying plants and distribution pipelines. Built at a total cost of AED 700 million ($189 million), the dam project aims to support Lesotho’s economy by enhancing the country’s water infrastructure, and augmenting existing drinking water sources in the capital Maseru, as well as surrounding villages. The dam is expected to meet the population’s water demands until 2025.
Barclays Africa opens its Rise innovation hub
B
arclays Africa officially opened the Rise innovation hub, designed to provide African innovators and start-ups with a physical location in Cape Town to facilitate collaboration and fintech innovation, it said. The opening of an innovation hub in South Africa is the latest expansion within the network that already includes London, Manchester and New York. “Rise provides developing markets with an opportunity to leapfrog ageing analogue infrastructure deployed in most developed economies, and with it the capacity to solve some of Africa’s development challenges,” says Ashley Veasey, CIO of Barclays Africa. Rise in Africa has championed several initiatives aimed at African innovators, including Tech Lab Africa and the Barclays Africa Supply Chain Challenge.
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IN THE NEWS
Tigo Tanzania pays $2.1 million in quarterly profit share to customers
T
anzania’s Tigo has announced another quarterly payment of $2.1 million (TZS 4.4 bilion) to its 4.6 million Tigo Pesa users. This is the seventh time in a row that the company is distributing profit to its mobile financial services users, it said in a statement. Tigo Tanzania Head of Finance and Risk for Mobile Financial Services Obedi Laiser said that cumulatively, the company has paid its mobile financial services users a total of $16. 5 million (TZS 35.5 billion) quarterly payments since September 2014. The payment is generated from profit accruing in the Tigo Pesa Trust accounts held with major commercial banks in Tanzania, Laiser said.
Africa Finance Corporation welcomes new Chief Risk Officer Africa Finance Corporation (AFC), a development finance institution for infrastructure projects in Africa, has appointed David Johnson to take up the position of Chief Risk Officer. Previously AFC’s Vice President responsible for Market Risk Management, David Johnson succeeds Roger Ellender, who reached the mandatory retirement age, after serving as AFC’s Chief Risk Officer for six years. In his new role, Johnson will be responsible for continuous review, implementation and enhancement David Johnson of AFC’s Enterprise Wide Risk Management Framework, which comprises of Credit, Market, Operational, Environmental and Social Risk Management. AFC, established in 2007 with an equity capital base of $1 billion, has a current balance sheet of approximately $3.2 billion.
MoneyGram launches account deposit into Nigeria Customers in Germany, Ireland, India and Spain can now send money directly to most bank accounts in Nigeria with MoneyGram, who said they are the first mobile transfer operator (MTO) to offer the service in these countries. “This is a significant milestone for us. With the addition of Nigeria, MoneyGram now offers bank account deposits through our network into five of the world’s largest remittance receive markets—Nigeria, China, India, Mexico and the Philippines,” says Herve Chomel, MoneyGram’s regional Vice President for Africa. “Account deposit is a fast and secure way to send and receive funds between loved ones and we are proud to offer the service for our customers in Europe and Nigeria.”
8 page 7-9 In the News 030.indd 8
Al Baraka Bank Egypt employs SAS FATCA solution Al Baraka Bank Egypt, a subsidiary banking unit of Al Baraka Banking Group, partnered with SAS and Data Gear to provide Foreign Account Tax Compliance Act (FATCA) solution across all of its branches in Egypt. SAS and DataGear employed a tailor-made FATCA solution using components of SAS Anti-Money Laundering (AML) 6.2 which was integrated within Al Baraka’s-Egypt core banking system. Available in Arabic framework, the FATCA solution prevents tax evasion and fines; supports decision making for new and existing customers; and offers prebuilt workflows to identify all US and international regulations and take appropriate actions. “The growing complexity of today’s regulatory environment both locally and internationally has been a key factor to implement SAS FATCA solution within the bank. The solution enabled us to effectively meet complex financial and regulatory requirements including streamlining our reporting process by automatically submitting the reports directly to International Revenue Service (IRS),”said Dr. Adel Mohamed Ahmed Elalem, Chief Information Officer, Al Baraka Bank-Egypt.
Zimbabwe switches to Yuan for reserve currency The decision to make the Chinese Yuan an official currency came as part of a deal to cancel about $40 million in Zimbabwean debt to China, and followed a state visit by Chinese President Xi Jinping in which he signed a $1 billion deal for a thermal power plant. Zimbabwe Minister of Finance and Economic Development Patrick Chinamasa said that the decision is a sign of friendship between the two countries. “There cannot be a better time to do this,” Chinamasa said in a statement. Zimbabwe’s own currency collapsed in 2009 after it inflated more than 230 million per cent. In 2014, the Reserve Bank, Zimbabwe’s central bank, authorised use of the US, British, South African, Botswanan, Australian, Indian, Chinese, Japanese, and Euro zone currencies.
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08/02/2016 15:38
Bank M records high earnings in Q4 2015
B
ank M Tanzania Plc has recorded solid earnings in the year ended 31 December 2015 with a pre-tax profit at TZS 23.27 billion, registering a growth of 16 per cent comparing to TZS 20.10 billion earned in 2014. Bank M’s Deputy CEO Jacqueline Woiso told press that the previous year was challenging across the banking industry, but that Bank M “managed to overcome the challenges and register an all-time high profit level of TZS 23.27 billion in 2015.” Woiso attributes the achievement Deputy CEO Jacqueline Woiso (L) and Communications Director Allan Msalilwa. largely to interest earning generated from lending portfolio, foreign currency dealings and fees and commission from banking transactions and other services. The revenues from loans follow a growth in the bank’s loan book from TZS 644.19 billion to TZS 670.8 billion from over the last quarter.
The Central Bank of Algeria is going to refinance banks in February The Central Bank of Algeria, La Banque d’Algérie, will inject funds into banks that saw their resources dwindle in 2015 after several years of surplus, Governor Mohamed Laksaci said. “The Central Bank started to gradually cut liquidity withdrawals. The banks and the financial establishments are expected to return to refinancing from the Bank of Algeria, notably through the re-discounting,” Laksaci said while presenting a report on the economic situation of the first ten months of 2015. The banks have not resorted to refinancing by the banks since 2001, he added. This measure aims at countering the diminishing of liquidity excess and at boosting the inter-banking monetary market, according to the Central Bank report presented by Laksaci. By end September 2015, the overall liquidity of banks was estimated at DZD 1,828 billion against DZD 2,730.88 billion late September 2014.
IFC invests in Co-op Bank Kenya The International Finance Corporation (IFC) will provide a $105 million loan to the Co-operative Bank of Kenya (Co-op Bank) to support lending to small and medium businesses, women entrepreneurs and the housing sector. The second largest bank in Kenya by total assets, Co-op Bank has 143 branches across the country and a subsidiary in South Sudan. Small and medium enterprises account for eighteen per cent of the Bank’s lending, or close to $386 million as of June 30, 2015. Co-op bank will use IFC’s financing to extend a wider range of financial services to entrepreneurs, with $30 million earmarked for women-owned businesses.
ICICI Bank opens its first branch in South Africa ICICI is the first Indian private sector bank to open a branch in Africa following its first full service branch at Sandton in Johannesburg. It is the first Indian private sector bank to open a branch in the African continent to support the South African corporates that share active trade links with India. To begin with, the Johannesburg branch will undertake banking activities only for corporates. It will provide financial assistance to Indian joint ventures and subsidiaries across Africa, offer trade finance and short term funding for companies having trade links with India. Vijay Chandok, President, ICICI Bank said, “The opening of this new branch is a testimony to the strengthening trade relations between India and Africa over the last decade.”
Ingenico Group deploys 50,000 terminals in Africa
F
INCA, an international microfinance institution, has equipped its agents with Ingenico biometric terminals to capture the applicants’ fingerprints during the enrollment and validate their identities through their finger scan prior to the loan disbursement. This programme has been in continuous expansion in several African countries such as Malawi, Nigeria, Democratic Republic of Congo, Tanzania, Uganda and Zambia. “This milestone is taking us to the forefront of the financial inclusion market in Africa where three quarters of the population is still unbanked,” commented Luciano Cavazzana, Eastern Europe & Africa Managing Director for Ingenico Group. “Through our technology, we address local challenges and seek to empower our endcustomers to increase account ownership and broaden access to financial services. We are very pleased to celebrate this important landmark with FINCA.”
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NEWS SPOTLIGHT LIBERIA
Liberian delegation visits South Africa for small business
T
he Deputy Minister of Commerce and Trade for Small Business and Administration, Andrew G. Paygar-Flangiah, Sr., led a delegation to meet with South Africa’s Deputy Minister of Small Business Development, Elizabeth Thabethe, on a fact-finding mission to build the sector. The visit also included a Memorandum of Understanding to create a legal framework to improve trade and economic relations between the two countries and to foster mutually beneficial relations. Paygar-Flangiah Sr. said that one key mandate of the Small Business Administration is to make sure that 25 per cent of all Government procurement goes to Liberian-owned small businesses. “Implementation efforts for this new law are still in the early stages, but we are confident that this government support on the order of $66 million in 2015/2016 financial year will make a difference for our hard working SMEs,” he said during the visit.
IMF disburses $10.2 million in credit arrangement
David Lipton of the IMF says there’s still a long road ahead (CREDIT: IMF/FLICKR).
Liberia declared Ebola-free T h e Wo r l d H e a l t h Organisation (WHO) declared Liberia free of Ebola on 14 January, after the country went 42 days without a case. Guinea and Sierra Leone were declared diseasefree in December and November respectively, but Sierra Leone reported another case in January. “These achievements School is back in session in Monrovia (pictured) but Liberia is still in a period of heightened vigilance (CREDIT: UNICEF/GRILE). could not have happened without the decisive leadership of the Presidents and other national authorities of the three affected countries, and the engagement of all communities,” UN SecretaryGeneral Ban Ki-moon said. “Of course, significant challenges remain. We can anticipate future flare-ups of Ebola in the coming year,” he added, noting that Liberia’s experience in combating two flare-ups shows the resilience and capacity of affected countries to reactivate emergency response mechanisms and contain the virus. “But we also expect the potential and frequency of those flare-ups to decrease over time. Governments will need resources to help communities prevent infection, detect potential cases and respond rapidly and effectively,” he added.
10
The International Monetary Fund (IMF) completed the fourth review under an Extended Credit Facility (ECF) arrangement for Liberia, disbursing SDR 7.38 million (about $10.2 million) and bringing total under the arrangement to SDR 69.21 million (about $95.8 million). In completing the review, the Board approved waivers for the nonobservance of the performance criteria on Government revenues and central bank net foreign exchange position. The Board also approved the re-phasing and extension of the arrangement to end-2016 in light of the delays caused by the Ebola outbreak. During and after the outbreak, the IMF supported Liberia with an ad hoc disbursement, a rapid credit facility and a debt relief agreement under the Catastrophe Containment and Relief (CCR) Trust, bringing total financing to SDR 90.44 million ($125.2 million). “Liberia has largely overcome the Ebola epidemic… however the sharp decline in global commodity prices is holding back the economic recovery,” David Lipton, First Deputy Managing Director and Acting Chair of IMF, said. “Performance under the authorities’ Fund-supported programme has been uneven as a result of the epidemic and, to a lesser extent, policy slippages. A still challenging economic situation underscores the importance of strong program implementation in the period ahead to sustain macroeconomic stability, improve policy credibility, and secure additional donors financing.”
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15/12/2015 15:47
HAPPENINGS
Preparing for the fourth industrial revolution This year’s World Economic Forum takes on technology, security and the changing world economy
This year’s event brought together 2,500 leaders (CREDIT: CROSSROADS FOUNDATION/FLICKR).
M
ore than 40 heads of state and government and 2,500 business people, entrepreneurs and public officials convened in Davos, Switzerland for the 46th World Economic Forum (WEF) Annual Meeting in January. The agenda this year focused on “mastering the Fourth Industrial Revolution”, or facing the challenges of geo-economics, global security, public health, education, gender parity and climate change. The theme was in line with WEF founder Klaus Schwab’s new book, The Fourth Industrial Revolution. “The Fourth Industrial Revolution refers to the fusion of technologies across the physical, digital and biological worlds which is creating entirely new capabilities and dramatic impacts on political, social and economic systems. The speed, scale and systemic nature of
12
this transformation has the potential to disrupt all sectors and call into question the essence of human nature and identity. The purpose of our meeting this year is to build a shared understanding of this change, which is essential if we are to shape our collective future in a way that reflects ultimately that the human being should be at the centre,” Schwab said. President Jacob Zuma of South Africa and several South African ministers attended the event and spoke on panels, as did Hailemariam Dessalegn, Prime Minister of Ethiopia, and Daniel Kablan Duncan, Prime Minister of Côte d’Ivoire. Lesetja Kganyago, Governor of the South Africa Reserve Bank, Benno Ndulu, Governor of the Bank of Tanzania, and Oscar Onyema, Chief Executive Officer of the Nigerian Stock Exchange, spoke on the “Regions in Transformation: Sub Saharan Africa” panel together, while the heads of state joined together on
the “Africa’s Future” panel with Donald Kaberuka former president of the AfDB, as well as Irish rock star Bono. Several of the WEF topics circled around the fast-moving security threats in the world, particularly terrorist threats. One panel, “Understanding Islam,” sought to break down stereotypes and fears, while another, “The Evolution of Political Islam,” explored how threats could grow. The prime ministers of Tunisia and Mali joined on security subjects along with several Middle Eastern leaders. On innovation in the “Fourth Industrial Revolution”, several speakers and participants pointed to Africa’s increasingly dynamic growth. Naadiya Moosajee, Co-Founder of WomEng and a speaker at WEF, wrote prior to the event that, “Necessity is the mother of invention, and in Africa it has been the mother of innovation. While the continent is vastly different, the level of innovation has been interesting to watch, largely fueled by the equalizing nature of technology and mobile telephony.” “For the first time, we are seeing a trend of being technology generators rather than just adopters, and we are seeing more innovators from the west move to the continent due to an easier, and in some cases non-existent, regulatory environment, which enables greater experimentation in the market with few competitors. These include new drone technology for the delivery of goods to leapfrog the infrastructure divide,” she added.
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08/02/2016 15:47
Côte d’Ivoire ventures into Islamic investments The issuance of the country’s first Sukuk attracted regional and Middle East investors
Abidjan, the economic capital of Cote d’Ivoire, is a fast-growing centre in West Africa. (CREDIT: ABDALLAHH/FLICKR).
T
he Republic of Côte d’Ivoire, acting through the Ministry of Economy and Finance, closed an inaugural local currency, CFA 150 billion ($244 million) Sukuk al-Ijara on 21 December 2015. Its first Sukuk is also the largest issuance out of a West African sovereign, and drew subscriptions by regional and international institutional investors, including members of the West African Economic and Monetary Union (WAEMU).
The Islamic Corporation for the Development of the Private Sector (ICD) Bank, acted as the Lead Arranger for the issuance. Legal firm Hogan Lovells advised the ICD. “The ICD will do its best to contribute in the transformation of the WAEMU Capital Market. ICD is committed to promote and increase substantially the volume of Islamic financing transactions toward the economies of the Union,” ICD CEO Khaled Mohammed Al Aboodi said.
According to the ICD, the issuance was attractive to Middle Eastern and North African buyers, with 56 per cent of Sukuk allocated to West Africa and six per cent to North Africa while Middle Eastern buyers snapped up to 38 per cent. The ICD had previously arranged Senegal’s debut issuance of XOF 100 billion ($170 million) in June 2014 and has put a special focus on working with African countries to enter the Sukuk market. Zaky Sow, Sukuk Project Manager for ICD added, “We are delighted to have brought this ground-breaking Sukuk to the market and to also introduce Islamic finance to Cote d’Ivoire. The Sukuk opens up a whole new stream of investment into the country, which will ultimately benefit the people.” In October 2015, Cote d’Ivoire reelected President Alassane Ouattara to a second term in office “in an atmosphere of calm and order, in stark contrast to 2010”, according to Aïchatou Mindaoudou, the UN Special Representative in the country. On 6 January 2016, Ouattara’s Government, including the Prime Minister, resigned citing his call to “inject a new dynamic” into policy and action. Overall, many are optimistic about the incoming reforms the President has planned to both encourage growth and end poverty.
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page 13 Happenings-CI Sukuk030.indd 13
13 07/02/2016 15:49
HAPPENINGS
Robert Rotberg (left) discusses the implications of China’s slowdown with ARI Director Edward Paice (R). (CREDIT:
AFRICA RESEARCH INSTITUTE)
Disaster inbound? Africa’s future depends on China, said Harvard Professor Robert Rotberg at a recent African Research Institute event
E
conomists have long speculated on the impact an economic slowdown in China would have on Africa. As 2016 begins, a significant slowdown is increasingly looking like a reality— several observers have forecasted that Chinese GDP growth could drop to five per cent this year, a sharp fall from 6.9 per cent in 2015. At a recent event in London, the Africa Research Institute (ARI) explored just what this could mean. Professor Robert Rotberg of the John F Kennedy School of Government at Harvard University, the event’s main speaker, said that Chinese slowdown
14 page 14 Happenings030.indd 14
was always inevitable but African governments have not prepared. Rotberg, for his part, warned of these risks back in 2014. Nothing is more important to the future of Africa than the future of China, he said. With rapid population growth putting pressure on African economies, “turning that into a demographic dividend depends entirely on China”. African trade with China has averaged $200 billion in recent years and is expected to be as high as $300 billion in 2015. A large part of this is the export of raw resources from Africa, and China’s slowing import levels are
already making an impact: in Zambia, where copper exports account for 86 per cent of revenue, Zambia lost 50 per cent of its income in 2015. “Africa’s future depends on China being robust,” Rotberg said. “If China’s GDP growth slows to five per cent, down from 6.9 per cent this year, this spells disaster for Africa.” Countries like Nigeria, which Rotberg says is not food self-sufficient, or Angola, which has a costly oil mortgage deal with China, will feel this slowdown acutely. “The African market, except for gas, doesn’t really have other purchasers,” he added. Aside from being a key export customer, China has also provided easy credit to African countries for infrastructure projects—another facet of the relationship that could actually end up being harmful for Africans. “China has so far been disinterested in the political leanings of African countries, which is a polite way of saying China supports authoritarian and corrupt governments throughout Africa,” Rotberg said, noting that several of these countries also suffered from high poverty levels and income inequality. Aside from dubious political ties, China’s big investments into infrastructure often come supplied with their own labourers, limiting Africans’ abilities to be employed by projects in their own backyards. This lack of cooperation, and by extension cultural exchange, could have a growing impact in the years ahead. Though there are more than a million Chinese citizens living and working in Africa now, the norm of bringing in Chinese labourers for big projects has isolated Chinese and caused some negative sentiment amongst Africans. While China is working on building relationships and even language centres in major African cities, the slowdown could put a damper on efforts to build deeper relations.
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THE MARKETS
2015 ends on a high note Sub Saharan debt issuance and investment banking fees were strong throughout 2015, according to annual data from Thomson Reuters
ANNOUNCEDSUB-SAHARAN SUB-SAHARAN AFRICAN M&A DEAL FLOW ANNOUNCED AFRICAN M&A DEAL FLOW Rank Value in $ billions (YoY % Change)
Inbound $41.1 bln (+283%)
Outbound $6.7 bln (+13%)
Inbound M&A-Most Acquisitive Nations Netherlands United Arab Emirates United Kingdom
Outbound M&A-Most Acquisitive Nations 55%
South Africa
28% 5%
Seychelles
Nigeria Kenya
19% 4%
Outbound M&A-Most Targeted Nations
Inbound M&A-Most Targeted Nations South Africa
74%
Mauritius
86% 6% 3%
Inter Sub-Saharan African M&A
United Kingdom Russian Federation
US$11.9 bln (-32%)
Australia
28% 18% 16%
(Source: Thomson Reuters Deals Intelligence)
R
egional investment banking fees reached $476.4 million and announced M&A transactions involving the region hit $66.7 billion for 2015, according to Thomson Reuters’ investment banking analysis for Sub Saharan Africa (SSA) in 2015. According to estimates from Thomson Reuters and Freeman Consulting, SSA investment banking fees reached $476.4 million in 2015, 24 per cent more than the value recorded during the same period of last year. Fees from completed mergers and acquisitions (M&A) transactions totalled $174.5 million, a 96 per cent
16 page 16-17 Markets 030.indd 16
increase from last year and the highest annual period since 2011. Sneha Shah, Managing Director, Africa, Thomson Reuters, said, “The value of announced M&A transactions with any SSA involvement reached $66.7 billion for 2015, 73 per cent more than the value registered during 2014.” “Sub Saharan African equity and equity-related issuance totaled $3.9 billion during the fourth quarter of 2015, a 93 per cent sequential increase in value from the third quarter of 2015. Sub Saharan African debt issuance raised a total of $15.5 billion in proceeds for 2015, a 22 per cent decline compared to last year,
and the lowest annual period since 2012,” she added. Fees from debt capital markets underwriting also increased 41 per cent year-on-year to reach $63 million. Syndicated lending fees fell 21 per cent from over a year ago to $108.1 million. Equity capital markets underwriting fees grew 14 per cent to $130.8 million, and accounted for 27 per cent of the overall SSA investment banking fee pool. Rand Merchant Bank earned the most investment banking fees in SSA for 2015, a total of $48.5 million for a 10.2 per cent share of the total fee pool. It also topped the completed
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08/02/2016 15:55
SUB-SAHARAN AFRICAN IB FEES VOLUMES
Sub-Saharan African IB Fees Volumes
$600 Annual Fees
$500
$400
Fees ($ mil)
M&A fee rankings during 2015. Java Capital (Proprietary) Ltd took the lead for ECM underwriting with 14.4 per cent share of the ECM fee pool. Deutsche Bank took first place for DCM underwriting with 13.2 per cent share of the total DCM fees. Standard Chartered ranked first place for syndicated loans fees and captured 11.1 per cent of the loans fee share. In M&A deals, outbound activity increased 13 per cent compared to 2014 and reached $6.7 billion in deal value. South Africa’s overseas acquisitions accounted for 74 per cent of SSA outbound M&A activity, while acquisitions from Mauritius and Seychelles companies accounted for 19 per cent and four per cent, respectively. Inbound M&A significantly grew by 283 per cent year-on-year to $41.1 billion, the highest annual period in any given year. Domestic and inter-SSA M&A reached $11.9 billion, down 32 per cent from last year. The Consumer Products & Services industry was the most active sector with $24 billion worth of deals, and accounted for 36 per cent of SSA involvement M&A. The largest deal with SSA involvement in 2015 was the $22.6 billion reverse takeover transaction of Steinhoff International Holdings NV facilitated by an offer from Genesis International Holdings NV.
$300
$200
$100
$0
156
143
116
147
207
229
277
499
301
334
335
416
326
376
386
476
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
(Source: Thomson Reuters Deals Intelligence)
Goldman Sachs topped the 2015 announced Any SSA Involvement M&A League Table with $15.9 billion and captured 23.8 per cent market share. In equity capital markets, SSA ECM activity was up by 37 per cent year-on-year to reach $9.3 billion in 2015. This is the highest annual period for the region’s ECM activity since 2007. Ten initial public offerings raised $544.5 million and accounted for six per cent of the ECM activity in the region, while follow-on offerings and convertibles accounted for 81 per cent and 13 per cent market share, respectively. Naspers Ltd raised $2.5 billion from a follow-on offering in December, the
largest equity offering in the region so far this year. Citi took first place in the 2015 SSA ECM ranking with a 21 per cent market share. As for debt capital markets, South Africa was the most active issuer nation with $5.5 billion in bond proceeds which accounted for 35 per cent of market activity, followed by Ivory Coast with 28 per cent market share worth $4.3 billion in proceeds. The Republic of Angola offered the largest bond issuance for the region this year with its $1.5 billion sovereign debt in the form of Eurobonds. Deutsche Bank took the top spot in the SSA bond ranking for 2015 with a 19 per cent share of the market.
Sub-Saharan African IB Fee League Tables ($Mil)
SUB-SAHARAN AFRICAN IB FEE LEAGUE TABLES ($Mil) Rk 1 2 3 4 5 6 7 8 9 10
FULL YEAR 2015 Manager Rand Merchant Bank Citi Investec HSBC Holdings PLC Barclays Java Capital (Proprietary) Ltd Morgan Stanley Standard Chartered PLC Standard Bank Group Ltd Deutsche Bank Total
Mkt Shr % 10.2% 7.2% 5.0% 4.9% 4.9% 4.8% 3.7% 3.7% 3.7% 3.3%
Fees $ 48.50 $ 34.38 $ 23.59 $ 23.33 $ 23.28 $ 23.08 $ 17.84 $ 17.75 $ 17.64 $ 15.60
100.0%
$ 476.44
Rk 1 2 3 4 5 6 7 8 9 10
FULL YEAR 2014 Manager Citi Standard Bank Group Ltd Rand Merchant Bank Barclays Deutsche Bank Standard Chartered PLC BNP Paribas SA Investec JP Morgan Morgan Stanley Total
Mkt Shr % 9.0% 8.4% 6.8% 6.3% 5.2% 5.2% 5.0% 4.9% 3.7% 3.6%
Fees $ 34.74 $ 32.44 $ 26.16 $ 24.26 $ 20.19 $ 20.16 $ 19.37 $ 18.72 $ 14.17 $ 14.06
100.0%
$ 385.63
(Source: Thomson Reuters Deals Intelligence)
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17 08/02/2016 15:55
OPINION
How a project with good aims delivered bitter outcomes in Sierra Leone Developments banks aren’t following through on making sure big projects meet sustainability goals, says Gearoid Miller, PhD, Lecturer at the Institute for Conflict, Transition, and Peace Research (ICTPR) at the University of Aberdeen
R Dr. Gearoid Millar
18 page 18-19 Opinion030.indd 18
eports about land-grabs in Africa often attack the corporations that stand to profit from such projects. But little is said of the international development banks that fund them. Development banks are supposed to ensure adherence to human rights in the projects they fund, because human rights protection is central to sustainable development. Instead, their practices provide fertile ground for violations by encouraging companies to cut costs and maximise profits, impoverishing local communities in the process. Over the past three years I have been studying the local experiences of a large bioenergy project in rural Sierra Leone. This project leased 40,000 hectares of land and relocated the farms of thousands of people to grow sugar cane and export ethanol to Europe. The project is primarily owned and managed by a private corporation, but is funded by a consortium of development banks and bilateral development organisations in Europe. The funding exceeds EUR 250 million. My findings indicate that the project has had a number of negative effects
on local communities. These include restructuring of local power dynamics, the marginalisation of women and increased economic inequality.
NEGATIVE OUTCOMES Women in the surrounding communities have very little ability to accept or reject the project. They also have no direct access to economic benefits, such as land lease payments and employment opportunities. The project has also disrupted traditional networks of authority between chiefs and local people, creating new forms of disempowerment and dependency. For example, it has promoted and enforced the use of new forms of knowledge based on formal legal procedures to which local people have little access. These privilege and protect the corporation and the few local elites with the resources to afford formal mechanisms of justice. What’s more, the project has promoted economic inequality. This is in direct contradiction to the basic claims of its proponents. In the locally dominant patron-client system, senior men appropriate most of the economic
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09/02/2016 09:53
benefits, and progressively smaller portions are allocated to those on lower levels of the local hierarchy. As a result, all women, most young men, and families other than the direct descendants of the village elites receive minimal or no economic benefits. This is despite the fact that everyone in the surrounding communities has had their livelihoods significantly disrupted by the bioenergy project. These problems are echoed in findings from dozens of other studies conducted around the world over the past five years. Where does responsibility lie?
PROFIT BEFORE PEOPLE The usual response is to blame those most likely to benefit economically from such projects—the corporations. This seems like the obvious answer, but it is also too simplistic. In the case I have been studying it became clear, for example, that those leading and working for the company generally had good intentions. They often believed that their project would have a positive influence on local communities and would help develop Sierra Leone. They argued that the money they invested in employment and land lease payments would provide financial security for local communities. They were distressed by Western journalists, human rights advocates and researchers who argued otherwise. But when the negative effects of the project were described to them, senior company officials on the ground regularly defended their policies and practices. They made the point that their primary responsibility was not to the communities, but to their funders: the international development banks. The corporations argued that they were under enormous pressure to make the project profitable as soon as possible. They also wanted to start repaying the loans from the banks on schedule so
that they could earn the reductions in interest rates they had been promised if the project met the targets. To achieve the targets, concerns about women’s empowerment, restructuring of customary power relations, or economic inequality were de-prioritised. They were seen as something to be addressed only after the project was economically viable. The staff required to meet the initial targets were engineers, agriculturalists and farmers. Gender specialists, anthropologists, sociologists, or human rights advocates were unnecessary. There was no incentive, in essence, to prioritise those concerns or to spend scarce resources on such skills. For all their rhetoric about the positive impact the project would have on sustainable human development, the development banks and bilateral funders’ funding mechanisms did not incorporate incentives to achieve such outcomes. As a result, the company was motivated to maximise profit and ensure financial viability. Companies, by their nature, will prioritise only what they are required to prioritise and pursue objectives that will reap them financial rewards. We must, therefore, demand more of the development banks. Why do they prioritise only the profitability of the projects they fund? Why not build in their funding mechanisms means to reward positive
socioeconomic impacts, including women’s empowerment, economic equality, or political inclusion? The banks have both the responsibility and the power to change the way the contemporary land rush affects communities. They have it in their power to avoid the negative socioeconomic effects and ensure projects are implemented in a way that respects people’s human rights. It is time we demanded it of them. In the case examined here, for example, the funders allowed the company to manage its own social, economic, and environmental monitoring process and to hire the lawyers tasked with protecting the rights of local individuals and communities. Neither was insulated of corporate influence and bad practice followed. But banks and bilateral funders would much more proactively support pro-social development if they made three small changes: first, they need to structure loans to incentivise good prosocial development practice as opposed to immediate profitability and repayment. Second, they should structure loans to redirect funds for evaluation of social, economic and environmental impacts on the ground to independent third party evaluators, and finally, to redirect fund funds for legal services to a law firm capable of protecting the rights of the local for communities and individuals.
Gearoid Millar, PhD, is currently a Lecturer of Sociology at the University of Aberdeen’s Institute for Conflict, Transition, and Peace Research (ICTPR), where his research focuses on local experiences of international projects in post-conflict societies. Dr. Millar is currently nearing the end of a four-year project evaluating the local impacts and experiences of a large bioenergy project and has recently published a book, An Ethnographic Approach to Peacebuilding: Understanding Local Experiences in Transitional States (Routledge 2014). A version of this article originally appeared on The Conversation (theconversation.com) in partnership with The University of Aberdeen, which provides funding as a founding partner of The Conversation UK.
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19 09/02/2016 09:53
COVER STORY
New year, new rules Banco Nacional de Angola Governor José Pedro de Morais Júnior sheds light on the authorities’ big push for transparency and governance across the banking sector
20 page 20-22 Cover Story030.indd 20
B
anco Nacional de Angola (BNA), the Central Bank of Angola, heralded the start of a new year with a series of next-step measures to strengthen governance and compliance in the Angolan banking sector. It’s a formidable task, but BNA has been working steadily on bringing the industry up to international standards over the past few years,
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09/02/2016 09:55
Continuing to grow means clamping down on money laundering and terrorism financing, says José Pedro de Morais Júnior Banco Nacional de Angola in central Luanda (CREDIT: DAVID STANLEY/FLICKR)
and rounded off 2015 with the mandate that all institutions under its supervision submit audited reports by 31 December. The Bank will now review the submitted reports to verify that each financial institution is in compliance with the Financial Action Task Force (FATF), an intergovernmental body established to fight money laundering and terrorist financing.
“To date Angola has made considerable progress in adopting more stringent requirements. Our goal is to promote the integrity of the Angolan financial system by strengthening governance and compliance regulations. The BNA will implement punitive measures such as penalise offending institutions that are not fully compliant with the codes and conduct laid out by BNA and intensify sanctions on banks that flout regulations,” BNA Governor José Pedro de Morais Júnior told Banker Africa. “These measures will ensure that the BNA is better able to carry out its mandate in an effective and efficient manner, thus guaranteeing preservation of commonwealth, strengthen governance and compliance and ensure that our financial system remains stable and intact to the benefit of all Angolans,” he added. The FATF regulations and policy recommendations are critical for the banking sector in Angola, de Morais Júnior said. But beyond that, FATF compliance will usher in the muchneeded transparency and governance that attract international business. “The Angolan economy will continue to grow if global banking organisations, central banks and investors maintain trust in our systems and processes. So, the BNA fully understands the national importance of the FATF regulations,” de Morais Júnior said. “The government and the BNA also recognise the moral backdrop to anti-money laundering policies, particularly in the current climate of global security threats.” However the road to international compliance has not been easy. De Morais Júnior attributes this in part to the challenges of the region, and says it’s an ongoing process to improve. “A bit of context is required about this journey. The challenges for Africa are greater than in other regions because
of a history of conflict and corruption. We also live and work on a continent with disparate levels of transparency, many languages, cultures and porous borders,” he said. These disparate levels and diverse backgrounds can be difficult enough on a national level, but then there is the matter of synchronising policy with regional powers to develop coherent and lasting compliance strategies. “The region’s biggest economies are now working together to ensure that cross-border transactions are coordinated in terms of compliance. Then we have to acknowledge that there are non-financial institutions across the continent that need to be addressed more robustly such as casinos (on and off-line), trading in precious stones or metals, accountants and the legal profession. The need to constantly strengthen the regional framework means that these challenges are ongoing. At the BNA we will ensure that financial and non-financial institutions within the Bank’s supervision remit meet their compliance responsibilities,” de Morais Júnior said.
AIMING FOR COMPLIANCE In addition to mandating audited reports in compliance with both FATF and Basel standards, the BNA issued a detailed series of next step guidelines to support the Bank’s supervisory role in achieving full FATF compliance within the country’s financial system. Training sessions were held with all entities under the Bank’s supervision to guarantee the successful implementation of the BNA mandated procedures. This process of improving financial infrastructure started back in 2010. In that time, the BNA has adopted FATF recommended initiatives to join the Eastern and Southern Africa cont. overleaf
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21 09/02/2016 09:55
COVER STORY
cont. from page 21
Anti-Money Laundering Group (ESAAMLG); enact laws to deal with money laundering and terror financing assets; amend laws on the criminalisation of terrorism financing and enact regulations to implement United Nations Security Council Resolution (UNSCR) obligations. The BNA has also in that time established a Financial Intelligence Unit and improved Customer Due Diligence (CDD) measures. There were also several resolutions in 2010 and 2011 to regulate the unlawful trafficking of narcotics and psychotropic substances, cross-border crime and the elimination of the financing of terrorism. But the measures taken in 2015 may be most significant to financial institutions. As de Morais Júnior pointed out, it is now unacceptable for any banking institution to plead ignorance, whether it be to money laundering, terrorism financing, or internal corruption. The banks’ audited reports will now go through a verification process—de Morais Júnior expects that the audits will be verified within the first half of 2016.
José Pedro de Morais Júnior
The challenges for Africa are greater than in other regions because of a history of conflict and corruption.
NEXT STEPS
- José Pedro de Morais Júnior, Governor, Banco Nacional de Angola
“As part of our efforts to strengthen appropriate and effective oversight, the BNA has issued new and detailed guidelines, referrals and manuals to reflect prevailing international best practices and align them with our objective of being fully compliant with FATF standards and policy recommendations. We are confident that all of these measures will support financial institutions as they look to meet their legal and regulatory requirements effectively and efficiently. By ensuring such success, the BNA will foster the integrity of Angola’s financial system by putting it in good standing globally,” he added. Besides the auditing process, the BNA has promised that ‘significant
developments’ in governance and compliance are coming during the first half of 2016. “Building on these foundations… the Bank will also announce a new policy framework on any additional recommendations from the FATF. In addition, other bodies such as the Capital Markets Commission, Insurance Companies Regulatory Associations, Customs and the Gambling and Casino Institute will continue to monitor their respective industries,” de Morais Júnior said. “The BNA will also place emphasis on its on-going financial literacy-
22 page 20-22 Cover Story030.indd 22
training programme [launched in December 2015] for several target groups. In 2016, we will to train bank managers and young graduates in various central bank areas with hands-on experience with policies in order to increase cooperation with other institutions. The idea is to raise awareness around AML/ FT measures, thus ensuring stability within the Angolan Financial System AFS and greater customer protection,” he added. The Governor and the BNA are under no illusions; ensuring this kind of growth and improvement will take constant monitoring and penalties for non-compliant banks and financial institutions. But the national authorities are not only keen to be fully compliant with FATF and all its recommendations, but also to improve their standing in the global markets and guard against risk in their own. “The BNA is committed to maintaining Angola’s financial stability to ensure sustainable, strong social and economic development by seeking increased FDI inflows in the country. Our biggest policy objective this year will be to continue implementing structural reforms in order to strengthening the Angolan financial system while mitigating against potential market risks,” de Morais Júnior said.
FAST FACTS All Angolan banks had to submit audited reports by the end of 2015 Reports will be verified by the end of H1 2016, with noncompliant banks penalised Central Bank Governor de Morais Jr promised ‘significant developments’ are coming in 2016
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09/02/2016 09:55
COUNTRY FOCUS ANGOLA
Luanda, Angola's capital, has come up fast as an economic hub and seaport for oil—but could suffer a slowdown ahead (CREDIT: ANTON IVANOV/SHUTTERSTOCK)
Diversifying interests and closing gaps Declining oil prices have thrown a spotlight on other industries and the need for inclusive growth in Angola
I
n the summer of 2015, the Angolan Government announced that it would remove subsidies on oil prices in the face of their continued decline. It was a smart move by one of Africa’s largest producers of crude oil, as the commodity kept falling throughout the year. But the policy change didn’t save the currency, the kwanza, from continuing it decline—in 2015 it dropped more than 30 per cent against the dollar, the worst fall since September 2001. It’s not only the bleak outlook for oil prices that is dragging on the Angolan economy. Infrastructure challenges, cont. overleaf
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23
COUNTRY FOCUS ANGOLA
cont. from page 23
including overdue maintenance of oil fields, combined with a drought that has hit across Sub Saharan Africa and continued issues of governance across several major industries, have all limited what should be astronomical economic growth for Angola. GDP growth slowed to 4.5 per cent in 2014, down from 6.8 per cent in 2013, according to the annual African Economic Outlook (AEO), which also forecasted 3.8 per cent for 2015 and a slight rebound to 4.2 per cent in 2016. Though oil prices played a big part the decline, the challenging business environment in Angola did not help. Besides issues of transparency and governance, there are also vast infrastructure needs and an evergrowing gap between rich and poor. The AEO noted that these social pressures are increasing due to the high unemployment rate (26 per cent), significant poverty (36.6 per cent) and high income equality, at a Gini coefficient of 55.3. In other words, structural reforms and economic diversification are necessary, with or without low oil prices. But the Government is working fast on change, approving a wide-range of policies from tax breaks to special
economic zones and accelerated infrastructure investment programmes. It has also turned to improving access to credit for small- and medium-sized enterprises (SMEs) and anticipating population growth needs, and committing seriously to economic diversification. The agriculture, manufacturing and services sectors are all coming up steadily through Government support, according to Teodoro de Jesus Xavier Poulson, Member of Investment Committee of the Angolan public venture fund, Fundo Activo de Capital de Risco Angolano (FACRA). “Angola is very actively pursuing economic diversification through investment in fast-growing industries. It has liberalised its financial sector and has created a number of investment vehicles that are designed to facilitate the growth of home-grown businesses and inward investment,” he said. Though no other sector currently holds a candle to oil and gas, manufacturing has grown strongly to represent 8.1 per cent of growth in 2014 and $2.4 billion worth of investment in the pipeline. The services sector, which grew by eight per cent in 2014 to account for 23.2 per cent, is
STOCK OF TOTAL EXTERNAL DEBT (PERCENTAGE OF GDP) AND DEBT SERVICE (percentage of exports of goods and services) %
Outstanding debt (public and private) /GDP
Debt service/Exports
20 18 16 14 12 10 8 6 4 2 0
2006
2007
2008
2009
2010
Source: IMF (WEO & Article IV)
24
2011
2012
2013
2014
2015
2016
Teodoro de Jesus Xavier Poulson, Member of Investment Committee, FACRA
also growing rapidly; but this sector’s continued growth will depend on economic factors like poverty reduction and addressing the gap between the hyper-wealthy and the rest. Furthermore, even though oil prices are down, several large-scale oil and gas exploration projects through international investors such as the China Machinery Engineering Corporation (CMEC), Exxon, Total and BP, ENI and Chevron continue. In fact, the AEO reported that according to the Angolan Ministry of Petroleum, investments in the oil sector are expected to reach $22.1 billion in 2016, up from $7.1 billion in 2014, as part of an effort to ensure sustainability of production and reach the production target of two million barrels by 2016. But progress across industries and particularly through infrastructure remains a necessary priority in the years ahead, regardless of where the oil price goes.
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09/02/2016 10:00
Angola is very actively pursuing economic diversification through investment in fast-growing industries. - Teodoro de Jesus Xavier Poulson
“Angola naturally has a different challenge to its neighbours-since peace time in 2002 it has been charged with rebuilding an entire nation from the ground up. That means it has provided investment opportunities in a particularly broad range of sectors, including
the creation of a national electricity network, sanitation and clean water access to rural communities, transport infrastructure (including the redevelopment of the country’s rail network), education, healthcare, information technology and financial services,” Poulson said.
New policies and fresh assistance
The Banco Nacional de Angola (BNA) delayed its much-anticipated monetary policy meeting from 25 January to 29 January, likely so that it could hold talks with the World Bank over proposed reforms to the hard-hit economy. A meeting chaired by President José Eduardo dos Santos was called in Luanda on 21 January to discuss the fiscal, monetary and exchange rate policies. In a joint session of the Economic Commission and the Real Economy Commission, several documents were analysed, including the Draft Presidential Legislative Decree, which approves the special contributions related to banking operations. The meeting also covered the Draft Presidential Decree on the Attraction of Resources for the 2016 State General’s Budget and the Memorandum on the International Monetary Fund (IMF) visit to Angola. The Cabinet Council's Economic Commission deals with the Executive's macroeconomic agenda, ensuring its management in line with the aims and priorities of the governance programme, while the Real Economy Commission is a technical organ that supports the head of the President in the drafting and implementation of policies designed to boost the productive sector. This is the first ordinary joint meeting of the Cabinet Council's Economic Commission and Real Economic Commission; results of the review have yet to be announced. On 29 January, the Monetary Policy Committee (CPM) increased the basic interest rate from 11 to 12 per cent. It also raised the permanent liquidity facilitation interest rate from 13 to 14 per cent a year, but maintained the liquidity absorption facilitation at 1.75 per cent. The Committee said that in the last month on record, December 2015, the inflation rate reach 1.6 per cent, .27 per cent higher than in November. Over the course of 2015, inflation reach 14.27 per cent. Data also shows that by December 2015, credit to the economy grew 17.5 per cent. Angola, along with Nigeria, appealed to the World Bank at the end of January for aid followed continued low oil prices. From 25-29 January, authorities held talks with the multilateral lender to secure funding support and stabilise public finances.
FAST FACTS POPULATION: 24.3 million PRIMARY LANGUAGES: Portuguese and Bantu PRIMARY INDUSTRIES: Petroleum, mining, manufacturing GDP GROWTH: 2013: 6.8% 2014: 4.5% 2015 (estimate): 3.8% 2016 (estimate): 4.2% CURRENT ACCOUNT (AS PERCENTAGE OF GDP) 2013: 5.8% 2014: 2.7% 2015 (estimate): -5.9% 2016 (estimate): -2.2% INFLATION RATE (AVERAGE): 2013: 8.8% 2014: 7.3% 2015: 10% 2016: 15.4% Source: African Economic Outlook, CIA World Factbook (BIORAVEN/SHUTTERSTOCK)
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25 09/02/2016 10:00
INVESTMENTS
Fun(d)’s over? Sub Saharan African sovereigns to face increasingly expensive financing, a new Standard & Poor’s report says
G
overnments in Sub Saharan Africa (SSA) are facing increasingly expensive debt financing as favourable global and domestic conditions come to an end, Standard & Poor’s Ratings Services (S&P) said in a report, Sub Saharan African Sovereigns to Face Increasingly Costly Financing. Over the past few years, SSA sovereigns have enjoyed unusually favourable financing conditions. Many have issued maiden bonds in the global capital market and yields hit all-time lows in mid-2014. By and large, this has resulted from exceptionally loose monetary policies pursued by central banks in the developed world and advantageous commodity prices, S&P said. “The tide has turned. We think these sovereigns will direct an increasing share of revenues over the next three years to servicing their debt. The effective management of these changes will pose difficult policy choices for African governments. We see two groups of factors—global and domestic—that contribute to our expectation of higher government interest expenditures,” S&P said. Global factors include exchange rate movements and tightening liquidity conditions. Several SSA sovereigns’ currencies have depreciated at a rapid pace this in 2015. Of the 18 countries that S&P rates in the region, only four have experienced currency
26
depreciation of less than 10 per cent against the US dollar over 2015. A direct impact of a depreciating currency is the increase in a sovereign’s foreign currency debt burden (in local currency terms) relative to its gross domestic product. S&P said
that Mozambique, Zambia, Ghana, Angola, and Senegal are most affected by such debt inflation. Furthermore, depreciating currencies have forced regional central banks to hike policy rates to stymie inflation, pushing up Treasury bill interest rates.
Financing in the past “Historically, the primary financing options for rated SSA sovereigns have been concessional borrowing and, to a somewhat lesser extent, domestic financing. More recently, Eurobond issuance has gained importance, with a host of SSA governments issuing in the global capital markets for the first time in their histories. Concessional borrowing comprises low interest non-commercial external loans and remains an important financing source. Multilateral loans currently average over 50 per cent of total debt in the SSA region. These facilities are typically extended by international institutions, such as the World Bank or African Development Bank), or groups of creditors and are granted to help facilitate development in low-income countries. “Domestic sources of financing generally occupy a somewhat smaller proportion of total. These are predominantly in local currency with debt held by domestic banking systems; in some countries, including South Africa, Nigeria and Ghana there are also nonresident holdings of local currency denominated debt. Eurobond issuance has gained more importance for several SSA sovereigns in recent years given the attractive foreign financing conditions. Within the region, the larger Eurobond issuers typically have more developed domestic capital markets and higher GDP per capita, with fewer concessional facilities available—such issuers include Kenya, Zambia, Nigeria, and Ghana. However, as the external environment changes, so does the rationale behind sovereign financing choices. The depreciation of SSA local currencies has made foreign currency debt contracted in the past more burdensome.” Source:Standard & Poor’s, “Sub Saharan African Sovereigns to Face Increasingly Costly Financing”
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09/02/2016 10:02
POLICY INTEREST RATES AND TREASURY BILL INTEREST RATES
(%) 25
2015 average treasury bill interest rate 2015 average policy rate
2014 average treasury bill interest rate 2014 average policy rate
20 15 10 5 0
Ethiopia
Botswana
Angola
Kenya
Nigeria
Uganda
Zambia
Ghana
NOTE: Comparison of average treasury bill interest rates (the simple average of 91, 182, and 364 day treasury bill rates) in 2015 versus 2014. ©Standard
& Poor’s 2015
SUB-SAHARAN AFRICAN SOVEREIGNS MOST AFFECTED BY LOCAL DEPRECIATION Estimated government foreign currency debt as a % of GDP at end-2014
90 80
Cape Verde
70 60
5. Senegal
50 1. Mozambique
5. Senegal
40 30
Gabon Rwanda
20
Ethiopia
Congo
Kenya Burkina Faso Cameroon
3. Ghana 2. Zambia Uganda Botswana
4. Angola
10 DRC South Africa Nigeria 0 (5.0) 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 Local currency depreciation against a basket of foreign currencies (%)
*The weights of foreign currencies in the basket correspond to the currency composition of the sovereign’s foreign currency debt. DRC– Democratic Republic of Congo. ©Standard
& Poor’s 2015
FISCAL PERFORMANCE TRENDS FOR SUB-SAHARAN AFRICAN SOVEREIGNS Change in fiscal balance*/GDP (left scale) Improvement
0 (2) (4) (6) (8) go Con ola Ang
ria
on Gab bia Zam ique b zam Mo a an sw Bot nda
Uga
e Nig
na
C DR n o ero Cam ia iop Eth aso aF kin Bur ya Ken rica f th A Sou a and Rw l ega Sen de er eV
Cap
Gha
NOTE: Change in general government fiscal balance/GDP in 2015-2017 versus 2012-2014. DRC--Democratic Republic of Congo.
(% of GDP)
8 6 4 2 0 (2) (4) (6) (8) (10) (12) (14) (16)
2 (% of GDP)
FAST FACTS
Average fiscal deficit/GDP 2012-2014 (right scale) Deterioration
4
©Standard
Lastly, refinancing of US dollardenominated commercial debt is also set to become more expensive in the future, against the backdrop of the US Federal Reserve’s tightening of monetary policy. Domestic factors primarily derive from underlying fiscal performance, and S&P expects fiscal performance will deteriorate for 12 of 18 rated SSA sovereigns over the next three years and that their debt will remain elevated. “As a result of the impact of global and domestic factors, we expect that interest expenditures will increase in nearly all of the SSA region. We project that for over one-third of the regional sovereigns we rate, interest expenditures will reach or surpass 10 per cent of government revenues over the next three years,” it said. However these anticipated developments are already largely incorporated in its ratings of the sovereigns, so there should not be significant change in the future unless unexpected global conditions or domestic fiscal deterioration occur. S&P says these scenarios currently appear unlikely for its 18 rated sovereigns.
Of 18 Sub Saharan African (SSA) sovereigns that S&P rates, five are on negative outlook and the rest are on stable. The ‘tide has turned’ for SSA’s normally favourable financing conditions. A combination of global and domestic factors is going to push up fiscal expenditure. S&P’s current ratings for the region incorporate these expectations.
& Poor’s 2015
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27 09/02/2016 10:02
POLICY SPOTLIGHT
Uganda has one of the lowest insurance penetration rates in the region, according to reports (CREDIT: PECOLD/SHUTTERSTOCK).
New chapters in Ugandan banking The passage of several significant amendments ushers in Islamic banking, bancassurance and new mobile and agency banking regulations
T
he Bank of Uganda, the county’s central bank, has approved long-awaited amendments to the Financial Institutions Bill, including provisions to allow for Islamic banking, bancassurance and agency banking. The new regulations also allow for more participation in the mobile banking sphere by telecommunications companies, though they will “have to
28
play a limited role in the provision of money transfer services”, the Parliament of Uganda stated in its amendments to the bill. “Innovation and technological developments have led to new ways of providing access to financial services,” the Parliament said with regard to mobile banking regulation, though the sentiment could perhaps be applied across their new amendments.
The provision to allow for Islamic banking had garnered support from President Yoweri Museveni, and, according to the Parliament, 11 out of 22 Ugandan banks that have expressed interest in offering Shari’ah-compliant services. The bill will allow Islamic banking products such as Murabahah (cost plus), Musharakah (partnership) and Mudarabah (profit-loss sharing)
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which are currently prohibited under the 2004 Financial Institutions Act. However in order for the Islamic banking regulations to go through, the BOU will have to establish a Central Shari’ah Advisory Board to regulate participating banks. Meanwhile, the Parliament noted that allowing bancassurance “will provide a major boost to the nascent insurance market in Uganda.” Currently it is estimated that Uganda has one of the lowest insurance penetration rates
The amendments contained in the bill are intended to bring financial services closer to the people. - Fred Omach, Minister of State for Finance, Planning and Economic Development in Sub Saharan Africa at less than one per cent, according to Ugandan newspaper The Observer. Bancassurance will permit banks to provide insurance services directly to their customers in collaboration with insurance companies, which has the potential to rake in new business for institutions as well. New legislation for agency and mobile banking is also designed to penetrate under-served market. Agency banking, also known as branchless banking, has also been on the rise in the region due to its flexibility for rural or hard to reach areas. Banks welcomed the new allowance for a banking agent, or a licensed retail or postal outlet to carry out limited banking transactions in lieu of a full-fledged branch. “With proper guidelines, agency banking will offer a viable solution to increasing and expanding the outreach of financial services in Uganda, particularly in the rural areas,” the Parliament said.
Similarly, the Parliament admitted that,“Because of their wide outreach, [telecommunications companies] have created deeper access for the rural and unbanked population.” However while it recommended new regulations to monitor the mobile market, it warned against lumping together mobile banking and money transfer services.
LONG ROAD TO REFORM The process of amending the Financial Institution Bill, first passed in 2004, was a long one. Speaking to the Parliament in August 2015 when the amendments were first introduced, Fred Omach, Minister of State for Finance, Planning and Economic Development, said the previous bill was outdated. He especially highlighted the demand for Islamic banking and agency banking models, based on feedback from banks. But perhaps what most showed the previous bill’s age was its lack of regulation for mobile banking, which has blossomed in the region. “Some provisions in the current legislation were found to be barriers to new financial products’ developments and innovations which are less costly and more consumer-driven,” Omach said. “The amendments contained in the bill are intended to bring financial services closer to the people.” “Also, due to the passage of time, some aspects of the Financial Institutions Act, 2004 have become outdated in light with the present day policies, international obligations, globalisation and technological developments,” he added. With regards to Islamic banking, the bill stipulates that, “On the commencement of this Act, an already licensed financial institution carrying on business, may apply to the Central Bank in accordance with this Act to carry on Islamic financial business in addition to its existing licensed
business.” This business will be carried out ‘through an Islamic window’. T he Bil l al so s t at e s t h at t h e Central Bank, in consultation with the Minister of Finance, shall make special provisions for the licensing and operation of Islamic banking. Every financial institution which conducts Islamic finance business must also appoint and maintain a Shari’ah Advisory Board.
Solid projections On 8 January 2016, Standard & Poor’s Ratings Services affirmed its ‘B/B’ long- and short-term foreign and local currency sovereign credit ratings Uganda with a stable outlook. It noted low per-capita GDP, high current account deficits, and large fiscal deficits, but said that high GDP growth from agriculture, transport and energy are bolstering the rating. “We have trimmed our projections for Uganda’s fiscal deficit for the 2015/2016 fiscal year (ending June 30, 2016) to 6.5 per cent of GDP from seven per cent because the Government has slowed the pace of its infrastructure investments while accommodating some electionrelated spending. Public finances should also be helped by the passage of the public finance management bill, which creates a single treasury account, tightens public financial management, and closes the loopholes that led to the misappropriation of donor funds three years ago. We project that the fiscal deficit will gradually decline to 4.6 per cent of GDP by 2018 as some of the projects near completion,” S&P said in a statement.
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CASE STUDY
Tourism rising Despite challenges and infrastructure needs, tourism is becoming a top sector in Africa, according to new research
F
or the third year running, the African Development Bank (AfDB) has published the Africa Tourism Monitor, an annual report on the tourism industry in Africa. This year’s report, a joint publication by the AfDB, New York University’s Africa House and the Africa Travel Association (ATA), is entitled “Unlocking Africa’s Tourism Potential”. One of the key findings of the report is that despite security threats, the tourism sector in Africa is growing. In 2014, a total of 65.3 million international tourists visited the continent—around 200,000 more than in 2013. Back in 1990, Africa welcomed just 17.4 million visitors from abroad.
30 page 30-31 Case Study030.indd 30
The sector has therefore quadrupled in size in less than 15 years. According to the World Tourism Organization (UNWTO), Africa’s strong performance in 2014 (up four per cent) makes it one of the world’s fastestgrowing tourist destinations, second only to Southeast Asia (up six per cent). This influx of tourists means more money coming into the continent. In 2014, Africa recorded $43.6 billion in revenue. According to the UK’s World Travel and Tourism Council (WTTC), the international tourism sector now accounts for 8.1 per cent of Africa’s total GDP. More tourists also mean more jobs. Across the continent, there are around 20 million people working
directly or indirectly for the tourism industry. This means that the sector accounts for 7.1 per cent of all jobs in Africa. Jobs supported by the sector include guides, hotel staff, interpreters, aviation staff and small businesses. Yet the economic impact of tourism extends beyond job creation. The hospitality sector is experiencing particularly rapid growth and is expanding into new countries such as Mauritania, which have, until now, remained largely on the fringes. According to the report, it is Sub Saharan Africa, rather than North Africa, that is benefiting most from the expansion of hotel chains and the corresponding increase in the
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08/02/2016 17:51
and travel requirements. In particular it highlighted the introduction of the e-visa and single visa scheme in the Southern African Development Community (SADC) enabling tourists to visit all member states using just one visa. Other examples include the “KAZA” (Kavango Zambezi) common tourist visa developed by Zambia and Zimbabwe, and the single visa covering three countries (Kenya, Uganda and Rwanda) launched by the East African Community (EAC) in February 2014. According to the report, these visa simplification schemes and initiatives could boost tourism revenue and job creation by between five per cent and 25 per cent.
THE POTENTIAL IS THERE
Victoria Falls is just one of the many top attractions bringing tourists into Africa—but infrastructure and hotels need to catch up to demand. (CREDIT: FCG/SHUTTERSTOCK)
number of available rooms. Nigeria, the continent’s most populous country, comes top of the rankings in this respect, followed by Egypt and Morocco. However, the biggest hotel development project in Sub Saharan Africa can be found in Equatorial Guinea, in the Grand Hotel Oyala Kempinski, which, when complete, will feature 451 rooms. From breathtaking landscapes to historical archaeological sites, Africa boasts a wealth of tourist attractions. But several countries have only begun their drive for tourism growth fairly recently. The AfDB report noted several recent initiatives and commends a few governments’ efforts to simplify visa
Transport infrastructure and services is one of the key constraints limiting growth of the tourism sector. As the report said, “Journeys in the African continent are not always seamless.” In fact, it is more difficult—and more expensive—to travel across Africa than to get there from Europe, America or the Middle East, it noted. The New Partnership for Africa’s Development (NEPAD) launched its Tourism Action Plan back in 2004, with a view to developing sustainable tourism. This followed the ratification, in 2000, of the Yamoussoukro Decision (named after the city in Côte d’Ivoire where it was adopted in 1999), which aimed to open up the continent’s aviation sector to competition. More than a decade on, however, neither initiative has been fully implemented. Yet effective application of the Yamoussoukro Decision, also known as “Open Skies for Africa,” would alone create 155,000 new jobs and contribute $1.3 billion to the continent’s GDP. The report also pointed to other barriers for tourism sector development in Africa, including a lack of dedicated
incentive policies, the need for closer regional cooperation, weaknesses in infrastructure and security problems. Security issues have posed a particular problem for the sector since 2013, especially in North Africa, Mali and coastal regions of Kenya. The report indicates that, of the 80 countries for which travel warnings were issued by the US State Department, 30 were located in Africa. Moreover, although the 2013-2014 Ebola virus outbreak only affected West Africa, it created a climate of fear that spread to many other countries on the continent— even those far from the source of the outbreak, the AfDB said.
Africa’s strong performance in 2014 makes it one of the world’s fastest-growing tourist destinations. - The Africa Tourism Monitor It also pointed to the destructive practice of poaching and illegal trade in endangered animals, noting that the practices reached unprecedented levels. The authors call on African countries to recognise the economic value of their wildlife and to strengthen data production capacities in this area. The report goes on to explain that, as well as their effect on the economy, these illegal activities also have a damaging impact on biodiversity. Although international tourism is on the rise in Africa, the continent currently accounts for just 5.8 per cent of the world’s incoming tourists and 3.5 per cent of global revenue in the sector. As such, the AfDB said, the sector still has vast untapped potential—potential that, if exploited, could kick-start rapid economic growth.
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CASE STUDY
Imperial Bank cuts its losses Following its receivership, Imperial Bank has been advised to sell off assets Imperial Bank, based in Nairobi (pictured) has to recoup KES 20 billion (CREDIT: OLEG ZNAMENSKIY/SHUTTERSTOCK).
I
mperial Bank, needing to close the funding gap to revive its existing operations, is looking to sell its Ugandan subsidiary. FTI Consulting, the auditors of the bank in its receivership, have said in a report that they hope to raise KES 1.25 billion ($12.2 million) in the sale of Imperial Bank’s 51 per cent stake in Uganda. Imperial, which has been under Central Bank of Kenya (CBK) receivership since October 2015 following “unsafe or unsound business conditions” that resulted in at least KES 34 billion being embezzled by senior bank officials, needs to raise at least KES 20 billion to cover losses. The central bank of Uganda, Bank of Uganda (BOU), took over the Ugandan operations immediately following Imperial Bank Kenya’s receivership. The BOU has been looking for a buyer since, but Imperial Bank Uganda, first established in 2010, has not reported a profit in the five years since.
32 page 32 Case Study.indd 32
Imperial Bank cut its share of the Ugandan subsidiary from 63.5 per cent to 51 per cent in 2014, valuing it at KES 858 million at end-2014. Kenya’s Business Daily reports that Imperial Bank shareholders are only willing to raise KES 10 billion towards recovering from the loss, with double the amount funded by the depositors— something CBK opposes. So far, the forensic audit by FTI Consulting shows that billions of shillings were embezzled from the bank by top executives into several shell companies. The scandal first came to light in October 2015, when Managing Director Abdulmalek Janmohamed passed away. Imperial Bank was immediately placed under receivership, with several CBK and Government officials expressing confidence that it would be running smoothly again soon. Since then, the bank has taken action to sue some 20 companies and individuals tied to Janmohamed.
In a press conference on 12 January 2016, Chairman Alnashir Popat apologised to depositors, even crying at one point. “We want you to know that the shareholders and non-executive directors of the bank for whom I am spokesperson deeply sympathise with the plight and frustration of all depositors, bond holders, and all other affected stakeholders,” he said. “The late Group Managing Director…. was a colleague and friend and many of us, an extended member of the family and none of us could have imagined a betrayal on this level,” Popat said. “What he did was unforgivable, but we have resolved that we cannot let the actions of one disturbed man and a handful of weak and corrupt managers and public officers destroy the lives of thousands of people who placed their trust in the bank.” FTI Consulting and the CBK are both examining the governance issues that allowed Janmohamed and his associates to conduct large-scale fraud.
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07/02/2016 17:28
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OUTLOOK
Population boom heralds investment surge Rapid growth across the continent is attracting investors’ eyes, says Knight Frank
AFRICA’S POPULATIO Africa’s growth cities
Sub-Saharan Africa is home to many of th fastest growing cities in the world
4.0
KEY
3.9
Population (millions)
2010 2025
3.0
CASABLANCA
5.1 IBADAN
2.9
DAKAR
A
34
ACCRA
7.0
frica is no longer viewed as a region of long-term economic distress, but increasingly as a continent of opportunity, the property agency and consultancy Knight Frank said in its Africa Report 2015 a recap of the last year with projections for the year ahead. Since 2000, Africa has averaged growth of over five per cent per annum, with the Sub Saharan region inching closer to six per cent. Several fast-growing economies, such as Nigeria, have overtaken South Africa in investors’ eyes. Knight Frank noted that rising commodity prices have been an important factor behind these 15 years of astronomical growth, but they are the only thing buoying African economies. It cites numbers from research group
McKinsey that prove a large majority of recent growth has actually come from non-commodity sectors. “Underlining this, one of Africa’s fastest growing economies in recent years has been Ethiopia; a country with meagre mineral resources, whose growth has originated from industries such as manufacturing, agriculture and construction,” Knight Frank said. Across the region, it added, telecommunications and financial services are other key growth sectors. “Allied to its improving economies, Africa’s growth story is also being driven by demographic trends and urbanisation. Africa’s population is rising rapidly at a time when population growth is slowing in other global regions,” it said, noting UN projection that African population is expecting to hit four billion by 2100.
4.2
5.0 2.9
2.6 18.9
4.2
ABIDJAN
Population growth, 2010-2025 (%) 0% Kampala Dar es Salaam Lusaka Abuja Nairobi Luanda Ibadan Kano Lagos Dakar Kinshasa Abidjan Accra Addis Ababa Khartoum Alexandria Algiers Cairo Casablanca Durban Johannesburg Cape Town
10.8
30% 60% 90% 120%
LAGOS
Source: UN-HABITAT, Knight Frank, Africa Report 2015
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2.9
ALGIE
08/02/2016 18:04
“This is arguably the single most important demographic trend that will shape the world over the course of this century,” Knight Frank said. “Sub Saharan Africa’s largest cities are some of the fastest-growing urban areas in the world. UN forecasts suggest that the populations of Lagos, Kinshasa and Luanda will all grow by more than 70 per cent during the 2010-2025 period, while Dar es Salaam, Kampala and Lusaka are expected to double. By most estimates, Lagos has already overtaken Cairo as Africa’s biggest city and its population may be close to 40 million by 2050, making it a true global megacity,” it added.
6.2
4.0
11.0
ABLANCA
CAIRO
2.9
2.9
2.0
2.6
ADDIS ABABA
ABUJA
3.5
18.9
6.1
1.6 KAMPALA
7.3
8.9
10.8
3.4
LAGOS
LUSAKA
3.5
4.8
LUANDA
4.7
14.5
DURBAN
3.7
3.8
JOHANNESBURG
4.4 8.4 KINSHASA
3.5
CAPE TOWN
3.0
1.7
DAR ES SALAAM
70
3.2
NAIROBI
With projections like these, the urban real estate market is increasingly vital to both the needs of African citizens and the appetites of international investors. Knight Frank highlighted the real estate investment funds of RMB Westport, an affiliate of Rand Merchant Bank; Momentum Africa Real Estate Fund, a recent player with a $250 million equity goal; and Actis, a relative veteran with a fund established in 2006. In South Africa alone, investors targeting the rest of Africa include Sanlam, Stanlib, Atterbury, Resilient, Ivora Capital, Delta International and Novare. More players are expected as the urban real estate market heats up.
35 08/02/2016 18:04
20
65
20
60
20
55
20
50
20
45
20
40
20
35
- Knight Frank, Africa Report 2015
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page 36-37 Sector Focus-Knight Frank030.indd 35
20
30
25
4.7
20
4.0
20
4.5
KHARTOUM
15
3.3
African population growth arguably the single most important demographic trend that will shape the world over the course of this century. 20
4.2
5.0
7.1
20
5.7
IBADAN
AFRICA ASIA EUROPE LATIN AME NORTHERN OCEANIA
KANO
20
3.0
2.9
ALGIERS
20
3.9
14.7
4.4
80
ALEXANDRIA
75
ULATION GROWTH
o many of the orld
RESEARCH
20
AFRICA REPORT 2015
SECTOR FOCUS SME FINANCE
Directing SME growth New regulations by the Egyptian central bank require a significant increase in SME lending from every bank, potentially strengthening the sector but weakening loan books
Though SMEs comprise a massive part to the Egyptian economy, lack of financial access is limiting their growth. (CREDIT: ZHANNA SMOLYAR/SHUTTERSTOCK)
O
n 11 January 2016, the Central Bank of Egypt (CBE) advised banks to raise the share of SME lending in their loan books to 20 per cent over the next four years. It also capped the interest rate for these loans at five per cent. Moody’s Investor Services estimates that SME clients currently comprise about five to 10 per cent of most banks’ lending. The ratings agency counts the change and its expected support as credit positive for the economy as a whole, but warned against weakened loan performance in the next few years.
36
“Along with other Government-led growth-enhancing reforms, the CBE’s regulation will likely shore up the country’s fragile economic recovery, a credit positive for Egypt,” it said in a statement on the CBE policy. “However, although the CBE has provided tools to partly mitigate the associated funding and credit risks, the rapid growth in SME loans necessary to reach the 20 per cent target will likely weaken loan performance,” it said. Egypt’s unemployment stood at 12.8 per cent in September 2015 and SMEs with 10 or fewer employees
comprises 97 per cent of Egypt’s businesses, according to numbers cited from CAPMAS and the World Bank. The most recent African Economic Outlook (AEO) said that 75 per cent of Egyptians are employed by such SMEs. Yet as in many countries in the region, access to credit remains a large roadblock for many potential and existing SMEs. According to the AEO, Egypt’s GDP growth has resurged since the July 2014 presidential election: from just 2.2 per cent growth in 2013, the country has garnered an estimated 3.8 per cent and
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4.3 per cent in 2014 and 2015. With several massive infrastructure projects underway, including the expansion of the Suez Canal, outlook for 2016 growth is optimistic. But the economy is still fragile, as the drop in tourism following the Sharm el-Sheikh plane crash shows. Moody’s said that investments into Egypt fell three per cent in the second quarter of 2015, and they expect them to remain depressed. One of the main challenges for banks now will be ascertaining the credit quality of SMEs looking for loans. Though the CBE is supporting bank strategy to move towards more SME lending, credit risk will still be high, particularly for banks that do not already have a dedicated SME lending department. Moody’s quoted a CBE official that said authorities plan to inject capital into the Credit Guarantee Company (CGC) so that it can guarantee 60 to 70 per cent of loans provided to certain SME categories. “Despite the authorities’ support, Egyptian banks will continue to face considerable challenges in the SME segment,” Moody’s said. These challenges include limited Information to guide credit decisions; a large informal sector meaning few registered SMEs; low financial literacy among SME managers; a lack of financial disclosure and strategic direction, and limited collateral. Moody’s found that while exposures vary, National Bank of Egypt (NBE), Egypt’s largest bank by assets, will have to double its portfolio over the next few years, while Banque Misr—the second largest—and Commercial International Bank (CIB) will need to grow SME lending at an annual rate of more than 50 per cent. At the same time, the CBE introduced a 35 per cent debt paymentto-income cap for retail loans, in what
20%
the amount of SME lending required of each bank by 2020
97%
Businesses in Egypt that employ 10 or fewer people
75%
the number of Egyptians employed by SMEs
Moody’s called a pre-emptive measure to contain retail and consumer loans, thereby reducing credit risk. Retail lending has grown by 73 per cent over the past four years to constitute 27 per cent of private sector loans, according to Moody’s. The CBE also reduced the single corporate borrower concentration from 20 to 15 per cent of bank equity, and group concentrations from 25 to 20 per cent. Egyptian banks will have three years to comply with this regulation, and will be penalised if their top 50 corporate exposures exceed 50 per cent of gross loans. For banks breaching this limit, the excess exposure, if below 70 per cent of gross loans, will be riskweighted at 200 per cent, rising to 300 per cent if top 50 exposures exceed 70 per cent of gross loans, Moody’s reported. It added that CIB is already compliant due to its own internal requirements, but that NBE and Banque Misr have high loan concentrations.
Boosting foreign currency reserves In January the Central Bank increased the amount of US dollars that local companies in high-priority sectors such as pharmaceuticals, food, machinery equipment and manufacturing can deposit with banks. Companies can now deposit $250,000 (versus $50,000) and the daily deposit limit of $10,000 has be removed. The move came as the Bank tries to balance both its raised liquidity requirements for banks and their availability of the US currency. The dollar limits had been imposed in only February 2015 to curb what Moody’s said was the growing unofficial market for foreign exchange outside of the banking system. The ratings agency also said that demand is still significantly more than the amounts available from banks, resulting in import bottlenecks for a number of Egyptian companies and potentially restricting Egypt’s GDP growth target. “The CBE has been trying to strike a balance between curbing inflation and stimulating the economy,” the AEO said, noting there are short-term challenges for Egypt’s reserves as well.
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37 08/02/2016 18:06
ISLAMIC INVESTMENT
Sukuk is relatively insulated from most of the volatility in financial market, Kronfol says. (CREDIT: BRIAN A. JACKSON/SHUTTERSTOCK)
Is Islamic debt a salve for the risk-averse? Mohieddine Kronfol, CIO Global Sukuk and MENA Fixed Income at Franklin Templeton Investments ME, based in Dubai, UAE, explains why more investors are turning to Shari’ah compliance
I
n times of uncertainty or crisis, it’s natural for investors to avoid what they perceive as risky assets and seek out so-called ‘safe havens’. The financial crises born in over-leveraged, developed markets of the past few years have helped spur interest in Islamic banking and finance, primarily in under-leveraged emerging markets. Shari’ah-compliant investments
38 page 38-39 Islamic Banking.indd 38
including Sukuk, are growing in popularity not only in the Muslim world, but across the globe. Rising demand for Shari’ahcompliant investments from a growing number of Islamic banks and funds has led to the development of Islamic asset management, catering to a global Muslim population that numbers 1.6 billion, representing about 23 per cent of the world’s population.
Muslim and non-Muslim investors are taking notice of Shari’ah-compliant vehicles, including Sukuk. “Sukuk are seen as an attractive alternative investment class because they have delivered comparable returns to conventional investments, with the added potential benefit arising from Shari’ah-compliant fundamentals that require ethical business practices, underlying productive
www.bankerafrica.com
09/02/2016 09:14
assets, equitable risk sharing, social responsibility and avoidance of speculation. Sukuk can also provide diversification,” Mohieddine Kronfol, CIO Global Sukuk and MENA Fixed Income at Franklin Templeton Investments ME, said. “While they are influenced by movements in other (traditional) markets, they have been generally less correlated; one reason is because Sukuk generally have lesser banking sector exposure. During the global financial crisis in 2008, for example, the lower banking exposure helped limit the downside of the Sukuk portfolio slightly better than conventional investments did. So the difference in sector composition contributes to this diversification argument between a Sukuk portfolio and traditional bond portfolio.” So what are Sukuk? For the uninitiated, Sukuk are instruments used for financing that are similar to conventional bonds, but since the charging of interest is prohibited under Shari’ah, the structure is a bit different. The Sukuk issuer sells a certificate based on the underlying asset to a group of investors, who then rent it back to the issuer for a predetermined fee. Thus, there is a communal aspect to the sharing of risk. The Sukuk issuer makes a contractual promise to buy back the bonds at par value in the future. Sukuk are required to link returns and cash flows of the financing to the assets purchased, or the returns generated from the assets purchased. Though not without risk (investment returns are not guaranteed and Sukuk, like other types of bonds, are subject to credit risk), the principles surrounding Islamic financial transactions make them attractive to many investors, particularly lessened exposure to excessive leverage and risk taking. The 2008-2009 financial crisis stemmed from the misuse of complex derivative instruments, which are forbidden under Shari’ah, so Islamic
financial institutions did not have exposure to such derivatives. Kronfol offers his view on why these investments are growing in popularity. “From our perspective, Sukuk are attractive because they are supported by strong macro and credit fundamentals, improving liquidity and a growing investor base in the Middle East, Africa and Southeast Asia. Perhaps just as importantly, the global Sukuk market has remained relatively insulated from most of the volatility in financial markets. Our outlook for global Sukuk therefore remains constructive.” However, these investments aren’t completely immune to outside factors, and can experience ripple effects when global liquidity tightens. Kronfol explains one of the main challenges: “The global Sukuk market is relatively young and has been growing, so there is a scarcity of supply to cater to the demand. This has led to relatively lower secondary trading compared with conventional bonds. As a result of the challenge on secondary trading, Islamic market liquidity has been relatively lower than its conventional equivalent. If we compare the conventional sovereign and Islamic sovereign bonds for example, conventional sovereign bonds have been more liquid than Islamic counterparts. However, in times of low interest rates where yield is king, there has been bargain hunting in the Islamic sovereign segment. That increases liquidity tremendously as Islamic sovereign bonds generally offer potentially higher yields than conventional equivalents. This has narrowed the liquidity discount seen on Islamic bonds in recent years.”
GLOBAL INTEREST GROWING The London Stock Exchange, Bursa Malaysia and Nasdaq Dubai house the largest number of listed Sukuk today. In addition to the UK, other
non-Muslim nations (including Germany, Japan and Australia) have been enacting measures to promote or list Shari’ah-compliant vehicles. The Islamic Financial Services Board, based in Kuala Lumpur, expects assets in Islamic finance overall to reach $2.8 trillion by 2015. “We continue to see very encouraging signs in large emerging markets such as Egypt, Turkey and South Africa, focused on the development of their respective Sukuk markets. Key financial centers such as London and Hong Kong are also publicising their commitment to the development of Islamic Finance. The global Sukuk market continues to grow at a rate more than five times faster than the world bond market, which has itself experienced rapid growth over the past decade, and I don’t see signs of this trend slowing down,” said Kronfol. In a world where investors continue to be risk averse, many may be taking a closer look at this difficult to pronounce, but intriguing debt instrument as they survey their fixed income investment options.
FAST FACTS Shari’ah principles include reduced exposure to leverage and risk-taking. Malaysia and the Arab countries dominate the Sukuk market, but Western nations are also promoting Islamic finance. Sukuk can offer investors diversification, given their generally low historical correlation to traditional investments. The global Sukuk market remains relatively insulated from most of the volatility in other financial markets.
www.bankerafrica.com
page 38-39 Islamic Banking.indd 39
39 29/05/2016 15:10
TECHNOLOGY
Nicolai Solling, Director of Technology Services at Help AG
Securing enterprises with the zero-trust approach Only addressing internet-based security threats won’t cut it anymore, says Nicolai Solling, Director of Technology Services at Help AG
O
ne of the most common misconceptions that organisations have with IT security today is that they still subscribe to the notion that they mainly have to protect their systems against threats from internet. Because of this, they stock up on security solutions
40
that aim to fix the issue of internetrelated threats. There is no shortage of businesses that install firewalls, Intrusion Prevention Systems (IPS), and anti-spam solutions, but still allow their users to communicate directly with their internal data centre. What they fail to realise is that it only takes one
piece of malware, or a single malicious user to extract a wealth of data from such an exposed server, with damaging consequences to the organisation. Given that on average, it takes up to six months to detect a data breach, and that close to 70 per cent of cases are only brought to light by external
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09/02/2016 09:17
parties, the need for a new approach to security is dire. In fact, most businesses could see far more value from their IT security spending if they instead began to extend security across far more perimeters of their infrastructure than just the internet. This is where the zerotrust comes in!
WHAT IS ZERO-TRUST? Historically, organisations have always considered the internet the biggest source of malicious attacks, but with the explosion of malware and with wider access being granted to employees, threats can now originate from within the known user base as well. This has promoted the need for zero-trust, a term that was originally coined by the IT consultancy firm Forrester. Its simplest sense, it means that we cannot trust anyone anymore. The three most basic principles of the model are: secured access for all resources regardless of location; stringently applied ‘least access’ control; and fine-grain monitoring and logging of all network traffic.
TENANTS OF THE ZERO-TRUST APPROACH The prime requirement is to be able to control all internal and external communication taking place within the organisation. Of course this is difficult, but it is a good ambition to have complete visibility of any communication within an infrastructure. This visibility is important as it delivers the ability to detect and control good and bad behaviour. Equally important is the ability to react promptly to security issues which is why management of security events raised by the infrastructure must be made a priority. Visibility into data access across every perimeter of the organisation inevitably leads to the generation of a wealth of behavioral information. Long-term success with the zero-trust approach will depend on your organisation’s
ability to understand data and traffic patterns and leverage analytics for early detection of malicious behaviour. Another aspect of zero-trust, which is borne out of the hyper-connected nature of the modern enterprise, is that IT can no longer trust any device. This is because users now connect to enterprise networks via a wide range of endpoints, from remote locations and often via insecure networks. As a result, IT simply cannot control the device anymore.
BUT ARE WE READY? In the past, one of the main inhibitors to implementing a zero-trust architecture, which spans the whole organisation and safeguards all perimeters, has been performance. But exponential growth in processing power means that today, we have solutions which can actually handle the traffic load of even the biggest organisations.
Exponential growth in processing power means that today, we have solutions which can actually handle the traffic load of even the biggest organisations. - Nicolai Solling, Director of Technology Services at Help AG Also, organisations will be happy to know that the technologies required for this approach are very much the same—familiar security components such as firewalls with strong capabilities in application-level visibility, webapplication firewalls, IPS systems and network and endpoint forensics tools will continue to be relevant! But as the zero-trust model calls for the segmentation of infrastructure, and the creation of logical security zones, more emphasis must be given
to having central security capabilities of controlling traffic between the zones. From a technical perspective, the zero-trust approach utilises a lot of virtualisation technologies such as virtualised compute, virtualised routing and segmentation of the infrastructure in security zones, in order to create very clear demarcation points between the different security layers in the infrastructure. Here too, most organisations will actually have all of those capabilities in their current infrastructure, although they may not be fully utilising them. One of the areas where enterprises do fall short however is in event monitoring and handling. I am often surprised to see that despite business and applications now running 24/7, organisations still think monitoring and addressing security events is only something that needs to be done during working hours. In most cases, this is due to resource constraints which is why utilising a competent third party provider with technically qualified staff for a real 24/7 operation could be a feasible option. The final, but perhaps most difficult, hurdle is the need to challenge the status quo. This would mean challenging very entrenched ways of implementing security! No matter the difficulty though, it must be done. After all, it is only a matter of time before anyone who believe that everyone should have the same level of access will be proven wrong! Setting IT on the path towards zero-trust is a fantastic opportunity to re-evaluate the IT components that are no longer working from a security perspective. In the era of Advanced Persistent Threats (APTs), access abuse, social engineering, and modern malware, it also presents the opportunity to substantially improve your defensive posture and prevent exfiltration of sensitive data.
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41 09/02/2016 09:17
TECHNOLOGY
Equity Bank bulks up mobile security Equity Bank, one of the fastest-growing banks in the region, chooses Entersekt to protect its digital channels (CREDIT: WK1003MIKE/SHUTTERSTOCK)
E
quity Bank, a subsidiary of Nairobi-headquartered Equity Group Holdings and one of the largest banks in Kenya by client base, has grown astronomically since 2009 with sharp mobile innovations like its own ‘thin SIM’ card. Now, the bank is working with Entersekt to protect its popular mobile and web services through Entersekt’s mobile-based, multi-factor authentication products, Transakt and Interakt. Dr. James Mwangi, Equity Group Holdings Managing Director, described the partnership as a strategic effort to guarantee the integrity of its digital financial services platforms. “At Equity, we are riding the wave of digital convenience and our association with Entersekt will afford us a rare opportunity to deliver banking services on multiple digital platforms,” Mwangi said. “The provision of digital banking solutions is part of Equity’s commitment to deepen financial inclusion in Africa.” Mobile technology is crucial to the provision of accessible banking and payments services in Sub Saharan Africa, overcoming as it does challenges presented by inadequate infrastructure, limited travel options, and the relative expense of and distrust in traditional banking channels.
42 page 42 Tech-Entersekt030.indd 42
“Mobile penetration rates in Sub Saharan Africa average about 70 per cent and are climbing fast,” Gerhard Oosthuizen, Entersekt CIO said. “Those African banks that succeed in creating innovative mobile experiences will grab the lion’s share of an underserved market. “By leveraging the enormous popularity of mobile devices, their support of digital certificates and encryption, as well as their user-friendly interfaces, Entersekt’s solutions enable banks to offer innovative banking capabilities without exposing their customers to fraud,” Oosthuizen continued. “Creating trusted relationships using mobile in a userfriendly way is the key to unlocking the full potential of this powerful channel.” Equity will integrate Entersekt’s Transakt software development kit into its mobile applications to enable outof-band, multi-factor authentication of online banking, mobile banking and call centre security. Using digital certificates and proprietary validation techniques, Transakt converts the mobile phone into a trusted second factor of authentication and introduces an isolated communication channel between the device and financial institution that avoids reliance on the open internet for user and transaction
verification. The process is largely seamless to the banking customer. Many mobile phones in Africa cannot run applications, so Equity has also opted for Entersekt’s push-USSD– based authentication product, Interakt, which provides the same peace of mind as Transakt does to owners of virtually any GSM-capable mobile device. Ronald Webb, Director of Payments at Equity Bank, said. “The deployment of Entersekt extends Equity’s robust mobile strategy and, along with our Equitel MVNO initiative, will provide our customers with Africa’s most secure payments products and services. We are committed to extending financial inclusion and providing affordable, relevant, and secure services.” Schalk Nolte, Entersekt’s CEO, was buoyant. “We are delighted to have been chosen by Equity Bank. They, like other banks in Africa, have astonished me with their ambition to reimagine banking for a new digital era,” he said. “Is there anywhere in the world that’s exploring the opportunities that mobile technology opens up as fervently and creatively as this continent is? As a South Africa-founded mobile technology company, Entersekt is proud to be a part of this fast-developing story.”
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29/05/2016 15:02
GOVERNANCE (CREDIT: MARADON 333/SHUTTERSTOCK)
Anti-terrorism measures threatening remittances? Experts says that much-needed Somali remittances are being cut off by counter-terrorism measures
U
nited Nations experts recently express concern over the “necessary but less considered counterterrorism regulations” and their impact on vital remittances from diaspora countries into Somalia. Philip Alston, the UN Special Rapporteur on extreme poverty, recently warned the measures may “severely affect the human rights” of Somali people, while urging regulationsetting governments to guarantee the flow of such funds. “Remittances are an essential lifeline for Somalis and the closure of MTO [money transfer operators] bank accounts risks further impoverishing an already desperate population,” Alston said, stressing that “a decrease in remittances to Somalia may severely affect the human rights of people living in the country.” Most money is used by families to cover basic household expenses, such as food, clothing, education, and medical care, according to a recent report by the Food and Agriculture Organization (FAO). “The human rights to adequate food, to the highest attainable standard of
physical and mental health and even the right to life could be at stake, as remittances decrease,” Alston warned. Following the terrorist attacks of 11 September 2001, the United States and other countries strengthened their antimoney laundering and counter-terrorism regulations and their enforcement. While such actions are clearly necessary according to the UN experts, their unintended consequence has led various commercial banks refuse to do business with Somali MTOs because they are considered too high-risk. The shutdown of those MTOs, which being the main measure for Somali diaspora to transfer money, has made sending remittances from overseas more difficult. The Somali expatriates that send money home and those who depend on them, “should not have to suffer for the limited number of cases in which remittances have ended up in the wrong hands,” stressed Ben Emmerson, the UN Special Rapporteur on human rights and counter-terrorism. While the head of UN Working Group on business and human rights, Dante Pesce, urged governments to ensure “their laws provide an environment
conducive to business respect for human rights,” the UN expert on the situation of human rights in Somalia, Bahame Nyanduga, also appealed that, “The Government of Somalia, despite the constraints it faces, can also do more to develop its banking system, including by more adequate monitoring and oversight of the Somali banking sector.” Nyanduga said all governments concerned have a duty to ensure that legitimate funds can continue to flow to the people of Somalia, whose livelihoods stand to suffer if these remittances are curtailed. Meanwhile, the UN rights experts have been in contact with the governments of the United States, the United Kingdom, Australia and Somalia to raise their concerns and seek clarification about this situation. Somalia has a large diaspora living abroad after decades of chaos and civil strife in the country. They are estimated to send at least $1.2 billion remittances per year to relatives in Somalia, which represent at least one fifth of the country’s gross domestic product (GDP) and are more than the total amount of foreign aid that Somalia receives.
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43 08/02/2016 18:20
GOVERNANCE ‘Know Your Customer’ compliance technology is becoming increasingly vital (CREDIT: SMUAY/SHUTTERSTOCK)
Know your needs—KYC Registry growing More than 2,000 financial institutions joined SWIFT’s KYC Registry in just the first year, with steady growth in Africa
M
ore than 2,000 financial institutions, including 120 in Africa, have signed up for The Know Your Customer (KYC) Registry, SWIFT’s centralised repository which maintains a standardised set of information about financial institutions required for KYC compliance. The Registry is used by institutions in more than 200 countries and territories, with nearly 1,150 banks in Europe, the Middle East and Africa; 325 in the Americas, and over 550 in the Asia Pacific region.
44
Uptake of the Registry has been, well, swift: in September 2015, SWIFT reported that 1,125 institutions had signed up, meaning the Registry nearly doubled in the last quarter of the year. “The KYC Registry is helping financial institutions increase efficiency and mitigate cost and risk related to Know Your Customer compliance. Its rapid adoption demonstrates the important role of standardised, community-driven solutions in addressing compliance challenges. SWIFT will continue to expand its offering of utility solutions to meet the industry’s evolving KYC
needs,” Bart Claeys, Head of KYC Compliance Services at SWIFT, said. Launched in December 2014 and operated by SWIFT, The KYC Registry provides KYC information for correspondent banks as well as fund distributors and custodians. Banks contribute an agreed ‘baseline’ set of data and documents for validation by SWIFT, which the contributors can then share with their counterparties. Each bank retains ownership of its own information, as well as control over which other institutions can view it. Banks are not charged for data
www.bankerafrica.com
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08/02/2016 18:22
FAST FACTS
2,000
institutions worldwide on the KYC Registry
120
registered in Africa
43.7%
increase in registered users since September 2015
several countries as a way to further speed up compliance in those markets. The pace of adoption in Africa has been influenced by several factors, it said. First, banking groups in Africa are smaller than in most markets, so the total number of entities per group is smaller than in Europe or America. In addition, the initial KYC Registry rollout strategy focused on securing the participation of major correspondent banks in the US and Europe, and then leveraging their support in promoting the Registry to their correspondent networks in Africa. This approach is now paying off. Major correspondent banks are keen to expand their activities in emerging economies but have historically faced challenges in terms of collecting accurate, up-to-date KYC information from institutions in these markets in Africa and elsewhere. Now large banks are promoting the Registry to their networks in Africa and elsewhere as a cost-effective way to simplify KYC information provision. African banks and financial communities, in turn, understand the benefits of the Registry as a means
of demonstrating transparency and compliance, in line with a globally accepted KYC information baseline. “Banks in Africa value SWIFT’s approach in delivering communitydriven compliance solutions,” says Bart Claeys, head of KYC compliance services at SWIFT. “The KYC Registry makes it easier to provide KYC information to their counterparties while helping them standardise their own KYC processes. It enables banks to demonstrate their transparency and compliance, and helps them to safeguard their participation in the global financial system.” Each enrolled institution can also order its SWIFT Traffic Profile as an additional service and share this set of reports with its counterparties at its discretion. The SWIFT Traffic Profile helps banks understand potential risks in their correspondent networks by providing a single, aggregated view of their transaction activity with higher-risk jurisdictions. It helps banks active in such jurisdictions protect their connection to the global financial system by enabling them to demonstrate their transparency and compliance, SWIFT said.
Navigating ‘Know Your Customer’ regulations contribution or for using the Registry to share their KYC information with other users. SWIFT said that in Africa, interest in the KYC Registry has been strong from the beginning, as demonstrated by comments from speakers and attendees at last year’s SWIFT African Regional Conference. Adoption of the Registry by African banks has grown steadily in recent months, it said, noting that recently several large African banks that are key regional players joined the Registry. SWIFT is also discussing community deals with central banks in
Enhanced anti-money laundering (AML) laws around the globe have put pressure on financial institutions to stay up to date on these and sanctions requirements, necessitating increasingly complex technological assistance. In its most recent KYC Reference Guide, PricewaterhouseCoopers (PwC) pointed out that it’s not enough to follow one country’s set of rules on KYC compliance. “Firms operating on a global basis also need to demonstrate a robust compliance framework ensuring that each territory has sufficient oversight and that AML regulatory requirements are being adhered to at both a local and global level,” it said. In October 2015, SWIFT announced a new sanctions management list for financial institutions to access, manage and customise multiple sanctions list feeds. It’s one of several features banks are using in financial crime compliance, along with the KYC offering.
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page 44-45 Governance 030.indd 45
45 07/02/2016 18:23
THE VIEW
PICTURE OF THE MONTH International Monetary Fund Managing Director Christine Lagarde dances with orphan children during a ceremony in Cameroon. She visited the country on 9 January in a regional tour to encourage CEMAC integration and increased solidarity in the face of regional security threats. (CREDIT: IMF/FLICKR).
POLL
This month we asked our website readers at bankerafrica.com...
What region of Africa shows the most promise for 2016? 18% 35% 24% 20% 3%
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